Foundations of Revenue Management

22nd May 2022

Book Discription

Why AWS built a no-code tool | TechCrunch  Posted by Amazon Web Services (AWS)

After a two-year hiatus in response to COVID-19, travelers are eager to explore again, but their shopping behaviors no longer mirror their previous patterns.
Pricing analysts and revenue management specialists must come to grips with this new reality to determine:
Who is my target audience now that travelers have different Customer Lifetime Values (CLV)?
How do I get more creative to obtain more market signals and better model my demand?
How do I know what the competition is doing?
What is the best price to charge for flights, seats, cars, or hotel rooms to maximize my profits?
How do I know if my new pricing policy is displacing or stimulating demand?

When analyzing these questions there are two main constraints:
1. We have a finite number of products to sell, that is you have a given inventory of them, and
2. The product is perishable, that is after a certain date/time, the product is no longer sellable.

As such, forecasting demand for the product is key as you want to maximize profits, and ideally sell all your inventory at the highest price, before the product expires.
Given the product is perishable and finite, the only way to directly impact demand is by
changing the price. For price elastic products, like the vast majority in Travel and Hospitality (T&H), lowering the price will increase demand, while raising the price will decrease demand.
There are also
price inelastic products in Travel and Hospitality, in which raising their price will not decrease demand, and in certain cases it will even increase demand (e.g., first class seats on a plane, exclusive events, or luxury accommodations).

The ability to dynamically change the price of the product to affect demand in real time is the basis of revenue management (RM); that is, applying analytics that predicts consumer behavior at micro-market levels and optimizing product availability and price to maximize
revenue growth.

Below, you will look at the foundations of revenue management. This is needed to better understand how to enhance your RM strategy with Amazon Web Services (AWS) and provide guidance of what to look for when buying IT resources.