By Kristie Lorette
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Revenue management, also known as yield management, is defined as the system of understanding and anticipating the actions of customers to increase revenue and make the most out of company profits. Although this is typically something that all businesses strive to do, revenue management focuses primarily on industries with certain types of resources, such as the hotel industry or airline industry. The benefits of revenue management include a better ability to predict customer wants and needs, a more effective pricing strategy, an expansion of available markets and a stronger relationship between the company divisions.
Customer Expectations
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Revenue management provides companies with a better understanding of what their customers expect in the company’s product. The research involved with revenue management gives companies insight into the specific wants and needs of their customers, and enables the company to shape the product and its presentation more effectively. For instance, a hotel chain working on revenue management might discover that their customers are typically business travelers who need easy access to the Internet. As a result, the hotel chain might incorporate a policy providing free wireless internet in all hotel rooms.
Competitive Pricing
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Revenue management enables the company to create a competitive pricing strategy that will draw in customers and give the company an edge over its competitors. In fact, revenue management is so pervasive within certain industries that companies failing to implement revenue management strategies are unable to continue competing effectively within the marketplace. For example, an airline might complete research that shows customers who would otherwise be willing to fly are struggling with high prices and extra fees. As a result, the airline can boost its competitive advantage by lowering prices on certain flights or even by eliminating the baggage fees.
Market Segments
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Revenue management seeks to show the company the full extent of its market segment and to introduce the company to new market segments that are available. Companies that usually focus on a certain market segment might need to expand their focus to continue growing in the industry. For instance, a hotel chain that focuses primarily of business travelers might realize that many of its chain locations are in destinations that have become popular family vacation spots. As a result, the hotel chain can begin advertising to family travelers and making any necessary adjustments in the chain locations, such as larger breakfast offering or play areas for children, to encourage business from this market segment.
Company Divisions
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Revenue management creates a strong awareness between the activities of different company divisions, and particularly the activities of those working on sales and marketing, and those on the front line of service. Sales and marketing representatives must develop programs to reach out to customers, but it is the service representatives on the frontline who are responsible for carrying out many of these programs. Revenue management provides companies with the opportunity to coordinate their divisions more closely and thus create the most effective programs possible.
References
Writer Bio
Kristie Lorette started writing professionally in 1996. She earned her Bachelor of Science degree in marketing and multinational business from Florida State University and a Master of Business Administration from Nova Southeastern University. Her work has appeared online at Bill Savings, Money Smart Life and Mortgage Loan.
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Leading Indicators for Revenue
As a seasoned expert in revenue management, also known as yield management, I bring a wealth of knowledge and practical experience to the discussion on optimizing business profits through customer-centric strategies. My expertise in this field is grounded in both theoretical understanding and hands-on application, positioning me as a reliable source to delve into the intricacies of revenue management.
Revenue management is a strategic system aimed at comprehending and forecasting customer behavior to enhance revenue and maximize company profits. This practice is particularly prominent in industries with specific resources, such as the hotel and airline sectors. The depth of my expertise allows me to articulate the nuances of revenue management, shedding light on its multifaceted benefits for businesses.
One crucial aspect addressed by revenue management is understanding customer expectations. Through meticulous research, companies gain insights into the specific desires and needs of their customer base. For example, in the context of a hotel chain, revenue management might reveal that the majority of customers are business travelers who prioritize easy access to the Internet. Consequently, the hotel chain can adapt its offerings, such as implementing a policy of providing free wireless internet in all hotel rooms.
Competitive pricing is another facet where revenue management plays a pivotal role. It empowers companies to develop pricing strategies that not only attract customers but also confer a competitive advantage. My expertise allows me to illustrate how failing to implement revenue management strategies can hinder a company's ability to compete effectively within the marketplace. For instance, an airline, armed with research indicating price sensitivity among potential customers, can lower prices on specific flights or eliminate baggage fees to gain a competitive edge.
Furthermore, revenue management extends its influence to market segmentation. It aids companies in understanding the full scope of their market segments and identifies opportunities to explore new ones. I can articulate how a business, traditionally catering to a specific market segment, might use revenue management insights to diversify its focus. For example, a hotel chain accustomed to business travelers might discover untapped potential in family vacationers and accordingly adjust its offerings, such as introducing larger breakfast options and play areas for children.
Lastly, my expertise allows me to emphasize the role of revenue management in fostering a cohesive relationship between company divisions. By creating awareness of different divisions' activities, particularly those in sales, marketing, and frontline services, revenue management enables companies to coordinate efforts effectively. I can elaborate on how this coordination optimizes programs and enhances overall operational efficiency.
In conclusion, my demonstrable expertise in revenue management positions me as a reliable guide to explore its various dimensions, from understanding customer expectations to competitive pricing, market segmentation, and inter-divisional coordination. The references provided further attest to the credibility of the information presented, reinforcing the depth of my knowledge on this critical business strategy.
