Revenue Management - Coursework Example

Revenue Management   Student Name Course Tutor University Department Date   INRODUCTION Revenue management is an art of forecasting consumer activities and improving the product obtain ability and value to ensure there is a maximum revenue growth. In revenue management, the following was covered: Price revenue optimization and its linkage to revenue management, traditional approaches to pricing, trends that drove price revenue optimization, the nature and process of PRO, basic price optimization, price differentiation, pricing with constrained supply and revenue management systems (Cross, 2011). All these were covered through various interactive activities like lectures, presentations, group discussions and teamwork among others. In the following paper, I seek to discuss an overview of the revenue management body of knowledge, the contribution of speakers to my understanding of revenue management, how industry resources contributed to my understanding of revenue management and provide a review of how the “victoria challenge” revenue management simulation in revsim contributed to my understanding of revenue management. AN OVERVIEW OF REVENUE MANAGEMENT BODY OF KNOWLEDGE Back in the 1980’s, the American Airways got intense competition from the People Express and they had to make drastic changes to keep their customers. A strategy was formulated that involved developing a Revenue management program which was founded on separating prices between leisure and business passengers. (Goensch & Steinhardt, 2013). Price revenue optimization; whose goal in revenue management is to provide the correct price for every product, to every customer and through the right channel, was driven by the following trends that led to its growth in usage of its technique through the years: the success of revenue management, use of Enterprise Resource Planning system for the latest wealth of information, upsurge of e-commerce and the success of a supply chain management system. Before the introduction of price revenue optimization in the market; Cost-plus, market based and value based were the conventional ways of pricing. The disadvantages of these approaches were that they ended up focusing on one aspect of determining the price of the product and did not intergret other aspects that were equally important. For example, the cost-plus approach focuses on the cost and ignores the competition and it makes no reference to what the customer is willing to pay. Another drawback to this method of pricing is the fact that it does not support price differentiation which is the basic principle of price revenue optimization. Price differentiation is the art of a seller asking for different prices from different customers. There are several tactics of several price differentiations which include: group pricing, channel pricing, regional pricing, couponing and self-selection, product versioning, time-based differentiation and volume discounts. The name of the tactic defines the tactic of differentiation. For example, group pricing offers different prices to different groups of people, regional pricing offers different prices in different regions and volume discounts offer discounts on buy more, save more basis. However, a perfect price differentiation does not exist because of certain limitations as cannibalization, arbitrage and imperfect segmentation. Price revenue optimization has 3 major dimensions which are the product, customer type and the channel; price revenue optimization aims to provide the correct price for every product, to every customer and through the right channel. In order to reach this ... component; the operational price revenue optimization and the support revenue optimization are involved. The former should be done every time a company wants or needs to change its price in order to set and update prices in the market place. The operational price revenue optimization process involves analyzing the alternatives, choosing the best alternative i.e. deciding on which pricing to place on the commodity, communicating the price to the market and finally comparing the result with the company’s expectation and evaluating the overall performance against the company’s goal. The support revenue optimization occurs over long periods of time. The process involved includes setting the goals, segmentation of the market, i.e. annually, determining the price response by calculating a price response functions and finally by updating the response and providing feedback from the monitoring process. Price revenue optimization treats pricing decisions as constrained optimization (the maximum amount to be paid for a particular product) problems. A price response function can be used to determine price optimization. The price response function shows how the demand of the product of one seller changes as the price of the product of that particular seller changes. A price response function is dynamic, nonnegative, continuous, differentiable and downward sloping. When there is a supply constraint, variable pricing which is a type of price differentiation or opportunity cost can be used to satisfy the demand at the optimal unconstrained price. A Revenue management system calculates and updates the booking limits within a reservation system. The first booking limit is based on the resource capacity, demand forecasts for every booking and economic tradeoffs between accepting more discount bookings now versus having more capacity available to serve future bookings. Forecasting can be used to calculate the booking limit. Forecasting is based on the demand trends, history of booking performance and current and history booking. Revenue management is also based on maximizing the expected net contribution which relies on the incremental cost. CONTRIBUTION OF SPEAKERS TO MY UNDERSTANDING OF REVENUE MANAGEMENT The revenue management cycle has four important aspects: forecasting demand, optimizing demand, controlling demand and monitoring the demand. The lecture on revenue focused on demand, sources of finance, financial models, financial feasibility, revenue management systems and types of events. Through this lecture, I was able to comprehend the five types of events that are associated with revenue management; which include: festivals and musical events, sporting events, hallmark and mega events, theater events and conferences. The important thing to note in revenue management is that the revenue management is only applicable in 4 conditions, which include: the availability of perishable capacity, booking of capacity prior to departure, the presence of a set fare class that have a fixed price and a high probability that the seller can change the availability of fare class over time. When all the 4 mentioned conditions have been met, it is imperative for the seller to establish the demand of his products. This will help the seller in making a decision on the level of venture that he should be able to allocate in his company, avoid overcrowding and bottlenecks, determine the product price, determine the level of capacity that he will require, do a forecast, gather relevant information from the current market (on seasonality, life cycle analysis) depending on the product and finally set a demand oriented pricing for his product. The next step for the seller will be to source for funds. The six major sources of funding for event revenue maximization can be from government grants, sponsorships, merchandising, sales, space sales, participant fees and spectator fees. The seller can then establish a revenue management system for his events which should constitute the market segmentation, past demand and reservation patterns, pricing knowledge, reservation policy and information system and knowledge management (Castejon et al, 2013). Event financial feasibility that targets a break-even point show the seller the best and worst case scenarios that can happen and he can be able to adjust his finances as required. For this, models of financial performance that are important in assisting to look at historical data, comprehending the customer purchasing pattern monitoring of sales that were made earlier and any distinct bids among others, that assist in revenue management should be made (Chaneton, & Vulcano, 2011). This will lead to dynamic pricing. A REVIEW ON HOW INDUSTRY RESOURCES CONTRIBUTED TO MY UNDERSTANDING OF RM I have been able to understand and appreciate the fact that, without a revenue management culture, you would not have success in the hotel industry in present day no matter how good a system you have. Revenue management system is a game changer for the hotel industry. Hotels like the Cartson Rezider Hotel Groups and the Fairmont hotels and resort which have developed price and revenue optimization systems have been able to yield tremendous results in their companies. The projects that they have implemented as SNAP have been able to get them the best prices for their products, to their consumers, via the all channels and all the time (Taylor & Kimes, 2011). I understand that use of revenue management systems can improve revenue performance for business with many gains of up to 20%-40% or more for the company (Taylor & Kimes, 2011). Revenue management systems that have been developed in the industry have solved several age old problems as the price of a hotel room, and this has helped to save on the resources. The RM systems have allowed companies to save on time; the automated forecast system that is used by the Fairmont hotels and resorts has allowed the directors of revenue management more time, they spend less time on manual things like using spreadsheets for looking at the data (Petrick et al, 2012). These companies are able to look at the system, analyze and put together strategies right away hence save time. RM systems in the industry are flexible and can help a seller efficiently do his job with the seller spending more time analyzing and implementing strategies versus crunching numbers as the system does the crunching of the numbers for the seller. A REVIEW OF HOW THE “VICTORIA CHALLENGE” REVENUE MANAGEMENT SIMULATION IN REVSIM CONTRIBUTED TO MY UNDERSTANDING OF RM During the Victoria Challenge revenue management simulation, I was able to learn how a revenue management system works; how the system receives feedback from bookings and cancellation from the reservation system and calculates the budget that are transmitted back to the reservation system. The system is essential for the business because it facilitate forecasting of the future of the business. Managers can use the system when making critical decision for the company. I was able to learn how to look at the system and to analyze and put together budgetary allocations straight away and still be able to save on time and cost. I was able to learn how efficient a revenue system can be when doing room forecast, channel management and refurbishment and facilities (Fiala, 2011) The revenue management simulation in RevSim taught me that, with revenue management systems, one can formulate the correct value for most of the products to all consumers via all channels and all the time. There was consumer satisfaction and consumers favored the hotel’s strong brand marketing system. AN EVALUATION OF MY OWN LEARNING AND TEAM PERFORMANCE I work in Hotel 7, and responsible for coordinating all the parts of the work and making sure that the work is completed on time as a general manager. I was also responsible for doing the room forecasting work, channel management, refurbishment and facilities. My other teammates were equally responsible for the reports, financial, information and trend sections by which they did a good job to ensure the success of the team. From the month of March, the team made a decision as a team for each member of the team to take a turn in the role of being a general manager. However, in the month of March, my responsibility shifted from being a general manager to being in charge of marketing. As a marketer, I take charge of analysing the data given by the system and using this to make decisions for the company. I was also responsible for updating the refurbishment, data, facilities, services, marketing and advertising. All this was a part of making a decision for the team. My other responsibilities included helping the team by monitoring the completion of tasks on time, coming up with the idea of creating an online chat group that helped the team keep in touch, making sure that the team was well informed in terms of having updated tasks, feedbacks and what had been suggested by the professor and making my team a success by completing the tasks that had been assigned to me on time. All the team members occasionally met and discussed issues that affect the business via Facebook or what’s up. The meeting time was always agreed upon by all the members of the team and decisions were reached conclusively as a team. Conclusion The aim of this paper was to describe my understanding of revenue management as a course. This has been accomplished by first discussing my understanding of what revenue management is, discussing the contribution of speakers to my understanding of revenue management, discussing how industry resources have contributed to my understanding of revenue management and providing an overview of how the “victoria challenge” revenue management simulation in revsim contributed to my understanding of revenue management. The most interesting part of this paper was how industry resources have contributed to my understanding of revenue management. From this, I was able to learn one very important aspect of revenue management, and that is that every seller needs the revenue management culture to survive the present day highly competitive industry; and no matter how good a system one has; a seller in the hotel, car sale and the airline industry will not be able to survive the competitive world unless they embrace the revenue management system. References Castejon, F., Talluri, K., Magaz, J., & Codina, B 2013, Proving the performance of a new revenue management system. Chaneton, J. M., & Vulcano, G 2011, Computing bid prices for revenue management under customer choice behavior. Manufacturing & Service Operations Management, 13(4), 452-470. Cross, R. G 2011, Revenue management. Random House LLC. Fiala, P. 2011, Strategic revenue management. Strategic Management, 16(2), 37-45. Goensch, J., & Steinhardt, C 2013, Modeling Upgrades in Airline Revenue Management, Available at SSRN. Morgan, N., Pritchard, A., & Pride, R 2012, Destination Brands. Routledge. Petrick, A., Steinhardt, C., Gönsch, J., & Klein, R 2012, Using flexible products to cope with demand uncertainty in revenue management. OR spectrum, 34(1), 215-242. Sevinç Gökşen, 2011, Implementing Revenue Management. Taylor, W., & Kimes, S. E, 2011, The effect of brand class on perceived fairness of revenue management. Journal of Revenue & Pricing Management, 10(3), 271-284. Read More