4 - Revenue Management

Question 1

Application requirements for revenue management

Answer 1

Inflexible capacity
* High fixed costs
* Perishable capacity
* Heterogeneity of customers
* Uncertainty of demand
* Forecasting ability
* Capacity can be booked in advance
* Management culture

Question 2

three main instruments of revenue management

Answer 2

Overbooking
- Compromise
wasted capacity
and capacity
shortages
- Goal: complete
utilization of
capacity despite
uncertain demand

Differential Pricing
- Adjusting prices to
meet the customer’s
willingness to pay
- Goal: exploit
market potentials by
forming segments
with different
willingness to pay

Capacity allocation
- Allocating capacities to
different customer
segments
- Goal: maximizing profit
by accepting or rejecting
requests in anticipation of
higher-price buyers
arriving a