Elements of Revenue Management
Pull Back the Curtain
Revenue management doesn’t perform well in isolation. Copious amounts of data, complex systems, and operators chosen more for technical skills than business perspective can lead to a distorted sense of reality.
RM should contribute to and serve a broader commercial strategy that considers the pros and cons of potential RM tactics. Some operators are better off sacrificing some marginal revenue opportunities for simplicity and goodwill, while others will go full-throttle on dynamic pricing and even requisition a large chunk of marketing resources to support a never-ending parade of promotions. The relationship between RM and sales should also be carefully defined — especially when it comes to price concessions and distribution costs.
In a word, collaboration.
Revenue Planning
ASSET DEPLOYMENT
Assets can be ships, hotel blocks, motor-coaches, whitewater rafts, field guides & staff — anything that defines the product and determines and limits the inventory available for sale. This should be a collaborative process.
PLANNING & PACING
Revenue planning presumes optimal asset deployment and further optimizes for source market and other segmentations, distribution, pricing/promotion offer, booking window, and also includes a timeline-based booking curves, hedges and contingencies. These are foundational to the executional playbook.
INTEGRITY & REPORTING
Accurate revenue reporting first requires clear definitions and standards — e.g. inclusive or exclusive of dilutions, costs, commissions, ancillaries, taxes, and innumerable other variables. Good reporting should be concise and include not only what, but insight into the why and how — booking churn, source mix, and outlier flags, for example.
REVENUE FORECASTING
On-the-fly revenue forecasting is both science and art, built on solid reporting and accurate models for estimating attrition, new bookings under known and changing conditions, price dilutions, and the impact of operational disruptions.
Yield Optimization
INVENTORY MANAGEMENT
Miscalculations of booking attrition, conversion rates, group block materialization and other variables can can be costly. Like so much else, the underlying data and analytical systems — no matter how sophisticated — should be checked and enhanced by human perspective and experience.
PRICING & MERCHANDISING
Pricing strategy is not a topic for on-the-fly debate. Ponder and pontificate, but be aligned when the bell rings. Static pricing — one product, one price, all cycle — seems simple and fair but can leave much on the table. On the other hand, a constant state of promotions and merchandising gimmicks can leave consumers confused and mistrusting. Consider the communication resources required to support the strategy.
DILUTION CONTROL
Elements of Revenue Dilution
DYNAMIC MANAGEMENT
The day-to-day management of pricing (either directly or through inventory controls), in alignment with an overall strategy.
POLICIES & CONTROLS
EXCEPTION PROCESSING
ANCILLARY REVENUE
In some businesses, ticket and ancillary revenues are managed separately. RM is typically involved when the offers are inventory-related (such as cabin/room upgrades), or a product add-on (such as airfare, pre- or post- accommodations and insurance).
RM Support
SYSTEM LOAD
Building, validating and maintaining product inventory in the core operating/booking system.
DISTRIBUTION CONNECTIVITY
Ensuring that inventory, pricing and supporting information are properly displayed in global distribution systems, proprietary systems, API connections, the company website, etc.
RM SYSTEMS
RM systems are among those expensive capital investments justified by hypothetical gains that are virtually impossible to isolate later on. Beware of unnecessary bells and whistles. The size and sophistication of support resources — including operators and IT — usually tracks with a system’s complexity, a strong argument for keeping it simple.