Misnaming the Yield is adding sub-optimization

And what if the most widespread definition of Revenue Management, although simplistic, was the cause of bad practices, thus constituting one of the major obstacles to the implementation of effective RM strategies?

Indeed, Revenue Management is not limited to its most common definition of “selling to the right customer, at the right place, and at the right price” and we’ll tell you why!

The obstacles to effective adoption of Revenue Management

We observe on a daily basis that eligible organizations for Revenue Management (hotels, campsites, parks, stadiums, cruise companies, …) struggling to embark on the virtuous path of Revenue Management can be divided into two categories:

The first category includes organizations that hesitate to adopt Revenue Management due to concerns about upsetting their loyal customers. They are not reassured by the conventional definition of Yield Management, stating : “Our clients are primarily individuals, and we know them well. We don’t want to discriminate against them, and they might not comprehend our new strategy.”

This perspective arises directly from legitimate concerns prompted by the definition of Yield Management, which is accurate but overly narrow.

We reassure them: under no circumstances, is the customer targeted. What Yield Management targets is the purchasing behavior. A “good customer” is not only the repeat customer but, more importantly, the one who provides visibility, a cushion, or volume during the off-season.

Therefore, it is the behavior that needs protection. If the behavior changes, the customer may no longer be a ‘good customer.

The second category of organizations are those that have taken the leap into Revenue Management but haven’t approached the subject in the right way, and consequently, won’t achieve the expected results.

Typically, due to a lack of methodology, they blend CRM, RM, distribution, and nowadays, AI and Big Data, into strategies and tactics that are neither effective in RM, nor in CRM, nor in distribution?

Redefining Revenue Management for greater efficiency

No, Revenue Management does not involve choosing a customer based on being a customer.

The action of Revenue Management is not a choice of customer; it is a choice of restrictions, involving steering actions (pricing, duration, origin, sales conditions, etc.), stemming from strategic and tactical decisions that constrain or free up the offering.

It is these actions that, ultimately, guide the same customer toward a more or less constrained and directed purchase.

And if a particular customer does not come, it is because their purchasing behavior is not profitable from a micro or macro perspective for the hotel, camping site, or cruise company.

Profitability, which falls under the responsibility of the Revenue Manager, must be estimated with accurate segmentation, using suitable forecasting methods or benchmarks.

At N&C and with revbell, we prefer a definition that is less ambiguous, less theoretical, but more operational:

To practice Revenue Management is to implement a set of practices aimed at Forecasting (demand) and Optimizing (through actionable levers).

Keywords: Yield Management, Revenue Management, RM definition,…

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Misnaming the Yield is adding sub-optimization

And what if the most simplistic yet widespread definition of Revenue Management were the source of bad practices and constituted one of the major obstacles to the implementation of effective RM strategies?