【Cloud Goods Sharing】Revenue Management: The Intelligent Engine of Business Profitability

In today's competitive business environment, organisations face dramatic fluctuations in demand. Whether viewed on a weekly, monthly or yearly basis, such fluctuations can pose a significant challenge, especially for industries with low supply elasticity and high fixed costs, such as airlines, hotels and golf courses. Revenue management, a combination of science and art, can help businesses anticipate and respond to changes in demand in order to maximise revenue. In this article, we will provide you with a detailed overview of the core concepts, strategies and practical approaches to revenue management.

What is Revenue Management?

Revenue management is the practice of applying data analytics to anticipate demand and adjust prices (and in some cases, terms of sale) to maximise revenue. It has been described as the art and science of ‘selling the right product to the right customer at the right time, through the right channel, and at the right price’. Revenue management is not just about determining the price of a product, it is more concerned with the needs of the customer than with the cost of the product alone. Industries with high fixed costs and low marginal costs, such as travel and hospitality, are the main users of revenue management.

Revenue Management and Yield Management

Revenue management is a branch of income management that focuses on clearing inventory. Revenue management requires that the following two conditions be met: firstly, a fixed quantity of saleable product exists; secondly, the product is time-sensitive and unsold inventory will become worthless on expiry. Additionally, differences in willingness to pay for the product from one customer to another must also be relevant to the factors that the business can utilise to segment the product. For example, weekday golf course customers may be more willing to pay a premium price than weekend customers because their expenses usually come from business reimbursements.

The importance of revenue management

Revenue management can help a business make the most of the products it sells by offering specific deals to the customers who value them the most and capturing opportunities in ways that fixed pricing can't. For some businesses, revenue management is a watershed between success and failure. For example, a hotel in a popular weekend destination that charges $100 per night on weekdays and $300 per night on weekends can increase its weekly revenue from $700 to $1,100 per week through revenue management, making it profitable.

Five steps to revenue management

1. Information Gathering: Understand your product, customers, calendar and market. Gather information on how products are sold, customer types, seasonal demand, and competitor pricing.

2. Data Segmentation: Segment data into meaningful segments based on customer needs, time of purchase, promotions and other factors.

3. Demand forecasting: Using the collected data and historical information, forecast demand over time and by customer type. Forecasting can be simple or complex, but the key is to ensure data quality.

4. Decision making and optimisation: Based on the forecast results, develop a revenue maximisation strategy. However, it is important to note that actual data can be inaccurate, so risks and long-term impacts need to be considered when implementing optimisation strategies.

5. Dynamic Evaluation: Continuously evaluate the effectiveness of revenue management strategies to understand what works and what doesn't, and analyse the reasons. Adjust strategies according to market changes and customer needs.

Revenue Management Strategies

In addition to price adjustment, revenue management includes the following strategies:

● Inventory control: do not release all inventory at once, release it gradually according to market demand.

●Channel control: make reasonable use of third-party distribution channels and avoid over-reliance.

● Dwell time control: Optimise revenue by setting minimum dwell times.

● Combined trip control: Combine the sale of multiple trip segments in transport services to optimise overall revenue.

Pricing strategies for revenue management

● Open Pricing: Allows revenue managers to adjust prices in real time based on market demand.

● Forecast Pricing: Set prices in advance, taking into account future demand, competitor behaviour and events that may affect demand.

● Customer segmentation pricing: Charge different prices depending on the type of customer, but ensure legal and ethical compliance.

● Length of stay pricing: encouraging customers to stay longer, by setting different prices.

● Competition-driven pricing: adjusting one's prices in line with those of competitors, but care needs to be taken not to become overly reliant.

Choosing a revenue management system

When choosing a revenue management system, consider whether the system is suitable for the characteristics of your industry. A good revenue management system should have the following features:

● KPI tracking: real-time updates and analysis of key metrics for revenue management.

● Competitor Pricing Monitoring: Automatically collect competitor pricing information.

● Restriction Management: Handle custom rules and contract restrictions.

● Revenue Forecasting: Estimate future revenue based on current data and forecasting models.

●Pricing Recommendations: Provide pricing recommendations based on complex models to help teams make quick decisions.

In an ever-changing market demand, revenue management software is a key tool to help organisations meet customer needs, deliver the right products and services, and achieve profitability. By mastering the core principles and strategies of revenue management, organisations can differentiate themselves in a competitive marketplace, achieve sustainable revenue growth, and understand the unique solutions that NetSuite offers organisations to accelerate growth with a unified financial, operational, and business suite.