Revenue Management: Meaning and Importance

Revenue Management: Meaning and Importance

What is Revenue Management?

Revenue management is the process of adjusting the pricing of individual products and services using analytics with the intention of increasing the total sales and profits generated by the product or service. By applying the necessary analytics that can predict consumer behavior at the micro-market levels, businesses are expecting to maximize their profits.

When properly envisioned, the revenue management process helps the business to establish an optimum price for each customer. The key intention of revenue management is selling the right product to the right customer at the right time for the right price with the right pack. The fundamental idea of this concept is to understand the customer perception about the product and accurately value, set price, place, and make the product available for the customers to ensure maximum sales in each customer segment.

Frequently used tactics for revenue management can be identified as below.

– Institute dynamic pricing

A business can make adjustments to their product prices continually, based on the ongoing changes to the demand and the supply of the product. Prices set by airlines are an example of dynamic pricing. Passengers on a flight are usually charged with widely differing amounts for essentially the same seats based on the demand and supply.

– Add many distribution channels

A business organization can sell its products or services to customers via multiple distribution channels. The expectation of this is to reach out to different customer segments, possibly selling at different price points in each distribution channel. The customers are expected to find the most convenient and profitable selling channel for them and make the purchase. As an example, a certain hotel package can be sold at a reduced price through a discounted hotel service than selling directly through the hotel.

– Promotions

Business organizations usually engage in various promotions. The most commonly used promotion types are discounted prices, coupons, and rebates for a selected sales period. These can create a major impact on the number of sales as these work as a major customer attraction for the product. Promotion campaigns conducted in retail clothing such as seasonal offers can be identified as an example of this.

– Offer to bundle

This is slightly similar to promotions. Offer bundling is offering a set of products to the customers for a discounted price. The customers cannot purchase a single product for the offer price. However, if purchased the entire bundle of products, the customer can enjoy the benefits mentioned in the offer. Travel plans offered by travel agencies can be identified as an example for offer bundling.

Importance of Revenue Management

The main intention of revenue management is to create a win-win situation between the customers and the business. It is about making the right product available to the right customers at the right time at the right price. As a return, business organizations are expected to maximize their sales and revenue through price optimization.

It is identified that the process of revenue management is not only to maximize the existing revenue streams but also helpful in identifying new revenue sources for the business. Revenue management is helpful in utilizing revenue optimization methodologies that help the companies in specific industries to exploit the characteristics of the industry with the aim of gaining additional revenue and higher profits.

Revenue management leads business innovation. It helps for both the development and creation of new products and services as well as their pricing methods. These innovation concepts can lead to increases in revenue sources that the business may not have explored previously.

It gives a clear understanding that revenue management is highly important for businesses that intend to maximize their profits and sales while providing their best to the customers. It can lead to competitive advantages in the market.

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