311_session_26_revenue_management_tools

311_session_26_revenue_management_tools - Revenue...

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1 Revenue Management Tools BUAD311 Session 26
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2 RM: A Basic Business Need What are the basic ways to improve profits? Profits Profits $ Reducing Cost Increasing Revenue Revenue Management
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3 Elements of Revenue Management Pricing and market segmentation Capacity control Overbooking Forecasting Capacity investment decisions Deterministic optimization (Linear Programming)
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4 Pricing and Market Segmentation Should there be only one price for all? Most airlines do not have one price for all. Is there a way to divide the market into two segments – those who are willing to pay more and less?
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5 Passengers are heterogeneous in terms of their needs and willingness to pay (business vs leisure). A single product and price does not maximize revenue Market Segmentation price demand revenue = price • min {demand, capacity} capacity p1 p3 p2 additional revenue by segmentation
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6 Pricing and Market Segmentation It is the airline’s interest to: Extract consumer surplus Sell all seats How can this be achieved? Sell to each group at their reservation price (segmentation of the market) In the previous example, price tickets oriented for business customers higher and those oriented for leisure customers lower.
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7 Revenue Management Dilemma for Airlines High-fare business passengers usually book later than low-fare leisure passengers Should I give a seat to the $300 passenger which wants to book now or should I wait for a potential $400 passenger?
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8 The Basic Question is Capacity Control Leisure Travelers •Price Sensitive •Book Early •Schedule Insensitive f d = Discount Fare Business Travelers •Price Insensitive •Book Later •Schedule Sensitive f f = Full fare
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This note was uploaded on 02/15/2011 for the course BUAD 311 at USC.

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311_session_26_revenue_management_tools - Revenue...

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