Applying Revenue Management

To apply Revenue Management to your business, the following steps or processes, illustrated in the model above, give a general guideline:

1.  Market & Price Products - Prices should reflect market demand, segmentation strategies you have devised and customer information & requirements.  Manage costs but base pricing on market demand and timing.  (I.e. supply & demand)

2.  Segment Micro-Markets - Customer perceptions of the value of your products vary with circumstances and timing.  RM capitalizes on these differences and sells to micro markets, not mass markets.  Statistics on market performance, surveys & market analysis contribute the criteria for segmentation. 

3.  Forecast Demand - demand fluctuations can often be predicted by industry (e.g. accountants are busy in the months leading up to tax time, retailers at Christmas) and, along with advance bookings or reservations (for seats in the theatre or seats on the plane, or for seats in the beauty salon) provide the basis for decisions.  Understanding the product value cycle for your business allows you to save your most valuable products for your highest-paying customers. 

4.  Manage Customer Relationship - Customer contacts become a relationship when you collect the information to respond to customers on an individual basis - the micro-market of one.  Scoring profiles are used to identify the most valuable customers in terms of revenue and insure products are available at the right time. 

5.  Recognize Opportunity - Opportunity recognition is an iterative process that occurs continually based on customer requirements information (often collected from current customers in the course of doing business), knowledge of price/rate structure and recommended discounts or specials from the field where customer contact occurs.

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Copyright 1998, 1999, 2000. Laura Brown, LBPI, Inc. (DBA: System Innovations)

Last Updated: August 21, 2000