Revenue Management Explained
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What is Revenue Management?
What is Revenue Management?
The history of revenue management originated in the airline industry in the 1980s when airlines were losing excessive amounts of money due to unsold seats on flights. To optimize financial results, airlines began introducing the practice of dynamic pricing to solve supply-allocation problems. Robert L. Crandall, a former American Airlines President, was a chief pioneer of the concept and had huge success with applying its price discrimination techniques and anticipating consumer demand (Texas Monthly 1993).
Broadly speaking, Revenue management involves data analytics, which helps predict customer behavior, allowing finance administrators to optimize product availability and price to generate the maximum revenue possible. Within the higher education sector, the chief purpose of revenue management is to help institutions identify cost-efficient opportunities, enhance revenues, and maximize mission attainment. It is about matching supply and demand with successful revenue management models to identify their target consumers and understanding the perceptions they value. This means addressing many types of questions related to courses and programs, such as which programs should get heavy investment and whether any should be sunset. Also, responding to considerations about institutional cost and revenue, like knowing when to implement differential tuition and how that action can change different program offers.
Ultimately, revenue management is a sophisticated computerized analytical strategy that processes information to quantify results that show how to lower costs and improve sales to increase profits.
Broadly speaking, Revenue management involves data analytics, which helps predict customer behavior, allowing finance administrators to optimize product availability and price to generate the maximum revenue possible. Within the higher education sector, the chief purpose of revenue management is to help institutions identify cost-efficient opportunities, enhance revenues, and maximize mission attainment. It is about matching supply and demand with successful revenue management models to identify their target consumers and understanding the perceptions they value. This means addressing many types of questions related to courses and programs, such as which programs should get heavy investment and whether any should be sunset. Also, responding to considerations about institutional cost and revenue, like knowing when to implement differential tuition and how that action can change different program offers.
Ultimately, revenue management is a sophisticated computerized analytical strategy that processes information to quantify results that show how to lower costs and improve sales to increase profits.
Goal of Revenue Management: to use accumulated data to offer the right product or service to the right customer at the height of consumer demand through the right channels, yielding a strategy that produces higher revenue from sales.
Understanding how Revenue Management Solutions Function
Understanding how Revenue Management Solutions Function
Revenue management solutions are for core financials and accounting, purchasing, order management, and business intelligence. These cloud base systems often integrate with 3rd party software to deliver features, such as allowing sale department managers to track the progress of goods and services sold by the company and make business decisions based on this performance.
Revenue management solutions aid financial administrators in understanding the customers' perceptions of value and aligning the right products to each customer segment by combining data mining and operational research with strategy. When it comes time to purchase this type of system, it's crucial to comprehend precisely what you are looking at and need to meet your specific institutional requirements.
Core Components of a Successful Revenue Management System
Core Components of a Successful Revenue Management System
Intake on Competitors: Consumers' perception of the "true price" of a product or service is shaped by competing prices. An intake on competitors' rates will provide insight into optimizing a university's rates using an overall market baseline price.
Value analysis: For universities to determine the purpose of their specific products or services against those among competitors, a value analysis is an effective tool to visualize a university's value and competitive advantage. It helps position a university's products or services to new potential customers while reducing concealed unnecessary costs.
Automated alters: Modern revenue management solutions should provide universities with capabilities to 1) set up automated alerts to track business productivity 24/7 and 2) allow real-time responsive revenue management analytics.
Reporting: Monitoring daily reports generated by a revenue management system is critical for finance administrators who want to visualize their departments' strategies. When personnel review market summaries routinely, they have better flexibility to catch misalignments between operational activities and revenue generation systems and can make improvements as needed.
Together these four essential components allow your institution to make informed, data-driven decisions rather than relying on guesswork. Additionally, by leveraging analytics that can sufficiently align college products with target customer profiles, a university is competently positioned to distinguish themselves away from the competition.
5 Steps Process of Revenue Management
5 Steps Process of Revenue Management
Student Reflection Questions
What was the major dilemma they needed to resolve?
Who is their target customer, and what do they value most?
What mix of products and services did they decide to sell?
Did they charge more by focusing on what customers wanted because they were willing to pay more for it?
What would have happened if they decided to sell to a different segment?
When was their ideal time to sell in order to max price? And how did they get customers to purchase at that time exactly?
Did they keep testing possible solutions to see what happens ?
References
References
Ross, Westerfield, and Jordan, "Fundamentals of Corporate Finance Thirteenth Edition"
Paddle Studios Revenue Management Playbook
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