Revenue management is a variable pricing strategy based on understanding, anticipating and influencing consumer behaviour in order to maximise revenue or profits from a fixed, time-limited resource such as airline seats.
In essence, it’s the process of dynamic pricing by which an airline makes the most out of the capacity of each plane.
It’s the bigger, broader, more holistic cousin of yield management: Selling the right product to the right customer at the right price, via the right platform with the highest cost-efficiency. Unlike yield management, it takes into account more than just the price of a flight ticket, embracing ancillary spend and the cost involved in selling the booking.
In order for revenue management to be possible the following conditions must be met:
- Different customers are willing to pay different prices for the same goods or services
- The business must be able to predict changing levels of demand
- There is a fixed amount of product available
- The product is ‘perishable’ – it can only be sold up to a defined date and time
From this list, it’s easy to see how this is the perfect strategy for airports, airlines and car-park operators.
How does it work?
In order to use this technique, big data, predictive analytics and business intelligence tools are essential. Revenue management is very much reliant on data analysis. Without it, it’s impossible to predict the behaviour of customers, and this is necessary in order that product availability and price can be optimised to generate the maximum achievable revenue.
Take the example of an aeroplane with 300 seats. A full fare is £1,900, and a discounted ticket is £1,300. Of the following, which option is best?
A) 50 full price fares and 250 discounted
B) 190 full price fares and 50 discounted
C) 135 full price fares and 135 discounted
A) (50 x 1,900) + (250 x 1,300) = £420,000
B) (190 x 1,900) + (50 x 1,300) = £426,000
C) (135 x 1,900) + (135 x 1,300) = £432,00
A) 420,000 / (50 + 250) = £1,400
B) £426,000 / (190 + 50) = £1775
C) £432,000 / (135 + 135) = £1,600
A) (50 + 250 / 300) x 100 = 100%
B) (190 + 50 / 300) x 100 = 80%
C) (135 + 135 / 300) x 100 = 90%
The scenario that will make the most money is option C, however, it’s not necessarily the one that will give you the highest average yield (B) or the highest occupancy (A). Similar calculations can be applied to other operations such as car park tariff and occupancy.
Revenue management allows airports to adopt a data-driven approach to business decisions. It makes it possible to ensure that decisions are informed and that revenue grows, with no increase in the volume of products and services sold. This means it relies on being able to predict demand and optimise price and availability. Airports can also use a full-circle view of all distribution and operational costs in order to gain even greater insight into the actual performance of their business.
It might on the surface make sense to try to sell as many seats as possible without considering price, consolidator’s commission, dilution, promotion and other hidden costs. Many airports fail to take financial advantage of bundling other products that are not necessarily available to competitors, adding incentive and goodwill to the customer and benefit to the airport.
Remember, high yield, low occupancy booking fails to profit from last-minute travellers or convenience parkers.
All of these variables make revenue management an exciting and valuable strategy, but in order for it to be possible, key elements need to be in place…
Three ingredients for revenue management success
The digital landscape has changed so incredibly fast in recent years that 90% of the data on the Internet has been created since 2016. People, businesses, and devices have become data factories, pumping out incredible amounts of information (2.5 quintillion bytes) every day.
As the impact and potential of data is realised, three main concepts have become the absolute core of every forward thinking business model. Business intelligence (BI), predictive analysis and big data are now key drivers for success.
When used correctly, data technology can create a single view of existing and potential customers. It can reveal factors that influence a customer’s purchases and allow organisations to predict future buying patterns. It’s easy to see how this is relevant to venue-based businesses such as airports and car parking operators. Some companies use data driven by their parking and travel reservation systems, while others like airports can capture huge amounts of information through Wi-Fi logins, social media and other free services.
When dealing with this much data it is very easy to miss opportunities. By getting to grips with the core concepts of modern business data and taking advantage of industry-specific technology solutions, it is possible to significantly enhance customer experience and achieve successful revenue management.
Understanding business intelligence
Business intelligence (BI) is an umbrella term for the wide range of tools and techniques that exist to analyse the vast quantities of information collected by businesses on a daily basis. Data is only valuable if it is analysed correctly, and this is only possible with a solution that is tailored to your industry, company and resources.
BI solutions should be scaled to suit your business. However, check before committing that scalability applies to the size of your business, not just the volume of data processed. Be mindful of platforms that claim to cover a large user base but don’t tell you what resources you will need to manage this.
When deciding how best to process your airport’s data it is important to understand that only a system built to meet the unique requirements of your business will yield the desired return on investment. Airports that employ a disparate variety of tools to meet their goals find that their fragmented approach, rather than smoothing the process, simply drives up cost of ownership and maintenance.
Managing big data
The main challenge presented by big data is also the very thing that makes it useful: Its sheer scale. This can mean much valuable information goes to waste because organisations don’t have a centralised solution with which to process it.
Rezcomm brings everything together in one place so that customer data is complete and consistent, regardless of its origin. This is extremely important in the omnichannel marketplace where customers use as many as four devices per day. A unified solution also allows data to be more effectively interrogated, displayed and shared.
By adopting a system that presents data in a manageable way, your airport can empower managers and team members, allowing them to make more informed decisions. This is particularly important when it comes to creating a unified viewpoint of all the activity across the many products and services your airport offers.
The insights garnered from the proper use of big data will allow you to properly engage with your passengers, building brand loyalty and advocacy. On a fundamental level, this will uncover new revenue opportunities and new ways to excel.
How this all fits into revenue management
Senior marketing and commercial officers often rely on pricing to drive growth, but without sufficient data it can prove difficult to determine an accurate strategy. By adopting a system like Rezcomm that includes predictive analytics, businesses can more deeply understand the impact of changing their tariffs, and observe the effects in real time in the dashboard.
This makes it possible to determine elasticity of demand across products and services by looking at historic purchasing patterns and using forecasting tools. The resulting predictions can then be used to inform pricing, discounts and promotions, maximising revenue growth and profitability, whilst offering true value-for-money and competitive fares to the customer.
Predictive analysis is as much about the short term as the long term. It can help organisations to accurately anticipate shifts in the market and respond rapidly when they happen.
The boom in big data left many companies struggling to keep up with the resources required to effectively analyse and optimise information. By using an industry-specific solution like Rezcomm, airports can easily combine all three steps, maximising their resources and getting the most from their data.
This allows them to improve customer service and experience, create more profitable pricing strategies and improve revenue forecasting and optimisation.
In simple terms, greater insight into customer buying habits comes from analysing accurate, comprehensive customer data. This data, when shared transparently in a dashboard and made available to team members across your airport organisation, can deliver amazing results.
The BI capabilities in Rezcomm’s omnichannel platform combine broad data access with unparalleled usability and scalability. Information and analytics are readily available and easy to visualise, for an unlimited number of internal users.
Up to date business decisions
The real-time reporting and analytics in the Rezcomm dashboard make it easy to see how customers respond to different tariffs and adjust accordingly. Tariffs can be set to certain triggers, automating the process of dynamic pricing to produce a cost-effective, streamlined process that translates to a positive customer experience. Factors such as peak and seasonal demand can inform pricing in a way that ensures higher fares won’t result in lost sales, and lower fares will still attract a profit. With Rezcomm’s tools, revenue management becomes an integrated part of a wider customer-focused operational and marketing strategy.
Building customer relations with revenue management
A system like Rezcomm that encompasses a unified customer view, business intelligence capabilities and predictive analysis creates a firm bedrock for a successful revenue management strategy.
The collection and analysis of big data from every customer touchpoint and across platforms makes it possible to predict the buying behaviour of individual passengers in a sophisticated way. Business intelligence means that the system continues to learn about your customers and processes, making predictions more accurate. It also makes it possible to view operational and product reports in real time, which means you can respond faster to changing inventory and demand.
These two factors provide a marketing goldmine. With a clear picture of each customer, marketing can be much more personalised, targeted and relevant. With real-time product reports you can introduce the element of scarcity to attract conversions. Passengers feel more valued and engage more, developing brand loyalty, and revenue grows.
Rezcomm’s world-first combined omnichannel platform for airport sales, marketing and customer-centric analytics can help you build your airport’s long-term growth. We already partner with airports that serve a quarter of a billion passengers worldwide and are experts in revenue management for airports. If you want to optimise your inventory to build revenue, contact us for a chat today.
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