Revenue Management: Method, Objectives and Levers
Revenue management is the procedure of using corrected analytics which forecast consumer behavior in the micro level and optimization of the availability of merchandise and rates for getting the maximum income increment.
What is the goal of revenue management?
The main goal of revenue management is to sell the right commodity to the right consumer at the appropriate time for a suitable price. The fundamental of this technique or method lies in comprehending the outlook of the customer about the value of the commodity and rightly adjusting rates, position as well as availability with every customer category.
What are the levers of revenue management?
The concept of RM covers a variety of opportunities that will help you enhance the revenue of your business. There are certain levers that function for attaining this objective and they are as follows:
- Pricing of commodities: The primary goal of a pricing tactic is to predict the value generated for the commodity for the consumers and subsequently fixing rates to gain control of that value.
- Inventory/stock: When it is a question of regulating inventory, the most important issue for RM is to ascertain the best possible method of assigning price and distributing capacity. Here the demand and supply factor plays a key role.
- Marketing: Promotion of the commodities always enables businesses to sell their commodities at increased quantities. They can do it by lowering the rates of their goods for a short term. Through assessment of consumer reaction, a balance can be struck between gainfulness and increment of quantity.
- Channels: The distribution channels are a major lever of RM. How effectively you handle the distribution channels decides the amount of revenue you can generate. Most of the time, discounts are offered for online shopping since online distribution channels come cheaper than offline distribution channels. This also helps enhance the revenue of the business/company.
How does the method of RM work?
The method works in the following manner:
- Data collection: This is undoubtedly the first step of managing your revenues. There should be infrastructure for collecting data on rates, stock, demand, supply and also consumer behavior. In addition, data regarding rates, competitors, and consumer behavior are procured, kept, and evaluated.
- Market segmentation: Market segmentation is a principal activity needed to maximize your revenues from the market. This is done with the help of market-oriented pricing and compilation of pertinent data.
- Forecasting: Forecasting or prediction of various factors such as demand of the consumer, availability of stock, market trends and market share is an important step of this entire method. How the business fares depends significantly on the excellence of these predictions.
- Optimization: Optimization is the technique which advises how a company needs to react to consumer behavior. It is often regarded as the acme of the method of revenue management since it decides about assessing various options on the techniques of selling commodities and identifying the target consumers. Concepts used in optimization include linear programming, discrete choice models and regression analysis.
- Dynamic re-evaluation: Re-evaluation is constantly necessary in areas like rates, commodities, and procedures for getting the maximum revenue. This is essential for getting even with the dynamic market.
Currently, industries like finance, distribution, media/telecom, and medical equipment and services are using revenue management as an income maximizing strategy.
Author Bio: Gabriel Heinz is an expert blogger who contributes on revenue management, billing solutions and other themes associated with cloud computing.
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