Travel Reference
In-Depth Information
created a revolutionary way for all companies to boost revenue and profi ts by using data and
analytics to predict consumer behavior and optimize price and availability of products'
(Cross, Higbie and Cross 2011: 8). Kimes (1989) has aptly described RM as the process of
allocating the right type of capacity or inventory unit to the right type of customer at the
right place at the right time so as to maximize revenue or yield. The goal of RM can then
be seen as the profi table alignment of the product or service, the buyer and the price. In the
context of services, RM can be defi ned as a 'revenue maximization technique which aims
to increase net revenue through the predicted allocation of available inventory capacity to
predetermined market segments at optimum price' (Donaghy, McMahon-Beattie, Yeoman and
Ingold 1998: 188). From a strategic perspective, Jones (2000: 88) extended the defi nition of RM
in the hotel context to indicate that RM is 'a system . . . to maximize profi tability through . . .
senior management . . . identifying the profi tability of market segments, establishing value, setting
prices, creating discounts and displacement rules for application to the advances reservation
process, and the monitoring of the effectiveness of these rules and their implementation'.
This defi nition helps to highlight both the tactical and strategic role that RM plays in managing
capacity. More holistically, Chiang, Chen and Xu (2007: 98) have summarized the nature and
purpose of RM as follows:
Revenue management, or yield management, is concerned with creating and managing
service packages to maximize revenue. By thoroughly understanding customers' value
functions and behaviour, a fi rm can design service packages for different market segments
using appropriate combinations of attributes such as price, amenities, purchase restrictions,
and distributions.
RM does not replace the basic managerial functions and responsibilities such as forecasting,
setting appropriate strategies, monitoring and feedback on performance and the establishment
of corrective action. Rather it supports not replaces effective managerial decision-making
and intellectual human capital (McMahon-Beattie 2009) and functions such as forecasting,
setting appropriate strategies, monitoring and feedback on performance and the establishment
of corrective action remain the preserve and responsibility of management (Lee-Ross and
Johns 1997).
Industry adoption and classifi cation
The three major traditional industries that have adopted RM are airlines (e.g. Ingold and Huyton
2000; van Ryzin and McGill 2000; Talluri 2001; Boyd and Bilegan 2003; Zeni and Lawrence
2004; Zhang and Cooper 2005; Harris and DeB 2006), hotels (e.g. Hadjinicola and Panagi 1997;
Baker and Collier 1999; Choi and Cho 2000; Choi and Kimes 2002; Orkin 2003; Chen and
Freimer 2004; Okumus 2004; Lai and Ng 2005; Choi and Mattila 2006; Ivanov and Zhechev
2012) and car rental (e.g. Carroll and Grimes 1995; Geraghty and Johnson 1997; Anderson and
Blair 2004; Savin, Cohen, Gans and Katalan 2005). However, it is also being applied in a wide
range of other service industries such as restaurants (Kimes 1999; Whelyan-Ryan 2000; Susskind,
Reynolds and Tsuchiya 2004; Kimes 2005), casinos (Norman and Meyer 1997; Hendler and
Hendler 2004; Zheng 2007), golf (Kimes 2000a; Kimes and Wirtz 2003b; Rasekh and Li 2011),
cruising (Hoseasons 2000), broadcasting and media (Kimms and Muller-Bungart 2006; Mangani
2006), and even sex and saunas (Yeoman
et al
. 2004b) among others. Indeed, in the international
hotel industry, RM practices and procedures are now so well accepted that they are seen as the
