Travel Reference
In-Depth Information
Preconditions
The preconditions of successful RM have been categorized by Kimes (2000b) as relatively fi xed
capacity, predictable demand, perishable inventory, time-variable demand and appropriate cost
and pricing structures.
Relatively fi xed capacity
Capacity-constrained service industries have no opportunity to inventory their perishable
products or services in order to deal with fl uctuations in customer demand. However, capacity
can be in terms of physical and non-physical units. Physical capacity, for example, is about the
number of airline seats, the number of seats at a sporting event, the number of seats in a restaurant
or the number of hotel bedrooms. Non-physical capacity can be thought of as time-based. Kimes
argues that physical capacity can be used for a specifi c period of time, for example, seat-hours for
restaurants or theatre performances. Therefore time also becomes a constraint on capacity in
services. Capacity can be changed in the longer term. For example, airlines can buy or lease
larger planes or hotels can add extra bedroom or function space but this may involve considerable
fi nancial investment.
Predictable demand
In the RM context, demand consists of both those customers who buy in advance and those
who simply 'walk-in' and both forms of demand need to be managed effectively in order to
achieve the most profi table mix of customers. As McMahon-Beattie and Yeoman (2004: 205)
state, 'It is all about predicting what advance booking will be made at different price levels against
walk-in or “on-demand” situations (otherwise known as 'demand forecasting).' To do this,
detailed information is required on the percentage of reservations and walk-ins, customer time
periods and likely service duration (Kimes 2000b).
Perishable inventory
As stated above, the inventory of a capacity-constrained service should be thought of as a unit of
time which is perishable. A unit of time might be a concert ticket, a bed-night in a hotel, a round
of golf or the performance of a play. If the opportunity to sell that unit of time or experience is
lost, the revenue is lost.
Time-variable demand
Demand in services is well known to vary by the week, by the day, by the time of day and season-
ally. Managers must be able to forecast time-variable demand so that effective pricing decisions
can be made regarding allocations of available inventory units. Flexible pricing structures allow
organizations to maximize pricing opportunities in both off-peak and peak periods.
Appropriate cost and pricing structures
Organizations using RM such as hotels and airlines have a cost structure that has relatively high
fi xed costs and fairly low variable costs (Edgar 2000). The costs incurred by, for example, selling
a concert ticket to a customer in otherwise unused capacity is relatively inexpensive and incurs
