Revenue management like virtually every other discipline of the travel industry has evolved. What essentially grew out of more sophisticated Reservations Management, supported by some basic spreadsheets, is now supported by a multitude of software and technology.

Published: 20 May 2009

Revenue management like virtually every other discipline of the travel industry has evolved. What essentially grew out of more sophisticated Reservations Management, supported by some basic spreadsheets, is now supported by a multitude of software and technology.

At the same time, as the role of technology has grown, it is important to realise that RM is still a “people’s business” and technology only provides automation and efficiency.

As time has passed the obsession with technology, algorithms and automated process has suffocated the innovation of and in the people that deliver RM for businesses, says James Bain, Head of Revenue Management, CrossCountry Trains (Arriva).

“Whilst times are good this has not been too much of an issue as growth will come. But now in harder times reliance will fall back on people who may be under prepared for the challenge, looking to technology for the answer without realising the question has never been asked before,” added Bain.

Role of RM

Specialists in this arena foresee that the successful RM professional would be required to coordinate, align and synchronise all the efforts and plans of various functions, be it for sales, marketing, distribution, CRM or branding, into a “single, unstoppable revenue capability”.

“RM must develop into its description. RM is about generating incremental revenue over and above the `entry price’ that the consumer has in their mind before beginning their search. RM development must include capture of `value’ data and incorporate search enquiries into the system algorithms. It is not good enough to look backwards and dictate the future, RM must look at `here and now’ and deliver `value’. Incorporation of interactive CRM data across customer segments in the construction of `booking classes’ will be fundamental to generating `value’ offers for the consumer and the business,” said Bain.

RM is relatively much more complex discipline. A section of the industry says the department needs to concentrate on reducing cost per distribution channel.

According to Bain, RM departments should not only focus on cost of sale reduction but should evolve to become Profit Management departments where the cost of supply is incorporated into algorithms leading to a Gross Profit model, which in turn will better inform 'value' offers and segmentation integration.

Challenges

Revenue Management practices place a lot of emphasis on capacity constraints, time cycles, and price variables.

If one were to go by this view alone, any reference to the “right consumer” is limited only to their ability to pay the optimal price. In some ways, this approach may be deemed to be short term, transactional biased and product orientated.

Bain feels that this process has to be overhauled in order for RM to survive as a business benefit.

“The current approach is internal focused and has no relevance to the consumer. We as RM experts have to move to demand generative strategies and practices,” said Bain.

Another issue is related to integration of customer data into the day-to-day operations of revenue management, which is a slow process and extremely challenging, both in terms of technology and people.

Bain says the main challenges are creating the `value’ segments for base reference data and then providing enough machine and human computing power to understand, use and implement the outputs.

Key issues

Going forward, what are going to be the key issues which RM managers need to focus upon– would it be customer rate resistance, contract re-negotiations, competition or price wars?

Bain says none of the above.

“RM managers will need to focus on consumer `value’ in all decisions they make. Demand will no longer be driven by price alone, price wars will only create a loss making situation in the long term as it is not demand generative. Future RM strategies must focus on `value’ demand generation,” concluded Bain.

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