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Logis Manager 
Revenue Management
Revenue Management is a technique to optimize the revenue earned from a fixed, perishable resource. The challenge is to sell the right resources to the right customer at the right time.
Revenue Management implements the basic principles of supply and demand economics in a tactical way to generate incremental revenues. There are three essential conditions for revenue management to be applicable:
- That there is a fixed amount of resources available for sale.
- That the resources sold are perishable. This means that there is a time limit to selling the resources, after which they cease to be of value.
- That different customers are willing to pay a different price for using the same amount of resources.
For example in the passenger airline case, capacity is regarded fixed because changing what aircraft flies a certain service based on the demand is the exception rather than the rule. If the aircraft departs, the unsold seats cannot generate any revenue any more and thus can be said to be perished. It's finally trivial that a businessman is willing to pay more for a seat when booking late than a leisure traveller is willing to pay for a trip due in several months.
If the resources available are not fixed or not perishable, the problem is limited to logistics, i.e. inventory or production management. If all customers would pay the same price for using the same amount of resources, the challenge would perhaps be limited to selling as quickly as possible, e.g. if there are costs for holding inventory.
One way of achieving a different willingness to pay is to achieve effective market segmentation. A firm may repackage its basic inventory into different products to this end. In the passenger airline case this means implementing e.g. purchase restrictions, length of stay requirements and requiring fees for changing or cancelling tickets.
Price and/or availability of these products may be manipulated to maximize the expected future revenue based on detailed statistical demand forecasts and mathematical optimization. The passenger airlines achieve this by implementing either demand based pricing or extremely sensitive and dynamic availability controls, or both, on their reservation systems.
Revenue is often ‘left on the table’ by firms that do not effectively segment their market. Although the exact mechanisms used to implement price and availability controls vary between industries the underlying business process and mathematical techniques have a remarkably broad applicability.
Revenue Management has significantly altered the travel and hospitality industry since its inception in the mid 1980s. It requires analysts with detailed market knowledge and advanced computing systems who implement sophisticated mathematical techniques to analyze market behavior and capture revenue opportunities. It has evolved from Yield Management which the airlines invented as a response to deregulation and quickly spread to hotels, car rental firms, cruise lines, media, and energy to name a few. Its effectiveness in generating incremental revenues from an existing operation and customer base has made it particularly attractive to business leaders that prefer to generate return from revenue growth and enhanced capability rather than downsizing and cost cutting.
Revenue Management “ ....the single most important technical development in transportation management since we entered deregulation...”. - Robert Crandal, Chairman and CEO of American Airlines
Revenue Management is most effective in a high capital cost, low marginal cost environment. This is because it focuses on maximizing expected marginal revenue for a given operation and planning horizon. It optimizes resource utilization by ensuring inventory availability to customers with the highest expected net revenue contribution and extracting the greatest level of ‘willingness to pay’ from the entire customer base. Revenue Management practitioners typically claim 3% to 7% incremental revenue gains due to revenue management activity. In many industries this can equate to over 100% increase in profits. A competent revenue management analyst with good decision support tools can generate $10,000 per hour.
Yield management
Yield management, also known as Revenue Management, is the process of understanding, anticipating and reacting to consumer behaviour in order to maximize revenue or profits. Firms that engage in yield management usually use computer yield management systems to do so. The Internet has greatly facilitated this process. Other terms to describe this process are revenue optimization and demand management. Yield management can result in price discrimination, where a firm charges customers consuming otherwise identical goods or services a different price for doing so.
Three industries where yield management is used most heavily are passenger air transport, lodging and rental car. Airlines monitor through the use of specialized software how seats are being reserved and react accordingly, as for example by offering discounts when it appears as if seats will otherwise be vacant. Hotels use Revenue Management in largely the same way, to calculate the rates, rooms and restrictions on sales in order to best maximize the return for the property. In the rental car industry, Revenue Management deals with the sale of optional insurance, damage waivers and vehicle upgrades. It accounts for a major portion of the rental company's profitability, and is monitored on a daily basis.
Source: wikipedia.org