Podcast
Questions and Answers
What is the primary goal of revenue management in a supply chain?
What is the primary goal of revenue management in a supply chain?
- Minimizing operational costs.
- Expanding the supplier network.
- Improving the quality of products.
- Maximizing supply chain surplus and profit from limited assets. (correct)
Revenue management only focuses on adjusting inventory levels and does not consider pricing strategies.
Revenue management only focuses on adjusting inventory levels and does not consider pricing strategies.
False (B)
Name the two primary forms of assets in a supply chain that revenue management seeks to optimize.
Name the two primary forms of assets in a supply chain that revenue management seeks to optimize.
Capacity and inventory
Besides varying capacity and inventory, revenue management suggests varying ________ to grow profits by better matching supply and demand.
Besides varying capacity and inventory, revenue management suggests varying ________ to grow profits by better matching supply and demand.
A company that owns a limited number of delivery trucks wants to maximize profit. Which strategy aligns with revenue management principles?
A company that owns a limited number of delivery trucks wants to maximize profit. Which strategy aligns with revenue management principles?
Only companies with excess capacity or inventory can benefit from revenue management practices.
Only companies with excess capacity or inventory can benefit from revenue management practices.
What elements does the practice of revenue management suggest varying to better match supply and demand?
What elements does the practice of revenue management suggest varying to better match supply and demand?
Match each of the following elements with its description:
Match each of the following elements with its description:
What is the primary goal of revenue management?
What is the primary goal of revenue management?
Revenue management primarily focuses on adjusting the availability of assets to match supply and demand, rather than using pricing strategies.
Revenue management primarily focuses on adjusting the availability of assets to match supply and demand, rather than using pricing strategies.
What are the four conditions under which revenue management is most effective in a supply chain?
What are the four conditions under which revenue management is most effective in a supply chain?
A significant advantage of using revenue management is that changes in pricing are much easier to _______ compared with investments in supply chain assets.
A significant advantage of using revenue management is that changes in pricing are much easier to _______ compared with investments in supply chain assets.
Which of the following scenarios exemplifies differential pricing?
Which of the following scenarios exemplifies differential pricing?
If demand is stable and predictable, revenue management will have a significant impact on supply chain profitability.
If demand is stable and predictable, revenue management will have a significant impact on supply chain profitability.
Which strategy is NOT a typical application of revenue management principles?
Which strategy is NOT a typical application of revenue management principles?
What real-world example illustrates differential pricing among customer segments?
What real-world example illustrates differential pricing among customer segments?
Why is unused production, storage, or transportation capacity considered a lost asset?
Why is unused production, storage, or transportation capacity considered a lost asset?
Revenue management aims to maintain a fixed price over time to ensure consistent revenue from available inventory or capacity.
Revenue management aims to maintain a fixed price over time to ensure consistent revenue from available inventory or capacity.
What is the primary goal of revenue management regarding capacity or inventory?
What is the primary goal of revenue management regarding capacity or inventory?
Differential pricing during peak and off-peak periods enhances profits in a way that aligns with customer ________.
Differential pricing during peak and off-peak periods enhances profits in a way that aligns with customer ________.
What is a common strategy used by resorts in Phuket, Thailand, to manage demand?
What is a common strategy used by resorts in Phuket, Thailand, to manage demand?
In the absence of peak pricing, off-peak periods tend to have excess demand, while peak periods have significant idle capacity.
In the absence of peak pricing, off-peak periods tend to have excess demand, while peak periods have significant idle capacity.
Match the market scenario with the appropriate revenue management strategy:
Match the market scenario with the appropriate revenue management strategy:
What is the benefit of offering both long-term contracts and spot market options for assets like warehouse space?
What is the benefit of offering both long-term contracts and spot market options for assets like warehouse space?
Flashcards
Revenue Management
Revenue Management
Using pricing strategies to maximize supply chain surplus and profit from limited assets.
Capacity Assets
Capacity Assets
Capacity for production, transportation, and storage within the supply chain.
Inventory Assets
Inventory Assets
Inventory held across the supply chain to improve product availability for customers.
Revenue Management Goal
Revenue Management Goal
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Differential Pricing
Differential Pricing
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Dynamic Pricing
Dynamic Pricing
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Overbooking
Overbooking
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Peak and Off-Peak Pricing
Peak and Off-Peak Pricing
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Perishable Capacity
Perishable Capacity
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Differential Pricing Outcome
Differential Pricing Outcome
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Bulk vs. Spot Market
Bulk vs. Spot Market
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Revenue Management with Contracts
Revenue Management with Contracts
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Revenue Management Examples
Revenue Management Examples
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Pricing vs. Assets
Pricing vs. Assets
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Revenue Management Benefits
Revenue Management Benefits
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Revenue Management Effectiveness
Revenue Management Effectiveness
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Pricing Influences
Pricing Influences
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Revenue Management Impact
Revenue Management Impact
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Airline Customer Segments
Airline Customer Segments
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Study Notes
Pricing and Revenue Management in a Supply Chain
- Managers may leverage pricing to balance supply and demand, increasing revenue from supply chain assets.
The Role of Pricing and Revenue Management in a Supply Chain
- Revenue management uses pricing to enhance supply chain surplus and profit from limited assets like capacity and inventory.
- It aims to sell the right asset to the appropriate customer at the optimal price.
- Differential prices are effective in yielding higher profits, and are more easily changed than production capacity
Factors that Make Revenue Management Impactful to Supply Chain Profitability
- Varied product value across market segments.
- Product perishability or potential for spoilage.
- Seasonal or peak demand periods.
- Sales occurring in both bulk and spot markets.
Differential Pricing for Multiple Customer Segments
- Differential pricing increases total profits for the firms
- To differentiate, firms must separate segments by attributes valued differently.
- Example attributes include booking lead time and flexibility to change schedules.
- Separating segments can increase profits if the firm can make one pay more than the other without impacting availability
- Firms should consider the following questions
- What price should it charge for each segment?
- How should it allocate limited capacity among the segments?
- Use of differential pricing increases asset availability for the high-priced segment
Dynamic Pricing and Overbooking for Perishable Assets
- Perishable assets are assets that lose value over time or if not fully utilized.
- Includes goods like produce, tech, fashion apparel, and unused capacity.
- The goal of revenue management in this case is to adjust the price over time to maximize the profit
Revenue Management Tactics Used for Perishable Assets
- Dynamic pricing dynamically adjusts prices over time to maximize expected revenue.
- Overbooking sells more assets than available to account for potential cancellations.
Dynamic Pricing
- Dynamic pricing is most suitable for assets such as high fashion that significantly depreciate after a certain date.
- Effective use involves estimating asset value over time and forecasting the impact of price on customer demand.
- It increases product availability for consumers willing to pay full price along with total retailer profits.
- Requires caution regarding customer anticipation of price drops and resulting strategic purchasing delays.
- In the presence of strategic customers, a fixed price strategy might generate better profits
Overbooking
- Overbooking tactics are most effective when cancellations are present
- The level of overbooking is based on the trade-off between the cost of:
- wasting the asset if too many cancellations occur
- arranging a backup if too few cancellations
Discounting and Peak Pricing for Seasonal Demand
- Effective revenue management tactic involves charging higher prices during peak demand and lower prices during off-peak.
- Success depends on offsetting the discount cost via reduced operational expenses and increased off-peak revenue.
Bulk Contracts and Spot Buying
- Firms must decide what fraction of the asset to sell in bulk and what fraction of the asset to save for the spot market.
- The fundamental trade-off is similar to a firm serving two market segments
Practical Challenges When Using Revenue Management
- Overbooking requires anticipating consumer behavior and having a sensible response
- Effectively communicate value to customers, avoid just seeming like you are extracting value.
- Informing sales and operations teams on the tactics is critical for them to align their sales pitches accordingly.
- Keep revenue management simple, complexity will make forecasting more difficult and less effective
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