Let’s make the jargon clearer

In the readings we have been through, we have noticed that the use of the various concept related to Revenue Management can be misleading. This may relate to a language issue, or a lack of consensus to bring up a definition and a hierarchy between words. In a publication from the French “Institut du transport aérien”, Jean-Paul SINSOU proposes an explanation we inspired ourselves from:

Revenue management is the revenue optimization system for an entire company, gathering all the markets: This is a concept of coordination among different markets (eg: Airlines and connecting flights). Yield management aims at maximizing revenue for a given market (Paris-New York on the 7th of August with American Airlines), based on overbooking (to compensate no shows), booking class nesting (to spread demand over off-peak periods) techniques. According to these definitions, Revenue Management is managing the network or the “relationships” between markets.

We can say that a company I carrying out a price discrimination strategy when it charges different prices for a same good (or service) based on customer demand and perceived value. Two levels can be distinguished in a price discrimination strategy: (1) uniform pricing, meaning that if prices may vary depending on customer segments, locations, etc, they do not vary through time (2) dynamic pricing, where prices vary through time, due to different variables, conditions and situations.

Arguably, the boundary between uniform and dynamic pricing is bleary, but these two concepts are useful to evaluate the sophistication of a pricing system. Price discrimination is one aspect of a RM system, which generally requires several constraints  and prerequisites. One may rely of one or more of the above mentioned tools to implement and run a price discrimination strategy: For the time being, in our blog, we have explained and illustrated the peak load pricing, and will develop all the other concepts along the way.