Revenue management involves doing something to the consumers rather than doing something for them. A number of industries have implemented the concept of revenue management in order to maximize their sales and revenues. It assists in increasing their level of competitive advantage. Any organization should have their primary goal as establishing a mutual value of a relationship between them and their customers. Consumers ordinarily perceive a certain price increase given as ‘fair’ in the event that it is a reaction due to an increased seller costs. They perceive the price increase as ‘unfair’ in the event that it is a reaction due to an increased demand of consumers. Revenue management without affecting consumer satisfaction manages to increase the revenue. (Yeoman, & McMahon-Beattie, 2011).
In the practice of revenue management, the issue of fairness and customer acceptance is a solemn concern. Revenue Management applies various prices for the same good or a service. The subject of Fairness and customer acceptance of revenue management in varying industries has been studied extensively by several researchers. The fairness of a price in a service industry influences the loyalty and satisfaction of a customer. It is a threshold factor in maintaining their behavior. (Rothenberger, & Siems, 2008).
Various disciplined analysis application that tend to predict the behavior of a consumer at the micro-market level introduces the revenue management. It optimizes the availability of a product and price in order to maximize the growth of revenue. Price is often a major issue for the customers and, therefore, a critical factor in determining issues of unfairness in an industry. Customer acceptance is dependent on the degree and familiarity of their awareness and the usage of any service or a good they get involved. Managers in organizations ought to put into consideration that the price acceptance of customers is dependent on their level of loyalty and satisfaction. (Talluri, & Van Ryzin, 2004).
Revenue management increases revenues at a higher rate in comparison to other strategies. This system triggers demand in different seasons and different customer segments. It enriches the relationship between the system itself and customers. Any instances of lack of understanding by the consumers of the revenue management system will cause undesirable misunderstandings. The evaluation of fairness by the customers is dependent on a perceived justice. A concept that provides an in-depth complaint process understanding from the beginning till the end. (Rouse, Maguire, & Harrison, 2011).
Understanding the price elasticity and the customer behavior tends to allow companies offering the services to charge the exact prices. In turn leads to products being well-tailored to every customer. Although, lack of information in regard to the product discounts is an area that attracts attention. Price information availability in the market affects the customer’s price knowledge. Internet comes first in the tools often used to provide customers with knowledge or information that is more accurate. Customers here treated as the end users. (Yeoman, & McMahon-Beattie, 2011).
The consumer will always accept varying prices as much as they know that they are getting the best services. Trust and fairness perceptions have a type of reciprocal relationship. Organizations require a solid understanding of price differentials from a consumer view. Nevertheless, cultures also affect the varying consumer acceptance of any existing price discrimination. Concerns about fairness limit the customer acceptance of price discrimination at the individual level. (Rothenberger, & Siems, 2008).
Perceived fairness of customers considerably enhanced when revenue management pricing framed as discounts rather than surcharges. Considering the impact of differentials in prices on customers and how their centric data can enhance the relationship between the buyer and the seller is significant. Creation of this kind of relationship based on trust is one way of building value. Price discrimination that is immanent in revenue management seeks to sabotage trust in a business firm where consumers perceive that they have been treated unfairly in terms of price compared to other buyers. The perception of consumers on price increases’ ‘fairness’ is affected by the circumstances that led to their existence. (Yeoman, & McMahon-Beattie, 2011).
When a company offers consumers benefits, for example, a discount, which is a net gain to the consumer, they are likely to inflict certain restrictions that make a discount balancing. At the same time, if they go further and inflict specific restrictions that are too strong to the consumer, it will change the balancing of transactions and, in conclusion, be perceived as unfair. This concept is effective in its reverse, too. If a company opts to foist extra restrictions on the consumers, it has to give them something in return in place of that restriction. The reward can be an upgrade, a discount or additional amenities. The challenge is in determining the magnitude of an acceptable restriction, and the far benefits have to be extended. (Rouse, Maguire, & Harrison, 2011).
The intensification of the level of education, lifestyle changes, and the use of technology in a way differentiates customers in terms of present and past time periods. The price knowledge level varies across the countries of the globe. It is the ability of customers to keep and store prices in mind and long-term memory. Consumers seek to store a bit of price information in their memories. The difference in prices does not necessarily cause customer trust or mistrust. Rather it is the knowledge level of consumers on the ‘rules’ that the varying prices operate from as well cause the trust or distrust. (Kwon, 2004).
Industries tends to maximize their pricing rates when the demand is quite high and maximize their product sales when the demand is quite low. It is a good marketing strategy, but it often results in issues of unfairness. It compromises the buyer-seller relationship. Organizations should treat consumers as their primary priority as it will in turn benefit them with a long term loyalty from consumers. An inconsistent pricing rate based on the fluctuations of demands leads to unfairness perception among consumers. (Talluri, & Van Ryzin, 2004).
Customers choose products depending a set of products that are available. There are a number of fare products in the market, each of them associated with an estranged revenue. An organization, at some point in time, often decides to offer a fragment of these fare products. Consumers, from that fragment of the offered products, choose their preferable options in compliance with some discrete choice models such as the logit choice. One of the options may also turn out to be a no purchase option. (Kwon, 2004).
Pricing based on demand is proved to be profitable in several organizations and is also based on the price discrimination premise. Different consumer segments have varying price elasticities and needs, therefore, services and prices need to be designed to meet their specific needs. Offering multiple prices for the same essential service enables companies to increase revenue through reduction of customer surplus. However, a number of firms prove to be quite opposed to implementing the demand-based pricing because of a potential effect on the satisfaction of consumers. (Rouse, Maguire, & Harrison, 2011).
Kwon, H. (2004). Fairness and Division of Labor in Market Societies. New York: Berghahn Books.
Rothenberger, S., & Siems, F. (2008). Pricing Perspectives. Houndmills, Basingstoke, Hampshire [England]: Palgrave Macmillan.
Rouse, P., Maguire, W., & Harrison, J. (2011). Revenue Management in Service Organizations. [New York, N.Y.] (222 East 46th Street, New York, NY 10017): Business Expert Press.
Talluri, K., & Van Ryzin, G. (2004). The Theory and Practice of Revenue Management. Boston, Mass.: Kluwer Academic Publishers.
Yeoman, I., & McMahon-Beattie, U. (2011). Revenue Management. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.