Pricing and Revenue Management in the Supply Chain

1597 Words Feb 17th, 2013 7 Pages
Pricing and Revenue Management in the Supply Chain

The Council of Community Colleges of Jamaica
Turks and Caicos Community College

Supply Chain Management
MGMT 4801

Lecturer: Ms. M. Hosten

Due Date: October 9th, 2012

Name: Donnell Lightbourne

Table of Content

What is Revenue Management? ………………………………………………….. pg. 3

Foundations for Strategic Management ………………………………………….. pg. 3

Impact and Conditions of RM ………………………………………………….. pg. 4

Segments of Revenue Management ………………………………………………….. pg. 5-8

Practicing Revenue Management ………………………………………………….. pg. 9

User of Revenue Management …………………………………………………... pg. 10

Bibliography …………………………………………………………………… pg.
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For the firm to take advantage of revenue management, the supplier must bound the amount of capacity committed to lower price segment even if sufficient demand exist from the lower price segment to use the entire capacity. The basic trade-off here is between committing to an order from a lower price or waiting for a high price to arrive later on. The risks in such situation are spoilage and spill. Spoilage occurs when capacity is wasted because demand from high price doesn’t materialize. Spill occurs if higher price segments have to be refused because capacity has already been committed to lower price segment. u If a supplier serves numerous customer segments with a fixed benefit, the provider can improve revenues by setting different prices for each segment

u Prices must be set with barriers such that the segment willing to pay more is not able to pay the lower price

u The amount of the asset set aside for the higher price segment is such that the expected marginal revenue from the higher priced segment equals the price of the lower price segment

Perishable Assets

There are two revenue management tactics used for perishable assets: ⇨ Vary price over time to maximize expected revenue ⇨ Overbook sales of the assets to account for cancellations The first tactic is appropriate for assets such as fashion wear that have clear date beyond which they lose a lot of their value; clothing designed for a particular season loses its value when
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