As we jump into 2022, companies large and small are taking stock of revenue trends and reviewing historical data to harness the advantages of revenue management and create a strategy that’ll give them a competitive edge.
Revenue management can be described in extremely simplistic terms (selling the right product, to the right customer, at the right price, through the right channel) or defined in a more complex manner. Regardless of your preferred definition, the essence of revenue management is about setting prices based on consumers’ willingness to pay. To reach this balance, you need to truly understand your customer’s perception of the products and services you offer. Additionally, you need to accurately predict consumer behavior and use this knowledge to optimize product/service availability. That way you can leverage price elasticity to maximize profitability and revenue growth.
The Advantages of Revenue Management: A Look Inside
The success of your revenue management strategy starts with your ability to accurately determine product or service price alignment, availability, and distribution for each of your customer segments. As we peel back the layers to learn all the advantages of revenue management, there are six distinct but interwoven sections.
1) Know your customers’ expectations
Consumers today want a frictionless buying experience and quicker responses from customer service teams. Since revenue management takes research, you’ll gain a better understanding of your target market’s expectations. Additionally, you’ll have the insights to modify your products or services and/or develop new offerings to meet your customers’ needs.
2) Segment the market
Another advantage of revenue management is that it enables you to gain insights into your market. Not to mention investigate the availability of new market segments you can target. For example, let’s look at Apple. Traditionally they sold electronic equipment to consumers in the way of computers, phones, earbuds, etc. They now offer digital app subscriptions to services like MyFitnessPal to help customers utilize those electronics to improve their overall health.
3) Price competitively
Of course, one of the primary goals of your revenue management strategy is to gain the knowledge needed to price your offerings competitively, while increasing profitability. Even medical device companies are now offering both physical and digital products. Previously, hospitals and clinics would purchase medical imaging equipment outright – something that can be very costly. Now, these companies can provide the equipment for a minimal monthly fee instead.
4) Foster collaboration
The revenue management strategy you create must be shared and implemented across company divisions. From marketing and sales to customer service, these are the employees who will take the strategy, develop marketing programs and advertisements, sell the products and services, and respond to customer service requests. Without a united front, the revenue management strategy that was so carefully created will fall flat, resulting in revenue left on the table.
5) Eliminate manual processes
Automating time-consuming and repetitive tasks not only reduces costly errors but frees up resources to focus on revenue-generating tasks. In addition, by integrating demand data into forecasts and pricing recommendations you’re in a better position to manage your revenue management strategy more effectively.
6) Integrate technical solutions
Your ability to successfully accomplish the above five layers is largely dependent on whether your solutions are tightly integrated. With technology that’s integrated across disparate departments, your staff – regardless of their department or tasks – are contributing to the same revenue management goals. From a managerial perspective, they’ll be able to make more effective and accurate decisions.
Above we touched on competitive pricing, however, this doesn’t mean creating static pricing that’s below market value. Let’s look at a few of the best revenue management pricing strategies that are used by profitable companies across the world.
Revenue Management Pricing Strategies
One of the, if not the most, important aspects of your revenue management strategy is to develop effective pricing. To help you determine the pricing strategy that’s right for your business, we’ve listed the ones that are most widely used.
Going back to our medical device example and offering different market segments different pricing packages, usage-based pricing allows you to scale prices based on exactly what a customer wants and will use. While they can provide the equipment for a minimal monthly fee, they could break down charges based on the overall number of images produced each month.
This pricing model enables you to increase or decrease pricing in response to real-time data. For instance, if you have a surplus in supply, decreasing costs will enable you to sell your extra goods. Alternatively, when demand exceeds supply, raising your prices allows you to charge a premium for the products or services. Essentially, dynamic pricing allows you to align rates to coincide with changing demand, maximizing your revenue potential.
Why lock yourself into a single pricing scheme, when you can combine the most appropriate for your industry? Hybrid pricing gives you the ability to gather usage data from any source and automatically assign the rating in real-time. This enables you to give your customers the pricing options they want and for you to mix and match the most lucrative pricing models.
While not every pricing strategy is suitable for every industry, today’s pricing models have been designed for virtually any use case. However, it needs to be noted that developing a pricing strategy isn’t a one-and-done initiative. It takes ongoing analysis to keep your pricing strategies in line with customer requirements, industry demand, costs, etc.
Thrive in 2022 and Beyond
It’s been said that revenue management is entering a new age. Previously focused primarily on price… we are now seeing product/services, customers, and timing becoming equally important. Technology is more pervasive than ever before, and customers are much more cost-conscious and digitally savvy than in previous years.
The right revenue management strategy takes into consideration price, products/services, customers, and timing. When you do this right, you’ll be on the road to:
- Building brand awareness
- Increasing customer loyalty
- Improving revenue and profitability
- Gaining competitive advantage
Despite fluctuating demand, the advantages of revenue management put you in the driver’s seat to increase return on investments and develop a steady stream of revenue. Getting revenue management right requires a complete solution. One that is built to aggregate and analyze data from any source and transform it into real revenue potential. Reach out to our experts today to learn more about how we can help.