Revenue Management is thought to be almost all about pricing, but what if I told you that it came from Yield Management or by not touching price at all…
So allocation is the answer if allocation is the answer, for early revenue scholars, how can we think about inventory?
Let’s hear the first formal theory of Revenue Management, created by one of the pioneers of Revenue and Yield Management, the man, the myth, the legend Ken Littlewood
Let’s take a look at what we can do with the power of Littlewood’s Rule.
Sure, we get it Littlewood’s Rule is amazing, but how did he develop it?
Let’s understand it from scratch.
Critical ratio and probability… looks like a breakthrough
Let’s visualize the critical ratio of Littlewood’s Rule!
TWO COSTS
DILUTION AND SPOILAGE, the art of yield management.
Now that we know all of these concepts, we can answer the naive beginner’s question: Dude, why not allocate just the average?
Do you know that hotels and airlines have only two fares?
Yeah, right.
Well, now we have to tweak a little bit our model, let start from the basics.
Let’s try to prove this, but this is way to hard. There must be an easier way…
Another great academic stumbled over the same question that us! And he figured out, creating another building block of capacity allocation.
One example is better than 100 explanations.
Well opinions change, people change, willingness to pay could change… right?
What if I told you that there is a way that we can optimize the way we offer fares by the way people choose… Cool right.
Let’s formalize this idea and create a model that can work.
How do we know that a set of fares is optimal?
The final video, the worked example to see how the magic works