Trading in a fast-paced digital world, you will admittedly come across some terms that you are not 100% familiar with, which in turn can have a negative impact on your business. Fortunately, we’re here to give you a crash course on one of the complex aspects of selling products and services online – pricing and revenue management.
Buckle up and let’s dive in!
What is pricing and revenue management?
In many terms, setting pricing and implementing revenue management involves using data to predict the demand for your product and increase your profits. The concept of pricing and revenue management originated from the airline industry and has since evolved to include a wide range of organizations from different fields, all of whom adopt a qualitative strategy to increase their sales.
With the help of web analytics, the Department of Revenue looks at consumer behavior trends and historical conversions, turning the information into reliable forecasts for upcoming demand spikes. With the support of this data, companies can tailor their pricing and customer experience accordingly to improve profit.
A deep understanding of your target audience is at the heart of successful pricing and revenue management. Using historical data, companies can analyze how their customers think and what their motives are for buying a particular product or service.
Once you have this knowledge, it’s all about matching consumer demand to your ability, as well as adjusting prices based on time and audiences. Do this right, and you’ll be on your way to increasing your overall profits.
Who needs to manage pricing and revenue?
Revenue management is more effective for companies whose products or services are suitable for price fluctuations. Consider, for example, companies whose offerings are tailored to specific times of the year. These companies will benefit most from setting pricing and implementing revenue management.
For example, wholesalers, dropshippers, and food distributors often adjust their prices around the big holidays like Christmas and Easter, in anticipation of higher demand from independent retailers and venues.
Pricing and implementing revenue management is also a common approach among large technology retailers who deal in merchandise that can quickly become unsold if left unsold. The purchasing habits of different audience groups can also affect pricing and revenue management. For example, tech buffs will be willing to shell out more money for a modern gadget than regular users, so the demand for your product will vary depending on your target segment.
The other type of industries that benefit greatly from revenue management are companies whose offering does not carry over to the next day. Think of waste management, for example, where unused time today cannot be sold tomorrow. Putting up such companies, quite simply, has an expiration date.
How to improve pricing and revenue management
As we explained above, the approach you choose for pricing and revenue management depends largely on the products you sell and your overall business strategy. Ideally, you might aim to increase sales by balancing higher prices when demand is high, and discounts during quiet months.
You can achieve this with a fixed or dynamic revenue management and pricing approach. In other words, you can choose whether the price points of your products are adjusted based on performance (static) or historical (dynamic) data.
Learn more about the benefits of pricing and revenue management with