Wake Up, Everyone Does Revenue Management...oh and its an infinite game, not finite!
Every day, we're engaging in the art of revenue management, often without even realizing it. It's not just a fancy term reserved for the boardrooms of big corporations; it's happening on the streets of Dubai, along the bustling autobahns of Germany, and yes, even in the decisions we make daily.
Let me share a couple of enlightening scenarios out of my own life. (Rafa and Hayden are busy with tests this week, so no story time for them 😜)
Scenario 1: The Dubai Taxi Tango
I landed in the vibrant city of Dubai this week.
I book a taxi through Careem (Uber), expecting a smooth ride to my destination.
However, my driver has a different plan. He asks me to cancel the app booking and pay in cash instead. Why? The plot thickens.
Careem excels in revenue management by optimizing driver allocation and consumer pricing.
Our clever driver has started using Careem merely as a customer acquisition tool, aiming to maximize his profits by receiving cash. This cash then cleverly circulates back into the economy, as he buys petrol, earning loyalty points for discounts.
It's a perfect circle of revenue management at the street level, showcasing an ingenious blend of technology and traditional bargaining to outsmart the system.
However, the downside: Too often, and he will get penalised by the algorithm. He is playing a finite game in a game that is actually infinite.
Scenario 2: The German Toilet Tactic
Next, let's take a scenic journey to Germany, renowned for its efficiency, including the management of restroom revenue on the autobahn.
Gone are the days when paying 50 cents allowed you a relieving stop and a token towards a future purchase. You could then use all tokens to by one, so for example: 4 coupons give me EUR 2 = 1 coffee.
Now Revenue Management was applied and the rules of the game have been changed.
The price has doubled to a euro in many locations, but, an here is the kicker: with a twist: it's a one-to-one deal now.
One coffee, one coupon.
For a family of four, this means an outlay of 4 euros, mandating an equivalent spend in the shop. 4 coupons = 4 items (where before one coupon was stacked). Even if I do not spent, I paid 1 EUR. The house always wins (Casino anyone?!?).
This shift from a many-to-one to a one-for-one coupon system is a classic move in revenue management, subtly encouraging higher spending.
It's a strategy that mirrors central banking principles more closely than one might expect (every dollar comes with debt) from a highway rest stop, turning nature's call into a lesson in economics.
How can you apply those lessons?
Simple answer: #ai .... ok just kidding
So, how can these everyday encounters with revenue management inspire us in business and, more specifically, in the hospitality industry?
First, like the Dubai taxi driver, businesses must leverage every tool at their disposal to enhance customer acquisition and retention strategies whilst driving revenue and reducing costs (enhance profitability.
Careem = Booking.com
Cash = Driving Direct
As for the German toilet strategy, it's a masterclass in adjusting your value proposition to encourage higher spend per customer.
Hotels could adopt similar strategies by restructuring their amenities or services to create more compelling reasons for guests to spend within the property.
Classic example here: overpriced mini-bar. Guests are not stupid, they go next door to the 7/11. Wake up!
Another Classic example: Buy a room, get F&B credits.
Conclusion
The next time you find yourself haggling over a taxi fare or contemplating the economic implications of a restroom break, remember: you're practicing revenue management.
Love,
Fabi
Comments
Comments for this content
0 comments available