Journal of Revenue and Pricing Management
This short article created my interest as it might be seen as follow-up to article about customer lifetime value and its application in revenue management. This one also emphasizes the benefits of this new way of segmenting customers. It might not be full of new ideas, but written by the VP in Profit Optimization department in SAS might be a person that has a good insight how the future of RM will look like.
Revenue Management and pricing techniques that are associated with it, are strongly dependent on market segmentation. Old approach to it, uses one variable, such as number of nights/flights, car rented per x and so on. The new approach to segmentation uses multiple variables. Such an approach will improve “one-to-one marketing, tactical marketing promotions, strategic customer lifetime valuation and basically will enable to deeper understanding of customers. ” (Pinchuk, 2009, pp.109)
Multiply variables that were mentioned before will be all determinants that customer behavior might be described. So not only the number of nights in hotel industry but also the frequency of visits, the overall spending in this hotel, the average spending in restaurant and so on. Those information will be analysed using statistical methods such as clustering to determine patters or life cycles of customers.
Such an approach will also have a direct influence on customers. Segmentation based on life values of customers will enhance direct personalized marketing. Customers will no longer receive marketing that is not suitable for them, instead of feeling like they are part of huge mass campaigns, they will know that your actions are directly targeted at them and actually they can use and benefit from them.
Hotels can use life cycles in order to understand market and its changes on very detailed individual level and aggregate them on higher levels in order to understand the “big picture” and take actions. Those levels might be hierarchical or tree-like progression where every lower levels contains more detailed information “more variables”.
The important thing to mention is that such a strategy requires huge calculation/statistical power as well as high accuracy. Therefore, this process has to be automated in order to make fast decisions. Such a customer lifetime automated system could integrate “revenue management and pricing with customer intelligence, customer relationship management and marketing automation” (Pinchuk, 2009, pp.111).
This new segmentation approach will greatly improve the ability of RM to yield demand more profitably, generate demand when needed, create a true one-to-one immediate marketing process and understand the market and its changes at a truly detailed and actionable level. Pinchuk, 2009, pp.111
Pinchuk, S. (2009). Changing revenue management and marketing using a new customer life cycle system. Journal of Revenue & Pricing Management, 8(1), pp.109–111.
Author: Mateusz Konopelski