Using flexible products to cope with demand uncertainty in revenue management

  • Authors:

  • Anita Petrick;Claudius Steinhardt;Jochen Gönsch;Robert Klein

  • Affiliations:

  • Chair of Operations Research, Institute of Business Administration, Technische Universität Darmstadt, Darmstadt, Germany 64289;Chair of Mathematical Methods, Institute of Statistics and Economic Theory, Universität Augsburg, Augsburg, Germany 86159;Chair of Mathematical Methods, Institute of Statistics and Economic Theory, Universität Augsburg, Augsburg, Germany 86159;Chair of Mathematical Methods, Institute of Statistics and Economic Theory, Universität Augsburg, Augsburg, Germany 86159

  • Venue:
  • OR Spectrum
  • Year:
  • 2012

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Abstract

While flexible products have been popular for many years in practice, they have only recently gained attention in the academic literature on revenue management. When selling a flexible product, a firm retains the right to specify some of its details later. The relevant point in time is after the sale, but often before the provision of the product or service, depending on the customers' need to know the exact specification in advance. The resulting flexibility can help to increase revenues if capacity is fixed and the demand to come difficult to forecast. We present several revenue management models and control mechanisms incorporating this kind of flexible products. An extensive numerical study shows how the different approaches can mitigate the negative impact of demand forecast errors.