Partial-Repeat-Bidding in the Name-Your-Own-Price Channel
Marketing Science
Revenue Management of Flexible Products
Manufacturing & Service Operations Management
Probabilistic Goods: A Creative Way of Selling Products and Services
Marketing Science
Interfaces
Optimal Reverse-Pricing Mechanisms
Marketing Science
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Airlines often confront the challenge of determining how to profitably sell their distressed inventory (i.e., seats that their revenue management systems forecast will remain unsold). One solution to this problem is to sell this distressed inventory as opaque products via either the airline's own channels or a third party. An extension of the opaque product is the variable opaque product (VOP), whereby the customer can vary the amount of opaqueness in one or more attributes. Germany's leading low-cost airline, Germanwings, tested this concept during a period of more than three years with very encouraging results; the airline experienced a significant increase in revenues. Furthermore, competing airlines have not reacted to this new initiative; thus, it appears that Germanwings has generated a new set of customers. In this paper, we describe the significant results achieved by combining revenue management and marketing insights in the development of a VOP at Germanwings, present business metrics generated by the VOP, and offer insights on the use of VOPs in other industries.