Using Flexible Products to Cope with Demand Uncertainty in Revenue Management
36 Pages Posted: 21 Nov 2012 Last revised: 21 Sep 2014
Date Written: October 31, 2009
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.
Keywords: Revenue Management, Flexible Products, Capacity Control
JEL Classification: C44
Suggested Citation: Suggested Citation