Revenue Analytics: The Problem With Fixed-Tier Pricing
Date
2023-02-08
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Cornell Hospitality Quarterly (CHQ)
Abstract
With the widely used fixed-tier computerized pricing system (e.g., based on the best available rate or BAR), fenced discount rates are set and updated as a fixed percentage of the base rate such as the BAR. This intuitive computer-automated solution to a complex pricing issue is, however, theoretically suboptimal. The study demonstrates why the practice of using fixed-tier pricing is suboptimal, showing that this fixed-tier approach is inferior even when the initial set of fenced rates is optimal and even in the unlikely scenario of the various market segments’ demand curves shifting proportionally. As such, practitioners should avoid using a convenient fixed-tier pricing model (BAR-based or not) where only one pricing optimization is run and the rest of the fenced prices are calculated based on this optimized price using fixed percentages. Instead, a fenced-rate pricing system where individual segments are treated independently, and optimizations are run for each segment should be adopted.
Description
This is the accepted manuscript version of Ma, Jing, and Zvi Schwartz. “Revenue Analytics: The Problem With Fixed-Tier Pricing.” Cornell Hospitality Quarterly, February 8, 2023, 193896552311524. https://doi.org/10.1177/19389655231152456, which has been accepted for publication in Cornell Hospitality Quarterly. The version of record is available at: https://doi.org/10.1177/1938965523115245
Keywords
revenue analytics, fixed-tier pricing, pricing, optimal revenues
Citation
Ma, Jing, and Zvi Schwartz. “Revenue Analytics: The Problem With Fixed-Tier Pricing.” Cornell Hospitality Quarterly, February 8, 2023, 193896552311524. https://doi.org/10.1177/19389655231152456.