3 Ways Revenue Management Differs from Discounting

Catalate hears a lot of operators say they don’t want to implement a revenue management strategy because they do not want to discount their tickets. While we agree that discounting can have a negative impact on business operations, we wanted to set the story straight when it comes to how revenue management differs from discounting.

In order to discuss the ways in which revenue management differs from discounting, it’s important to first define the two concepts. Revenue management involves the deliberate use of data to more accurately predict and control demand and other consumer buying behaviors. Strategically, revenue management can be thought of as selling the right ticket, to the right customer, at the right moment, for the right price, through the right distribution channel.

Under a revenue management strategy, certain ticket prices might be cheaper than others, based on the variables above. However, while ticket prices fluctuate, prices are deliberately controlled by a dynamic pricing strategy and delivered through technology that’s informed by actual data.

For the purpose of this article, references to dynamic pricing or revenue management are intended to be used interchangeably – the assumption being that revenue management is achieved through dynamic pricing and dynamic pricing strategy leads to revenue management.

On the other hand, discounting tends to be reactionary, from-the-gut, and often arbitrary decision-making in an attempt to sell more tickets. Discounting often counteracts certain conditions such as the presence of a new competitor, unpredictable or poor weather, or even other price discounters challenging the status quo. Though discounting may seem to the operator as a strategic move, it could actually be causing harm to the kind of more consistent purchasing behavior the operator desires of its consumers.

Instead, operators need to be mindful of pricing hygiene, which helps them skip the highs and lows of last-minute price drops for a more consistent approach to revenue generation.

Revenue management allows operators to maintain control

Revenue management is about gaining control over pricing while discounting results in loss of control. Under a revenue management approach to ticket sales, the attraction operator sets themselves up to optimize revenues. As sales occur over time, dynamic pricing strategies adjust in real-time in response to demand patterns.
Reduced price tickets – particularly those that are only available in limited quantities because software like Catalate is set to control the quantities – are intended to stimulate ticket sales in advance, and promote yield growth with increases in demand. The best ticket strategies also require that tickets be used by a specific person i.e. non-transferable, which is different from plain ticket discounts, which are often out in the market available to anyone at any time, and fairly unrestricted. Technology may also enable a bundled or packaged purchase, thereby increasing the value of the sale. This stimulates the production of more revenue, and the operator maintains control over their revenue, and available inventory, by allowing the software to do what it’s been built to do.

Discounting, on the other hand, often means the loss of operator control over their revenue. For example, an unlimited Two for Tuesday discount means the operator relinquishes control over how many discounts they sell. Worst still, the operator does not earn more revenue as demand rises. The discounted price continues to be offered to customers who might have been willing to pay more. In this scenario, a business owner potentially leaves money on the table.

Operator intention differs with revenue management

Ask the question: What is the operator’s intention? With discounting, the operator’s intention is to drive ticket sales volume. In order to achieve that, the operator thinks they need to sell tickets at a reduced rate. Discounts available to anyone in the market are essentially dropping the window rate of the ticket.

But with revenue management, the operator’s immediate and long-term intention is to drive advanced purchase sales, while increasing conversion rates and yield.

By achieving advanced purchase sales through dynamic pricing strategies, the operator gains both financial and operational predictability. By using a dynamic pricing strategy, even if the price is lower at a particular time or point in the customer purchasing journey, advanced sales data can help the operator anticipate how many tickets they will ultimately sell overall. This is powerful data that goes back to supporting operator control. In fact, the elimination of unfenced discounts in the market can actually raise yield with appropriate dynamic pricing.

Offering the right price at the right time also increases online conversion rates, so that dollars spent on marketing return at a higher rate.

Revenue management reinforces a brand, vs. degrading it

The pandemic only served to increase online shopping. As of June 2020, 87% of Americans were shopping online. It’s not too hard to train consumers to pattern certain online shopping behaviors. If an attraction constantly or frequently discounts, it’s only training its consumers to continually search for a deal.

Recent data analysis showed that heavily discounted purchases lead to lower customer lifetime value, lower customer satisfaction scores, and higher revenue churn. Expert opinion holds that, “Once you’re a discount brand in the eyes of the consumer, you’re forever going to be a discount brand. It’s just not something you can easily recover from.” If an attraction or experience seeks to be known as a discounter, then offering frequent discounts could make sense. On the other hand, if they want to be known as a premium brand or fantastic experience, then repeated discounting only serves to degrade their brand.

Data backs up the strong correlation between consumer loyalty and brand perception. Consider that women make close to 85% of all travel decisions, and if a woman likes a brand, 85% will stay loyal to it.

Brand loyalty among both men and women is closely tied to brand trust. One key factor in developing trust is transparency; one element of transparency is the consumer trusting that the price they pay is the best price available. If the consumer feels they can always find a better deal elsewhere, they do not trust the first price they find.

They go hunting.

On the other hand, if the consumer knows the brand’s pricing policy – for example, buy further in advance of a visit to get the best price – the consumer will be more likely to trust the brand and make the purchase upfront.

When the consumer follows this kind of purchasing behavior repeatedly, it reinforces their perception and faith in that brand. It’s a positive self-fulfilling cycle rather than a constantly disruptive one that drives distrust.

Final Thoughts

We hope we’ve made clear the differences between discounting and revenue management. While both can lead to more ticket sales, only revenue management necessarily leads to greater yield and profits, positive consumer behavior, and strong brand perception.

Catalate is a full-service SaaS solution that offers customized pricing strategies, an e-commerce platform, and opportunities for enhanced distribution. It has processed more than $1 billion in transactions and manages 50 million price points for customers. Get in touch today.

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