Type of Publication: Article in Journal

Using Flexible Products to Cope with Demand Uncertainty in Revenue Management

Author(s):

Petrick, A.; Steinhardt, C.; Gönsch, J.; Klein, R.

Title of Journal:

OR Spectrum

Volume (Publication Date):

34 (2012)

Number of Issue:

1

pages:

215-242

Keywords:

Revenue management; Flexible products; Capacity control

Fulltext:

Using Flexible Products to Cope with Demand Uncertainty in Revenue Management (351 KB)

Link to complete version:

https://doi.org/10.1007/s00291-009-0188-1

Citation:

Download BibTeX

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.