Revenue Management of Flexible Products
Guillermo Gallego, Robert Phillips
Manufacturing & Service Operations Management · 2004 · Volume 6 · Issue 4
Abstract
A flexible product is a menu of two or more alternative, typically substitute, products offered by a constrained supplier using a sales or booking process. The supplier reserves the right to assign customers who purchase a flexible product to one of the alternatives at a time near the end of the booking process. An example would be an airline offering a morning flight consisting of specific flights serving the same market. Flexible products are currently offered by a number of industries including air cargo, tour operators, and Internet advertising. Flexible products have the advantage of increasing overall demand and enabling better capacity utilization at the cost of potentially cannibalizing high-fare demand for specific products. This paper introduces the concept of flexible products and derives conditions and algorithms for the management of a single flexible product consisting of two specific products. We use numerical simulation to illustrate the benefits from offering flexible products and discuss extension of the approach to more general settings.
Keywords
revenue management, flexibility, stochastic models, real options
Enable JavaScript for citation tools and additional paper interactions.