Revenue Management and Price
discrimination: consumers’ reactions
Patrick Legohérel,
University of Angers
Revenue Management and Price
discrimination: consumers’ reactions
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Distinguished delegates… you are travellers.
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…and you have to pay for your room, your
ticket (airline, TGV…).
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The cost of your trip is of importance for
you… and for your boss!
Revenue Management and Price
discrimination: consumers’ reactions
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His/her (i.e. your boss!) question: how much
have you paid?
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Did you get a good price?
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Have you anticipated your booking, and tried
to get an early booking rate?
Revenue Management and Price
discrimination: consumers’ reactions
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When boarding (on plane, on TGV…), did
you know if your ticket was the most
expensive one, or if you have paid far less
than other passengers?
You can bet that the other customers seated
by your side have probably paid a different
rate.
Revenue Management and Price
discrimination: consumers’ reactions
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My room (Ibis): 85.5€ each night on average, for a
multiple-night stay.
Is it a good deal regarding the « product » (2* hotel,
location…)?
The theoretical limits (written at the back of the door
of my room) are:
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Minimum rate: 65€
Maximum rate: 110€
Is it a good deal on a given date (12th of April)?
Revenue Management and Price
discrimination: consumers’ reactions
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The customer has no idea!
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The developpement of Yield/Revenue
Management has lead to more price
discrimination and to more variations of
prices.
Revenue Management and Price
discrimination: consumers’ reactions
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Yield/Revenue Management is a
sophisticated form of supply and demand
management with simultaneous action based
on prices and available capacity.
This strategy consists of allocating the best
service to the best customer, at the best price
and at the best moment in time (Smith,
Leimkhuler and Darrow, 1992)
Revenue Management and Price
discrimination: consumers’ reactions
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The main objective consists of not serving all the
customers equally but prioritizing and reacting more
quickly to the customer who make the largest
contribution and accept the highest price (Legohérel
and Poutier, 2011).
End of the rule: first come, first served.
Think about it when booking: are you a profitable
customer for the hotel, the airline…
Revenue Management and Price
discrimination: consumers’ reactions
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The « visible » consequence of Revenue
Management for customer is characterized
by an impression of continuous and
unexplained variation of the prices.
Kimes (2002) shows that certain practices
(regarding prices) in the hotel business are
considered unfair, unjustified and/or
excessive by the respondents (customers
staying in hotels during the survey).
Revenue Management and Price
discrimination: consumers’ reactions
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The price-customer interface management becomes
a problem, and the repercussions are:
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Loss of references (what is the real price of the room, why
is a 3* room less expensive than a 2* room…)
Reduction in trust toward the service provider (relation
between price and quality, is the decision regarding the
price a serious one…)
and a certain level of dissatisfaction (I didn’t get the price I
was looking for…)
Revenue Management and Price
discrimination: consumers’ reactions

The critical/most important part of the relation
between guests and the hotel (or other service
providers) are:
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The first contact (the customer enter the hotel, feel the
atmosphere…)
The last contact…
Nowadays, the first contact is often the interface
between the customer searching for prices on the
website, and trying to book his/her room.
During this critical moment, the customer can
sometime get lost, confused… facing unstable and
unexplained prices
Revenue Management and Price
discrimination: consumers’ reactions
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Theoretical background:
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perception of honesty, fairness and equality is considered
as a psychological factor exercising an influence on
purchasing decisions (Bolton, Warlop et Alba 2003;
Bolton, Lemon et Verhoef 2004, Campbelle 1999; Xia,
Monroe et Cox 2004).
The variation of a price must be understandable and
exposed to the consumers (Lynn 1990). A consumer who
pays more for an identical service but who does not
perceive the difference between the two services, will
consider the situation unfair and dissatisfactory.
Revenue Management and Price
discrimination: consumers’ reactions
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Theoretical background :
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Fair behavior (perceived justice and equality) = correlated to
profits in the long term
Concept of reference transaction, correlated with fairness
and justice (Kahneman, Knetsch and Thaler, 1986):The
price and the condition of the transaction must be seen by
the customer to be a reasonable price that he must pay with
a reasonnable profit for the company.
Then, if the price is too high with no justification, or being
modified too often and/or too quickly…the transaction
(and to a certain extend, the company/brand) are
considered as unfair, unequal, not honest…
Revenue Management and Price
discrimination: consumers’ reactions
Prices… too high… often modified…= Revenue
Management
Then should we consider that RM results in
situations perceived as unfair and dissatisfactory?
Other tools associated with the RM techniques face
similar limitations: barriers.
Revenue Management and Price
discrimination: consumers’ reactions
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Barriers reduce the possibility for the consumer to
escape his/her price segment and have access too
easily to price reductions which are not made for him
(Wirtz and Kimes, 2007).
A fair price must be associated with fair pricing rules
and barriers (Dickson and Kalapurukal, 1994). But
those access rules and pricing barriers are
sometimes seen to be unfair and dishonest.
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Theories and research hypothesis have been
propose in the literature in order to understand the
consequences of pricing barriers on
consumers’reactions
Wirtz and Kimes (2007):
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The regular confrontation of the customer towards
discriminatory pricing practices creates a moderating role of
the pricing rules and barriers.
The pricing rules and barriers have a more significant effect
on the perception of equality and honesty when the
customer is not familiar with the pricing practices.
Revenue Management and Price
discrimination: consumers’ reactions
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A key issue is: has the developement of
Revenue Management modified the relation
between the service provider and the
guests?
Should service providers develop
new/innovative relationship with their
customers?
An attempt to look « less unfair » and more
acceptable (honest) is the BAR technique.
Revenue Management and Price
discrimination: consumers’ reactions
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What is BAR?
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A place where you can order a beer or a coffee?
→ Yes, but it is not the issue for the moment
(Wine testing is forthcoming)
A Best Available Rate offered by a hotel on its
website?
→ Yes
Revenue Management and Price
discrimination: consumers’ reactions
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The BAR is the best price the hotel can offer
to a customer for each night, and the
information is presented to the customer
when he/she is booking his/her room.
The BAR must contain a signal for the
customer, and must play a major role in
informing customers they will obtain « the
best advertised price »
Revenue Management and Price
discrimination: consumers’ reactions
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Rohlfs et Kimes (2007) define the BAR as an
attempt to reduce confusion and to
guarantee the customer the most competitive
price possible for each night of its stay.
Revenue Management and Price
discrimination: consumers’ reactions
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Academic and managerial perspectives:
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Up until what point can we apply the revenue
management practices in response to the
objectives of revenue maximization, while at the
same time, preserving the customers feeling of
justice, fairness and equality?
Can the experience effect alone help to lower the
feeling of injustice and the consumers’ perception
of an unbalanced transaction?
Revenue Management and Price
discrimination: consumers’ reactions
Academic and managerial perspectives: The
question of the perception of the fair and
honest character of dynamic pricing
practices, and revenue management are yet
to be adressed.
Revenue Management and Price
discrimination: consumers’ reactions
Thank you for your attention.