Revenue Management in the Manufacturing Industry : a model for capacity and pricing strategies in a manufacturing multinational

Abstract: Revenue management is a concept aimed to maximize capacity utilization and through that maximize revenues. It originated in the airline industry in the 70’s and due to its effectiveness  quickly spread to other sectors of the service industry. Today it is used in several industries like hotels, television and radio broadcasters, and energy transition companies to name a few. Since revenue management was developed in and for the service industry, most studies on revenue management are done on the service industry, creating a rather large research cap. Recently this concept has spread to the manufacturing industry as well. Despite this, there is very limited research done on revenue management in the manufacturing industry. Therefore, this paper’s aim is to partially filling this research gap by studying capacity management and pricing strategies (two mechanisms of revenue management), and how they have been shaped when implemented in a manufacturing company. This paper was done with a case study done on a multinational manufacturing company, who recently implemented revenue management. Interviews were conducted with people in key positions with good insight to the usage of revenue management in this company. Some of the most important result was that in this manufacturing company it is not possible to nest capacity on a customer segment level. However, in this company nesting was done on a market level instead. Also the pricing strategy differed between the service industry theory and this company. Instead of having a dynamic price that changed the total price up or down to change demand, this company had more of a fixed total price, and instead added more features to the product, decreasing the profit margin. The conclusion was drawn that the industry characteristics of the manufacturing industry have forced a rather large modification of revenue management. However, since this was a qualitative case study, no generalizing conclusions for the entire manufacturing industry can be drawn.