Differentiation, self-selection and revenue management

Abstract

This paper takes an interdisciplinary approach towards revenue management, incorporating economics and marketing concepts and proposing that firms employ a dynamic service differentiation so that consumer needs are met more closely. To locate market segments, the paper proposes that firms employ segmentation based on self-selection, providing consumers with an array of choices that are truth revealing and allowing firms to price discriminate without the need to predetermine segments. Through differentiation and self-selection, uncertainty could also be reduced. Furthermore, self-selection could also allow firms to reduce the costs of coordinating and monitoring rate fences.