Description

In industries ranging from travel to retail, a new sales strategy that essentially reduces waste - be it empty aeroplane seats or discarded food - is growing in popularity. The customer of an incompletely specified product (ISP) buys a bundle of several alternatives, from which the supplier selects one at a later date. ISPs include the widely used upgrades as well as newer approaches, e.g. ‘blind booking’ from Germanwings: the customer selects the departure airport, travel dates and a theme (e.g. ‘sun and beach’). The customer is only informed of the destination and time after booking. This offers the provider two advantages:

1. Due to their inherent uncertainty from the customer's perspective, ISPs offer a new way of segmenting demand. While ‘blind booking’ may be attractive for a private traveller, a business traveller will continue to buy the considerably more expensive conventional product.
2. The supplier can benefit from additional flexibility, especially if the alternative is not selected immediately after the purchase, as there is less uncertainty about demand later on.

The impact of ISPs on profits is often considerable, even if their share of sales is small, as they generally utilise existing capacities in an almost cost-neutral way, similar to revenue management, which is indispensable in many areas today.

Currently, USPs are also becoming particularly relevant due to COVID-19. Traditional time-based price differentiation is difficult to apply in the travel industry because hardly any customers book in advance. Airlines, for example, currently only offer USPs: Although seemingly conventional products are offered, these are based on an unrealistic flight schedule.

The (medium-term) design of ISPs (e.g. combination of alternatives to ISPs, pricing) is analysed in Strategic Operations Management in order to theoretically substantiate the existence of ISPs and derive recommendations for action. However, the special structures of customer preferences assumed so far mean that, from the provider's point of view, only ISPs with two alternatives are optimal, which they choose with equal probability, while in reality more complex ISPs are standard. In operational revenue management, the flexibility of ISPs has so far only been taken into account ad hoc and insufficiently when managing ISPs (offer quantities, selection of alternatives).

The project will initially analyse ISPs with more general customer preferences and aims to explain the more complex ISPs that are prevalent in practice. Design recommendations will be derived for ISPs with more than two alternatives and so-called variable opaque products that customers configure themselves.

On this basis, a framework for controlling ISP is being developed in revenue management, which separates the calculation of opportunity costs and optimisation, analogous to the current standard in so-called choice-based revenue management.

Contact

	M.Sc. Michelle Mitter michelle.mitter (at) uni-due.de Room:      LC015 Phone:   +49 203 37-93679		M.Sc. Henrik Nordhaus henrik.nordhaus@uni-due.de Room:      LC011b Phone:   +49 203 37-91673