Comparing Decision Rules that Incorporate Customer Diversion in Perishable Asset Revenue Management Situations

Abstract

Most of the initial work on perishable asset revenue management (PARM) situations assumed no possibility of customer diversion from one product class to another when the former is made unavailable. In this paper, an evaluation is made of the few published decision rules that incorporate the realistic and common behavior of customer diversion (or sell-up). We present a new heuristic approach that incorporates diversion and could be used by airlines and other relevant industries to achieve improvements in expected contribution of 0.25 to 2.5% over the approach currently used. The sensitivity of the difference in expected contribution between these rules is tested relative to changes in the input parameters, and managerial insights are presented.