Why revenue management should consider customer behaviour?
Answers
Explanation:
Inter-temporal substitution refers to the practice of delaying purchases to a future point in time.
Until recently, the revenue management literature has almost completely neglected this issue. The
standard modeling paradigm is to assume that demand arriving at each instance in time is either
realized (leading to sales) or lost forever. There is no opportunity for demand to lie dormant in
the market, in anticipation of future purchase opportunities. Recognizing that this assumption is
unrealistic, recent work has begun to pay increasing attention to this issue.
We shall use the term “strategic customer behavior” to refer to this kind of inter-temporal
substitution behavior. Although strategic behavior could potentially be a much broader concept,
we shall fix our terminology to be consistent with recent papers in the literature. Additionally,
an emerging convention is to use the term strategic customers to refer to those who may practice
inter-temporal substitution, and to use the term myopic customers to refer to those who make a
one-time purchase decision at their time of arrival.