How to apply Six Sigma to revenue management

Abstract

This article illustrates a new process for examining revenue management effectiveness by investigating how Six Sigma is applicable to revenue management in the hospitality industry. Moreover, it aims to examine the difficulties of the implementation as well as how such an approach could influence the performance of an organisation. The literature on Six Sigma and revenue management was investigated to get an understanding of both management approaches. After reading critical literature about the effectiveness of revenue management the author developed a proposal via literature how Six Sigma could improve this approach. Six Sigma could eliminate root causes of defects within the revenue management process while screening the process in five different stages -Define, Measure, Analyse, Improve and Control. Applying Six Sigma to revenue management could help organisations to make right decisions about pricing and distributing services while maximising revenue and utilising capacity. However, it is questionable whether Six Sigma could reduce the defects to 3.4 out of 1 million opportunities, the actual goal of Six Sigma. Revenue management deals with a heterogeneous market demand and some difficulties may arise in predicting this demand 100 per cent correctly. Therefore, more research on revenue management goal setting as well as on applying Six Sigma to revenue management is needed. The article focuses on making a proposal for the improvement of revenue management processes by the investigation of the literature on Six Sigma and revenue management. This approach though, needs to be tested in practice to be certain that it is realisable to apply Six Sigma to revenue management. Although a large volume of both Six Sigma and revenue management is available, the question how Six Sigma can be applied to revenue management to improve the accuracy of revenue management processes still needs further research. This article aims to fill this gap by providing a proposal of the implementation. This insight could significantly improve net profits of any organisation dealing with revenue management.