The Role of Space in Revenue Management
Service providers face the risk of losing revenue if physical capacity does not match the demand requiring its use, so operating with the optimal physical supply profile is essential to maximizing revenue. Research on how to determine this physical supply has not always accounted for the space required to house it, and has typically assumed that: the optimal supply mix can be accommodated by the available space, the existing number of inventory units within the space is appropriate, and inventory units are homogeneous in terms of the space they occupy. The research that has addressed the use of space in Revenue Management sometimes incorporates space as a constraint to the problem, but other times uses space as the decision variable. Therefore, testing whether there is a revenue difference between these two space outlooks in situations where these key assumptions do not hold is warranted. A simulation model using data from a casual, full-service restaurant was developed to compare the impact of incorporating space in these two ways into the Revenue Management problem. A full-factorial experimental design created 36 distinct simulation scenarios, with these two space outlooks serving as the primary factor, and three other factors providing a range of operating conditions. For each scenario, all possible table mixes were enumerated, simulated, and ranked according to total revenue. The top revenue-generating table mix under the two space methods were paired at every level of the other factors and revenue differences were analyzed. Results from the simulation experiment did not reveal any systematic revenue difference between the two space methods when the tables used at a restaurant were of standard size or larger. When the tables were smaller than standard size and the restaurant experienced extremely high demand, using space as the decision variable generated a significant revenue benefit over incorporating space as a constraint. To make these findings accessible to practitioners and because published means for determining the optimal physical supply profile do not always recommend table mixes that fit in the available space, table mix heuristics developed by Kimes and Thompson (2005) were modified to account for both methods of incorporating space. The size of the tables used by the restaurant and the seating rules followed affected which heuristic recommended the most lucrative supply mix.
Revenue Management; Space; Restaurant Revenue Management; Capacity Planning
dissertation or thesis