“A STUDY ON REVENUE MANAGEMENT AT BESCOM”

CHAPTER-1

INTRODUCTION

1.1 Introduction To Revenue Management

Revenue management started in the seventies with Rothstein (1971,1974)and little wood
(1972).they investigate practices of revenue management in airlines and hotels. Revenue
management has its origin in the airlines industry. The core of revenue management is to
sell right product to right customer at right price with the goal of maximizing expected
revenue or profit. Revenue management will be suitable for all industries which have similar
characteristics of market segment, different pricing. Demand fluctuation, limited capacity
and so on

It has been widely used in numerous rentals by used with the business and service
industry such as car rental, equipment rental, advertising, airlines, hotels, mesentery
industry, manufacturing, and retail and so on. Revenue management tools widely used with
the object of maximizing Revenue to the firm

1.2 Meaning of Management:

The process of dealing with or controlling things or people. Management is an individual or a

group of individuals that accept responsibilities to run an organization. They plan, organize
direct and control all essential activities of the organization. Management does not do the work
themselves, they motive others to do the work and co-ordinate all the work for achieving the
objectives of the organization.

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1.3 Definition Of Management:

According to Harold Kountze “Management is the art of getting things done through people in
formally organized groups”.

According to Henri Fayola “To manage is to forecast and to plan, to organize to command to
co-ordinate and to control”.

1.4 Definition of Revenue Management:

“Revenue management is the process of allocating right inventory unit to right customer at right
time and for right price. It guides the decision of how to allocate and differentiated units to
limited capacity and to available demand in a way to maximize profit”.

1.5 Meaning Of Revenue Management:

Revenue management is an integrated, continuous and systematic approach to maximizing the

revenue.

In other words revenue management is the practices of obtaining the highest possible revenue in
the selling of firm capacity.

In simple words it is described as selling the services at right price to the right price to the right
customers.

1.6 Revenue Management

Is the application of disciplined analytics that predict consumer behavior at the micro-market
level and optimize product availability and price to maximize the revenue growth. Primary aim
of revenue management is selling the right product to the right customer at the right time for the
right price. The essence of this discipline is in understanding customers, perception of product

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value and accurately aligning product revenue management prices, placement and availability
with each customer segment.

In Other Words Revenue Management/Yield Management:

Yield management is the process of understanding, anticipating and influencing consumer

behavior in order to maximize yield or profit from a fixed, perishable resources (such as airline
seats or hotel room reservation or advertising inventory).as a specific, inventory focused branch
of revenue management, yield management involves strategic control of inventory to sell it to the
right customer at the right time for the right price. This process can result in price discrimination,
where a firm charges customers consuming otherwise identical goods or services. Yield
management is a large revenue generator for several major industries.

1.7 Objectives of Revenue Management:

1. The basic objective is to increase the revenue and contribution by contribution by

charging high price
2. Maximize profit of firms
3. Improve the effectiveness

1.8 The Revenue Management Levers:

Whereas yield management involves specific actions to generate yield through perishable
inventory management, revenue management encompasses a wide range of opportunities to
increase revenue. A company can utilize these different categories, like a series of levers in the
sense that all are usually available, but only one or two may drive revenue in a given situation.
The primary levers are:

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1. PRICING:

This category of revenue management involves redefining pricing strategy and developing
disciplined pricing tactics. The key objective of a pricing strategy is anticipating the value
created for customers and then setting specific prices to capture the value. A company may
decide to price against their competitors or even their own products, but the most value comes
from pricing strategies that closely follow market condition and demand, especially at a
segments level. Once a pricing strategy dictates what a company supposes to do, pricing tactics
determine how a company actually captures the value. Tactics involves creating tools that change
dynamically, in order to react to changes and continually captures value and gain revenue.

2. INVENTORY:

When focused on controlling inventory, revenue management is mainly concerned with how best
to price or allocate capacity. First; company can discount products in order to increase volume

By lowering prices on products, a company can overcome weak demand and gain market share,
which ultimately increases revenue so long as each product sells for more than its marginal cost.
On the other hand in situation where demand is strong for a product but the threat of cancellation
looms (hotel rooms or airline seats),firms often overbook in order to maximize revenue from full
capacity. Overbooking’s focus is increasing the total volume of sales in the presence of
cancellations rather optimizing customer mix.

3. MARKETING:

Price promotion allows companies to sell higher volumes by temporarily decreasing the price of
their products. Revenue management techniques measure customer responsiveness to promotions
in order to strike a balance between volume growth and profitability. An effective promotion
helps maximize revenue when there is uncertainty about the distribution of customer willingness
to pay. When a company’s product are sold in the form of long term commitment, such as

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internet or telephone services, promotions help attract customers who will then commit to
contracts and produce revenue over a long time horizon. When this occurs, companies must also
strategize their promotion roll-off policies; they must

Decide when to begin increasing the contract fees and by what magnitude to raise the fees in
order to avoid losing customers. Revenue management optimization proves usefull in balancing
promotion roll-off variable in order to maximize revenue.

4. CHANNELS:

Revenue management through channels involves strategically driving revenue through different
distribution channels. Different channels may represent customers with different price
sensitivities. Different channels often have different costs and margins associated with those
channels. When faced with multiple channels to retailers and distributions, revenue management
techniques can calculate appropriate levels of discounts for companies to offer distributors
through opaque channels to more products without losing integrity with respect to public
perception of quality.

1.9 Revenue Management Process:

 Data collection:

The revenue management process begins with data collection. Relevant data are paramount to a
revenue management system’s capability to provide accurate actionable information. A system
must collect and store historical data for inventory, prices demand, and other casual factors. Any
data that reflects the details of product offered, their prices, competition, and customer behavior
must be collected, stored, and analysis. In some markets, specialization data collection methods
have rapidly emerged to services their relevant sector, and sometimes have even become a norm.

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 Segmentation :

After collecting the relevant data, markets segmentation is the key to market-based pricing and
revenue maximizing. Success hinges on the ability to segment customers into similar groups
based on a calculation of price responsiveness of customers to certain products based upon the
circumstances of times and place. Revenue management strives to determined value of a product
to a very narrow micro-market at a specific movement in the time and then chart customers
behavior at the margin to determine the maximum obtaining revenue from those micro-markets.

 Forecasting:

Revenue management requires forecasting various elements such as demand, inventory

availability, market share, and total market, its performance depend critically on the quality of
these forecasting.

Forecasting is a critical task of revenue management and takes much time to develop, maintain,
and implement, quality- based forecasts, which use time-series models, booking curves,
cancellation curves, etc, project future quantities of demand such as reservation or product
bought. Price- based forecast seek to forecast demand as a function of marketing variables, such
as price or promotion

 Optimization:

While forecasting suggest what customers are likely to do, optimization suggests how a firm
should respond. Often considered the pinnacle of the revenue management process, optimization
is about evaluating multiple options on how to sell your products and to whom to sell your
product. Optimization involves solving two important problems in order to achieve the highest
possible revenue. the first is determining which objective function to optimize. A business must
be decide between optimizing prices, total sales, contribution margins, or even customer lifetime
values. Secondly, the business must decide which optimization techniques to utilize.

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 Dynamic re-evaluation:

Revenue management requires that a firm must continually re-evaluate their prices, products, and
process in order to maximize revenue. In a dynamic market, an effective revenue management
system constantly re-evaluates the variable involved in order to move dynamically with the
market. As micro-market evolve, so must the strategy and tactics of revenue management.

1.10 The Benefits of Revenue Management

Some of the main benefits are:

Gain competitive advantages:

The revenue management provides the competitive advantages to the company.

 Maximize revenue :

According to Robert cross, the author of “revenue management: hard-core tactics for market
domination”, firms employing revenue management techniques have seen revenue increase
between 3% and 7% without significant capital expenditure, resulting in a 50% to 100% increase
in profit”.

 Maximize profits :

According to the score card ,a revenue management periodical, “implementing consistent pricing
and revenue management processes along with supporting decision support systems can lead to
substantial improvements in corporate profitability- often on the order of 1-2% of revenue or
even more.”

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 Maximize ROI :

When revenue management is effectively applied, ROI calculation become a no-brainer. With a
proven track record in increasing revenues applied directly to the bottom line, investment in
revenue management can be easily justified.

 Use science not guesswork :

In a dynamic pricing and demand environment, there is no room for gut-feel and subjective
decision making. Companies implementing revenue management basically employ proven
principal of management science and information technology, including historical data analysis,
accurate data modeling, and statistical and mathematical optimization

1.11 Revenue Management Areas:

Some of the revenue management areas such are:

 Airlines.
 Hotel industry.
 Transportation.
 Electricity supply.
 Manufacturing goods. Etc.,

Airlines:

Revenue management is a systematic theoretical foundation and advanced technical method was
first created and widely used in airlines industry. With the theory and application of revenue
management in airline industry got a great success.

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American airlines firs developed and used revenue management system in the early 90’s 20th
century. Under the environment of loss in the air transport industry. They created a record of
revenue growth by 6%in a year.

Maximum revenue earned by selling the right seats to the right customer @ the right time.

Hotel Industry:

In the early 90s 20th century. The Marriott hotel in the US take the lead in hotel industry to
introduced revenue management system. Then the hotel seats revenue as increased by 7% in
same year. Then the hotel sales revenue has increased by 7% in the same year, with only a small
change in the cost of expenses. Such increased revenue almost entirely converted into profit.
Revenue management is a series of demand forecasting techniques used to determined the price
up or down and whether to accepts the booking request or not, in order to maximize the revenue.

Transportation:

Revenue management widely practiced in the transportation in the objectives of maximization of

revenue of a firm. That helps to decide how much of inventory (seats in buses or railway) to
allocate to different types of market segment at which prices.

1.12 Advantages Of Revenue Management :

Revenue management, also know as yield management, is defined as the system of

understanding and anticipating the actions of customer to increase revenue and make the must
out of company profit. Although this is typically some things that all business strive to do.
Revenue management focused primary on industries with certain types of resources, such as the

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hotel industry or airline industry. The benefits of revenue management includes a better ability to
predict customer wants and needs a more effective pricing strategy expansion of available
markets and a stronger relationship between the company division.

1 Customer Expectation:

Revenue management provides companies with a better understand of what their customer
expect in the company’s product. The researcher involves with revenue management gives
companies insight into the specific wants and needs of their customers and enable the company
to shape the product and its presentation more effectively. For instance, a hotel chain working on
revenue management might discover that customers are typically business travelers who needs
easy access to the internet.

2 Competitive Pricing:

Revenue management enables the company to create a competitive pricing strategy that will
draw in customer and give the company an edge over its competitors. In fact, revenue
management is so pervasive within certain industries that companies failing to implement
revenue management strategic are unable to continue competing effectively within the
marketplace. For examples, an airline might complete research that shows customer to customers
who would otherwise be willing to fly are struggling with high prices and extra fees. As a result,
the airline can boost its competitive advantages by lowering prices on certain or even by baggage
fees.

3 Market Segments:

Revenue management seeks to show the company the fulfill extend of its market segment and to
introduced the company to new market segment that are available. Companies that usually focus
on a certain market segment might need to expand their focus to continue growing in the
industry. For instance. A hotel chain that focuses primarily of business travelers might realize

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that many of its chain location are in destination that has become popular family vacation spots.
As a result, the hotel chain can begin advertising to family travelers and making any necessary
adjustment in the chain locations, such as larger breakfast offering or play areas for children, to
encourages from this market segment.

4 Company Division:

Revenue management creates a strong awareness between the activities of those working on
sales and marketing, and those on the front line of services. Sales and marketing representatives
must develop program to reach out to customer, but it is the services representatives on the front
line who are responsible for carrying out many of these program. Revenue management provides
companies with the opportunities to co-ordinate their division more closely and thus creates the
most programs possible.

5 Yield Management System/Revenue Management:

Yield management system (also known as revenue management system) typically used in service
industries that offer perishable goods, such as hotel rooms or airlines seats. Yield management
was first used by the airline industry (united and American) after the airline deregulation. Yield
management tries to leverage selling all the available inventory and making the maximum profit
possible. However, it is not always possible to sell all of the seat on the same price. Using yield
management techniques the prices for these seats may be discounted to entire people to buy the
seats. The plane may also be overbooked to assure that all the seats are filled even if some people
do not up for the flight or cancel their seat. Yield management system attempt to use historical
data and specialized algorithms to determine the optimal price to sell the inventory. These
systems can work in real time and change prices based on demands.

1.13 Companies Why Use Yield Management Systems:

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revenue management system include, defined the following reasons to use a yield management
system.

“Accurately assess future consumer behavior under dynamically changing market conditions “.

“Determine the most effective way to price and allocate inventory to reach every future
consumer. Each and every day, making real-time”. Communicate this information
instantaneously to distribution.

And sale outlets which deal with the consumer in the real-time.

“service as a decision support resource for marketing and operational functions, including but not
limited to :pricing scheduling, product development, advertising, sales distribution, human
resources utilization and capacity planning”.

1.14 Industries That Use Yield Management Systems:

 Airline
 Hotels
 Car rental agencies
 Cruise lines
 Railroad
 Television broadcast
 Restaurants
 Golf courses
 Telecommunication

1.15 Revenue Management In BESCOM:

BESCOM is an electricity supply company wholly owned by Govt. of Karnataka supplying

electricity in the 5 district of Karnataka. Collection of revenue management and maintenance of
customer records happens to be a very important task for its different offices across the area of

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its jurisdiction. In this context BESCOM is utilizing the services of TERASOFT and ECIL in
two districts on BOO basis.

1.16 Services Offered Are:

 Provides necessary hand held terminals to facilitate the billing at customer premises
 Provides necessary desktop, servers, ups, and printer to facilitate the running of
revenue management software.
 Provides qualified manpower to man the services required.
 Provide required stationery for bill generation and report generation.
 Financial model
 BESCOM will make payment on the basis of consumer data being maintained and
processed per consumer on monthly basis. Entire infrastructure is built by
TERASOFT and ECIL as business partners.
 The project shall be managed for a period of 3 years.

1.17 BESCOM Revenue Management:

BESCOM has embarked upon a project to automate the distribution network for monitoring,
control and operation of the 11KV network in the Bangalore city. The implementation of
distribution automation in the Bangalore city will enhanced the reliability and quality of power
supply.

The cost of the project is estimated to Rs.563 corers. The JICA (Japan international cooperation
agency) is extending financial assistance to an extend of Rs.417 cores for this project. The
project is schedule to be complete on financial year 2014-2015.

1.18 Objectives Of Revenue Management In BESCOM:

I. Provide assured quality and reliability of power supply.

II. To improve quality of services management and customer satisfaction.

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III. To avoid loss of time for fault location and restoration due to manual operation.
IV. To improve the reliability power supply in Bangalore city thereby increase in energy
sales and hence revenue.
V. To integrate all IT (information technology) related activities on to a common
distribution management system.
VI. To improve network control management.
VII. Optimum power factor reduction in losses.
VIII. Enabling of online energy audit.

1.19 Revenue Management In Karnataka:

MANGALORE:

Hefty ledgers are slowly disappearing from the sub divisional offices of the MANGLORE
electricity supply company (MESCOM). This is mainly because of an initiative taken by the
company to usher in a total revenue management (TRM) system. The pilot project was
undertaken in three of its 35 subdivisions. Buoyed by the result MESCOM took up the project in
14 of its subdivision in the phase and the remaining 18 in the second phase.

The company initially introduced the total revenue management system at the number one sub-
divisional at Attala in MANGALOTR and in city sub-division one and two in SHIVAMOAGA
as part of the pilot project. It then ushered in the system in the sub-division in DAKSHINA
KANNDA, UDUPI and CHIKKAMANGALUR districts followed by the remaining subdivision,
including those in SHIVAMAOGA.

An important part of the system is the spot billing machines introduced by the company. A meter
reader no longer has to enter billing data manually into bill books. Instead, he can download the
data from the company system. Spot billing machines introduced 3 years ago have completely
replaced bill books.

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The main objective of introducing these machine under the total revenue management system
was to reduce billing errors, said s. Chikkananjappa managing director of MESCOM.

He told the Hindu, “it was our Endeavour. To automate all over sub divisional offices including
the billing and revenue collection system using total revenue management system.

The initial idea is to enable consumer to monitor their power consumption online, “once the
system has stabilized and revenue management is flawless, we can think of having a web enables
system for payment of bills, “He added, on the fact of old ledger, s.chikkananjappa said, ”we
will ensure that are kept safety in our storerooms as back-

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CHAPTER-2

RESEARCH DESIGN

1.1 Research:

According to D. SLESINGER & STEPHENSON is the encyclopedia of social science define

researcher as “the manipulation of things, concept or symbols for the purpose defined research as
“the manipulation of things, concept or symbols for the purpose of generating to extend correct
or verify knowledge aids in construction of theory or in the practices of an art”.

1.2 Research Methodology:

Research methodology is a science and systematic way to solve problems. A researcher has to
design his methodology I.e., in addition to the knowledge of methods or techniques he has to
apply the methodology as well. The methodology differs from problem to problem. Research
describes the various steps that are generally adopted by a research in studying the research
problem with logic behind them data is important report of BESCOM.

1.3Research Designs:

The research designs are the conceptual structure with in which research is conducted. It
constitutes the blue print for the collection measurement and analysis of data. A research design
is a basic plan. Which guide the data collection and analysis the phases of data collection
procedure.

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1.4 Definition:

A research design is defined as the “arrangement of conditions for collection and analysis of data
in the manner that aims to combine relevance to the research purpose with economy procedure”.

1.5Title Of The Topics:

A study on revenue management with reference to Bangalore Electricity Supply Company

limited (BESCOM).

1.6Statement Of The Problem:

Revenue management is a way to maximize the earnings or revenue by proper management of

Surplus or deficit revenue generated by the BESCOM.

Revenue management is a tool widely used with the objective of maximization of the revenue of
a firm. Today, revenue management plays an important role for service firms in many different
industries. The civil aviation industry got great success At present revenue management as been
widely used in hotel, car rental, television advertising, passenger transportation
telecommunication and energy supply, tourism and other services industries, and extend to
financial, retail, medical services, internet services and other area revenue management is a tool
widely used with objective of maximization of the revenue of a firm that helps to decide how
much inventory (seats in bus, rooms in a hotel). To allocate to different types of market segment
and what prices /fare. Industry can follow two types of revenue management techniques. Price
based revenue management and quantity based revenue management. Bus industry follows

1.7 Objectives Of The Study:

 To allow the method used to maximize the revenue.

 To understand to study the overall financial aspect of the BESCOM.
 To examine the revenue generation strategies of BESCOM.

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 To explore the opportunities available for generating & utilizing revenue.

 To manage the revenue position by analyzing the surplus/deficit position of BESCOM.
 To find the growth rate of BESCOM.
 To study & analyze the required steps to improve the revenue position of BESCOM.

1.8 Operations Definition:

Meaning:

Revenue management is an integrated, continues & systematic approach to maximizing revenue.

Definition:

According to KIMES,

“Revenue management is the process of allocating the right inventory unit to right customer at
the right time & for the right price. it guides the decision of how to allocate undifferentiated units
to limited capacity & two available demands in a way to maximize profit or revenue”.

1.9 Scope Of The Study:

 Revenue management is highly significant for the successful management for revenue
earned by BESCOM.
 The scope of the study is extended to the way in which revenues managed at the time of
surplus/deficit position in the company.
 To maximize the revenue by increasing the unit rates.

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1.10 Sources Of Data Collection

 Primary data
 Secondary data

Primary Data:

Primary data are those data that are collected for the first time which for a specified purpose
primary data is original in nature. The data was being collected by consulting with accounting
department of the company.

Secondary Data:

It is the data which is already being collected & analyzed by other it is collected from referring to
the documents by the company. The data is collected through the various records & annual
reports maintained by the company.

1.11 Limitation Of The Study:

 The study is limited to a period of 3 years data provided by the BESCOM.

 The major limitation of this study is practically difficult.
 The time available for the study was too less.
 The study is limited to the information provided by the company because of secrecy.
 The study is mainly concerned with maximization of revenue in BESCOM.
 The study how ever excluding the perception of customer & other persons.

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Other View Of Chapter Scheme

The study report will be presented in 5 chapters as indicated below.

 Chapter- 1

Introduction:

Introduction of revenue management,- meaning and definition of management,-meaning and

definition of revenue management,-objectives revenue management,-levers and process of
revenue management,- benefits of revenue management,- areas of revenue management,-
advantages of revenue management,- yield management system,- revenue management in
BESCOM.

 Chapter-2

Research Design:

It deals with research, research methodology, design of the study, title of the project, statement
of problem, objective and scope of the study, operation definition, sources of data collection
limitation, chapter’s schemes, etc.

 Chapter-3

Company Profile:

It includes the company background.

 Chapter-4

Analysis And Interpretation And Data:

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It deals with the analysis and interpretation of the financial data collected from company.

 Chapter-5 Summary of Findings, Suggestion, And Conclusion.

 Chapter-6 Bibliography
 Cahapter-7 Annexure

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