Fencing in the Practice of Revenue Management

Market segmentation, as a key strategic element in the practice of Revenue Management, will generally increase revenues and profits but the price difference between the markets segments will motivate some customers to try to switch segments. For example, a customer might visit a retail store to “touch and feel” a product but then goes home and buys it online at a lower price. Once a market segmentation structure has been put in place, firms use various conditions and restrictions to maintain separation of the price categories. Devices such as less information, prolonged purchase processes and advanced purchase and refund penalties “fence” customers into different market segments and make it difficult or time consuming for the customer to migrate from one market segment to another.