Optimizing Service Sector Revenue through Real Options
A research framework for revenue optimization in the service sector using real options techniques to improve pricing decisions under deregulation and technological uncertainty.
This paper outlines a research framework focused on revenue optimization in the service sector. Deregulation and technological change create uncertainty that service firms must manage proactively, and conventional revenue management techniques do not fully account for the strategic value of flexibility.
Problem Context
Airlines, hotels, and healthcare providers have pioneered dynamic pricing and revenue management as practical disciplines. Yet the underlying theory — which implicitly draws on options-like reasoning — has not been fully formalized through the real options lens.
Proposed Approach
Real options techniques are proposed to help service firms make better pricing decisions under uncertainty. By treating strategic choices like financial options, firms gain flexibility to adapt as markets evolve, capturing value from volatility rather than simply being exposed to it.
Integration with Revenue Management
The work integrates ideas from revenue management practices in airlines, hotels, and healthcare — applying rigorous real options pricing theory to contexts where practitioners have historically relied on heuristics and simulation.