Revenue Management for Two Quality level Products

This paper considers the pricing strategy for two-quality-level of products in revenue management context. Since revenue management is a useful technique to maximize total revenue based on pricing differentiation and market segmentation, we present a simple single-period revenue pricing model for two-quality-level products to decide which combination of quality and price for every kind of products should be optimal to maximizing revenue. First, we formulate the probability model of selling based on prices and qualities to approximate customers´ demands. Then based on these probability models we establish a nonlinear programming model for maximizing total revenue. Finally, we use a numerical instance to give further analysis. The results illustrate that, under our assumptions, the high-quality-level products play a more important role in increasing revenue and in such quality-sensitive market the firm should supply the highest quality products in every quality interval.