We recently had the opportunity to ask Dr. Chris Anderson, associate professor at Cornell’s School of Hotel Administration for his perspective on upgrades and upsells as part of a revenue management strategy.
When are upgrades and upsells useful?
Upgrades are especially useful when there is a mismatch between supply and demand. There are several reasons why capacity mismatches may occur in practice, including forecast errors and strategic supply limits that aim to skim revenues from customers with high willingness to pay. Upgrades become a key managerial lever in the case of travel and service industries in general when capacity is relatively fixed and difficult to change in the short run as demand fluctuates over time.
How are upgrades useful?
Upgrades help balance demand and supply by shifting excess capacity of high-grade products to low-grade products with excess demand. Upgrading allows firms to get consumers to commit to purchases at lower prices and then extract additional revenues with the upgrade/upsell.