Legal Aspects of Revenue Management

RMs are not left alone when it comes to pricing. The restrictions they face take the form of legal and ethical constraints that must be well understood before RMs begin to practice their profession.

RMs must be aware of the laws that affect their actions but the ethical behavior of RMs must be understood as well. Although some laws dictate precisely what RMs can and cannot do, ethics regulate what they should and should not do. The inclusion of revenue management-related ethics is in keeping with the view of Thomas Jefferson who wrote, “I consider ethics, as well as religion, as supplements to law in the government of man.” It is to the legal and ethical aspects of revenue management that we now turn our attention.

State and local governments are heavily involved in dictating, controlling, or monitoring the prices charged for a variety of goods and services, including those purchased and sold by hospitality businesses. For example, prices for electricity, gas, water, and sewage rates are among those that are governmentally controlled and/or regulated. Wholesale prices of

alcoholic beverages are another area in which some level of governmental price control is common. Although in most cases sellers are allowed to charge what they wish for their products and services, many states have laws prohibiting price gouging.

In most cases, consumer protection legislation authorizes a state’s Attorney General to investigate claims of price

gouging during a declared state of emergency and allows for fi nancial or criminal penalties, as well as restitution if

it is found that an illegal act was committed.

Ethical Aspects of Revenue Management

RMs must, of course, obey all of the laws that directly affect their decision making. In the majority of cases, however,

decisions made about prices and selling are affected more by ethics than by the law.

Certainly, RMs should ensure the prices they charge, as well as the way those prices are managed is fair. The difficulty, of course, comes in making the determination of exactly what constitutes a fair price. The question is important for a variety of reasons:

_ Buyers must be convinced the prices they are paying are fair if they are to become repeat customers.

_ Employees of a business must be convinced the prices charged by their employers are fair if they are to be effective salespersons for the business.

_ Business owners must be convinced the prices they receive for the products and services they sell are fair or they will not continue their businesses.

_ Regulatory agencies must be convinced prices charged are fair or they will be motivated to increase their oversight and control over any industry (including hospitality) that is perceived as pricing its products unfairly. RMs in hospitality need look no further than those lawmakers vocally supporting legislation that would tax airlines if they charged carry-on luggage fees to see the legal and public relations impact of pricing that appears to be unfair.

The question of what constitutes a fair price is closely related to the question of who should determine the fairness of prices. As you have learned, in the long run it is always the buyer who will ultimately determine the fairness of a price. The decision to buy, or not to buy, not only shapes the answer to what is a fair price but also affects the continued existence of a product or service in the marketplace. Just as buyers will not continually pay more for a product than they believe it is worth, sellers will not continue to sell for a price that does not return a suffi cient profi t for the risk they undertake in operating their businesses.

From the perspective of an RM, there are four pricing-related ethical issues that must be considered:

1. Are the actions I am taking ethical?

2. Are the profi ts resulting from my actions ethical?

3. Are my prices presented fairly?

4. Are my prices perceived as fair by customers?