Fencing in a revenue management context

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Market segmentation is a key strategic element in the practice of revenue management (RM). After being identified, market segments should be kept separate to prevent demand spillover from high priced segments to low priced segments and the associated revenue loss. Tools to restrict customer migration across segments are referred to as "fences". However, most fences are not perfect and allow some degree of demand leakage from the high-priced market segment to the low-priced segments. We propose that in the practice of RM, the firm aims at maximizing the gain generated from multiple markets, which would imply balancing the demand leakage among markets to against the cost associated with maintaining fences. Consequently, realization of the maximum gain from segmenting markets is based upon an understanding of the optimal cost to devote to fencing, or the implementation of "optimal fences."