16

FUTURES

Revenue management and the analytics explosion: Perspectives from industry experts

Laurie Garrow� and Mark Ferguson Received (in revised form): 11th January, 2008

�School of Civil and Environmental Engineering, Georgia Institute of Technology, 790 Atlantic Drive, Atlanta, GA 30322-0355, USA Tel: þ 1 (404) 385-6634; Fax: þ 1 (404) 894-2278; E-mail: [email protected]

Laurie Garrow is an assistant professor of Civil

and Environmental Engineering. Her research

interests include travel behaviour modelling and

development of advanced discrete choice

models. She currently serves as the chair of

the Urban Transportation Special Interest

Group of INFORMS and co-chair of the

AGIFORS Scheduling and Strategic Planning

Group. Prior to joining the faculty, she worked

for five years in the research and development

revenue management group for United Airlines

and for one year in customer science at Mercer

Management Consulting.

Mark Ferguson is the Gregory J. Owens

Associate Professor in the College of Manage-

ment and is the coordinator for the Pricing and

Revenue Management Initiative at Georgia

Tech. He served as co-chair of the conference

featured in this article. He serves as a board

member for the Pricing and Revenue Manage-

ment subdivision of INFORMS and has con-

sulted with a number of companies on price

optimisation. Two of his papers have won best

paper awards at the national Production and

Operations Management conferences and his

research has been supported by the National

Science Foundation. Before joining the faculty,

he worked for five years as an engineer and

inventory manager at IBM.

ABSTRACT

KEYWORDS: pricing, revenue management

On 2nd–3rd October, 2007, the third annual

Revenue Management and Price Optimization

conference was held at the Georgia Institute of

Technology. The conference explored how multiple

factors, including fragmentation of customer markets,

transparency in markets, and globalisation, have

spurred a transformation from intuition-based to

analytical-based decision making across many indus-

tries. Panellists included representatives from industries

spanning airline, hotel, gaming, grocery, jewellery,

package delivery, consumer goods, manufacturing, and

consulting. This paper summarises key discussions that

emerged from the conference and highlights success

stories portrayed in keynote addresses given by James

Whitehurst, former chief operating officer of Delta Air

Lines; Rick Campana, vice president of Corporate

Marketing of the United Parcel Service; and Chuck

Neville, executive director of Finance of General

Motors Service and Parts Operations.

Journal of Revenue and Pricing Management (2008) 7,

219–229. doi:10.1057/rpm.2008.3

Published online 22 February 2008

INTRODUCTION

The third annual conference on Revenue

Management and Price Optimization, co-

hosted by Revenue Analytics and the Price

www.palgrave-journals.com/rpm

& 2008 Palgrave Macmillan Ltd, 1476-6930 $30.00 Vol. 7, 2 219–229 Journal of Revenue and Pricing Management 219

and Revenue Management Focused Research

Program at the Georgia Institute of Technology

(GA Tech), was held at GA Tech on 2nd–3rd

October, 2007. The primary goals of this

annual conference are to foster academic and

industry research collaboration and to seek out

lessons, similarities, and differences between

the various applications of revenue manage-

ment and price optimisation. The theme of

the conference — ‘Revenue Management and

the Analytics Explosion’ — was designed to

explore how multiple factors, including frag-

mentation of customer markets, transparency in

markets, globalisation, and the evolution from

cost-based to value-based and/or market-based

pricing, are driving the need for industries to

rely more heavily on analytics to support their

business processes. While the conference was

designed to focus on the new role of analytics

in revenue management and pricing processes,

it became quickly apparent that the ability to

successfully transition from intuition-based to

analytic-based decision making is crucially

dependent on a firm’s ability to achieve

support from key stakeholder groups including

marketing, sales, and finance. Cross-functional

integration is essential to balance revenue,

profitability, and growth objectives. As stated

in the welcoming address by conference co-

chair Robert Cross, chairman and CEO of

Revenue Analytics, ‘one of the first rules of the

analytics revolution is that years of experience

are no substitute for rigorous analysis and the

opposite is equally true. That rigorous analysis

is no substitute for years of experience. We will

have to use both’ (Cross, 2007). Numerous

strategies for achieving this balance emerged

during the conference.

This paper summarises key discussions from

the conference. First, the success stories of

firms portrayed in three keynote addresses are

described. The keynote addresses were given

by James Whitehurst, former chief operating

officer of Delta Air Lines; Rick Campana, vice

president of Corporate Marketing of the

United Parcel Service; and Chuck Neville,

executive director of Finance of General

Motors Service and Parts Operations. Next,

two key themes related to the roles of

promotional spending and customisation of

products in revenue management and pricing

are presented; these themes emerged during

four panel discussions and two breakout

sessions. The names, titles, and companies of

all presenters, panellists, and moderators are

included in alphabetical order in the references

and the conference agenda is included in the

appendix.

KEYNOTE ADDRESSES

Creating a revenue-focused company:

The Delta story

James Whitehurst, former chief operating

officer of Delta Air Lines and presently the

CEO of Red Hat Software, presented the

opening keynote address, describing how Delta

Air Lines entered and exited bankruptcy faster

than most major companies by designing a

restructuring plan that focused primarily on

revenue generation, in contrast to more tradi-

tional restructuring plans that focus primarily

on cost reductions. Delta entered bankruptcy

in 2005, posting a loss that year of about

$2.2bn. Among the six US major carriers,

Delta had a 14-point revenue gap, generating

86 cents for every dollar the industry generated.

As Whitehurst explains, the revenue gap

translated to ‘a $2.5bn dollar revenue shortfall.

This was the difference between Delta being

the most profitable and the least profitable

carrier in the US’ (Whitehurst, 2007). Unlike

typical bankruptcy exit plans that primarily

focus on cutting costs, Whitehurst helped

engineer a bankruptcy plan that had a ‘singular

focus on revenue’. Within a span of two years,

Delta went from being one of the least

profitable airlines to the second most profitable

airline in the United States — missing first

place by a few million dollars.

One of the core elements of the bankruptcy

exit plan was to first identify reasons for the

$2.2bn shortfall. Three root causes were deter-

mined. First, in 2005, Delta’s mix of domestic

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Revenue management and the analytics explosion

and international passengers was 80–20, in

contrast to its peers that was 65–35. This

translated to about a third of the revenue

shortfall, or $800m. Secondly, over the last

ten years, nonstop yields have become much

higher than connecting yields. In 2005, how-

ever, Delta’s mix of nonstop and connecting

passengers was 40–60, in contrast to its peers

that was 50–50. This translated to approxi-

mately another third of the revenue shortfall.

Finally, compared to its peers, Delta’s nonstop

prices were lower, in part due to the presence

of Air Tran in Atlanta. This translated to

approximately the final third of the revenue

shortfall.

To address the revenue shortfall, several

strategies were used. First, Delta hired execu-

tives from Continental with strong expertise in

network analysis and revenue management.

This team used revenue management in a

proactive way to design a network capable of

generating revenue. Some of these modifica-

tions ensured that flights were scheduled during

the times of day and days of the week

conducive to business travel. In addition,

full destination footprints out of places like

LaGuardia and JFK were created to help ensure

that business travellers from these cities could

reach many of their destinations via nonstop

flights. Finally, a substantial number of planes

were moved from domestic to international

markets. As Whitehurst explains, ‘in early

2005, Delta had more wide body departures

per day from Atlanta to Florida than the entire

rest of the industry had in domestic wide

bodies. [We used this fleet] to embark on the

largest international expansion that any airline

had ever attempted. y The first summer after

Delta filed for bankruptcy, they moved 13

aircraft to North Atlantic markets and started

11 new routes. Including new routes in Latin

America and the Caribbean, Delta started

over 50 new international routes that year,

effectively moving from 20 to 30 per cent

international with plans for an increase to 40

per cent by summer of 2008’ (Whitehurst,

2007).

The second main thrust of the bankruptcy

plan described by Whitehurst was to ‘build a

company focused on the customer to generate

the revenue’. Conceptually, ‘we wanted to run

the highest quality airline y safe, clean, on-

time, and with your bags’ (Whitehurst, 2007).

Building a product and service that ‘employees

would be proud of ’ involved several large

capital expenditures and employee engage-

ment. Areas where service improvements were

needed were identified in part via net promoter

scores calculated from customer satisfaction

surveys. The net promoter score, mentioned by

several companies at the conference including

Archstone-Smith (McCulloh, 2007), is de-

signed to overcome problems that occur when

you simply average values from a Lickert scale

that asks on a scale of zero to ten, how much

did you like this product. In this case, White-

hurst states that ‘the survey score has no

correlation to the ultimate success of the

company providing a product or service.

However, if you calculate the number differ-

ently and you take the nines and tens

representing people who had a great experi-

ence and subtract the zero through sixes, you

obtain a net promoter number. There is a very

good correlation between the [net promoter]

number and customer satisfaction. If you think

about it, it makes a lot of sense because it’s

basically saying that y you have to strive for

creating an extraordinary experience to build

some degree of loyalty and some degree of

word-of-mouth’ (Whitehurst, 2007).

Delta uses its net promoter scores to

benchmark its service performance and made

a conscious choice not to be on the bottom of

any service criteria. For example, surveys re-

vealed that Delta was drifting near the bottom

on international food satisfaction and reserva-

tions. Subsequently, Delta invested $20m and

committed to spending an additional $10m per

year to improve international economy food

satisfaction. Delta is also relocating all of their

reservation agents back to the United States

and other places where English is the native

language due to cultural issues and other

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Garrow and Ferguson

unexpected issues that arose when outsourcing

this function. Larger infrastructure investments

were also undertaken — albeit, convincing the

creditor’s committee to make these investments

often included ‘tough conversations’. For

example, Delta made a $20m investment to

deep clean planes once a month, effectively

moving them from the bottom half of the

industry to clearly number one in cabin

condition. In addition, a $30m investment

was also spent on redesigning the lobby at

Atlanta, and while ‘there was no direct payback

associated with that y you need your employ-

ees to be proud of the product and service they

are providing’ (Whitehurst, 2007).

The final main thrust of the bankruptcy exit

plan was to actively engage employees. As

Whitehurst describes ‘we decided that we

really needed to engage our employees. Talking

about how do you take out another $500m in

costs is really, really painfuly talking about

how you serve the customer better, create a

better experiencey how you get on time so

people don’t have to work overtime and they

can leave at the end of the shift, all of these

things really energise the employees and that

focus on revenue as we talked to all of our

people — that was really extraordinary’

(Whitehurst, 2007).

Maximising Return On Investment in

pricing and revenue management:

The United Parcel Service story

Rick Campana, vice president of Corporate

Marketing of the United Parcel Service (UPS),

presented the second keynote address, describ-

ing how UPS evolved over the last 15 years

from a company focused on setting list rates to

a company focused on pricing effectiveness, an

evolution that Bob Cross stated ‘had hundreds

of million dollars of impact on the bottom line’

(Cross, 2007). As Campana stated, ‘revenue

management comes down to the ability y to

properly position price in front of the customer

as part of an overall value proposition’

(Campana, 2007). This shift in thinking to

value-based pricing, a philosophy in which the

price reflects the relative buying power of the

customer base and size, was driven by heigh-

tened competition and the increasing preva-

lence of discounting practices. The

development of new pricing processes and

decision support tools was possible due to the

availability of detailed shipment characteristics

(eg weight, distance, premium versus standard

delivery) that could be used to link profitability

to customer shipping needs.

The transition to value-based pricing re-

quired investing in both analytics and human

capital. From a technical perspective, the

pricing process was redesigned several times

in the last 15 years to take advantage of new

technologies that allowed UPS to automate

data feeds and track win/loss bid data from

customers. Several models were developed to

forecast demand and profitability outcomes of

contractual bids as a function of the bid price

offered, track and forecast competitor beha-

viour, and measure salesperson behaviour on

the use of the analytical pricing tools. Auto-

mated data feeds enabled these models to be

self-sustaining, a factor that was deemed

important given the complexity of UPS’s

business and the fact that customer needs,

product, markets, and technology are con-

stantly evolving. Finally, new performance

metrics were defined to measure success in

terms of revenue and customer retention — for

example, overall profitability and improved

contract compliance. Here, contract compli-

ance recognises that sales can grow the business

in several ways, by attracting new customers,

encouraging existing customers not to leave,

and/or determining why customers are not

meeting their contractual arrangements.

From a business process perspective, the

transition to value-based pricing involved

striking a balance among the objectives of the

finance, sales, and marketing groups whose

goals are quite distinct. Among these groups

‘there is a never-ending challenge to strike the

right balance between providing an amount of

flexibility at the local level and global decisions

and maintaining centralized control over the

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Revenue management and the analytics explosion

decision making’ (Campana, 2007). Funda-

mentally, UPS is a decentralised business that

likes to push authority and accountability down

to the local salesforce while maintaining some

centralised control over decisions to guarantee

consistency across customers. The scalability of

IT systems helps achieve this system-wide

consistency. As described by Bob Telipsky,

director of revenue management at UPS,

decision support tools are used to provide sales

representatives with a range of prices to quote

to customers. About 85 per cent of the pricing

quotes from Telipsky’s group use the tool. This,

however, represents only 50 per cent of the

revenue, as larger customers typically require

more customisation of prices. Depending on

the customer size, pricing exemption requests

are directed to either a district or national level

account representative (Telipsky, 2007).

In addition to using pricing decision support

tools, several other strategies are used to help

achieve the balance between centralised and

decentralised decision making, including rea-

ligning the sales compensation to better align

with the objectives of the companies and

diversifying the talent across these groups.

Individuals with MBAs were hired to staff

marketing and revenue management functions

— a policy that diverged from the historical

UPS policy of promotion within. In addition,

consultants and those with expertise in areas

thought to be critical to implementing the

vision were hired. As Campana described ‘it

has worked extremely well to mix people with

outside experience and the core UPS people

y this cross-pollination ensures healthy out-

comes and helps ensure the balance between

centralized planning with decentralized execu-

tion is maintained’ (Campana, 2007).

To summarise, the success stories of Delta

and UPS share several commonalities, which

were repeatedly mentioned by other companies

throughout the conference. Both Delta and

UPS were forced to innovate and restructure

due to increased competition; both were

successful due to the ability to execute

strategies that gained support from employees

from distinct functional areas; and both hired

talent from outside the company with specia-

lised skills and/or experience to help execute

these strategies. Looking ahead, both compa-

nies also mentioned the need to constantly

evolve and develop self-sustaining models to

continue being successful.

From intuition to data-driven pricing:

The General Motors story

Chuck Neville, executive director of Finance at

General Motors (GM) Service and Parts

Organization, was the final keynote speaker of

the conference. In many ways, the GM Service

and Parts Organization is similar to UPS; GM’s

foray into revenue management was driven by

increased competition (by firms such as

Meineke, Firestone Tires, etc) and the need

to understand the connection between vehicle

owners and what was motivating them to get

service. Also, similar to UPS, GM is a large

corporation with rich sources of data about its

products and customers. The GM Service and

Parts Organization views its customers in terms

of the fact that there are 125 million vehicles on

the road with an average age of 12 years. The

demand for service and parts is driven by the

total vehicles on the road, the number of miles

these vehicles have been driven, and the

economy (economic indicators are important

when considering the purchase of discretionary

products such as chrome wheels). Distinct from

UPS, however, GM has many intermediate

distributors, leading to a more indirect relation-

ship with the end customer. For example, GM

distributes parts to service dealers, warehouse

distributors, independent distributors that sell

to independent stores, and specific service

stores such as AutoZone and PepBoys. The

presence of numerous distributors creates addi-

tional challenges in terms of analysing the effects

of base price levels, competitive offerings,

discounts, incentives, and promotional offers.

Before GM used revenue management, a

cost-plus model was used to set prices. In

addition, all promotions and discounts were

focused on dealer and warehouse distributors.

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Garrow and Ferguson

The presence of multiple tools that tracked

different metrics also led to difficulty in

understanding the impacts of price on demand.

GM began their transition to revenue manage-

ment by restructuring the organisation; the

product group and sales groups were merged

together and all pricing personnel were con-

solidated. New teams were created for repair

and maintenance, collision, power train, and

accessories. These four teams represent distinct

go-to-market-models, each of which has its

own supply chain and unique lifecycle char-

acteristics. That is, maintenance and repair,

collision repairs, and power train repairs are

generally performed in different locations while

accessories are predominately sold at the time

and location the vehicle is purchased. Finally, a

dedicated revenue management team was set

up and staffed with people with business expertise

across functional areas ranging from supply chain,

to sales, to marketing. They are also in the process

of adding expertise in statistical analysis to the

revenue management group.

Data mining that combined parts informa-

tion (weight, size, and first and last year of

usage) with sales information (who purchased

the part and at what price) was used to analyse

the relationship between price and demand for

parts. GM has more than 500,000 parts in its

US, Canada, and European portfolio. From a

revenue perspective, however, 1,500 (0.3 per

cent) of these parts contribute 50 per cent of

the revenue while 20,000 (4 per cent) of these

parts contribute 90 per cent of the revenue.

Thus, many parts are infrequently purchased,

yet required to ensure a vehicle does not

become obsolete over a trivial repair need (eg

the chip in a key required to start the vehicle

needs repaired). The fact that a large part of the

revenue comes from a small number of parts

enabled GM to focus the majority of their

pricing efforts on a small portion of their

inventory. When developing pricing models,

however, it was also critically important to

incorporate the fact that 5,000 (or 25 per cent)

of the top revenue-producing parts turn over

each year; that is, each year about 50,000 new

parts are introduced in the market and 50,000

are retired.

Analysing the relationship between price

and demand uncovered several examples that

challenged traditional thinking. For example,

according to Neville, GM’s original intuition

was that customer purchasing behaviour was

consistent across product lines and demand for

repair parts was fairly static. This, however, was

not always the case (eg air conditioners are

predominately sold as the weather becomes

warmer). GM also observed that the price sen-

sitivities varied across parts, that is, some price

increases led to stable or slight decreases in

volume while other price increases led to large

looses in volume. As Neville states, ‘we know

that intuition is important, but we need to vali-

date it y and really understand it’ (Neville,

2007). GM’s new approach to pricing was

successful, in part, due to the combination of

analytics and intuition required to decipher the

‘unique story’ associated with each product line.

Summary of themes from keynote

addresses

As noted by Patrick Manning, director of

Deloitte’s Consulting Strategy and Operations,

Customer and Market Strategy practice,

pricing decisions and pricing programmes, like

the ones noted by UPS and GM, can have a

significant impact on a company’s business,

particularly when compared to improvements

in volume or variable costs. Engagement with

the employees across an organisation is essen-

tial, as pricing tends to be a very decentralised

activity for an organisation and different groups

have very different viewpoints about the value

of pricing and whether its pricing programme

should be used to drive profitability, volume,

market share, etc. According to Manning,

‘operations will talk about the value that they

bring to their customer y research and

development will say we have some of the best

products in the marketplace and our pricing

needs to capture that y sales will say I need a

pricing strategy that drives growth’ (Manning,

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Revenue management and the analytics explosion

2007). Those organisations that have been

successful have been able to align the objectives

of different groups and gain a deep analytical

understanding of their business.

The role of the salesforce in achieving

pricing and revenue management goals merits

further discussion, as was discussed extensively

by keynote speakers and other panellists,

including Krishnan Arangode, manager at

Johnson & Johnson; Dick Braun, vice president

of corporate strategic pricing at Parker Hannifin;

and Sandra Wellet, vice president for strategic

sales and support at Leveno. Speed in execution

and the ability to connect directly with

customers were mentioned as two key strengths

of an autonomous and decentralised salesforce.

As Wellet of Leveno states, an autonomous

salesforce enables deals to be closed quickly, a

factor that is particularly important for large

customers (Wellet, 2007). This opinion is

echoed by Dick Braun of Parker Hanniffin (a

manufacturing customer that ‘makes things to

go into things’ with an annual production of

800,000 different parts for 200,000 customers).

He states that ‘you have to remember that the

salesforce is a pretty vital portion of your go-to-

markety and you have to be thinking speed all

of the time. y You know you have a set

amount of time to evaluate the deal and you can

use data or not. Historically, Parker chose not

(to use data). But what we need to do is gather

in all that data in the same amount of time

because the time we have (to close deals) is

finite. Speed is really the critical factor in

leveraging technology — at least for me’ (Braun,

2007). A second critical role of the salesforce

noted by Krishna Arangode of Johnson &

Johnson is that they ‘understand the customer

needs and the customer wants much better than

a centralized view. [They] can appreciate the

one-on-one conversation definitely much

more’. These benefits associated with a flexible

salesforce that result in speedy execution and

personal connection with the customer have to

be balanced with decisions the company wants

to maintain control over, like identification

of the large sales opportunities coming up

(Arangode, 2007) and maintaining consistency

in pricing across divisions.

One unique strategy for achieving this goal

was mentioned by Tony Wilson, vice president

of pricing and margin management at Acuity

Brands Lighting. That company created a

pricing council made up of practitioners from

the pricing, product, and sales group to discuss

issues that arose when implementing new

pricing policies and present a united front to

all groups. Issues that could not be resolved

within the pricing council were elevated to a

pricing steering committee headed by the

CEO and comprised the CFO, senior vice

president of legal, senior vice president of

supply chain and two business units (Wilson,

2007).

A final element to achieve success in rolling

out new revenue management and pricing

policies is to have a solid execution plan

(Manning, 2007). The execution plan details

how performance will be measured, how

discounts will be made against list prices, and

how compensation will be structured. Man-

ning notes that communication about the

reasons behind pricing actions is also important

— as ‘one of the things we discovered is that

when you don’t think about the communica-

tions you want to send out into the market in

terms of pricing actions, people make it up and

you probably won’t like the answer that they

come up with’ (Manning, 2007). This opinion

was reiterated by Jim Rozell, revenue optimi-

sation leader at Carlson Hotels, who states that

‘the biggest thing we’ve had to do [to achieve

execution success] is just getting out in front of

the hotels. Telling them what’s coming, telling

them what’s available, teaching them simple

things’ (Rozell, 2007). A final element of

success noted by Manning that was not

explicitly mentioned in the keynote addresses

is the ability to understand and forecast how

competitors will react, particularly in a market

where there are few competitors. In his

experience, ‘one thing we have found is that

how an organization looks at and thinks about

itself and their goals have a lot of bearing

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Garrow and Ferguson

on how they will react to those moves y a

private equity investment firm will react very

differently from an organization that is your

standard corporate environment. If they’ve

introduced a product into an area where it

was not successful, they may not want to chase

that because they had a bad experience with

that before. There are a variety of elements you

can look at’ (Manning, 2007).

CONTRAST BETWEEN LEGACY AND

NEW USERS OF REVENUE

MANAGEMENT

In addition to the keynote presentations,

several breakout and panel sessions were

conducted. A clear distinction emerged among

those firms that are just beginning to embark

on pricing and revenue management efforts

(such as retail chains exploring ways to manage

promotional spending) and those firms that

have more fully integrated revenue manage-

ment into their business processes to maximise

short-term and long-term customer revenue

(such as the gaming industry). This section

summarises key insights from these discussions.

Role of promotional spending in pricing

and revenue management

One area in which revenue management and

pricing optimisation is becoming more pre-

dominate is in the retail sector, albeit one can

argue that retail revenue management and

pricing applications are still in their infancy.

In recent years, more attention has been paid to

managing promotions. Maura Hart, senior

director at Winn-Dixie, explains that when

her $10bn company filed for bankruptcy in

2005, they ‘really had no formal strategy with

respect to pricing, didn’t really have a formal

category management, didn’t necessarily put

the right types of items on sale and so forth’

(Hart, 2007). Over the last two years, a

transformation has occurred at Winn-Dixie.

Like Delta, Winn-Dixie hired experts from

their successful competition. Like UPS and

GM, Winn-Dixie leveraged their data ware-

house to develop promotional applications to

better understand the relationship between

promotions, discounts, and sales. The tool

currently enables them to predict sales and

performs post-analysis to help the company

distinguish between items where discounting

drives higher volumes of sales and items where

discounting has little impact on volume. As

Brian Benson, head of trading projects states,

Sainsbury’s Supermarkets is also trying to obtain

a better understanding of their promotions and

has a goal of running fewer promotions with

consistent pricing messages.

One area of promotions that is particularly

challenging to analyse is the effect of manu-

facturer promotions. As Benson (2007) and

Pattison (2007) of Sainsbury’s Supermarkets

explain, they are offered a lot of money and

incentives by manufacturers to increase shelf

space and market share for branded products.

An implicit trade-off occurs, as store brand/

private labels (representing about 50 per cent of

items at Sainsbury’s Supermarkets) tend to be

more profitable, yet ‘it is extremely hard to turn

down cash’. The impact of manufacturer

promotions can also lead to problems for the

retailer if one brand is promoted more heavily

over other brands. For example, Peter Marsh,

former commercial director at Signet (known

as Kay Jewelers in the United States), discusses

how in the jewellery business, watches clearly

represent a brand. As a consequence, if one

manufacturer of that brand wants to do its own

promotion, ‘sales of that brand of watch go up,

but everything else goes down, and therefore

other manufacturers are not happy and can

produce chaos for the retailer’ (Marsh, 2007).

Product differentiation is another important

consideration when designing promotions.

Both Sainsbury’s Supermarkets and Winn-

Dixie representatives commented on the in-

ability to compete on price with large chains

(like Wal-Mart) and the need to differentiate

products. Sainsbury’s Supermarkets will some-

times match a competitor’s price, but always

underscore their higher quality — such as fish

caught by lines that do less damage to the

environment or soft drinks with no artificial

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Revenue management and the analytics explosion

flavours or colours. Similarly, Winn-Dixie differ-

entiates in the deli by not frying with trans fat oil

and by promoting organic products throughout

the store. Numerous other companies, including

Marriott (Roberts, 2007), Leveno (Wellet,

2007), and Johnson & Johnson (Arangode,

2007), mentioned the need to differentiate on

nonprice factors to effectively compete.

Integration of revenue management and

pricing throughout the business process

In contrast to the retail industry where revenue

management and price optimisation is relatively

new, the gaming industry has more fully

integrated revenue management and pricing

throughout their business process. It is gen-

erally well known that in the gaming industry,

maximisation on total customer value (that

includes casino revenues) is important, not

maximisation on revenue from hotel rooms.

Revenue management and pricing, however,

are integrated throughout many other business

processes. Colleen Birch, director of Revenue

Management at Harrah’s Entertainment, de-

scribes how a centralised call centre is used to

help direct customers to properties owned by

Harrah’s, that is, if a customer originally called

Caesar’s Palace but the customer service

representative senses price resistance, the cus-

tomer will be encouraged to book at a less

expensive Harrah’s property (Birch, 2007). Tim

Coleman, vice president for Revenue Manage-

ment at MGM Mirage, describes how group

characteristics (eg a conference of surgeons

versus nurses) are used to drive the number of

tables the casino opens, the dealers that are on

the floor, the minimums and maximums

associated with each game, etc (Coleman, 2007).

CONCLUSIONS

This paper summarises industry perspectives on

current revenue management and pricing

practice that were brought up in a recent

conference at the Georgia Institute of Tech-

nology. Several trends were noted, most

notably the need to successfully achieve support

from multiple stakeholders ranging from rev-

enue management and pricing to sales, finance,

and operations in order to achieve success. The

ability to generate fresh ideas by integrating

departments, hiring experts from competitors,

and/or hiring new skill sets was mentioned by

many as essential elements required to balance

revenue, profitability, and growth objectives.

Those companies that have been successful

in switching from intuition-based pricing

decisions to analytics-based pricing decisions

are the ones that have been able to simulta-

neously achieve success in creating data-driven

processes and having these processes accepted

throughout the company.

ACKNOWLEDGEMENTS

We are grateful to all panellists and moderators

who participated in the conference. We extend

our special gratitude to the conference organis-

ing committee members, including Bob Cross,

Zach Cross, Kevin Geraghty, and Jon Higbie

as well as Joanna Roy, Conference Planning

Director. Sponsorship for this conference

included leadership support from Deloitte,

QL2 Software, and Zillaint; luncheon sponsor-

ship by SAS; supporting sponsorship by Pre-

dictix and Rainmaker; and exhibitions by JDA,

PROS, QL2 Software, and Zilliant. In-kind

support for design of the conference logo was

provided by Abovo Group. We are grateful for

the generous support of these sponsors, which

enabled us to effectively double the attendance

from 2006.

For information about this conference

and future conferences, please contact the

authors or visit the conference website at

http://revenuemanagementconference.com. The

fourth annual conference will take place at

Georgia Tech on 28th and 29th October, 2008.

Additional information about the Pricing and

Revenue Management Initiative at Georgia

Tech, which was funded by a grant by the

Georgia Tech Focused Research program and

initiated these conferences, can be found at

http://mgt.gatech.edu/fac_research/centers_

initiatives/pricing.html.

& 2008 Palgrave Macmillan Ltd, 1476-6930 $30.00 Vol. 7, 2 219–229 Journal of Revenue and Pricing Management 227

Garrow and Ferguson

REFERENCES

Arangode, K. (2007) Manager, Johnson & Johnson,

Panellist in enterprise profits.

Benson, B. (2007) Head of trading projects,

Sainsbury’s Supermarkets, Panellist in promo-

tional spending.

Birch, C. (2007) Director, revenue management–

western division, Harrah’s Entertainment,

Panellist in customer lifetime value.

Braun, D. (2007) Vice president of corporate

strategic pricing, Parker Hannifin Corp., Panel-

list in B2B and panelist in enterprise profits.

Campana, R. (2007) Vice president of corporate

marketing, United Parcel Service, Keynote

speaker.

Coleman, T. (2007) Vice president for revenue

management, MGM Mirage, Panellist in custo-

mer lifetime value.

Cross, R. (2007) Conference co-chair, chairman

and CEO of Revenue Analytics, Welcoming

address and chair of B2B panel session.

Hart, M. (2007) Senior director, Winn-Dixie stores,

Panellist in promotional spending.

Manning, P. S. (2007) Director, Deloitte consulting

strategy & operations, customer & market

strategy practice, moderator of strategic pricing

breakout.

Marsh, P. (2007) Former commercial director,

Signet, Panellist in promotional spending.

McCulloh, A. L. (2007) Assistant vice president for

pricing and revenue management, Archstone-

Smith, Panellist in customer lifetime value.

Neville, C. (2007) Executive director of finance,

General Motor Service and Parts Operations,

Keynote Speaker.

Pattison, J. (2007) Head of promotions manage-

ment, Sainsbury’s Supermarkets, Panellist in

promotional spending.

Roberts, D. (2007) Regional vice president for

market strategy, Marriot, Panellist in B2B.

Rozell, J. (2007) Revenue optimization leader,

Carlson Hotels, Panellist in enterprise profits.

Telipsky, B. (2007) Director of revenue manage-

ment, UPS, Panellist in B2B.

Wellet, S. (2007) Vice president for strategic

sales and support, Lenovo Americas, Panellist in

B2B.

Whitehurst, J. (2007) Former Chief Operating

Officer, Delta Air Lines, Keynote speaker.

Wilson, T. (2007) VP of pricing and margin

management, Acuity Brands Lighting, Modera-

tor of breakout on a framework for sustainable

improvement.

BIBLIOGRAPHY

The following lists individuals who participated

in the conference as moderators or workshop

leaders who are not included in the reference.

Aref, M. (2007) CEO of Predictix, Chair of panel

on promotional spending.

Barfield, B. (2007) Principal, The Rainmaker

Group, Moderator of customer lifetime value

panel.

Cross, D. (2007) President, Revenue Analytics,

Workshop instructor for measuring pricing and

revenue management.

Cross, Z. (2007) Vice president, Revenue Analytics,

Workshop instructor for measuring pricing and

revenue management.

Crystal, C. (2007) Assistant professor, University of

Notre Dame, Workshop instructor for uncon-

straining demand data.

Ferguson, M. (2007) Conference co-chair, Associ-

ate professor, Georgia Institute of Technology,

College of Management, Opening remarks,

workshop instructor for competitive pricing in

a B2B market, and workshop instructor for

unconstraining demand data.

Garrow, L. (2007) Assistant Professor, Georgia

Institute of Technology, School of Civil

Engineering, Workshop instructor for discrete

choice modeling.

Geraghty, K. (2007) Principal, Revenue Research,

Inc., Workshop instructor for e-commerce.

Higbie, J. (2007) Senior vice president and

chief scientist, Revenue Analytics, Moderator

of enterprise profits and workshop instructor

for measuring pricing and revenue management.

Koppelman, F. S. (2007) Professor Emeritus of Civil

and Environmental Engineering, Northwestern

University, Workshop instructor for discrete

choice modeling.

Kuyumcu, H. A. (2007) Prorize LLC, Workshop

instructor for a primer on scientific pricing.

Salbu, S. (2007) Dean and Stephen P. Zelnak, Jr.

chair, Georgia Institute of Technology, College

of Management, Opening remarks.

Journal of Revenue and Pricing Management Vol. 7, 2 219–229 & 2008 Palgrave Macmillan Ltd, 1476-6930 $30.00228

Revenue management and the analytics explosion

APPENDIX

Conference Agenda

October 2, 2007

Time Event

07:30–08:30 am Registration and breakfast

08:30–08:40 am Introduction — Mark

Ferguson and Steve Salbu

(Georgia Tech)

08:40–09:00 am Welcome — Bob Cross

(Revenue Analytics)

09:00–09:45 am Keynote — James

Whitehurst (Delta Air Lines)

09:45–10:30 am Keynote — Rick Campana

(UPS)

10:30–11:00 am Break

11:00–12:15 pm Panel A: Measuring

promotional spending —

Moderator Molhalm Aref

(Predictix)

Panel B: Optimising profits

in B2B Markets —

Moderator Bob Cross

(Revenue Analytics)

12:15–1:30 pm Lunch

1:30–2:15 pm Breakout A: Value of strategic

pricing — Patrick Manning

(Deloitte Consulting)

Breakout B: Price

management: framework for

sustainable improvement —

Tony Wilson (Acuity Brands

Lighting)

2:15–3:30 pm Panel C: Long-term view of

RM and price optimisation:

impact on customer lifetime

— Moderator Bruce Barfield

(The Rainmaker Group)

Panel D: Maximising

enterprise profits through

RM and price optimisation

— Moderator Jon Higbie

(Revenue Analytics)

3:30–4:00 pm Break

4:00–4:45 pm Keynote — Chuck Neville

(GM Service and Parts)

4:45–5:00 pm Closing remarks — Mark

Ferguson (Georgia Tech) and

Bob Cross (Revenue

Analytics)

5:00–6:30 pm Cocktail reception

October 3, 2007

Time Event

08:00–09:00 am Registration and breakfast

09:00–noon Workshop A: Measuring

pricing and RM success —

Instructors Jon Higbie, Dax

Cross, and Zach Cross

(Revenue Analytics)

Workshop B: Science behind

competitive pricing in a B2B

market — Instructor Mark

Ferguson (Georgia Tech)

Workshop C: E-commerce

for revenue managers —

Instructor Kevin Geraghty

(Revenue Research)

Noon–1:30 pm Lunch

1:30–4:30 Workshop D: Unconstraining

demand data — Instructors

Mark Ferguson (Georgia

Tech) and Carrie Crystal

(University of Notre Dame)

Workshop E: Discrete choice

modelling — Instructors

Laurie Garrow (Georgia

Tech) and Frank Koppelman

(Northwestern University)

& 2008 Palgrave Macmillan Ltd, 1476-6930 $30.00 Vol. 7, 2 219–229 Journal of Revenue and Pricing Management 229

Garrow and Ferguson

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.