ShortCut: Revenue Management

SHORT CUT WORTH THE PRICE Dynamic pricing and revenue management for B2B companies Production buildings, machinery and established supply chains all generate high set-up and fixed costs, which can be a problem if this expensive production capacity isn’t utilized 24/7. This unfavorable scenario is quite a frequent one, even in the mechanical and plant engineering segments and the process industry, where last-minute orders from B2B customers are no rarity. A potential solution to this problem, and one that the B2B sector has made little use of to date, is revenue management. The systematic application of dynamic pricing methods can help manufacturers achieve optimal utilization of their production capacities – and thus generate the highest possible revenues. The principle behind this practice is particularly familiar from the travel industry: customers who can plan long term or are highly flexible can get real bargains. But those who need to book a flight, train ticket, rental car or hotel room at short notice for a particular date pay substantially more. Dynamic, detailed, differentiated This approach promises enormous advantages in the B2B segment as well, with systematic revenue management enabling gains of three to eight percent. 1 It’s every boss’s dream. Still, most B2B companies are only just beginning to adapt their prices or capacities in response to fluctuating demand. 2 each customer segment. Findings regarding customers’ ability to pay at particular times, information on capacity and resource planning, and supply chain data are all factored into the pricing scheme. While very few B2B companies already apply such a comprehensive system, things are changing. Clear differences between industries The pharmaceutical, oil and steel sectors as well as paper and glass manufacturers have already made good progress. The hesitant response of other industries may have to do with the fact that revenue management is not something that can be implemented overnight. It calls for extensive know-how, thorough groundwork and skilled personnel. It is no accident that global airlines have been honing their revenue management systems for more than four decades, becoming ever more efficient in the process. Systematic revenue management can enhance revenues by three to eight percent. That’s an attractive goal for B2B companies, too. DR. DANILO ZATTA Partner, goetzpartners WINNING THE RACE UP TO 8% HIGHER REVENUES WITH REVENUE MANAGEMENT Genuine revenue management goes beyond such minor adjustments, combining dynamic pricing and capacity planning to create a sophisticated pricing strategy for MARKET KNOW-HOW CUSTOMER SEGMENTATION PRICING STRATEGY 1 Kolisch, Rainer and Zatta, Danilo: Profit impact of revenue management in the process industry, Journal of Revenue and Pricing Management, April 2014 2 Kolisch, Rainer and Zatta, Danilo: Implementation of revenue management in the process industry of North America and Europe, Journal of Revenue and Pricing Management, February 2011