ShortCut: Revenue Management | Page 2

3 STEPS TO THE PERFECT PRICE
Before getting into revenue management in earnest, corporate decision-makers should
ensure their companies have the necessary insights and knowledge in three key areas:
REVENUE
MANAGEMENT
IN PRACTICE
MARKET
KNOW-HOW
1
The company has to know exactly
which customers need what and when.
How urgently do they need it and
what are they prepared to pay?
CUSTOMER
SEGMENTATION
2
This market know-how can be used to create
meaningful market segments that are geared
to capacity planning. One example: a portion
of a manufacturer’s capacity is reserved for
customers with urgent requirements, another
for customers that order well in advance but
need a certain delivery date. A third portion
can be set aside for flexible customers.
Initial examples of systematic revenue
management in the manufacturing
industry clearly highlight its
potential.
PRICING
STRATEGY
3
That includes a clear communication
strategy: after all, customers who are
in a hurry should not be pushed toward
a special offer, nor should more flexible
customers be frightened off with expensive
24-hour-turnaround prices. It has been
shown that customers are generally
accepting of fluctuating prices – provided
they know those prices are part of a
dynamic system that is ultimately to
their benefit.
Securing a good starting position
Revenue management is especially attractive
to industries in which production
is closely tailored to individual customers’
current requirements, as these are industries
in which manufacturers cannot simply
stockpile their goods. What is more,
the advantages of revenue management
are particularly noticeable in areas where
fluctuations in demand cannot quickly be
Now the company needs a pricing
strategy that is fine-tuned to each
customer segment.
compensated for by adjusting capacity. A
higher utilization rate, even one achieved
at the cost of price cuts, enhances cost
recovery – above all when fixed costs are
high.
No B2B company can afford to
ignore the potential increases
in revenue. Well, not for long
anyway, given that the race
between companies to achieve
the best revenue management
strategy is set to get going in
the next three to five years.
The window of opportunity is closing. But
those who act now will have a competitive
edge. ||
For instance, ThyssenKrupp VDM
(now: VDM Metals) relies on revenue
management. The company produces
high-performance nickel and
cobalt alloys as well as special
grades of stainless steel, using
them to make metallic materials.
Dynamic pricing has enabled the
company to enhance its capacity
utilization, consequently increasing
its production output by eight percent
and its contribution margin by
13 percent.
In the automotive sector, Ford
Motor Company developed a revenue
management program and
implemented it in five of its 18 sales
regions across the United States.
The regions deploying revenue
management exceeded their profit
targets by one billion U.S. dollars,
whereas the other 13 regions
undershot theirs by 250 million
U.S. dollars.
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