lufthansa cargo ag: capacity and dynamic pricing(WHU)
Pricing&RevenueOptimization(PRO) – how companies and adjust the right prices for all their products to all their customers through all their channels ALL the time. Role of PRO –
*Strategic Pricing Decision – “What is the positioning of out hotel in the market? How do we differentiate from competitors? – long term, strategic(therefore consistent, qualitative, art
*Tactical Pricing Decision – “There is this huge football game coming this weekend, and we have 90 rooms left, what rate should we post on our web tomorrow?” – short term, dynamic, depending on current demand/supply, quantitative
PRO Cube -
Ford Motor
Product: Focus, F150, Explorer
Channel: dealer, fleet, direct sale
Fleet customer: govt, corporate, car rental
Price-Response Fxn – down sloping, same as market demand fxn – however, p-r fxn specifics demand for the product of a single company as a fxn of the price offered by the company: -competing companies in the same mkt have different p-r fxns; different channels, diff customer segments, diff times mean diff price response fxns; use the PRO cube mindset
RevenueMgmtApplication:
1) Market can be segmented
2) The resource must be perishable
3) Product/service must be sold in advance: earl cust no bump
4) Fluctuating demand
5) Restrictive capacity
6) Low incremental cost, high fixed cost
**Incremental cost – is the difference between the tot costs that a company would experience if it makes the commitment vs. The tot cost if it doesn’t: marginal, forward looking, maybe uncertain
**Given the 6 conditions- profit maximization becomes essentially revenue maximization – firms should focus on max revenue
**Rev Mgmt matters: firms implement it to report 3 to 7 % revenue increase w/ relatively little additional capacity investment:
-Profit impact of revenue increase (all in percentage) : ∆ in profit =
-If net profit is 2% & gross margin is 100%, a 1% increase in revenue increases the profit by 50%
-Many
*Strategic Pricing Decision – “What is the positioning of out hotel in the market? How do we differentiate from competitors? – long term, strategic(therefore consistent, qualitative, art
*Tactical Pricing Decision – “There is this huge football game coming this weekend, and we have 90 rooms left, what rate should we post on our web tomorrow?” – short term, dynamic, depending on current demand/supply, quantitative
PRO Cube -
Ford Motor
Product: Focus, F150, Explorer
Channel: dealer, fleet, direct sale
Fleet customer: govt, corporate, car rental
Price-Response Fxn – down sloping, same as market demand fxn – however, p-r fxn specifics demand for the product of a single company as a fxn of the price offered by the company: -competing companies in the same mkt have different p-r fxns; different channels, diff customer segments, diff times mean diff price response fxns; use the PRO cube mindset
RevenueMgmtApplication:
1) Market can be segmented
2) The resource must be perishable
3) Product/service must be sold in advance: earl cust no bump
4) Fluctuating demand
5) Restrictive capacity
6) Low incremental cost, high fixed cost
**Incremental cost – is the difference between the tot costs that a company would experience if it makes the commitment vs. The tot cost if it doesn’t: marginal, forward looking, maybe uncertain
**Given the 6 conditions- profit maximization becomes essentially revenue maximization – firms should focus on max revenue
**Rev Mgmt matters: firms implement it to report 3 to 7 % revenue increase w/ relatively little additional capacity investment:
-Profit impact of revenue increase (all in percentage) : ∆ in profit =
-If net profit is 2% & gross margin is 100%, a 1% increase in revenue increases the profit by 50%
-Many