PRO+lecture1.ppt

PricingandRevenueOptimization,HouJianrong(侯建荣）March1,2010,SomeslidesfromRobertL.Phillips,Page2,Iamhere!,E-mail:houjr2007Phone:(021)52301173ffice:Room107,BuildingNo.10,FahuaDistrict,ShanghaiJiaotongUniv.Publiccommunicationcorner:,Page3,Text,Page5,GradingCriteria,AssignmentsPointsPrecondition:attendlecturesregularly.20Homework(paperreadingandcomprehension,teamwork)30FinalExamination:50PricingProjectandPresentation(teamwork).Total100,Page6,WhyStudyingPricingandRevenueOptimization?,PROisahottopic.SoftwarecompaniessuchasManugistics,ProfitLogic,areactivelysellingPricingandRevenueOptimizationsoftware.applicationsofpricingandrevenueoptimizationoutsideretailwillgrowatacompoundaveragegrowthrateof55%overthenextfiveyears(2003).anunderstandingofpricingrevenuemanagementwillgivethemanedgeintheirfuturecareers.PROhasitsrootsinmanagementscience/operationsresearch.ItrepresentsthenextimportantsuccessstoryformanagementscienceinbusinessafterFEandSCM.itisnotonlyusefulinitself,butitextendsstudentsabilitiestoapplytechniquessuchaslinearprogramming,probabilisticmodeling,forecasting,andstatisticalreasoningtorealbusinessproblems.,Page7,WhyStudyingPricingandRevenueOptimization?,PROisarelativelygreenfield.TherearelotsofopportunitiesforstudentstofindinnovativewaystoapplypricingandrevenueoptimizationindifferentindustriesApioneeringstudybyMcKinseyandAssociates:a1%improvementinpricewouldonaverageresultinanimprovementinoperatingprofitof11.1%.Bycontrast,1%improvementinvariablecost,volumeandfixedcostwouldproduceimprovementsof7.8%,3.3%,and2.3%-strongwillingforPRO.,Page8,Example1:,Shouldbarsbeallowedtohave“ladiesnight”whenwomenareadmittedeitherforfreeoratareducedrateand,onceinside,serveddrinksatreducedprices?Isthisillegalpricediscrimination?,Page9,Example2:AmericaAirlineVSPeopleExpress,Priorto1978,BothschedulesandfaresweretightlycontrolledbyCAB.In1978,CongresspassedtheAirlineDeregulationActtoinspireandencouragecreativenewentrantsintothepassengerairlinebusiness.OneofthefirstnewairlinestoariseafterderegulationwasPeopleExpress.Byofferingfaresupto70%belowthemajors,PeopleExpressfilleditsplanesfromthemarketsegment:price-sensitivestudentsandmiddle-classleisuretravelers.IfAAmatchedPEslowfares,itcouldretainitscustomerbasebutwouldnotbetocoveritscosts.IfnotmatchingPEsfare,mostofitscustomerbasewouldbesiphonedoffbythelow-pricecompetitors.,Page10,AmericaAirlineVSPeopleExpress,RobertCrandall,CEOofAA,formulatedacounterattack:AAwouldcompetewithPEonlowFARESandsimultaneouslysellsomeitsseatsathigherfareaswell.USSFproject:“Ultimatesuperfares”andrestrictiononthenumberofdiscountseats.,Page11,AAstwo-prongedapproaches-BasicAirlineSegmentation,LeisureTravelersPriceSensitiveBookEarlyScheduleInsensitivefd=DiscountFare,BusinessTravelersPriceInsensitiveBookLaterScheduleSensitiveff=Fullfare,Page12,AmericaAirlineVSPeopleExpress,AAuseddifferentiatedpricingtoattackacompetitorDramaticchanges:AAannouncedthenewfaresandnewstructureinJanuary1985.ByMarchofthatyear,PEwasstrugglingandbyaugustitwasonthevergeofbankruptcy.InSeptember,TexasAirboughtPEforlessthan10%ofthemarketvalueenjoyedayearbefore.ThiswastheoriginofPRO.,Page13,CourseObjectives,Asetofgoalsistoprovidetheinsightsandtoolsthatwillenablestudentsto:beabletoidentifypricingandrevenueopportunities.understandthecriticaldifferencesamongdifferenttypesofopportunityandtheapproachesneededtoaddressthem.,Page14,CourseObjectives,understandkeyconceptsincludingtheimpactofconstrainedcapacity,opportunitycosts,customerresponse,demanduncertainty,andmarketsegmentation.beabletoformulateandsolvepricingandrevenueoptimizationdecisionsasconstrainedoptimizationproblems(focusonimpartingabroadunderstandingandgraspofbasictechniquesratherthanthetechnicalnuancesofaparticularalgorithm).,Page15,WhatisRevenueManagement?,PROreferstothestrategyandtacticsusedtomanagetheallocationoffixedcapacitytodifferentcustomerclasseswithdifferentfaresinordertomaximizeprofitability.applicableinsituationswith:Fixedstockofperishablecapacity(thereforeopportunitycosts)AdvancedbookingsThesellermanageasetoffareclasses,eachofwhichhasafixedprice(atleastintheshortrun)Thesellercanchangetheavailabilityoffairclassesovertime.,Page16,HistoryofRevenue(Yield)Management,Early60s-OverbookingAnalysis,News-vendorProblemLate70s-Airlinederegulation1981-RiseofPeoplesExpress(DiscountAirline)1982-AdoptionofControlledSuper-Saverfares(AmericanAirlines)1983-1990Developmentoffirstleg-basedAirlineRevenueManagementSystemsbymajorairlines.DevelopmentofCommercialRevenueManagementSystems(Aeronomics,DFI,PROS,SABRE)1985-1990Developmentofearlyhotel(Marriott)Systems.CommercialhotelRMsystems(Aeronomics,DFI,OPUS)1989FirstO&DAirlineRevenueManagementSystem(SAS)1990FirstRentalCarSystem(Hertz)1990sE-Commerce,distributioncontrol,lifetimecustomervalueissues1995-today.PricingandRevenueOptimizationSystems(Talus,Manugistics,Khimetrics,ProfitLogic,),Page17,BuildingtheCourse,Class1:IntroductiontoPRO.Class2:ReviewofPricingTheoryClass3:Basicpriceoptimiza