This section presents the answers to a number of questions about Veritec Solutions, revenue management, and its application in various circumstances. 

What would you like to know?  We would like to provide this forum to address all issues related to any aspect of revenue management and pricing.  If you would like to see the answer to your question or concern posted here, please send us your question.

We will answer your question directly and include the question and answer in future updates to this section.

We have already received a number of questions from the revenue management community and others interested in how revenue management can help them achieve better results.  These questions and our answers are shown below. 

1. What are Veritec Solutions' core competencies?
2. Does your company offer standard system- or software solutions that can be tailored to a company's specific needs?
3. What do you think are the key factors for competitive pricing?
4. In what way and to what extent can communication measures support the success of revenue management and pricing?
5. How do you measure the success of a pricing structure?
6. What system components do you recommend to support a professional pricing or revenue management process?
7. What are the minimum data requirements for a basic, advanced, and professional demand forecasting system?
8. Is revenue management only for reservations based companies?
9. Can you outline the steps in a typical system development effort?

What are Veritec Solution's core competencies?

Veritec's primary focus is on pricing and revenue management. 

Our core competencies include all the necessary technical skills in these areas, including demand forecasting, marketing, business process design, financial services, operations, asset management, organizational design, performance measurement, and strategy development. Our capabilities span all aspects of program design, development, and implementation.

We have considerable experience in many industries, and are adept at helping our clients to best coordinate a substantial new effort with ongoing corporate programs.

Above all, we are unbiased experts whose client focus is second to none.  Our references will attest to the zeal of our commitment and we strongly encourage you to contact them.

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Does Veritec offer standard system or software solutions that can be tailored to a company's specific needs?

All of our software solutions are custom designed.  We do not offer "off the shelf" system products.  We do work with our clients to determine whether existing system products meet their needs or can be tailored to do so.  On such assignments, we typically evaluate the strengths and risks associated with customizing such system alternatives. 

A core strategy of Veritec is to maintain excellent relationships with all product vendors.  This enables our clients to benefit from our unbiased expertise, and allows us to recommend system products or components when appropriate.  We can then work with product vendors to ensure that our clients are exposed to minimal risk during customization and installation of these products.

The custom software we develop builds on our extensive knowledge and past experiences.  We use advanced software engineering techniques and our own proprietary software "building blocks" to enable rapid prototyping and development.  Yet, we are not locked into a product paradigm, and our solutions can take advantage of the latest proven technologies.  Consequently, the systems we build are continually refined and improved on.  Even a graphical user interface that was only developed one or two years ago may no longer be state-of-the-art.  When products are more appropriate than custom-built (e.g., for "standard" applications, they may be more cost effective), our focus is on evaluating the available alternatives and working with our clients to select the products that will best meet their short- and long-term needs.

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What do you think are the key factors for competitive pricing?

We believe that pricing should be market-based, rather than cost-based, whenever possible and consistent with legal and ethical considerations.  Costs should factor into determining whether or not a portfolio of prices is profitable.  The price of a product, however, should reflect what customers are willing to pay.  To the extent that customers for a service (or a product) vary in the value they place on the service, and can be classified into multiple market segments with different purchasing behaviors, multiple price points can be established.  Such pricing structures can lead to significant increases in revenues and profits for a firm, but only if the pricing structure is well defined and managed. 

Whether a pricing structure is extremely simple (e.g., only one price is charged, which may change over time) or highly complex (e.g., the airlines), a key factor for setting competitive pricing is using information technology, in combination with forecasting, optimization, management reporting capabilities, and performance measurement systems, to help manage the implementation.  While the actual implementation may be very different, corporate staff need to determine whether a price point and its purchase restrictions are influencing demand in the desired manner. 

For example, a company might want its customers to make purchases farther in advance of using its services.  If demand for the service has peaks and valleys (e.g., a train departing at 1700 is uncomfortably crowded while the departure at 1830 is only half full), many options exist to redirect demand so that all customers buy a product that better meet their needs and enables the firm to earn higher profits.  Corporate staff must have access to the right information to help them determine if modifications to the prices offered (and any requisite purchase restrictions) would accomplish the desired objective.

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In what way and to what extent can communication measures support the success of revenue management and pricing?

Effective internal communication within the company, and external communication to potential customers, can be critical to determining the success of a pricing structure.  For example, the French public had long been accustomed to paying for train travel based on kilometers traveled.  When SNCF developed a new reservations system and introduced revenue management and pricing techniques that dramatically changed this situation, insufficient work was done to prepare the public for the changes.  While the new pricing structure may well have benefited many customer segments, these customers did not perceive the changes as beneficial.  A huge outcry against the changes took place and public opinion turned against revenue management and the entire SNCF project. 

This situation could have been dramatically different if the change management process, including what, when, and how to communicate with the French public had been given the necessary focus.  Designing, developing, and implementing changes as large and as fundamental as what occurred with SNCF cannot be viewed simply as a technical, mathematical, "let's do what has worked before," or an information technology project!

In contrast with the SNCF effort, the efforts taken by the US airline industry to communicate the benefits and operational aspects of their pricing structure demonstrate the other side of the spectrum.  While many customers do not like the pricing structure, and believe it to be unduly complex, the public has come to understand and accept it.  For example, virtually all potential airline customers know that to get a low price they need to call at least 14 days in advance and stay over a Saturday night.  The airlines have taken great pains to communicate this information and have done so very effectively. 

Consequently, the airlines have been able to reap very great incremental profits from their pricing system, even though some segments of the public do not like the pricing structure! 

Likewise, cruise lines introducing stratified pricing levels to gain the advantage of revenue management have found that their distribution channels resist complexity and sell competitive services unless the rationale and benefits are clearly communicated and the staff are appropriately trained. 

Effective communication, both internal and external, is critical to the success of revenue management and pricing programs.  If you are interested, please Contact Us and we can provide you with additional examples of the importance of internal communication on the success or failure of firms.

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How do you measure the success of a pricing structure?

There is no single way of measuring the success of all pricing actions.  Typically, the analyses we conduct to assess the success of a pricing action or a pricing structure are customized to the particular application.  Insights are obtained by reviewing each of the measures and determining how consistent they are with one another.  Another benefit to this approach is that no single piece of data becomes so critical that its absence makes it impossible to measure the success of the pricing action.

To analyze the success of a pricing action, you typically want to develop short-term measures that focus on estimating:

• The incremental demand stimulated (inhibited)
• The penetration into select target markets
• The incremental revenue resulting from this demand
• The amount of revenue dilution (if any)
• The incremental costs associated with the change in demand
• The incremental cost of administering the pricing action

Estimates of all these items are critical to analyzing the impact of a pricing action on a firm's profitability.

Depending on the industry, there may also be less quantifiable, but equally critical measures, such as:

• Public response
• Political reactions
• Official organization responses
• Quality and efficiency of internal processes

These important qualitative measures also need to be monitored in a systematic fashion to ensure the proper functioning of the pricing and revenue management program. 

Cross-elasticity impacts need to be considered.  Will stimulation of demand in one period cause undesired reactions in another?  Will stimulation on one route cause losses on another?  Will stimulation in one class of service create problems in another?

The scope and length of time for which the pricing action is taken (i.e., is it a "permanent" pricing action or a limited time action) will determine the time and area dimensions to consider.  A base line or control group could be established as a point of reference for comparison.  If the action is a broad one in geographic terms, or continues over a long period of time, the analysis of impacts should be repeated and/or carried out in multiple areas.  Summary and aggregate statistics should be reviewed.

When pricing analysts receive data on demand, revenue, and market conditions in a more timely manner, they are also better able to respond and make dynamic adjustments in prices (to the extent that the pricing structure provides for such dynamic change).

In addition, estimates of long-term impacts must be considered.  If a pricing action will increase revenues and profits in the short-term, but risks leading to lower revenues and profits in the long-term, the potential for long-term revenue reduction must be considered.  It is best to quantify the level of risk and potential for revenue reduction, but in practice many firms only conduct this analysis at a qualitative level.

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What system components do you recommend to support a professional pricing or revenue management process?

There are many different ways to answer this question:

From the user perspective, the system needs to have an easy-to-use graphical user interface (GUI or front-end) to interact with the data and results.  The system should also have a powerful reporting capability to examine historical operations, current trends, and future projections – helping the user to make sense of the mass of information, data, and results.  Beneath this, the user would require powerful computational routines to crunch the numbers and answer a variety of planning and "What If" questions.

From an analytical perspective, there needs to be a complete set of revenue management components: 
- Data capture and cleanup components
- Forecasting, including interpretations for missing data
- Optimization of prices and availability across products

In addition, we include post-processing routines to interpret and present the results to the user, both passively (i.e., wait for the user to request the information) and actively (i.e., examine the results to look for upcoming problems or issues and alert the user). 

For example, alerts could be triggered when current activity deviates from historical activity by a certain amount; or  staff could specify that they should be notified when specific conditions are met.

This enables analysts to better focus on exceptional situations and not have to search for conditions they need to act on.  Pricing analysts then spend more time taking advantage of their expertise to make needed decisions, rather than spending the majority of their time looking for situations that require their attention. 

From the system architecture perspective, the system will include database(s), computational core routines, the GUI, reporting, and a set of system processes to tie it together.  This may be executed in a single, two-tier, or three-tier configuration, depending on the company's computer systems – we have successfully worked in all types of systems.

From the broadest systemic perspective, the system needs to encompass all of the above plus the procedures, jobs, responsibilities, reporting structure, and internal and external communication initiatives in-place to make the company's pricing and revenue management program a success. 

A market research function is an invaluable tool as an adjunct to pricing decisions.  Detailed statistical knowledge of customers, their travel habits, and their propensities enable pricing experts to make much more informed and reliable judgments on the impact of proposed changes in fare levels or purchase requirements.

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What are the minimum data requirements for a basic, advanced, and professional demand forecasting system?

While forecasting systems can be categorized as basic, advanced, and professional, there are no hard and fast rules about the minimum data requirements for such systems.  In our view, what tends to distinguish forecasting systems is not so much the type of data they require, but such capabilities as:

• How the system handles special cases (e.g., holidays, special events)
• The flexibility of the system (e.g., data handling capabilities, ability for users to override forecasts)
• The presence or absence of performance monitoring capabilities
• How information is presented to the user
• The techniques by which seasonality and trend are incorporated
• The ways in which the system can be used
• More advanced forecasting systems do tend to make forecasts at a more detailed, or disaggregated level.  This allows the forecasts to be combined in more ways and provides a system that is more adaptive to changing user needs.

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Is revenue management only for reservations-based companies?

Revenue management is about the systematic use of pricing and inventory controls to maximize revenue.  The presence or absence of a reservation system has absolutely no impact on whether a revenue management approach can be used to maximize revenues.  The existence of a reservation system simply changes the specific revenue management techniques that are appropriate to use.

Our staff have shown a variety of companies without reservation systems how they can use revenue management to optimize their operations.  These include a shipping company, a European company that leases mobile buildings, and a broadcasting firm.

Fundamentally, revenue management is increasing the utilization and profit potential of an asset. 

How can this be done?  The revenue management program to accomplish this will consist of several elements – some of which we identify below – some that will only become apparent when you design the program.

One key building block for revenue management is the design of a pricing structure that is more effective in how it appeals to different market segments.  We have worked with some clients to determine the right market segments; this may result from a combination of economic interests as well as public service interests.  For assets where there is naturally higher demand, the pricing structure will encourage those with the most flexibility in their purchase plans to shift their demand to an alternate option.  For assets where capacity is well in excess of demand, the pricing structure will be designed to stimulate demand.

We seek to understand what customers value and are willing to pay for.  We can then design a pricing structure that leverages these values.

Whatever pricing structure you design, it must be manageable by the company and understood by the customer. Otherwise, it will not be effective.

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Can you outline the steps in a typical system development effort?

Our system development approach is a methodical and iterative approach.  Each step builds on the previous ones:

Conduct a thorough Opportunity Assessment to understand the company's unique situation and lay out the proper path for staged development.

Develop a number of Quick Hit wins that provide immediate returns to the client using sound revenue management and pricing principles.

Design the systems and processes needed to create a successful pricing and revenue management program for the client.  Identify any new business processes needed to support the systems as well as beneficial organizational changes.  If necessary, develop a change management plan.

Implement the systems, either as custom solutions or working with a product vendor.  Implement the change management plan to create the new business processes and organizational changes.

Support the company throughout the process, to the extent they need.

More than just these steps in the work plan, we work with our clients to create and execute a "road map" for pricing and revenue management that makes sense.  Even if the ultimate vision is for a complex, state-of-the-art system, this can mean starting small, simple, and low-tech.  It is often important early on to focus  on the critical internal and external consensus and communication issues.  We work with our clients to build toward an ultimate vision, and to maintain the flexibility and strength to adapt and grow along the way. 

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