Theory to Practice:Translating Pricing Theory into RealitySuresh Acharya, VP of Product Management
Agenda                                                         •   Overview of RM                                         ...
Overview of RM Systems:Perishable InventoryCopyright 2013 JDA Software Group, Inc. - CONFIDENTIAL   3
Overview of RM Systems:  Demand Shaping                   RM systems work by                  RM systems work by predictin...
Overview of RM Systems:Customer Segmentation                                           DILUTED                            ...
Price & Inventory Optimization                                            Inventory               Willingness             ...
Similarities:Media and Other Industries                                                        Perishable inventory      ...
Distinctions:Special Considerations in the Media Industry                                                          What i...
Challenges in Media:                                                          Constant changes in the                    ...
Ratecard Building                      The basis of selling is to determine at what price                       can somet...
Ratecard Modification                   Once rates are set, the next set of questions begins:                           o...
Ratecard Optimization                                            Inventory          Stewardship                           ...
Media RM ProblemMatching Demand and Supply                             Demand                      Supply        In additi...
Media RM Placement ProblemMatching demand and supply  Demand                                                 Supply   Adv...
Dynamic Placement:Optimal Utilization of Inventory      Many problems include those in transportation involve the assignme...
Dynamic Placement:Under the HoodMinimize opportunity cost of                              Lost Impressions                ...
Dynamic Placement:Different RealitiesIn certain mediaindustries, it is possible toreassign spots on aperiodic basis. In ot...
Dynamic Placement:Heuristic vs. OptimizationRule of Thumb-basedsolve methodologies areknown to produce inferiorrecommendat...
How can you go WRONG withRevenue Management?      Selling the right product            to the right customer            at...
Theory to Practice:Translating Pricing Theory into RealityMore Info: www.jda.com/revenuemanagement
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Translating Pricing Theory into Reality

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Innovation combined with key pricing and revenue management disciplines will be crucial for turning ideas and technologies into actionable intelligence in 2013 and beyond. In this presentation, Suresh Acharya, VP of Product Management, JDA Software, provides an overview of revenue management and how media companies can apply innovative technologies and practices to turn upfront and scatter opportunities into profits.

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Translating Pricing Theory into Reality

  1. 1. Theory to Practice:Translating Pricing Theory into RealitySuresh Acharya, VP of Product Management
  2. 2. Agenda • Overview of RM • Media Industry • Ratecard Optimization • Dynamic Placement • QuestionsCopyright 2013 JDA Software Group, Inc. - CONFIDENTIAL 2
  3. 3. Overview of RM Systems:Perishable InventoryCopyright 2013 JDA Software Group, Inc. - CONFIDENTIAL 3
  4. 4. Overview of RM Systems: Demand Shaping RM systems work by RM systems work by predicting predicting future demand, future demand, based on booking history and current history and based on booking booking trends current booking trends Excess Demand CapacityUnits Sold By understanding the inventory constraints, an RM algorithm decides which subject of the remaining bookings should yield out or displace Days Left Service Date Legend: Observed Demand Unconstrained Demand Capacity Copyright 2013 JDA Software Group, Inc. - CONFIDENTIAL 4
  5. 5. Overview of RM Systems:Customer Segmentation DILUTED UNACCOMMODATED DEMAND $100 $100 DEMAND $80 $60 PRICEPRICE $50 $40 $20 $1 $1 1 50 100 1 20 40 60 80 100 DEMAND DEMAND • 1 Price • 4 Prices • Maximum achievable revenue of • Broader market segments can be $2,500 addressed • Produces $4,000 in revenueCopyright 2013 JDA Software Group, Inc. - CONFIDENTIAL
  6. 6. Price & Inventory Optimization Inventory Willingness  to pay Price  Competitive Sensitive  Data Forecasts Optimization Optimal Price RecommendationsCopyright 2013 JDA Software Group, Inc. - CONFIDENTIAL 6
  7. 7. Similarities:Media and Other Industries  Perishable inventory  Segmentation for efficient inventory usage  Fixed or inflexible inventory  Purchase date vs. service date  Competition affects rates  Integration with transactional systemsCopyright 2013 JDA Software Group, Inc. - CONFIDENTIAL
  8. 8. Distinctions:Special Considerations in the Media Industry  What is being directly purchased is not what the buyer is buying  Stochastic nature of yield  Small number of buyers  Different delivery vehicles can be used to satisfy shortages  Splitting of inventory for Sales and Promotions  Pre-emptibilityCopyright 2013 JDA Software Group, Inc. - CONFIDENTIAL
  9. 9. Challenges in Media:  Constant changes in the selling vehicles  Rotational buyers vs. “cherry-picking” buyers  Changing delivery platforms  Imbalance of revenues between delivery platforms  Ever increasing number of selling itemsCopyright 2013 JDA Software Group, Inc. - CONFIDENTIAL
  10. 10. Ratecard Building  The basis of selling is to determine at what price can something be sold to make the most revenue.  There are many groups that have a vested interest: o Finance: Here are our budget targets o Programming: Here is what we have to sell o Research: Here is the data behind the inventory o Sales: Here is how we should sell it o Revenue Planning / Management: Here are the statistical trendsCopyright 2013 JDA Software Group, Inc. - CONFIDENTIAL
  11. 11. Ratecard Modification  Once rates are set, the next set of questions begins: o Should I change the rates? o Which rate(s) should I change? o For all time periods and by how much? o What relationships should be maintained between different selling vehicles? o What is the overall revenue impact? o What are different scenarios that need to be considered?Copyright 2013 JDA Software Group, Inc. - CONFIDENTIAL
  12. 12. Ratecard Optimization Inventory Stewardship  / ADU Req Demand  Business  Forecasts Rules Optimization JDA Media Rate Optimizer generates optimal ratecards based on a holistic evaluation of forecasts, remaining inventory and business rulesCopyright 2013 JDA Software Group, Inc. - CONFIDENTIAL 12
  13. 13. Media RM ProblemMatching Demand and Supply Demand Supply In addition to the optimal assignment of requests of spots, there are many complicating rules in media that make the problem very difficultCopyright 2013 JDA Software Group, Inc. - CONFIDENTIAL 13
  14. 14. Media RM Placement ProblemMatching demand and supply Demand Supply  Advertisers buy eyeballs;  Network sells advertising i.e., the attention of time audience  The value of advertising  The size of audience time depends on program depends on program, week, and week and target demographics  Network is limited by  Demand is price-sensitive capacity and level of sale  Demand comes with objectives complex and many times  Opportunity to transfer conflicting restrictions inventory between Sales and On-Air PromotionsCopyright 2013 JDA Software Group, Inc. - CONFIDENTIAL
  15. 15. Dynamic Placement:Optimal Utilization of Inventory Many problems include those in transportation involve the assignment of space against available capacity to maximize overall valueCopyright 2013 JDA Software Group, Inc. - CONFIDENTIAL 15
  16. 16. Dynamic Placement:Under the HoodMinimize opportunity cost of Lost Impressions Manual placement subject to … Placement – Audience requirements – Daypart Mix – Flighting – Program quality constraints – Program inclusions/exclusions – Program/time block availability More Units & – Demand Impressions Optimal – Frequency Remaining Placement – Category conflicts – Spot length mix Improved – “Sellability” Efficiency Copyright 2013 JDA Software Group, Inc. - CONFIDENTIAL
  17. 17. Dynamic Placement:Different RealitiesIn certain mediaindustries, it is possible toreassign spots on aperiodic basis. In other industries, each proposal must be assigned with little to no opportunity to re-assign. JDA Commercial Proposal Optimization solution enables the optimal assignment of ad requests to spots to maximize overall profitabilityCopyright 2013 JDA Software Group, Inc. - CONFIDENTIAL 17
  18. 18. Dynamic Placement:Heuristic vs. OptimizationRule of Thumb-basedsolve methodologies areknown to produce inferiorrecommendations –costing companiesmillions of dollars. Media RM problems are often categorized as difficult combinatorial problems. These types of problems require sophisticated optimization technology.Copyright 2013 JDA Software Group, Inc. - CONFIDENTIAL 18
  19. 19. How can you go WRONG withRevenue Management? Selling the right product to the right customer at the right time for the right price through the right channel RM is a process of maximizing revenue from a “perishable” product through a combination of pricing and inventory control.Copyright 2013 JDA Software Group, Inc. - CONFIDENTIAL 19
  20. 20. Theory to Practice:Translating Pricing Theory into RealityMore Info: www.jda.com/revenuemanagement

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