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Insight and analysis 2016
- 2. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 1
TABLE OF CONTENTS
These articles were written by pricing expert Oliver Ranson and published on
ransonpricing.com during 2016.
Published in February
P2 – Avoiding common pricing technology pitfalls through effective RFI
P4 – Defining customer archetypes
P6 – There has never been a better time to abandon airline FCAs
P8 – Why every airline needs revenue entrepreneurs
Published in April
P10 – Pricing and data science
P12 – Using war games to make the right pricing decisions
P13 – Incorporating the value of premium travel in pricing
P15 – Karl Marx, Revenue Manager
Published in June
P16 – Price escalators – the part of pricing many people forget about
P17 – Do you have all six pricing skill sets in your team?
P19 – Are you ready for the next downturn?
P20 – Pricing’s magic number
Published in September
P21 – Developing business cases for airline buy-on-board
P23 – The differences between Pricing & Operational Research
P25 – Three pricing challenges for commercial banks
P27 – Excel is still the most important pricing tool
Published in November
P29 – Some myths about pricing
P31 – Are airlines ready for NDC?
P32 – Pricing strategies on RMS Titanic
P35 – Why we don’t want to compete with big consulting firms
- 3. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 2!
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AVOIDING COMMON PRICING TECHNOLOGY PITFALLS THROUGH
EFFECTIVE RFI
It is all too easy to say that the solution to pricing challenges is simply
“technology”. Progress can be so fast that it takes a dedicated specialist to
even keep up with the frontier of progress, let alone see what may lie beyond.
As a result, many businesses struggle to purchase the right pricing tools and
specify systems that will represent the best possible value for money for their
business.
Common traps include buying software that addresses problems faced at
other companies but not your own, using processes that are aligned with
markets you do not serve and applying technology that is so complex even it’s
own vendors do not understand it. Taking a few actions during the earliest
stages of procurement – the Request for Information (“RFI”) stage – can help
resolve these challenges.
What is an RFI and how does it relate to buying pricing technology?
At many businesses, formal tendering is used to buy software and technology
platforms. Such a process normally involves a Request for Proposal (“RFP”)
or Request for Tender (“RFT”), a technical evaluation of these proposals and
a financial evaluation. Preferred suppliers will either be selected on the basis
of their financial proposal or then invited to make their Best and Final Offer
(“BAFO”).
It is common for buyers using these processes to require approval from the
board or a budget before such a tender can be issued. RFI is used before
such an approval or budget is achieved to collect the information from
prospective vendors that pricing specialists can use to structure their tenders
and make sure that they are issuing a tender to buy the right products.
What information should an RFI for pricing technology contain?
Broadly speaking there are two approaches. The first, prescriptive option is for
a company to specify it’s technological requirements and then ask vendors
what products and services they offer that may satisfy this criteria. The
problem with adopting this approach is that unless your business has access
to full-time revenue technology specialists, it is unlikely that there will be a
good match between what the technology vendor can offer and the
requirements you have specified. If the vendor provides a bespoke solution
then it is likely to be expensive and represent poor value for money.
The second, collaboration-based approach is to use the RFI stage to explain
clearly to the vendor what your challenges are and ask for their explanation of
how they would help you solve them. Your vendor is likely then to offer you
solutions that you may not otherwise have thought of.
- 4. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 3!
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What makes a good RFI?
Ranson Pricing believes that writing a good RFI is all about communicating
your pricing challenges and then letting the technology vendor explain how
they would solve them using the collaboration-based approach. In order to do
this you will need a sound understanding of what those challenges are (based
on customer behaviour), your product positioning against competitors and all
the other elements of pricing strategy, which Ranson Pricing has spoken of in
other articles.
Ultimately, a good RFI will lead to your company buying (through the rest of
the procurement process) the technology it needs at fair value for money.
Accordingly it is well worth investing time and effort even at this early stage to
get it right.
- 5. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 4!
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DEFINING CUSTOMER ARCHETYPES
A customer archetype is a typical example of somebody who buys your
products and services. They can be defined on the basis of several indicators,
such as demographics, the purpose for which they use your products, their
buying behaviour, the means of payment they use to complete their
transactions or any one of a number of other indicators.
Identifying and specifying these archetypes can be extremely helpful for the
pricing process because they provide a clear, communicable idea about who
your customers are that other stakeholders can quickly and easily understand.
In this article Ranson Pricing explains how to conduct a customer archetype
definition exercise at your business.
Primary research
The first step is to reach out directly to your customers and potential
customers using tried and tested market research techniques. Surveys and
questionnaires should be drafted in such a way that the results are
measurable and meaningful, and care should be taken to ensure that the mix
of respondents is representative of the market.
There are plenty of companies out there who will distribute your surveys and
questionnaires. But developing the questions and answer options that will
facilitate your analysis of how different parts of the market value different
attributes of your project is a role for the pricing department.
Internal data mining
Once your primary research programme is under way, it makes sense to take
a look at the data you already have regarding your customers and their
behaviour. Statistical techniques can be used to correlate the relationships
between different characteristics of your customers, the products they buy
and how they make their purchase. As well as providing insights that can be
used for pricing decisions, analysis of your internal data also acts as a good
means of evaluating the information received from primary research.
You should ask yourself whether or not the primary research matches what
you would expect from analysis of your historical customers. If the match is
not strong that is not necessarily a bad thing because it is possible that the
research has identified segments that you are not serving at the moment.
- 6. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 5!
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Direct observation
One of the most under-used pricing techniques is to actually spend time out
on the shop floor, on the plane, in the airport terminal or in whichever other
environment your customers can be found. Simply sitting still, observing the
customers and noting who they are, what they seem to be doing and whether
or not they look like they are having a good time can help your pricing team
reconcile their data and analysis with reality.
Using the archetypes to inform pricing decisions
Once you have a good understanding of who your typical customers are the
next step is to set down a clear understanding of what product bundles each
will buy. From there, benchmarking and trial-improvement techniques in the
real world can be used to find a price level that will optimise your revenue
stream.
- 7. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 6!
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THERE HAS NEVER BEEN A BETTER TIME TO ABANDON FULL-
CONTENT AGREEMENTS
Travel service providers have historically been beholden to their global
distribution system (“GDS”) partners through full-content agreements. These
represent a rebate on fees in exchange for the airline, hotel or other operator
offering every one of their products and services through a particular
distribution channel.
Unfortunately for the travel providers, such agreements limit their scope to
innovate in pricing, distribution and market segmentation in the medium to
long term, severely constraining revenue growth opportunities. Human nature
being what it is, finance directors find it hard to give up certain revenue today
for potentially greater revenue tomorrow, but there are three good reasons to
think that there has never been a better time to abandon these old-fashioned
agreements.
Established distribution platforms can be used in new ways
Most airline, hotel and other travel service operators use internet booking
engines to allow their passengers and guests to book directly through their
web site. Most of the time these tools are based on GDS distribution.
But special rates can offered through the web site and there may be value in
distributing them selectively. This value arises from the chance to trial and
improve initiatives based on a user’s characteristics (such as geographic
location or history of searches) or confirmed behaviour (through loyalty
programme membership for example).
Such initiatives would not normally, in Ranson Pricing’s view, be the
pernicious and short-sighted attempts to increase revenue through increasing
prices in line with previous searches that we sometimes read about on our
favourite Internet bulletin boards. Rather we would recommend trying to
inspire the customer to book a special trip using targeted promotions or direct
their custom to a less busy flight or hotel through price incentives.
New technology creates alternative distribution channels
Ranson Pricing’s friends in the technology sector always surprise us with the
new things that they are talking about. We are not technologists ourselves,
but sometimes it seems to us that new technology could be a real boon to
pricing professionals seeking to segment their markets in different ways.
Augmented reality (see our September 2015 article) is one example.
- 8. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 7!
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Rigorous customer behaviour analysis presents new opportunities
As organisations develop new tools and techniques for analysing customer
behaviour it makes sense to put this analysis to use, designing new products
and services that reward customers in different ways depending on their
willingness and ability to pay.
- 9. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 8!
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WHY EVERY AIRLINE NEEDS REVENUE ENTREPRENEURS
Pricing and revenue management is well established at many airlines. The
department will closely align itself with tried and tested methods of distribution
and sales, as well as industry standards and practices as defined by IATA
resolutions. But such ingredients are not enough for an airline to consider
itself a leader in this field.
Applying systems and technology to demand forecasting and data
management augment the standard activities, adding a good few percentage
points to revenue and bringing an airline up to standard practice. But to go
beyond this level and achieve something more, guaranteeing long-term
profitability, one more element is required – the revenue entrepreneur.
What are revenue entrepreneurs?
Revenue entrepreneurs at an airline are individuals in the commercial team
who possess three critical attributes. First, they actively seek commercial
opportunities where there might be scope to increase revenue, even if their
competitors or the industry in general are not looking in those directions at the
moment and especially when their managers have not explicitly told them to
do so. Second, they have some appetite for risk and can evaluate the chance
of a new initiative being profitable. And finally they have the ability to convince
the carrier’s leadership team that their recommendations, even if they involve
some risk, are worth pursuing.
These individuals will often be found operating in the commercial department,
but there is scope for them to make a difference in other areas too, such as
product and service development (enterprising people by their nature usually
love developing new products!), cost optimisation (people with entrepreneurial
skills are often good at finding new, more efficient ways of doing things) and
potentially almost every other area of operations.
Why do airlines need revenue entrepreneurs?
Systems, tools and technology in revenue management have helped airlines
achieve low levels of (long-term) profitability and sustainability for many years.
But as these methods become standard practice there is a risk that what profit
there is to be found could be eroded away. Also, the profit margins typically
achieved are lower than other industries, limiting incentives for those
enterprises in the private sector who are not airline enthusiasts to invest.
With good revenue entrepreneurs on board, airlines can keep ahead of the
game and adopt initiatives that can push their profitability that little bit higher
to industry leading levels.
- 10. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 9!
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Where can airlines find their revenue entrepreneurs?
In Ranson Pricing’s experience airlines tend to attract people who are
passionate about what they do. It is likely that there are already people in your
team who, with the freedom to pursue some of their own projects and with
access to the leadership team to sell their initiatives, could quickly add value
beyond what you ever thought possible.
Try allowing team members who might be interested to work on their own
initiatives one day of the week and be prepared for them to move on to
manage their project full-time if their idea is really good. Openness, praise for
innovation and organisational flexibility are the keys to success for airlines
that believe that helping their most enterprising employees reach the limits of
their potential is in their own best interests.
- 11. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 10!
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PRICING AND DATA SCIENCE
It seems fashionable these days to talk about “data science” when discussing
application of quantitative techniques to commercial challenges. What data
science is may not be clear at first – it might be statistics, operations research
or even consulting. At Ranson Pricing we believe that data science is simply
old-fashioned common sense applied to large data sets to facilitate decision-
making.
In this article we outline what data science means for pricing in a little more
detail, explain why the topic is so substantial that no one individual is likely to
be able to master everything, evaluate how to incorporate data science
specialists in your pricing team and set out the links to traditional consulting.
Pricing has always been a data science
Pricing is the art of selling the right product to the right customer at the right
time. Each of those elements is measurable, so pricing decisions have been
driven by facts for many years. But the nature of the information in use does
seem to have changed in recent years, as powerful portable computers and
high speed access to large data sets has opened up opportunities to conduct
pieces of analysis that were not possible before.
However at Ranson Pricing we caution that whilst analysis should always be
robust and rigorous, it does not always need to be complex. A table of
regression results with discussion of R-squared and heteroskedasticity rarely
leads to a different conclusion than could be seen from a well presented chart
and table. And since pricing analysis is intended to facilitate decisions, the
results should be presented in a way that makes it easy for busy non-
specialists to quickly understand and support those decisions.
Data science is vast in scope so nobody can claim to master everything
At Ranson Pricing we think that the following skills are part of a data
scientist’s repertoire:
(i) analysing and evaluating data
(ii) translating data into compelling stories to help decision-makers
understand what the data really represents
(iii) evaluating how outcomes might have changed had circumstances
been different
(iv) extracting information from a data source
(v) validating that information is complete and accurate, and that
conclusions are meaningful
(vi) deliver appropriate recommendations on the basis of available
information
(vii) persuade stakeholders to adopt the recommendations.
- 12. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 11!
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Together these seven competences can represent a vast array of skills.
Everything from statistics and econometrics through to salesmanship and
story telling is included. As such it is unlikely that any one individual will
encompass all the necessary skills.
We also note that none of the skills necessarily involve complexity, although
in the right circumstances they can. We caution against seeking a team of
data scientists made up entirely of people with strong coding and analytical
skills as the ability to sell initiatives to reluctant stakeholders is also critical.
It is easy to slot data scientists into your pricing team
A career in pricing presents great opportunities for data scientists. There are a
two different ways to incorporate them in pricing, either attached to specific
teams or as a group of internal consultants.
Consultants are data scientists too
Traditional management consulting often involves the application of a small
amount of data to help solve a problem. To achieve this all seven of the
competences outlined above are required. Accordingly we think that
consultants are data scientists too.
- 13. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 12!
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USING WAR GAMES TO MAKE THE RIGHT PRICING DECISIONS
In the armed services and defence ministries around the world it is common
practice to act out military scenarios as “war games” to understand how the
planners’ own commanders and forces, and those of their enemies, may react
in certain circumstances. The insights are used to understand what strategies
and tactics may and may not work well in real life, should the need arise.
At Ranson Pricing we hope and pray that the war games enacted on our
behalf work to keep the peace, just as they are intended. But we also see an
opportunity for businesses to use similar exercises to boost their commercial
performance. In this article we explain what you need to do to run effective
pricing war games.
A game needs rules, at least two teams and a referee
One good way of staging a pricing war game is to set two teams of pricing
specialists against each other and see what they do, and how they react to
each other’s moves, in certain circumstances. A set of rules should be
determined in advance (e.g. prices cannot be below zero, it is not possible to
sell more than 1,000 units, transport costs are USD 10 per mile etc…) and an
impartial referee should be appointed to ensure that those rules are obeyed.
It may be necessary to replay the game several times with different
teams
Just because an outcome is observed once does not necessarily mean that it
should be considered the final outcome of the game. Repeating the game
several times, possibly with different teams, will help you understand how
likely it is that an outcome will occur, not a certainty. Changing the initial
scenarios to understand the sensitivity of results is also important as real life
is hard to predict and what you are faced with may be different to what you
have gamed. But by playing several different types of game it will be easier to
read the situation in hand and take an informed decision about how to react.
Documenting results is critical
As with most initiatives in pricing, it is just as important to record the results of
gaming exercises as it is to trial and improvement exercises. Recording the
results provides a point of reference for future managers and also acts to
internalise the knowledge learnt in the person writing them down.
- 14. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 13!
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INCORPORATING THE VALUE OF PREMIUM TRAVEL IN PRICING
At many airlines the revenue management team enjoy staff travel benefits.
The pricing specialists, demand forecasters, inventory managers, systems
developers and their families can holiday around the world in first and
business class, provided that the seats are not sold to paying customers. Duty
travel is conducted under similar arrangements.
But there is one unfortunate consequence of this great employee perk. The
team will never need to actually pay the market price for a ticket themselves
and accordingly may not appreciate it’s true value. At Ranson Pricing we
reckon that this is a shame since we believe that first and business class air
travel is one of the most valuable commodities in the world, not because of it’s
frills, bells and whistles, but because of the intangibles.
Premium travel buys time
A passenger taking a flight in business class is able to use their time more
productively on the plane, but they also get to use their time more productively
on the ground at either end. Before departure, passengers can spend more
time working, or with their friends and family because less recovery time is
required at the other end. After landing, passengers can either proceed
straight into meetings or holiday activities with relatively ease so less rest time
is required. At Ranson Pricing our pricing expert Oliver Ranson finds that
business class travel secures half a day of activity per time zone crossed and
first class travel secures an extra half day on top of that.
Premium travel buys peace of mind
Passengers looking forward to their trip in business or first class will either
enjoy the last few days of their holiday that much more or will be able to focus
on their business activities without the worry of knowing that they have to
endure a long flight in economy. Perhaps this all adds up to several hours or
days (depending on the individual) of valuable extra time available.
How to price premium travel
Fundamentally, premium travel pricing all comes down to valuing the
intangibles of time and peace of mind. But it must also consider the
willingness and ability to pay of different market segments, bearing in mind
capacity constraints.
For a business traveller, how much is time worth? It will partly depend on the
company in question’s cash flow, but for established corporate entities
Ranson Pricing would expect a professional person to add at least a thousand
Pounds of value per day and most likely a good deal more. If they were not,
then given the costs of recruitment, management, support, office space and
the staff member’s salary the company would probably be better off not
employing them!
- 15. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 14!
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At a thousand Pounds per day and half a day of productivity per time zone
crossed, for a trip from London to New York (five hours time difference) it
would be worth paying GBP 2,500 each way for the company to pay to
upgrade the employee from economy to business class.
For leisure travel though pricing must be a little different since most
professional people on professional salaries (on which they pay tax) would
struggle to pay an extra GBP 2,500 each way for a flight to New York. But that
does not mean that the airline cannot offer leisure seats in this cabin, suitably
fenced of course.
The way to do this is charge a reasonable but relatively small premium over
the prevailing premium economy fare for business class seats that would
otherwise go unsold. Something that people will be able to afford if they
choose, but which is expensive enough that the cabin will not sell out
immediately. Accordingly an airline with a strong premium pricing strategy will
probably be simultaneously the cheapest and most expensive carrier in the
market.
- 16. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 15!
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KARL MARX, REVENUE MANAGER
When our pricing expert Oliver Ranson was at LSE some his fellow students
were followers of the famous philosopher Karl Marx. After graduation they
either decided to become stock brokers or work as ‘trade representatives’ for
countries whose governments seem to work quite a bit differently from our
friends operating authorities in the UK.
But maybe they should have become pricing strategy professionals instead.
After all, Marx wrote “from each according to his ability, to each according to
his need” and to Ranson Pricing’s ears that sounds just like working down a
demand curve to offer different products to different market segments based
on their willingness and ability to pay.
At Ranson Pricing we believe that pricing strategy is a fundamentally good
thing. When done well it allows many consumers to buy products that they
would not otherwise be able to afford through sales, promotions and tactical
initiatives. And it also ensures that businesses sell their stock at sustainable
yields through capturing higher yield from customers with substantial
willingness to pay when otherwise vigorous market forces might shake out
incentives to innovate. All in all, sound pricing strategy secures the cash flow
which promotes long term investment in jobs, technical progress and any
investment that a firm might make in promoting what they perceive to be good
works in wider society.
To do that pricing strategy well you can follow the maxim “from each
according to his ability to pay, to each a sustainable and profitable mix of
products according to his need”.
- 17. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 16!
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PRICE ESCALATORS – THE PART OF PRICING MANY PEOPLE FORGET
ABOUT
We live in a world where inflation is a fact of life. Our suppliers increase their
prices, shrinking our margins, and our customers enjoy increases in the
nominal value of their income, increasing their willingness to pay. But there
seem to be few organisations out there which use a ‘price escalator’ to slowly
but surely increase their price levels. There are four good reasons why you
should do this.
Small increases add up over time
If you increase your prices by 1% every six months, then after five years your
prices will be 10.5% higher than if you had not changed the prices at all.
During those years you will enjoy the benefits of slightly higher revenues,
which can be reinvested in your products, services and pricing processes to
secure a prosperous future for your business.
Small changes are less likely to be noticed by competitors
Imagine bumping your prices up by 10.5% at once. Your competitors and
customers would surely notice and most likely the competitor would be able to
hoover up business as a result. By increasing prices slowly but surely, your
actions will help to instil market discipline in both competitors and customers.
Small changes are less costly to correct if things do not go according to
plan
If you had to raise prices by 10.5% all at once and things did not work out, it
could be very costly for your business in terms of lost revenue, brand damage
and customer trust. But if you increase prices by just 1% at a time, if things do
not work out then you can change things back with no harm done.
Small changes can be applied across your product range and tailored
accordingly
You can also happily leave a price increase in some products while removing
it from others. Products might include bundles of different items as well as
goods and services sold individually. So the price escalation method is
extremely flexible.
- 18. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 17!
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DO YOU HAVE ALL SIX PRICING SKILL SETS IN YOUR TEAM?
Pricing teams need a wide range of skills to function effectively. At Ranson
Pricing we believe that pricing is not all about developing complex software,
solving tough maths problems and performing complex pieces of analysis.
This work has it’s place, but it is important not to neglect the ‘softer’ pricing
skills. In this article we explore the six pricing skill sets that you should have in
your team.
Operational pricing
It is always necessary to have in place a process for continual monitoring of
how markets change. As competitors adjust their prices and customers
change their behaviour some form of response is often vital. To handle this,
there should be people on your team who are able to work quickly and in real-
time to address operational issues as and when they arise. Sometimes these
skills are hard to combine with the other elements that we describe below so
be cautious to ensure that individuals do not have too many different types of
task to do.
Pricing strategy
The strategy side of pricing is all about ensuring that the tools, processes and
technology available meets your organisation’s requirements, and people
operating in this part of pricing will need to be able to secure agreement with
sometimes reluctant stakeholders to make sure that your pricing reflects your
company’s wider objectives.
Technology & systems development in pricing
Pricing analysis is complex and it is likely that you use special technology to
complete your projects. Accordingly your team should be able to engage with
people who develop and manage this type of technology while at the same
time ensuring that data owners supply information that the technologies can
use to create the insights necessary for your team to make their pricing
decisions.
Pricing & revenue integrity
Are there any holes in your pricing strategy that enterprising customers can
take advantage of? Your pricing and revenue integrity people will look for
these and take what actions they can, be they based in technology, incentives
or contracts, to reduce the risk.
- 19. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 18!
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Pricing data management
At Ranson Pricing one of our brand values is taking decisions on the basis of
facts (the others are attention to every detail and clarity in decision-making).
In your organisation it is vital that pricing decisions are based on the facts and
so it is important to have people on your team who are able to analyse, audit,
evaluate and generally manage data. Note that the people doing the analysis
and evaluation may not necessarily be the same people as the data
managers and auditors.
Loyalty, ancillary revenue, CRM & e-commerce
Whilst loyalty, ancillary revenue, CRM and e-commerce do not always sit
within a pricing team, having links with these areas is extremely valuable.
Since these areas have insights and analysis in common with pricing there
may be organisational efficiencies in performing analysis and research studies
once across groups rather than several times individually. There may also be
potential to implement special prices for distribution through these channels.
Having people who know about these areas in your pricing team will ensure
that you can have all the facts to hand.
- 20. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 19!
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ARE YOU READY FOR THE NEXT DOWNTURN?
Economic history shows that from time to time economies enter a period of
shrinking, either relatively as the rate of economic growth falls or absolutely
when average incomes decline. These periods present a series of interesting
challenges for pricing specialists as they try to ensure that customers still
choose products they are pleased to consume at a price that reflects the
value they receive.
The pricing challenges during an economic downturn are more or less the
same as during periods of growth, but they need to be considered in a slightly
different way.
Studying history is still worthwhile
At Ranson Pricing our creed is to apply the lessons of history to see more
clearly into situations where we are called to act. When pricing in downturns,
look to the past for inspiration. Ask yourself questions about what happened
during the last economic contraction. For example, did customers change
their product mix, what happened to your share of volumes and revenue, how
did average spend change and did customers buy products in larger or
smaller transactions? Use these lessons to formulate hypotheses about what
might happen this time and roll out trial-improvement initiatives to test whether
or not conditions are similar this time round. If conditions are similar, this will
give you good ammunition to take to other stakeholders seeking aggressive
pricing initiatives that you might not be comfortable with.
Be cautious of the competitors and do not enter a price war
Not all companies address their pricing calmly and conservatively and some
may be tempted to discount heavily in response to “market conditions”,
whatever that may be. At Ranson Pricing we recommend caution. Remember
the effort that you put into building your brand and developing quality products
during the good times and apply primary research, data mining and trial-
improvement exercises as usual when considering discounts.
Customers may change the mix of products they buy
During a downturn your customers may feel the need to save money and
might change the mix of products they buy. This might involve trading down a
level or two of quality (e.g. from supermarket premium to standard, or from
standard to value) or between substitute products (e.g. from steak to chicken).
The pricing opportunities here revolve around bundling, CRM and loyalty. You
will need to incorporate pricing and other commercial initiatives that are
flexible enough to accommodate changes at the individual consumer basis.
As always in pricing, do your research, formulate a strategy, roll it out and see
how it performs to make a start. Remember that you do not necessarily need
to get it right first time and that your first move does not need to be your last,
and then you will be well placed to price effectively during the next downturn.
- 21. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 20!
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PRICING’S MAGIC NUMBER
As human beings it seems that we tend to think about numbers
logarithmically. Base ten (10, 100, 1,000 etc…) is popular because we have
ten fingers on our hands. But when it comes to financial matters a look at
many currencies indicates that the preferred pattern of thought is 1, 2, 5, 10,
20, 50, 100 etc…, which is a sequence approximately equal to the cube root
of ten raised to various powers.
We can see this because if we define the cube root of 10 as a number ‘c’,
then c^0 = 1, c^1 = 2.15, c^2 = 4.64, c^3 = 10, c^4 = 21.54, c^5 = 46.42, c^6 =
100 and so on.
At Ranson Pricing we wonder whether or not this cube root of ten is a magic
number in pricing and whether or not there are any lessons that can be
drawn.
Will consumers be more likely to buy a higher priced product if the price
is closer to a power of the magic number than a lower priced
competitor?
Sometimes people can be a little irrational. Retailers know this and use
techniques of ‘retail geography’, red tags and other methods to position
certain products at eye level. But might it be the case that pricing could be
important too. Might a customer be more likely to buy a product priced at GBP
20.00 (close to a power of the magic number) than GBP 17.99? Any
volunteers – let us know?!
Is precision to the magic number more profitable than penny-level
discounts?
We have written before about the end of 99p pricing. The magic number could
help us think about two opportunities to price slightly differently.
First it might be worthwhile, especially for items priced at low numbers like
consumer goods, to price exactly at the 1-2-5-10-… points. For items priced at
high numbers on the other hand like airline tickets there might be scope to
price exactly at a power of a magic number. For example, a business class
ticket on a long flight could be priced at GBP 2,154.43 (c^10) or GBP
4,641.59 (c^11).
As always in pricing, trial and improvement is a necessary step to take when
examining whether or not ideas really work in practice. If you do try out ‘magic
number’ based pricing, please let us know how you get on.
- 22. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 21
DEVELOPING BUSINESS CASES FOR AIRLINE BUY-ON-BOARD
Once upon a time airline passengers whizzed across oceans eating gourmet
cuisine and drinking the finest wines available to humanity. Apparently.
Ranson Pricing is not convinced that airline catering was ever really that
good. But we know for sure that many airlines continue to offer a “fully
bundled” service that includes food and drink and we wonder if this is really a
product that today’s travellers want.
Airlines operate in a wide range of markets across the world and serve
passengers with a huge range of tastes, experiences and expectations. The
most important distinction between flights is probably the so-called “stage
length”, or the distance travelled (and hence the time taken).
On extremely short flights with less than 60 minutes in the air meals are
clearly not “required” as passengers will soon be on the ground and can either
eat at home or visit a restaurant. Many such flights will take place away from
typical meal times so a large number of passengers will not be hungry. But
nevertheless some people may be looking for something to eat and in some
cases a quite substantial meal, especially when their trip on the aeroplane is
the only time they have to eat during the day. The challenge for airlines is
understanding when and how to satisfy the needs of their different segments.
Back in the last century BA and BMI waged breakfast wars, offering
substantial breakfasts involving egg, bacon, sausages, mushrooms and other
morning delights to business travellers. This made sense because such
travellers were getting up early and heading for a day of activity. BA continues
to offer a full breakfast on flights from London to Scotland and, in their
premium cabin, elsewhere in Europe.
The longer the flight though the more opportunities there are for airlines to
play with their service. On longhaul flights substantial food options are
probably compulsory as passengers will need to eat, but this need not mean
that they be either all the same or free.
Airlines seeking to evaluate their catering have a number of options:
(a) Do not offer food and drink at all, offering substantial cost savings and
elimination of operational complexities at the risk of either leaving ancillary
revenue opportunities on the table, damaging consumer perceptions of the
brand and/or leaving some seats unsold as passengers who value the
catering travel with other operators.
(b) Offer some things for free and other things at a charge, for example a free
bar but paid-for food. This option gives all passengers a standard product but
gives others a wider set of options should they so desire.
- 23. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 22
(c) Offer a standard product for free and a premium product at an extra
charge. Air France for example offers all their longhaul economy cabin
passengers a meal but also has a selection of premium meals available for an
extra charge, provided that a passenger buys the product before a flight. It
would also be possible to offer a more premium product as buy-on-board
(airlines that offer alcoholic drinks at a price and soft drinks for free are a good
example) but airlines will need to carefully forecast demand and balance
wastage costs (and incremental fuel burn) against revenue opportunities.
(d) Offer customers a fully-bundled service with all products loaded on the
aircraft available without any extra charges. This approach will leave ancillary
revenue on the table, but will reduce complexities in billing and payment
(particularly as society moves increasingly cashless). With this approach there
is a risk that some people working for airline finance departments will begin to
see catering as a pure cost centre and under-account for catering’s impact on
brand perception and repeat business. It is also possible that the range of
products offered may be more limited than in other options, leaving some
passengers disappointed even if their meal was “free” and feeling that they
would rather have had the chance to pay extra for something better.
Any airline which decides to offer catering at all should bear in mind that they
will need to offer customers a product they want to consume at a price they
are willing to pay. This will be based on consumer behaviour studies, price
sensitivity and feasibility in product delivery. Remember that margin matters
more than costs as such but also that airlines seeking to expand their catering
options will have a number of other costs. There may be a cost base
implication from larger and heavier fixed galley configurations than might
otherwise be achieved, procurement, maintenance and storage of the
necessary electrical and non-electrical equipment, the same for both serving
equipment and rotable/disposable items such as plates, cutlery, packaging
and other items, fuel burn from carriage and also the opportunity cost of using
the space occupied by the most-likely larger plinths and monuments as
saleable seating space.
Airlines should also note that as well as the chance that incremental seats
may not always be sold, at the lower end of the demand curve (especially on
shorthaul) marginal costs such as boarding cards, bag tags, cost of sale etc…
might be significant so the value of a seat instead of a galley monument may
be a lower than usual proportion of revenue.
The business case for buy-on-board is not necessarily clear-cut at realisable
price points but there is still one final point to consider. If current food on
shorthaul flights is not appreciated and simply thrown away it can be safely
removed and the resulting anticipated cost savings can be used to do the
research and development required to create a new, world-leading buy-on-
board product.
- 24. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 23
THE DIFFERENCES BETWEEN PRICING & OPERATIONAL RESEARCH
Pricing is the art of selling the right product to the right customer at the right
time and Operational Research (“OR”) is the application of advanced
analytical methods to help make better decisions. The two disciplines have
much in common, but because they also have some important differences
there are seven important distinctions that companies looking to build
organisations with Pricing and Operational Research practices will need to
bear in mind.
OR specialists apply analytical and statistical techniques to reach the solution
to a business challenge that is as close to perfect, or “optimal” in OR terms,
as possible. Some Pricing problems, particularly those involving an
optimisation problem, can happily be solved by applying OR.
But some other pricing issues are much more strategic in nature, particularly
when organisations are seeking to understand their customer base and it’s
behaviour, gain insight into the competitive environment and use business
intelligence to carefully specify the available options, clarify plans and define
and then reach objectives.
There are four key similarities between the skills required to make a
successful Pricing specialist and a successful OR specialist. These are:
(a) Both apply measurable and meaningful quantitative and qualitative
information to reach a recommendation
(b) Both are at home working closely with other teams and stakeholders,
delivering on projects that ideally can be carried forward by those others
without further assistance
(c) Both apply analytical techniques to justify recommendations, define
objective criteria for determining whether or not an initiative will have been a
success and help other stakeholders understand whether or not a successful
outcome has been realised in the end
(d) Both focus on translating information into actionable, achievable decisions
(or at least a clear guide that will steer another decision maker into taking the
recommended actions).
On the other hand there are seven important differences between the two
disciplines. These are:
(a) Pricing, particularly strategic Pricing, often applies more “informal”
methods – since Pricing decisions involve many stakeholders, including
people with non-technical backgrounds, it is frequently necessary to use
methods that are easier for boards and decision makers to digest, and such
methods may be less analytically rigorous than those used in OR and not
valid for “optimisation” purposes
(b) Pricing often involves more qualitative information, such as how customer
perception of a product or brand can impact a product’s competitive
positioning
- 25. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 24
(c) Pricing often involves “smaller” data (really large data sets with a certain
amount of aggregation already performed) while OR specialists commonly
apply their analysis to “raw” data
(d) Pricing specialists typically do not use statistical tools like SAS while OR
specialists will not typically use pricing software from the various specialist
vendors
(e) Pricing specialists may be more inclined to recommend testing analysis
through real-world trial and improvement exercises than OR specialists
(f) Pricing specialists may be more inclined to spend time evaluating options,
opportunities and unmeasurable elements, as well as focussing on the human
dimensions to project planning, than OR specialists may be
(g) Pricing specialists tend to specialise in Pricing, while OR specialists tend
to operate across a wider range of projects, leading to OR specialists not
quite having the same depth of experience as the Pricing experts.
Both disciplines bring distinct products to the table and organisations need to
think carefully about how they structure their Pricing teams and other
organisations to make the most of what both groups of specialists have to
offer.
- 26. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 25
THREE PRICING CHALLENGES FOR COMMERCIAL BANKS
Commercial banks have much in common with retailers, airlines,
entertainment venues and the other businesses that have successfully
applied Ranson Pricing’s style of pricing strategy. They have a large number
of customers, each of whom have different willingness to pay, buying a large
number of relatively standard products that can be distinguished by
observable characteristics, such as a mortgage that can be repaid over 10, 15
or 20 years. Financial institutions will need to overcome three types of
challenges to make the most of the pricing opportunities – structural,
regulatory and product.
Structural challenges – different types of prices
When we visit the supermarket we are invited to pay GBP 5.00 for a steak or
GBP 7.00 for a premium steak, and either GBP 1.00 for own-brand biscuits or
GBP 1.50 for branded biscuits. Everything is priced in whole Pounds, Dollars
or Dinars. But in financial services fees can be fixed (e.g. GBP 6.00 to use an
overdraft facility in one month) or proportional (e.g. 3.9% for a two-year
personal loan). To add even more complexity insurance products are priced
actuarially, where an actuary sets a minimum price, bearing in mind the
expected risks of the policy in question.
Both fixed and proportional fees have disadvantages when it comes to
alignment with willingness to pay. A customer who goes GBP 5.00 into their
overdraft for one day might be aggrieved to face a GBP 6.00 fee for this and
banks who do not refund the fee when the customer complains will lose
goodwill. On the other hand, a customer who goes GBP 10,000 into their
overdraft for a week might not be too worried about the GBP 6.00 fee. But
interest rates on the other hand are not perfect either. Banks no doubt have
costs of supplying overdraft facilities and when a customer goes a few
Pounds into the red for a day or two the bank’s set up costs of permitting the
overdraft will not be recovered by the penny or two in interest that will result.
When it comes to actuarially set prices for insurance, banks will need to think
carefully about whether or not they can safely bundle these products with
credit cards, loans, mortgages etc… below the price that the actuary has
permitted.
Regulatory prices – there may be a consumer backlash against
‘complexity’
While airline tickets, cinema seats and chocolate biscuits are luxuries,
banking is an essential utility for most people. If banks decide to increase
complexity in pricing through loyalty programmes, bundling, product
differentiation and promotion, they must be careful to make sure that they do
not cause regulators to strike down harshly and set pricing in the industry
back many years.
- 27. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 26
Ranson Pricing recommends one-step-at-a-time exercises based on trial and
improvement – over many years, gradual improvements will all add up to
significant results but hopefully consumers will not be too alarmed in the
process.
Product definition
Banks offer solutions for people who want to store money and people who
want to borrow money. On the storage side, in these days of low interest rates
banks will find it increasingly hard to compete with non-financial asset classes
such as real estate, art and other capital assets. Some savers might even
decide to enjoy a leisure preference, travel and entertainment rather than
saving. Banks will have to consider these ‘competitors’ when setting prices for
savings products and a thorough understanding of customer preferences
through direct research and ‘revealed preference’ experiments will be
required.
One solution might be found on the borrowing side, where enterprising banks
might offer financing for consumers to purchase items that they would not
otherwise be able to afford but which are expected to provide a strong return.
Buy-to-let mortgages are probably a prime example of such a practice, but
there may be other opportunities and Ranson Pricing will be happy to
undertake the necessary work to identify them.
Ranson Pricing is not yet sure how banks will resolve these challenges, but
we are certainly willing to step up to the plate and work with financial
institutions to find solutions. We are sure though that the best outcomes will
be found through applying sound research, considered strategies and careful
management of innovative initiatives through trial and improvement.
- 28. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 27
EXCEL IS STILL THE MOST IMPORTANT PRICING TOOL (APART FROM
PEOPLE)
When companies are looking to become ever more data-driven in pricing and
other areas it makes sense to invest in technology to help your people
retrieve, manipulate and evaluate all your information. It is tempting to get
caught up in slick advertising and sales pitches from wealthy platform
vendors. But while new technology can be a good investment, the benefits
may not be entirely realised unless your people have an unusually firm
command of Excel. This is because there are three dimensions to becoming a
data-driven pricing organisation, and they all rely on Excel basics more than
the sophisticated analytics that require special tools.
The first step is to make sure that people are comfortable using, interpreting
and analysing data. Critically, they need to be able to use data to make things
happen in the real world. Sometimes reluctant senior stakeholders and people
in other teams need to be persuaded to buy-in to a pricing team’s ideas too.
Excel is a great tool for achieving both parts of this step because it is easy to
use, easy to transfer to other computers and most people are already familiar
at least with the basics.
The second step is to think a little more closely about how the data will be
used. You will need to consider the distinction between data owners, data
super-users and data end-users – for each person in the team, pick any one
or two (you cannot have all three). Data owners will probably not find Excel a
sufficient tool for many of their purposes as they probably use database tools.
But data storage is not really pricing work. Data owners may find Excel helpful
though for communicating their own insights and analysis, which can help
teams down-stream including pricing.
When it comes to data super- and end-users, there are three uses for your
company’s information – optimisation, analysis and decision-making.
Optimisation uses data and a selection of algorithms to maximise revenue,
requiring special tools. But both analysis and decision-making are perhaps
better done in Excel rather than other tools because high-level aggregation by
various indicators is all that is required. Data owners and super-users will
probably participate in the optimisation process, interacting directly with a
source to feed the optimiser. But data super-users and end-users create the
insights required for analysis and decision-making, even if they might not
ultimately take the decision themselves.
The third dimension to becoming a data-driven pricing organisation is
technology procurement. Because Excel is so much cheaper than other tools
and so much more likely to be already installed on your organisation’s
computers it is a tool that you can use immediately. So often in pricing, it is
important to act quickly, and if you can find value from immediately getting to
work rather than going through a lengthy procurement process Excel could be
worth much more than alternative platforms.
- 29. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 28
When it comes to buying other tools, remember that it has to make things
happen in the real world. Complication, over-specification and feature creep
can be expensive. If you do need pricing tools other than Excel, Ranson
Pricing recommends RFI-ing the vendors (stating your objectives and financial
constraints) to have them tell you your solution for free
- 30. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 29
SOME MYTHS ABOUT PRICING
When our Pricing Expert Oliver Ranson tells his friends about what he does
for a living they often tell him what they imagine his work is all about. But
surprisingly there seems to be a bit of a gap between how Oliver sees pricing
and how his friends do. Eight things in particular seem to be common myths
and they are the subject of this article.
Myth 1 – pricing is all about SAVING MONEY
Over the past 30 years CFOs have made tremendous efforts to streamline
their organisations, running efficiently and increasing profits through either
careful cost optimisation (good) or vigorous cost-cutting (probably bad). As a
result the idea that the only way to increase profits is to cut costs seems to be
ingrained in society. If pricing increases profits it must also cut costs. But this
is not true – sound pricing increases revenue with minimal impact on costs.
As a result pricing is a great force for good in business. The proceeds can be
re-invested in new and improved good and services that secure the
business’s future or returned to shareholders as dividends. And they can also
be used to make the company a better place to work, with higher
compensation, rewards and incentives for staff and other luxuries like first and
business class travel for everyone.
Myth 2 – pricing requires expensive technology
There are plenty of companies out there who make a living by selling over-
priced and over-specified IT platforms. Ranson Pricing is not one of them.
There is a role for technology in pricing, but it needs to be carefully tailored to
a company’s specific requirements to work well and must not be biased by
excessive ‘influencing’ using pre-existing but incorrect thoughts and ideas.
Simple models developed on Excel, pricing team empowerment and sound
organisational design can unlock 80% to 90% of the value of effective pricing
without needing to spend a penny on ‘optimisation’.
Myth 3 – pricing only works for giant firms
You don’t have to be an airline or a supermarket to invest in your pricing.
Every business sets a price, and every business can increase revenue if they
can capture a higher proportion of their customers’ willingness to pay.
Myth 4 – pricing is ‘impossible’
Pricing does require effort, and some of the concepts and changes required
can be quite scary for some businesses. But there are plenty of companies
out there increasing their revenue with minimal cost impact, so you can too!
- 31. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 30
Myth 5 – pricing is only relevant in B2C markets
Our article about B2B pricing from May 2015 outlines a five-step process to
help you price effectively for your B2B market segments.
Myth 6 – pricing is only required by technology and digital firms
Certainly not – modern pricing based on customer behaviour and willingness
to pay was invented by the airlines and the supermarkets, and later developed
by other travel companies and entertainment venues. Technology and digital
can certainly find a lot of value when investing in their pricing, but your
business certainly can too!
Myth 7 – pricing is so tough that you need a degree in maths to understand it
Pricing decisions need to be taken on the basis of facts and data. Sometimes
tough calls about when to increase or reduce prices need to be made and
optimisation technology, when implemented well, can be a great help. But at
Ranson Pricing we believe that a robust understanding of your customers and
competitors, combined with common sense and a passion for the work, is the
most important qualification for the pricing team – quantitative skills, if
required, can be developed through training the right person. Check out our
article from June 2016 examining the six skill sets you need in your pricing
team.
Myth 8 – pricing is a job for the sales team
Quite where pricing sits within an organisation is an open question for most
companies. It can sit by itself with a certain amount of scale, but for small
businesses and even most large ones it probably makes sense to bundle the
work within another part of the organisation. However at Ranson Pricing we
caution particularly against having the same people handle both pricing and
sales as experience suggests that sales’ passion for volume can easily
dominate any passion for yield. Both the right yield and the right volume are
required for successful pricing – if you sell everything you are too cheap and if
you are too expensive you sell nothing.
- 32. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 31
ARE AIRLINES READY FOR NDC?
From a pricing perspective airlines are retailers – they sell a large amount of
distinct but individually homogeneous products to many customers. But unlike
retailers airlines have spent their pricing focus on optimisation and
distribution. To make the most of IATA’s New Distribution Capability (“NDC”)
this will need to change…
What are airlines doing well?
Many airlines deploy their GDS and revenue management specialists in NDC
work. The teams are often highly skilled in GDS management, revenue
optimisation, demand forecasting and systems development. So when an
airline uses NDC you can be sure that it will work technically.
Why do airlines need to change?
Unfortunately at the operating level many airlines seem to think of NDC as a
technical challenge, something that must work flawlessly like confirming a
reservation or issuing a ticket. Unfortunately this is of limited value in itself, as
the products that must eventually be sold through NDC need to be defined
and priced. At Ranson Pricing we often see airlines not focussing enough on
the product and pricing definition.
Where do airlines need to go?
Airlines need to think more like retailers.
How are airlines going to get there?
Study our May 2014 article “unlocking your inner retailer” to understand how
to think and act like a retailer. These are the key points:
Lesson 1: offer a wide range of products which you know from research and
analysis that customers will really want to buy
Lesson 2: don’t be afraid to be simultaneously the cheapest and most
expensive in the market
Lesson 3: bundle products and services effectively to appeal to different
market segments
Lesson 4: develop your own distinctive and branded range of products to
occupy a clear position in the market place
Lesson 5: reward loyalty to track your customers’ spending habits and
behaviour.
Airlines already have a large amount of the skills, information and initiative
they need to make NDC work. The missing ingredient for now seems to be
the management exercises that must pull all these together to take the
commercial departments out of their comfort zones.
- 33. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 32
PRICING STRATEGIES ON RMS TITANIC
In 1997 the world went Titanic mad as James Cameron’s epic blockbuster hit
the silver screens. Much historical information about Titanic is widely
available, including everything from deck plans (or, in airline speak, LOPAs!)
to passenger lists and menus. What can these tell us about how White Star
(the operator) set their pricing strategy and how do these compare with
airlines today?
Multiple markets served
Titanic, along with her long-lived sister ship Olympic (1911-1935) and short-
lived sister Britannic (1915-1916), were designed to operate from
Southampton to New York via Cherbourg and Queenstown (now Cobh). On
the return there was no stop in Ireland and Titanic would have dropped off
passengers at Plymouth, Cherbourg and Southampton.
Southampton and Plymouth served the wealthy United Kingdom markets,
which then as now had close business and social ties with the east coast of
the United States. Ireland seems to have been largely a source of immigrant
traffic and 91.9% passengers embarking at Queenstown travelled in Third
Class. Cherbourg on the other hand was a bit of a mixed bag with tourists and
business travellers as well as emigrant flows from France and elsewhere,
some of whom from as far afield as Turkey and the Levant. 52.8% of
passengers embarking at Cherbourg travelled in First Class, 9.6% in Second
and 37.6% in Third. Just like smart airlines today, the White Star Line knew
that there was money to be made away from the economy cabin.
It is probably something of a myth that all the Third Class passengers were
poor and destitute – tired and huddled masses yearning to be free and
seeking the cheapest fare would most likely have gone on other ships,
although some would have been aboard Titanic as in many cases tickets were
valid for Third Class passage by the first available steamer. Just like smart
airlines today, White Star served many different market segments in each
service class.
Working the demand curve – classes of service
Titanic and her sisters offered three classes of accommodation – First,
Second and Third. Although cabins were relatively homogeneous in the lower
two classes, First seemed to offer a variety of options at increasing price
points. Titanic’s accommodations worked along a demand curve like this:
Third Class = 2, 4, 6 and 8-bed cabins at one-way fares from around £7 1s
(GBP 629.50 in 2015) per person, comparable to economy class fares today
Second Class = 2 and 4-bed cabins at one-way fares from around £10 10s
(GBP 937.50 in 2015) per person, comparable to premium economy class
fares today
- 34. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 33
First Class basic = 1, 2 and 3-bed cabins at one-way fares from £25 11s
(GBP 2,281.00 in 2015) per person, comparable to business class fares today
– inside cabins on E deck (the lowest deck offering First Class
accommodation) were the cheapest and outside cabins on A deck (one of the
highest decks with the best views) more expensive (£56 18s (GBP 5,081.00 in
2015)).
First Class suites = larger, more luxurious apartments on B and C decks,
sleeping up to three people and often sold as pairs at one-way fares from
approximately GBP 200 (GBP 17,860 in 2015) – note that these are fares for
a whole room sleeping up to three people and there were not really many
compartments of this standard available, even in First Class – it is something
of a myth that everybody travelling in Titanic’s First Class accommodation
sailed in luxury.
First Class parlour suites = the most luxurious accommodations, offering
sitting rooms, bathrooms and, in two cases, private promenade decks – these
were extremely expensive even by international First Class air travel
standards and off-peak fares were GBP 512 6s 7d (GBP 45,750.00 in 2015).
During the summer season fares were higher. Then as now April was
probably something of a shoulder season and there may have been lower
fares at certain times of the year. Note that fares are one-way but effectively
included a week’s accommodation, food and drink.
Just like smart airlines today, White Star offered a differentiated core product
to extract higher portions of passenger willingness to pay than might
otherwise have been achieved.
(Sources: fares data from Encyclopedia Titanica, inflation calculator operated
by Measuring Worth)
Ancillaries
White Star did not have a shiny new NDC product to play with, but they found
other ways of profiting from their customers. Of course there were bars,
souvenirs from the barber’s shop and the chance to send a telegram, but
there were two quite subtle revenue opportunities that Ranson Pricing is
impressed with.
An expensive a la carte restaurant offered high quality meals for an additional
price. Regular meals in the dining saloon were included in a passenger’s fare
but despite myths about Titanic being a floating palace catering was probably
hotel buffet standard, good but not great and produced efficiently in high
volume. The a la carte restaurant on the other hand was apparently
remarkable, with one passenger speaking about eating fresh strawberries (in
1912, in the middle of the north Atlantic, in April). From the pricing strategy
perspective it can be no co-incidence that the a la carte restaurant was
located on B deck, close to the most expensive accommodation and hence
the passengers with highest willingness and ability to pay.
- 35. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 34
Promotional literature focused heavily on a gym, squash court, Turkish bath
and swimming pool. These were probably something of a novelty in 1912 and
it is interesting to note that while most of these facilities were located low
down on F and G deck, the gym was on the boat deck, the highest of all. Why
were they separated? Most likely because by making the gym a beautiful, light
and airy space passengers would be attracted to take a look, at which point
they could be sold tickets to use the baths and racquet court – clever stuff!
- 36. Insight & analysis in 2016
From the Knowledge Centre
© Ranson Pricing Ltd 2016 35
WHY WE DON’T WANT TO COMPETE WITH BIG CONSULTING FIRMS
Understanding who your competitors are is one of the key skills in pricing
strategy. At Ranson Pricing we certainly have competitors, although some of
our friends seem to think that these must be the big consulting firms. Because
we know our product we can say for sure that in fact nothing could be further
from the truth.
Our product is different
Big consulting firms offer access to a large amount of experience across
different topics. Work on the details of pricing strategy is often something that
is left to junior generalists. At Ranson Pricing we focus exclusively on pricing
and revenue management and our Pricing Expert has more than a decade of
experience helping businesses like yours find as many revenue opportunities
as possible. Would you prefer to have an expert helping you with pricing
rather than a junior generalist? If so, choose Ranson Pricing.
Sometimes there is more value in doing things slowly
Big consulting firms will happily deploy large teams to your business in return
for enormous fees. But sometimes they complete work so quickly (because of
the enormous fees) that your team may not be able to absorb all the benefits
or really learn everything that will benefit their work once the consultants have
left. In the end, when you do a quick project with a large firm you will
inevitably have to engage them again and pay even more.
At Ranson Pricing our approach is different. It might take our Pricing Expert
Oliver Ranson three months to complete a project that a team of six people
could complete in one month, but at the end of the process your team will be
better equipped to handle pricing in the long term. At Ranson Pricing we pride
ourselves on our ability to get things right first time and touch things only
once. Would you prefer to do a consulting project only once rather than three
times? If so, choose Ranson Pricing.
We only handle one project at a time
When you engage a large firm the Partner who sells you the work will most
likely be busy with many projects at once. Now these people are generally
extremely smart and knowledgeable but they are also human. If they are not
giving you all their focus, can you really be sure that all the key issues
relevant to your business are being addressed? If you want a guarantee that
your consultant is paying 100% of his attention to your project, choose
Ranson Pricing.