12 Days of Revenue Management

There’s nothing like a Classic Holiday Movie! The RML team debated our favorites and thought….let’s do something fun! Enjoy our 12 Days Of Revenue – Holiday Classics, where we connect pricing to some of the most famous scenes in Classic Holiday Movies.

Day 1: Fuller & Pepsi (Home Alone)

Promotions increase revenue…right? Sometimes…more often than not, companies get carried away and experience price leakages. Take our advice…like Fuller should have…and go easy on the Pepsi (promotions). Avoid squeezing your margins and shrinking incremental revenue gains from promotions. How are you thinking of breaking the trend for 2022?

Did you know 59% of promotions lose money while eroding brand value in the process?

Knee-jerk reactions like eliminating promotions are NOT the answer.  So, the multi-million question is:  How much Pepsi is too much?” Good question.

Customers, like Fuller, are conditioned to expect discounts and a Pepsi with dinner…so you have to give them something….but what happens when they ask for a 9th? It’s a fine line of managing expectations without stripping the bed…ahem… hurting your business.

To determine the right promotions, organizations need to first establish the right processes in place to understand the ROI of promotional events at a granular level by SKU, price, week, account, etc. Most organizations don’t have this process or visibility in place and end up wetting the bed.

Day 2: Ralphie & His BB Gun (A Christmas Story)

Ralphie Parker wants….neigh…NEEDS a Red Ryder BB gun for Christmas…and he’s willing to do ANYTHING to get it!

Despite overwhelming negativity of ‘You’ll shoot your eye out” from parents, teachers, and even Santa Claus…(the one ally who would SURELY back him…and didn’t), Ralphie was determined. Through strategic persistence and what almost feels like divine intervention…he finally gets the BB gun.

In the context of business, companies often receive pushback from multiple sources when prices are increased. From internal sales teams to external customers – it’s all negative and chaotic.

1. Sales teams apply unsustainable discounts to loyal customers to ‘keep them’

2. Customers stock up in advance of price increases, which impacts everything from financial forecasting to production

Like Ralphie, keep your eye on the prize! Don’t let your sales team or customers influence your price increase.  Take aim at your obstacles:

1. Sales Team Support: Give your Sales Team the tools & guidelines to address customer concerns. Use a sell story or playbook to help sales effectively communicate price increase to customers

2. To mitigate ‘stocking up’ in advance of a price increase, maximum order quantities should be reduced & enforced. This ensures all customers convert to new pricing on your effective date

Day 3: Rudolph & Revenue Management (Rudolph the Red-Nosed Reindeer)

To realize the vast majority of profit potential in pricing, you need exceptional vision and navigation. No secret it’s tough to see in the dark, where pricing profits lurk undetected. You need guidance – like Rudolph’s nose, to illuminate the opportunities & challenges surrounding you.

Lead your sleigh team or organization using Revenue Management as your newest profit lever.

Successful Revenue Management engagements generate a 3:1 to 8:1 return on investment, being 3.2x more effective than reducing costs and 2.2x more effective than growing volume. Like Rudolph, Revenue Management guides organizations towards sustainable top and bottom-line growth.

Though highly impactful, it is hard to accomplish. 60% of organizations who try to implement a Revenue Management function fail to meet their growth targets within 24 months.

Day 4: Buddy & Price Dispersion (Elf)

Put customers on your Price List!

Did you know ‘emotional’ sentiment accounts for profit loss when discounting? It’s true! A price list replaces ad-hoc / emotionally charged negotiation with strategic and sustainable price setting. A customer worth $200k should not get a better price than one worth $1million, regardless of personal relationships or persuasiveness. Ensure there’s enough appropriately segmented customers separated by price thresholds for discounting to be used as intended! Unchecked variation in pricing across identical offerings destroys your opportunity to improve pricing & profits.

With the growth of an omnichannel environment, price dispersion is getting even more intense (differences in prices between Brick-and-mortar stores, apps, online platforms, third-parties, etc. require a streamlined pricing strategy).

As such, 2022 is THE time to get everyone on YOUR new and improved price list. It is the perfect time to reduce discounts for smaller customers and increase discounts for larger customers. This way, each customer gets the price they deserve.

Day 5: Buddy & The Elevator (Elf)

We all love to push buttons…just not as much as Buddy!

Our lovable elf’s affection for rudderless goals is a fun, yet cautionary tale. If you push every button on the elevator, you’ll never reach the top floor! The same can be said with having too much data and experiencing Analysis Paralysis.

In our digital age, we’re exposed to information overload. There’s more data than ever before, making it tough to clean & glean macro-data into actionable insights. Often, organizations aren’t maximizing on growth opportunities. Even worse, data becomes the very roadblock it’s intended to solve.

Here’s what you can do to overcome Analysis Paralysis:

  • Understand your “Why” and develop manageable data strategy buckets to organize data sets into your defined business objectives.
  • Streamline data into 1 consolidated report or dashboard with historical tracking.
  • Don’t worry about being 100% confident in your analysis. An analysis is a stop along the way, not your destination. Focus on the goal and take action!

Day 6: The Grinch & Christmas (How The Grinch Stole Christmas)

When evaluating customer value, it’s easy to oversell & overcomplicate…especially when it comes to features & benefits. Less is more – come up with a short versus a laundry list.

In our experience, 3 to 4 attributes truly matter to customers and differentiate you from the competition (may be attributes you have not considered). Unfortunately, companies get side-tracked and struggle to create value…and more importantly how to articulate it to different groups of customers.

“Like the Grinch with his feet ice cold in the snow, stood puzzling and puzzling, how could it be so? When Christmas came without ribbons. It came without tags. It came without packages, boxes, or bags.

And he puzzled and puzzled ’till his puzzler was sore. Then the Grinch thought of something he hadn’t before. What if Christmas, he thought, doesn’t come from a store?

What if Christmas, perhaps, means a little bit more?”

Hopefully, you don’t have to go through all the trials and tribulations the Grinch did to understand the true value of your offerings but understand it’s critical to help you retain customers and continue to outstrip the competition.

Day 7: Frosty & The Weather (Frosty the Snowman)

Frosty’s existence depends on perfect weather and a little magic. Without one or the other, Frosty melts away. It’s all about getting the equation right. Like Frosty, successful discounts are entirely dependent on market conditions. You could run the exact same promotion at two different times for the same SKU at the same price point and get completely different results. One may generate profits while another ends up leaving you all wet and cold.

To get the equation right and ensure your promotions are set up for success, ask yourself some of the following questions:

  • What types of customers should this discount be targeted at?
  • What types of offers should I discount and why?
  • When should I discount?
  • How should I communicate my discounts?
  • What discount framework is optimal?
  • The list goes on and on

The answers to these will make Frosty (Profits) come alive.

Day 8: John McClane & Terrorists (Die Hard)

60% of organizations that try to implement a Revenue Management function fail to meet their growth targets within 24 months. One of the main reasons why this is the case is because Revenue Management teams spend lots of time assessing different initiatives – checking if programs make sense, analyzing how terms & conditions may modify customer behavior, or constantly tracking how far customers are off the price list. All this time and effort is put into making little tweaks that take substantial effort to implement and sometimes only marginally improve your situation.

Sometimes, the right thing to do is to BLOW IT UP. If the program is not activity-based or does not align objectives, throw it out. If the terms & conditions are unacceptable to an outlier customer, fire them. If customers are too far off the price list, lose them.

This may sound contradictory to everything you have heard, but trust that in the long-term your team and top / bottom-line will thank you.

John McClane realized there was no negotiating with Hans, it was just time to say Yippee-Ki-Yay and get to work.

Day 9: Flick & The Pole (A Christmas Story)

What happens when customers triple-dog-dare you to lower prices, implement new terms, or add new programs? The same thing that happened to Flick in A Christmas Story – you get stuck. What was intended to be an isolated & volume driving exception soon becomes a big problem consuming your entire business. The longer you remain stuck, the harder it will be to increase prices, amend terms, or unstick programs.

What started as revenue management exceptions have a funny way of becoming the norm.

Unfortunately, it’s painful to get unstuck. Usually, companies will not even consider going through this pain unless they are in crisis mode (i.e. costs increase at a breakneck speed, margins being compressed, or an incapacity to supply). Sounds a lot like today’s environment.

Take advantage of the shifted dynamics and take the opportunity to unstick your organization.

A customer is not generating money, walk away. You are running out of supply, you short ship them. You decide that a certain SKU, channel, or promotion is not strategic, start to pull back investments. These short-term challenges require strategic focus but pay long-term dividends.

Trust us, it might hurt in the short term, but at least you are not stuck to a frozen pole!

Day 10: Charlie Brown & The Christmas Tree (A Charlie Brown Christmas)

In A Charlie Brown Christmas, Charlie Brown was tasked with finding a tree for the school play. Contrary to his friend’s expectations of grandeur, Charlie chose a barren and tiny tree with almost no needles. While initially a shock for his friends, they soon realize that the tree did represent Christmas and all it needed was some love and care.

In business, many organizations dedicate tremendous amounts of love and care into creating the right offerings for their customers. Unfortunately, some customers may still view your offerings as the tiny shrub rather than the pretty tree. And if they do not see the value in your offerings, they are more likely to fight you on prices.

There are two important lessons.

Lesson 1: It is important to sell the value of your offering, so customers can see what you are truly delivering. Here are some tips:

  • Make sure the benefits of your offerings are easy to understand and relevant to your prospect, focusing on meeting their value attributes.
  • Educate your customer rather than sell to them. An education-first approach helps you become their go-to source for information.

Lesson 2: Some customers will always see your offering as a shrub, given that they don’t value what you are delivering.  These aren’t the customers for you.  Enhance your focus and know what segments to target and which ones not to waste time on.

Day 11: Nora Krank & Christmas (Christmas with the Kranks)

No one is more apprehensive about skipping Christmas than Nora Krank. When she reluctantly agrees, she soon finds out she is missing out on a lot – putting Frosty on the roof, joining the neighborhood carolers, and (almost) not hosting her annual Christmas party.

Yet, when it comes to pricing processes, organizations are more than happy to skip critical steps. Without a pricing process, organizations make decisions based on intuition rather than data, leading to incorrect prices and poor profits.

Fortunately, Nora came to her senses (or shall we say, was forced to) when her daughter announced she was coming home for Christmas.

You do not want to be forced to establish a pricing process. At that point, it’ll be too late. Instead, take a prescriptive approach to pricing.

We recommend following these 5 steps to establish a best-in-class pricing process:

  1. Build your strategy by analyzing your customer, industry, competition, and offerings
  2. Set an optimized list & retail price based on your insights to maximize profit
  3. Assess the financial impact of your price / strategy through volume & financial modeling
  4. Execute price / strategy using sell stories to ensure market adoption
  5. Monitor, respond, and adjust price / strategy if necessary

Day 12: Happy Holidays From RML!

As we conclude RML’s 12 Days of Christmas – Revenue Management Edition, we celebrate our Clients and thank our Team for a great year. Despite the obvious challenges this year presented, it was a resounding success; we celebrated big wins and cemented Revenue Management as a Core Business Function in Leading Organizations.

In keeping with the Holiday Spirit, we’re extending a free New Year’s Consultation for leaders wanting to enter next with a competitive start. If you have GTM strategies or Pricing Optimization plans, we’re happy to provide our perspective or be a sounding board.

Let’s get you and your Team off to a great start this year with a quick call – please click here and we’ll schedule a time to speak.

Editorial Team
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