Exploring Revenue Management Solutions
Throughout my career, I have worked in and consulted with companies implementing Revenue Management (RM) strategies (sometimes referred to as Revenue Growth Management (RGM) or Strategic Pricing). In this time, I have watched many companies begin the journey of exploring revenue management solutions with all the right intentions—selling the right product to the right customer at the right time for the right price. However, when going from intent to execution, many firms have had their potential for success with strategic pricing associates marred by one or a combination of, the following three scenarios:
- The “Quick Win Fallacy”
- Not adopting a Revenue Management change management strategy
- Not being comfortable with discomfort
1. The “Quick Win Fallacy”
The “Quick Win Fallacy” is the belief that achieving positive results in a short time frame will determine long-term success. This strategy, however, is highly ineffective. Don’t get me wrong; I’m a big believer in leveraging quick wins as a way to show an organization’s leadership that Revenue Management (RM) is a worthwhile endeavour—primarily when those wins can act as a motivator for enduring potential returns. However, for organizations that are entering the RM space for the first time, settling for quick wins as a business strategy, is short-changing your potential to reap the enduring benefits of a full Revenue Growth Management strategy.
Rationalizing trade spend on low or negative margin captive customers, or leveraging a price increase on a product line that has not kept pace with market inflation, are easy to implement and quick to quantify initiatives, or in other words, they are “quick wins.” Tasks of this nature are easily handled by a small team and act as a proof of concept that RM can be successful within an organization. However, their very nature as a “quick win” creates complacency and thus their undoing. Once you’ve executed your quick wins, senior management will expect every Revenue Management solution to be:
- Quick
- Require minimal resources
- Provide substantial benefit
Planning a Successful Growth Strategy
The reality is that no successful Revenue Management solution is truly quick or easy. Most are long, often arduous processes requiring multifunctional support across an entire organization to squeeze even the slightest benefit for the financial statement. The “Quick Win Fallacy” might see your organization experience immediate returns; however, it is not a sustainable growth strategy.
2. Failing to Adopt a Change Management Strategy
The second scenario I’ve seen companies adopt that fails is not integrating a Revenue Growth Management mindset into their organization’s DNA. It is crucial that when undergoing a Revenue Growth initiative, a change management strategy also be in place. It is not enough to hire a Manager, Director, VP or even an external resource for Revenue Management initiatives and functions and expect success to automatically follow. In order to achieve successful organizational change, people need to identify with the corporate objective.
A Revenue Management Strategy means individual staff will often have to do their jobs differently, and it is the degree to which they change their mindset/behaviours and, consequently, processes that will determine the success of any newly implemented initiatives.
Adopting an “RGM Mindset” begins with ensuring the entire organization understands and is living the culture of RGM: to squeeze every penny where possible. This mindset needs to be embraced by all staff, from the C-Suite down to Sales, Marketing, Finance and all other functional support groups. Challenging teams to improve profitability and over-achieve on targets and budgets needs to be engrained in the DNA of an organization to truly bring RGM to life. Otherwise, internal revenue optimization resources are on a desert island destined to starve, resulting in frustration, resignation and a needless waste of corporate resources.
3. Not Being Comfortable with Discomfort
Being comfortable with being uncomfortable might sound like bad advice. However, it is vital for a successful Revenue Growth Management implementation and mindset. Too often, I’ve observed a lack of conflict resolution skills in leadership teams that fail to have uncomfortable conversations with peers, staff, and customers, especially when it comes to pricing and profitability. Revenue Growth Management strategies often bring forward topics of discussion that are complicated and can trigger emotions from those affected. Navigating discussions around topics like:
- taking a price increase to customers, or
- renegotiating terms in a contract
- or identifying and closing budget gaps within a business (calling out underperformance)
are inherently uncomfortable, but necessary. And while it can often be more comfortable to fold than to fight for what is right, I urge leaders to have these conversations, push through the discomfort, and encourage their staff to contribute towards the overall success of a revenue growth management strategy.
The Final Word
I hope these insights will allow you to avoid some of these more common pitfalls of Revenue Growth Management initiatives, including:
- The “Quick Win Fallacy”
- Not adopting a Revenue Management change management strategy
- Not being comfortable with discomfort
If you are considering bringing RGM into your organization, I encourage you to work with a partner who will ensure you keep your project efficient and on track, in addition to helping you build your internal capabilities as required.
ABOUT THE AUTHOR Michael Stanisz is a Partner at Revenue Management Labs. Revenue Management Labs help companies develop and execute practical solutions to maximize long-term revenue and profitability. Connect with Michael at mstanisz@revenueml.com
