Episode #37 - Free-Rider Friday - March 2015

Welcome to “Free-Rider Friday.” Most of our shows are “topic” driven, where we dive deep into one subject. Free-Rider Fridays are designed to be “event” driven—whatever issues are in the news that we (or you) find worthy of commentary. In economics, free riding means reaping the benefits from the actions of others and consequently refusing to bear the full costs of those actions. This means Ed and Ron will free ride off of the news, and each other, with no advanced knowledge of the events either will bring up.

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Ed’s Topics

Ed read an email from Jay, a listener in San Antonio. Jay asked Ron when he was introduced to the big libertarian thinkers, including Ludwig von Mises.

Jay also asked Ron about Edmund Burke and natural rights, and how long Ed has been a Libertarian.

Ed discussed the Tinder Plus App, and how it’s priced.

Ed mentioned how Salesforce reacted to a proposed law in Indiana that allows businesses to discriminate against gay and lesbian couples, and also Audra McDonald's reaction to it.

Ron’s Topics

Bob Cross, our guest on the March 13, 2015 show, told a story of how Marriott did a primitive form of Revenue Management in the 1950s. It turns out, so did my Dad in the barbershop, with respect to kids haircuts on Saturday’s, the busiest day of the week.

An article in the January 19, 2015 issue of The Economist, “When the chips are down,” about McDonald’s sales being down 4.6% year-over-year as of November 2014.

In contrast, fast-casual restaurants such as Shake Shack, Nando’s, Chipotle Mexican Grill, and Panera Bread, are up 10.5%. Four reasons are cited:

1. Fresh food

2. High-level customization of your order

3. Clever pricing, some dishes same price as fast food, but better at nudging to pricier dishes and extras, get an extra 40% out of each diner’s wallet

4. Each outlet offers a touch of distinctiveness (better before cheaper)

Other random topics

We discussed the concept of “Nudging,” and the book by Cass Sunstein and Richard Thaler, Nudge.

We also discussed an email question from listener Buyan:

Hi Ron,

I am an active listener on your books and podcasts. I currently lead an IT consulting company where we do custom development and CRM implementation projects. I have several questions on the business model which makes sense from your podcast.

1. From a consulting company perspective, I am struggling with defining value for my customers. Most of our clients use our services for complex, integration needs of their business. Do you have some examples of how other professional service firms define value or create value ?

2. I am now implementing the 3 price point approach which you had suggested instead of the previous one price which did not work for us. I would like to differentiate our firm with a zappos like service experience but our struggle is communicating that as a value to our clients. Are there any pointers on how that would work for an IT consulting company?

So please let me know.

Thanks,

Buyan

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Episode #36 - Interview with Anthony Clark

Ron and Ed interviewed Anthony Clark, author of the new book, The Last Campaign: How Presidents Rewrite History & Enshrine Their Legacies, available on Amazon. During the interview we discuss the economics of Presidential Librairies and how they rarely bring the promised revenue to the cities and towns that compete to host them.

Anthony also reveals the secret plan of Richard Nixon to build his library on land already owned by the Federal Government. This plan included plucking 4,000 acres of pristine seafront land from Marine base, Camp Pendleton.

In the last segment, Anthony, a former staff member of a Congressman from Missouri, explains how Hillary Clinton’s actions regardin her use of a personal email server were clearly a violation of federal policy.

Episode #35 - Interview with Pricing Legend Robert G. Cross

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What a treat it was to have the chance to interview Bob Cross, an absolute legend in pricing circles, and a mentor to me since reading his book, Revenue Management: Hard-Core Tactics for Market Domination, back in 1997. It really opened up the world of Revenue Management (especially in airlines) to me, and had a profound impact on my pricing future.

I got to hear Bob speak, and then meet him, at a Professional Pricing Society Conference back in 2000. You’ll want to listen to this entire interview, as his story of how he got into pricing is fascinating.

Biography

Robert G. Cross is the Chairman and CEO of Revenue Analytics.  He is widely recognized as the foremost expert in the field of Revenue Management. Robert G. Cross guides Revenue Analytics’ strategic vision and provides a wealth of industry expertise. He is actively involved in client work, and his leadership has been instrumental in helping develop leading Revenue Management capabilities for Revenue Analytics clients, including Coca-Cola, Marriott International and InterContinental Hotels Group. Labeled the “Guru of Revenue Management” by The Wall Street Journal, Robert G. Cross, prior to Revenue Analytics, founded Talus Solutions, Inc., a company credited with creating billions of dollars in value for clients such as Delta Air Lines, Ford Motor Company and UPS. Talus was acquired by Manugistics Group, Inc. in December of 2000 for $366 million.

Delta Story

Bob explains how a chemistry major, then a lawyer, ends up in Yield Management at Delta Airlines.

Bob tells the story of how Delta was leaving $200 Million on the table by misallocating seats (selling too many discount seats too soon, thus sacrificing last-minute full-fare seats, and having planes leave ½ empty that could have been sold out with discounted seats).

Revenue management accounted for $300 million in incremental revenue gain, ½ of Delta’s turnaround gain $600 million in 1984.

Bob left Delta and started the first company entirely devoted to the art and science of Revenue Management.

Bill Marriott, Jr. Story

One of my favorite stories Bob told at his PPS speech was how Bill Marriott, Jr. did Revenue Management back in the 1950s, before sophisticated software was available.

I reminded Bob that revenue management is not new, recounting this story from my book, Pricing on Purpose:

Indeed, it may be entering its third millennium as a management technique. We are told that Joseph and Mary had to be accommodated in a stable two thousand years ago because there was no room at the inn. But perhaps the innkeeper had identified them as customers who could not afford a premium rate on a night of peak demand and had decided to hold out for better business. After all, he might have known that there were three kings in town who had yet to find accommodation.

Revenue management strategies add $150M-200M in annual revenue at Marriott.

It uses a “Revenue Opportunity Model,” which measures actual revenue against a theoretical optimal.

Revenue management has spread to Hilton, Holiday Inn, Sheraton, Disney, golf courses, sports, entertainment, operas, retailers, and it literally saved National Car Rental from bankruptcy.

Revenue Management: Hard-Core Tactics for Market Domination, 1997

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I read this book in May 1997. There are blurbs from Robert Crandall (American Airlines Yield Management pioneer), Bill Marriott, Jr., and Herb Kelleher from Southwest Airlines fame.

In the Acknowledgements, Bob talks about his late barber, Carol Meinke, who operated a one-chair Barbershop. He tries to convince her to manage supply and demand using pricing!

My father, Sam Baker, was also a barber. Saturday’s were his busiest days, and the last thing you wanted to do was turn away a working gentlemen who would pay full price, and only has weekends to get his hair cut.

So the barbers used to tell the moms bringing in kids on Saturday that the price is cheaper if they come in on Tuesday! This is revenue management in action!:

            Sell the right product to the right customer at the right time for the right price.

Excellent Articles on Pricing by Bob

“Milestones in the application of analytical pricing and revenue management,” September 25, 2010

This is an excellent article if you’re interested in the history and diffusion of Yield Management, how it started in the airlines, and diffused into hotels, transportation companies, among others.

Over past few decades, revenue management has added tens of billions to net profits of hundreds of firms.

In 1991 UPS built a pricing department—Using "Target Pricing" it increased its profits in the first year by $100 million.

Fred Smith FedEx attributes 10% revenue growth and 33% profit growth to revenue management and a more “disciplined pricing approach.”

In the early 1990s, Canadian Broadcast Corporation, then ABC, NBC began revenue management to sell advertising.

Ford Motor realized cost-cutting was not the answer, and from the mid-1990s to the end of decade earned $3 Billion in additional profits thanks to better pricing.

“Revenue Management’s Renaissance: A Rebirth of the Art and Science of Profitable Revenue Generation,” February 2009.

“Customer-Centric pricing: The Surprising secret for profitability,” 2005.

Questions

We asked Bob if he sees a trend away from cost-plus pricing? Yes, he does.

Which industries were the best pricers? Used to be airlines, now he’d say hotels.

Which country leads the world in pricing? The United States.

Other Resources

Pricing on Purpose: Creating and Capturing Value, by Ronald J. Baker

Ron is honored to keynote at this year's Professional Pricing Society Conference in Dallas, Texas, on May 7, 2015: “Top Ten Business Myths.”

Episode #34 - Interview with Joseph Pine

JOE PINE PIC

Ed and I were honored to interview B. Joseph Pine, author of one of our all-time favorite business books: The Experience Economy: Work Is Theatre & Every Business a State, Updated Edition.

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Joe Pine is an internationally acclaimed author, speaker, and management advisor to Fortune 500 companies and entrepreneurial start-ups alike. Joe’s published work has changed how the business world thinks. His best-selling book The Experience Economy: Work Is Theatre & Every Business a Stage was the first to articulate the potential of experiences as a distinct economic offering, and literally began the worldwide shift to experience strategy. His latest work Infinite Possibility: Creating Customer Value on the Digital Frontier, explores how to use digital technology to stage experiences that fuse the real and the virtual, offering powerful new insights to address digital technology in customers’ experiences. He has consulted with hundreds of companies, bringing value to tactics, strategies, and game-changing, industry-disrupting innovations. Joe’s discoveries, the new frontier, the new economy, the new consumer sensibility, and now the new ways digital technology enables us to fuse the real and the virtual, make him one of the greatest business landscape explorers of our time.

We had an interesting discussion with Joe on The Experience Economy, and especially how professional firms are poised at the top of his Economic Value Progression graph, providing transformations for their customers.

Experience_Economy

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We also discussed the concept of multiverse from Infinite Possibility, and some of the concepts from his book The Laws of Managing.

We highly recommend all of Joe's books if you're interested in peering into the future and discovering the landscape where the future of business, and economic value creation, will be created.