One of the best articles I’ve read on revenue management in a long time is in the June issue of Harvard Business Review: “Pricing to Create Shared Value”, by Marco Bertini and John Gourville. I found the article itself very interesting, but the case study on the London Olympics really stood out. The authors use it to demonstrate how their five principles can be put in action.
- Focus on relationships, not transactions. The Olympic committee “increased the number of pricing tiers for many sports, which kept some ticket prices low while hitting revenue targets,” among other policies.
- Be proactive. The “committee’s decision not to bundle tickets to a more popular sport (swimming, say) with those to a less popular sport (tae kwon do, for instance)” was motivated by the fact that people who had purchased bundles in previous Olympics often let the ticket to the secondary event go to waste, thus leading to empty seats in the event venue and wasted capacity. On the other hand, the committee did bundle public transportation into the ticket price to reduce traffic congestion.
- Put a premium on flexibility. “The committee increased the number of price tiers across events… but did not assign a fixed number of seats to each tier. It did, however, promise that someone paying more would have a better view of the event than someone paying less.” This allowed the committee “the flexibility to better satisfy actual rather than anticipated demand.” (I found that part truly fascinating. Adaptable optimization in action.)
- Promote transparency, i.e., repeatedly communicating the details of the pricing scheme to consumers in the media.
- Manage the market’s standards for fairness. For instance, “ticket allocation was carried out through a simple lottery, reinforcing the fact that there was no preferential treatment.”