[Infographic] Revenue Management Approaches
Learn the differences between broad revenue management approaches and the pros & cons of each method.
The finance led approach tends to be characterized by looking at the world as it is today. This is done through P&L and statistical analysis that goes on to frame the strategy. The approach tends to deal with large, set pieces of work that are looking at a certain hypothesis or origin of an issue. It is certainly not looking at the shopper or consumer.
The outcome is generally a smaller, more profitable plan. Or in the worst cases, a bigger more profitable plan that bears no relation to market reality and does not consider execution. Often the large set pieces of work involve a third-party consultancy where costs will rocket.
The analytical approach has strong and compelling evidence that appeals to senior managers. It puts science into strategy and could be exactly the right approach if the business needs to be rebased.
However, it may lack the actual commercial reality. These approaches are divorced from the negotiations currently on-going between the sales team and their customers. And the approach almost always ignores the shopper.
The commercial led approach is where commercial people are running the function, generally from a sales background. This approach starts with the market and asks questions of that before looking at P&L analysis. This is a growth mindset approach and is characterized by what the world could be.
The approach is practical, experience-based and supported by insights. The work is less set-piece and more day-to-day where the team uses their influence and relationships across the business to get things done.
The commercial approach is compelling as the chances for a successful execution are high, as the strategies are based on market knowledge. The focus is on the shopper and consumer, where the real profit pools lie.
However, it does have its downsides. Sometimes there are P&Ls built to fit the case and rely too much on gut feel. In the worst cases, the strategies are made to fit the pressures coming from the sales team whereas it should be the other way around.
It is no surprise that the most effective teams combine the strengths of both. Where the team is commercially led but is backed up by strong analytical support and rigor.
The reasons it should remain commercial led are the focus on the shopper and consumer, the influence and strong links to the sales team and being based in the realities of the market will result in strategies that can be sold to customers.