Episode #40 Preview – We Are All Consultants Now

Consulting and sales are not different disciplines, but one and the same. They are the art of enabling the best possible decisions for customers. Recognizing this reality is not easy because it requires us to rethink the paradigms and prejudices of the past. We can increase the effectiveness in working with our customers if we adopt some concepts of consulting theory.

The assumptions and goals of consulting will be discussed by Ed and Ron.

April 10, 2015 Show Notes – For Good and Evil: Taxes and Civilization

There have been great and powerful men who have moved civilization, but most of the time no heroes can be found, and the world is led by scoundrels, fools, and second-stringers. Taxes, however, are ever present, often making a strong impact upon our lives—for good and evil. The prosperity as well as the decline of nations has always had a tax factor, and this we will see time and again throughout history

–Charles Adams, For Good and Evil

For Good and Evil by Charles Adams is the most comprehensive book on the history of taxation throughout civilization that I have ever read. Adams is an international tax attorney who offers a refreshing perspective on taxation, one you will not find among most practicing tax professionals.

It is a lively book that takes you from Ancient Egypt, Greece, Rome and the Middle Ages, all the way up to present day. It offers a perspective on taxation that you will not find in the current debates surrounding tax reform, and offers some very compelling alternatives and improvements to our existing system.

In order to tempt you to buy a copy of this book and read it, we offer the following tidbits of knowledge you will learn from Adams:

  • Taxpayers from the beginning of time have reacted to oppressive taxation in three ways: 1) rampant tax evasion and flight to avoid tax; 2) riots; 3) violence;
  • The first casualty of “dumb taxation” has always been liberty; the second casualty has been the wealth and strength of a nation;
  • The origins of Hanukkah are rooted in the tax struggles of the ancient Hebrews;
  • The Ancient Greeks extracted large amounts of wealth from rich private citizens through the liturgy—the voluntary alternative to progressive taxation. Enforced by tradition and strong public sentiment, most gave three to four times more than what was expected from them;
  • Plane Geometry was not invented by Euclid, but rather by ancient tax collectors determining land size for harvest taxes;
  • One of the causes of the fall of the Roman Empire was tax evasion;
  • William Tell refused to acknowledge the Austrian Hapsburgs and their gang of tax collectors. For this defiance he was ordered to shoot an apple from the head of his son with a crossbow;
  • The American Revolution was probably more the consequence of the oppressive administration of taxes than the taxes themselves. Taxation with representation has proven more expensive than taxation without representation;
  • In 1787 no citizen of the United States could vote who was not a taxpayer;
  • Was the Civil War fought over slavery or Northern Tax policy?
  • In 1816 Britons put a tax on newspapers (the “knowledge tax”), designed to curb the opposition press. The tax was levied by the page. Papers today continue to print large pages, which were initiated for tax avoidance;
  • Tax laws have taken away liberty more often than foreign invaders;

And ultimately,

  • All good tax systems tend to go bad.

As Adams Points out: “Polybius, considered the greatest historian of the ancient world, said that the best preparation for politics was the study of history in order to avoid the disasters of others.”

With respect to taxation, there have been plenty of disasters. If enough of us educate ourselves, it may be possible to avoid those historical debacles. Adams reminds us of the wisdom from past thinkers that we have foolishly forgotten.

The Lost Legacy: The Enlightenment Thinkers on Taxation

It is vain to say that enlightened statesmen will be able to adjust these clashing [tax] interests, and render them all subservient to the public good. Enlightened statesmen will not always be at the helm

–James Madison, The Federalist, No. 10, 1787-1788

It has been noted that the principal trouble with the contemporary generation is that it hasn’t read the minutes of the last meeting. With respect to tax policy, this is an understatement. The Enlightenment period (1650 to 1700) was the high watermark for tax wisdom, ethics, jurisprudence and plain common sense, according to Charles Adams in For Good and Evil.

The Enlightenment thinkers knew their history; they searched the world’s governmental systems for what worked and what didn’t, and took the best of many. With regard to taxation, they frequently spoke of the relationship between taxation and despotism and prosperity. Their primary insight was that government exists to maintain our liberty—not our prosperity.

The legacy they left us has largely been forgotten. Listen to the present tax reform debates and you will not hear the ideas and ideals of the Enlightenment thinkers, especially amongst the media and the “tax experts.” Instead, they report on any changes as if it were a sporting event—who wins and who loses, rather than what is good for the whole country.

This is tragic. It is amazing that in a society such as ours—with instantaneous access and ability to transmit information far and wide—we have forgotten the wisdom of these thinkers. It proves that information does not equate to wisdom.

Charles Adams points out:

Perhaps this is an example of the simple truth about life—what comes easy is taken lightly. Our liberty and freedoms were handed down to us by generations past that had to fight for the liberty we now enjoy. Liberty to us is an inheritance, not something we earned or achieved on our own. We take liberty lightly, and we don’t seem to realize how hard it is to get it back once it is lost.

The following is the “priceless legacy” the men of the Enlightenment passed on to us, adapted from For Good and Evil (first edition), Chapter 26.

  1. Government is at best a necessary evil

Thomas Paine in Common Sense (1776): “Government, even in its best state is but a necessary evil, in its worst state an intolerable one.”

Paine said that taxation was tyranny, and a great destroyer of liberty as well as of property and industry, and it impoverishes the people more than foreign enemies do.

  1. The imaginary wants of the state

“Baron de Montesquieu in his The Spirit of Laws (1751), a book which greatly influenced the Framers of the U.S. Constitution, explained this problem:

                  The revenues of the state are a portion of that each subject gives of his property in order to secure or to have the agreeable enjoyment of the remainder.

To fix these revenues in a proper manner, regard should be had both to the necessities of the state and those of the subject. The real wants of the people ought never to give way to the imaginary wants of the state.

Imaginary wants are those which flow from the passions, and from the weakness of the governors, from the charms of an extraordinary project, from the distempered desire of vain glory and from a certain impotency of mind incapable of withstanding the attacks of    fancy. Often has it happened that ministers of a restless disposition, have imagined that the wants of the state were those of their own little and ignoble souls.”

  1. Government should stay out of business

Adam Smith in The Wealth of Nations:

Princes, however, have frequently engaged in many other mercantile projects, and have been willing, like private persons, to mend their fortunes by becoming adventurers in the common branches of trade. They have scarce ever succeeded. The profusion with which the affairs of princes are always managed, renders it almost impossible that they should. The agents of the prince regard the wealth of their master as inexhaustible; are careless in what price they buy, are careless in what price they sell; are careless at what expense.

Two words: Post Office.

  1. Liberty carries the seed of its own destruction

          Montesquieu noted that people living in a state of liberty tend to let their guard down and tolerate great taxes, but once granted they discover they cannot take a backward step: “Liberty produces excessive taxes; the effect of excessive taxes is slavery.”

  1. Direct taxes are the badge of slavery, and indirect taxes the badge of liberty

         Again Montesquieu: “Capitation [direct taxes on the individual] is more natural to slavery; a duty on merchandise is more natural to liberty, because it has not so direct a relation to the person.”

Recall that the Supreme Court ruled the 1894 income tax unconstitutional because it was a direct tax (thus had to be apportioned amongst the states).

  1. Tax evasion is not a criminal act

            Tax evasion is the consequence of excessive taxation, it’s a “positive offense” because it’s one manufactured by the state, not worthy of being called a true crime.

Taxation means forced exaction. Taxes aren’t debts, no principle of fair value received, which is basis for legally enforceable debt.

The US Treasury Department defines a tax as: “A compulsory payment for which no specific benefit is received in return.”

A tax is owed because the government says so, nothing else is required. You can’t be put in prison for not paying your VISA bill.

  1. Liberty’s most dangerous foe: arbitrary taxation

          David Hume:

“But the most pernicious of all taxes are the arbitrary. They are commonly converted, by their management, into punishments on industry…It is surprising, therefore, to see them have place among any civilized people.” If any of the following three principles are violated, the taxation was considered arbitrary:

  1. Taxation must be with consent.
  2. Have to be apportioned among the people by a definite standard or rule.
  3. Must be equal, counter to the inclination of everyone to push their taxes off onto someone else.
  1. Common sense economics: the supply-siders

            Not a new theory at all, goes back into antiquity.

  1. The marks of a bad tax system: Adam Smith’s four points:

1. A tax was bad that required a large bureaucracy for administration.

2. A tax was bad that “may obstruct the industry of the people, and discouraged them from applying to certain branches of business which might give maintenance and employment to great multitudes. While it obliges the people to pay, it may thus diminish, or perhaps destroy, some of the funds which might enable them more easily to do so.”

3. A tax was bad that encouraged evasion. “The law, contrary to all the ordinary principles of justice, first creates the temptation, and then punishes those who yield to it.”

4. A tax is bad that puts the people through “odious examinations of the tax-gatherers, and exposes them to much unnecessary trouble, vexation, and oppression…It is in some one or other of these four different ways that taxes are frequently so much more burdensome to the people than they are beneficial to the sovereign.”

  1. What a good tax system should be: Lord Kames’s six rules:

            Lord Henry Home Kames, a scholar of that era, published his Sketches on the History of Man (1769), which analyzed tax issues and greatly influenced Adam Smith. Here are Kames’ “Rules to be observed in Taxing”:

  1. “When the opportunity for evasion exists, taxes must be moderate. It is unjust for a legislature ‘first to tempt and then to punish’ for yielding to temptation.”
  1. Taxes that are expensive to levy should be avoided.
  1. Arbitrary taxes are “disgustful to all.” The amount paid is determined by the “vague and conjectured opinion of others.”
  1. To remedy the “inequity of riches,” the poor should be relieved of any significant tax burdens.
  1. Taxes that sap the strength of a nation should be avoided. Such taxes “contradict the very nature of government, which is to protect not oppress.”
  1. Taxes that require an oath are to be avoided. Said Kames:

Perjury has dwindled into a venial transgression and scarcely held an imputation to any man’s character…Lamentable indeed has been the conduct of our legislature: instead of laws for reforming and improving morals, the imprudent multiplication of oaths [for tax enforcement] has not only spread corruption through every rank, but by annihilating the authority of the oath over conscience, has rendered it ineffectual.

The U.S. Supreme Court condemned the use of oaths for tax administration as late as 1885, Boyd v. United States, 116 U.S. 616, 631.

How many of these tests would our present-day tax system meet?

Very important question:

                        Have we squandered our inheritance?

Those who have no concern for their ancestors will have none for their descendants

–Edmund Burke

To know nothing of what happened before you were born is to remain ever a child

–Cicero

You can watch an hour long interview with Charles Adams from Booknotes here.

Episode #39 Preview – For Good and Evil: Taxes and Civilization

tax-dayIn celebration of April 15th, Ron and Ed will explore the history of taxation. All good tax systems tend to go bad, and throughout history tax laws have taken away liberty more often than foreign invaders. As Charles Adams explained in his book that will be discussed on the show, For Good and Evil, “The prosperity as well as the decline of nations has always had a tax factor…” We will explore the priceless legacy the Enlightenment thinkers passed on to posterity that comprise the components of a just tax system, as well as Adam Smith’s four marks of a bad tax system, and what a good tax system would look like.

April 3, 2015 Show Notes: Entrepreneur Heaven: Thomas Edison, Henry Ford, Walt Disney, J.W. Marriott

They say you can’t turn back the clock and go back to the good old days. Yet this is precisely what is happening with the total quality service movement, the customer loyalty movement, CRM, and other philosophies that put the customer at the center of the business organization. Millions of dollars are being spent on consultants to relearn what was once common sense, practiced by the great entrepreneurs from the turn of the century to the mid-1950s.

This show, the first in our Entrepreneur Heaven Series, will explore the wisdom of Thomas Edison, Henry Ford, J.W. Marriott, and Walt Disney. Wisdom is timeless, and occasionally turning back the clock is the wisest course of action. Sometimes history is our best teacher.

Thomas Edison (Feb 11, 1847 – October 18, 1931)

Born in Ohio, died 1931, at 84. Scarlet fever as boy may have contributed to him being deaf.

Before age 40: invented the phonograph, electric light, and improved the motion picture camera.

World record of 1,093 patents over lifetime; first at 21; last one granted ten months before his death, and four posthumously.

Sign in Edison’s laboratory:

            Hell! There ain’t no rules around here! We are tryin’ to accomplish somep’n.

Notable Quotes

It is too much the fashion to attribute all inventions to accident, and a great deal of nonsense is talked on that score.

Asked if the age of invention was passing in 1908: “Passing? Why, it hasn’t started yet.”

He loved silent films (he was deaf), but didn’t think there was any money in talking movies. He believed talking films would never supplant silent films (“The public does not want talking movies”).

He also thought films would completely supplant books in schools.

When will you retire: “A few days before the funeral.”

There is no free lunch. 2/22/1929, Fort Myers Press

If you want to succeed, get some enemies.

Most assuredly I do believe in God. Nature and science both affirm His existence, and where the layman believes the man of science knows. 1890 [You could argue he believed in Intelligent Design]

I am at work on an invention which will enable a man in Wall Street not only to telephone to a friend near Central Park, but to actually see that friend while speaking to him…Of course, it is ridiculous to talk about seeing between New York and Paris; the rotundity of the earth, if nothing else, would render that impossible. –September 1, 1889, Levant Herald

Henry Ford on Edison: “It might be said we live in the age of Edison…in many ways, the greatest man since the world began. March 7, 1929, NYT

Henry Ford (July 30, 1863 – April 7, 1947)

Ford’s father: “Henry worries me. He doesn’t seem to settle down and I don’t know what’s going to become of him.”

William Ford died in 1905, before Ford achieved great success.

There’s no record of Ford personally meeting Hitler. But Ford was awarded the Grand Cross of the German Eagle, highest honor in Nazi Party (July 1938).

Revolutionized: $5/day, 8-hour day; five-day-week, as a tool to induce his employees and their families to better living; and profit-sharing.Yet very few employees were paid $5/hour (the average pay was $2.34/hour); efficiency experts set unachievable standards; Ford had the reputation as the worst sweatshops.

He established a “Sociological Department” to monitor his employees behavior on and off the clock. (closed in 1920, when he distanced himself from this view).

He believed in reincarnation; was raised Episcopalian; and was an anti-Semite. He bought the Dearborn Independent in 1919, which ran anti-Semitic articles, and was closed in 1927.

He didn’t believe in charity, which is interesting since the Ford Foundation has given millions. He believed charity “Lowers the self-respect of receiver and deadens the conscience of the giver.”

He had a Puritan streak, disliking jazz, consumer debt, and supported Prohibition.

Thomas Edison was his idol, and they each had a vacation home in Ft. Myers, Fl.

The Model T came only in black because paint dried faster—a case of efficiency over effectiveness. Ford said of the Model T: “The only thing wrong with that car was that people stopped buying it.”

GM started GMAC in 1919 to begin financing cars, which is what really grabbed market share from Ford, who didn’t start a financing arm until the late 1920s. Ford didn’t think people should go into debt.

He also believed in abolishing patents, since he thought they killed competition.

Notable Quotes

Visitors often ask me what the car of the future will be. I don’t know. If I did I would be making it now. Feb 1936

Business men go down with their businesses because they like the old way so well they cannot bring themselves to change. Circa 1923

[Sound business] is to provide a service. Try to run a business solely to make money and the business will die. Circa 1932

A manufacturer is not through with his customer when a sale is completed. He has then only started with his customer….If the machine does not give service, then it is better for the manufacture if he had never had an introduction, for he will have the worst of all advertisements—a dissatisfied customer. Circa 1923

Profits are merely what we think we work for…The real profit is not what the promoters get, but what the country gets. July 7, 1929 NYT

Walt Disney (Dec 5, 1901 – Dec 15, 1966)

One estimate, in 1966 alone, the year of his death, 240 million people saw a Disney movie, a weekly audience of 100 million watched a Disney television show, 80 million read a Disney book, 50 million listened to Disney records, 80 million bought Disney merchandise, 150 million read a Disney comic strip, 80 million saw a Disney educational film, and nearly 7 million visited Disneyland.

NASA acknowledged that Disney’s early drumbeating for its program was instrumental in generating public support for space exploration.

During London blitz, children’s gas masks had Mickey on them.

Disneyland was just a modern variant on the old Puritan ideal of a shining City on a Hill. “Why should I run for Mayor [of Los Angeles] when I’m already king”

The Walt Disney Family Museum, Park Presidio, San Francisco display over 900 awards for artistic work and service, including his Presidential Medal for Freedom, presented by Lyndon Johnson in 1964.

In 1955, Walt paid $4,000/acre for Disneyland property; 4 years later it was valued at $20,000/acre.

Walt’s good friend, Art Linkletter, refused to invest in Anaheim, and he figures the tour of the property with Walt cost him $3m per step!

Walt Disney World is even more dramatic (27,400 acres bought for $5m = $185/acre. Worth well over $2 million per acre today.

Realtors axiom: Location, location, location. Bunk! It can be trumped with intellectual capital.

Late 1930s, Mickey lost his tail. Thousands saved not drawing it! It was restored. Effectiveness over efficiency.

Paul Anderson, a Disney Historian at BYU lists six characteristics to describe Walt’s success:

  1. Curiosity
  2. Knowledge
  3. Experimentation
  4. Quality at all costs
  5. Control—delegate to good people
  6. Vision

Every theme park operator told him he’d go broke with Disneyland within one year. Ward Kimball, one of the famous Disney animators:

            If you want to know the real secret of Walt Disney’s success, it’s that he never tried to make money.

Ron’s favorite Disney line:

            I could never convince the financiers that Disneyland was feasible, because dreams offer too little collateral.

J. Willard Marriott (Sept 17, 1900 – Aug 13, 1985)

Started a Hot Shoppe $3,000 in 1927 (A&W Root Beer).

First hotel was Twin Bridges, Arlington, VA, Jan 1957.

In-Flight catering started by JW visiting Hot Shoppe in 1937 next to airfield, watching customers buy food for airplane flight.

Had an “employees-first philosophy. Knew human touch was all-important for guests staying away from home.

Diversified into catering, cruise ships, theme parks (1972)—got out of all of them eventually.

Rule of decision making: Listen to your heart (research & data only get you so far).

Recommend Books and Readings

Obviously, there are lot of books written on each of these men. The following are the ones Ron has particularly enjoyed, and found to be reliable as to the actual history of their lives.

The Quotable Edison, edited by Michele Wehrwein Albion

The Quotable Henry Ford, edited by Michele Wehrwein Albion

The Animated Man: A Life of Walt Disney, by Michael Barrier

Walt Disney, by Neal Gabler

How to Be Like Walt, Pat Williams

Marriott: The J. Willard Marriott Story, by Robert O’Brien

Earning My Mouse Ears, Part I, by Ron Baker

Earning My Mouse Ears, Part II, by Ron Baker

Earning My Mouse Ears, Part III, by Ron Baker

 

Episode #38 Preview – Entrepreneur Heaven

They say you can’t turn back the clock and go back to the good old days. Yet this is precisely what is happening with the total quality service movement, the customer loyalty movement, CRM, and other philosophies that put the customer at the center of the business organization. Millions of dollars are being spent on consultants to relearn what was once common sense, practiced by the great entrepreneurs from the turn of the century to the mid-1950s. This show, the first in our Entrepreneur Heaven Series, will explore the wisdom of Thomas Edison, Henry Ford, J.W. Marriott, and Walt Disney. Wisdom is timeless, and occasionally turning back the clock is the wisest course of action. Sometimes history is our best teacher.

March 27, 2015 Show Notes: Free-Rider Friday

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.

You can also comment on Twitter at #ASKTSOE.

Our New Facebook Page

Like us on Facebook.

And Please leave a review of the show on iTunes.

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

Visit Our Sponsors

Leading Results

Azamba

Sage

Check out our new eBook, The Soul of Enterprise: Dialogues on Business in the Knowledge Economy.

Episode #37 Preview – Free Rider Friday

The last Friday of every month Ed and Ron will do 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. If you’d like to call-in during the live show, the listener line is: 866-472-5790.

You can also participate on Twitter at #asktsoe. We look forward to having you at next Free-Rider Friday show on March 27th!

March 20, 2015 Show Notes: 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.

 

March 13, 2015 Show Notes: Interview with Pricing Legend Robert G. Cross

PWP Studio photographers specialize in corporate event photography, decor, details, incentive travel, conventions, and on-location photography in Atlanta, Georgia

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

51W5N8Q0XML._SL500_

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 #36 Preview – Interview with Anthony Clark

Ron and Ed go off on a bit of a tangent on this episode and interview Anthony Clark, author of The Last Campaign: How Presidents Rewrite History, Run for Posterity & Enshrine Their Legacies.

As the competition to land the Barack Obama Presidential Library heats up and Chicagoans debate contentious land use issues surrounding it, a new book about the politics of presidential libraries reveals an even more controversial, secret plan to grab thousands of acres from the US Marine Corps Base Camp Pendleton to use for the Richard Nixon Presidential Library.

Author and former House senior staffer Anthony Clark reveals the plan for the first time, which had been hidden for more than forty years.