Revenue Management is a Brand-Destruction Machine?

I like Al Ries, he’s a smart guy and writes good books.

But he is so wrong in his June 8, 2009 Advertising Age article, and mis-characterizes Revenue Management pricing in this article it’s hard to know where to start.

He starts out with the most simplistic case against Yield Management: citing how the airlines (with the exception of Southwest) are losing money, or have gone bankrupt.

So what? The fact of the matter is no airline could operate without utilizing Yield Management, period. Imagine an airline that charged one price for all seats. See how long that would last in the real world.

He also doesn’t seem to recognize that a lot of profitable businesses use Yield/Revenue Management (RM)—from hotels, rental cars, retail, cruise lines and a host of other industries.

Ries seems to be arguing that RM is a bad idea—no matter how well it’s executed— it’s a loser, and destroys brands.

I totally agree that there is no way to execute a bad idea, and we do not believe “execution is everything.” That’s nonsense. Is communism a bad idea, or has it just been poorly executed? Obviously, both the quality of the idea and its execution are important.

Why didn’t Ries mention the airline’s successful loyalty programs. I fly a lot, with United Airlines. They reward me with upgrades and many other perks. They get nearly 100% of my airline dollar. I know the airfares can vary greatly from one minute to the next. So what?

Ries’ example of Pepsi and Coke is not an example of RM, but rather price discrimination. The price of a Coke (or Pepsi) is incredibly variable, depending on where you buy it. That hasn’t seemed to destroy the brand value of either.

I think Ries is confusing a pricing strategy with a business strategy.

It’s a company’s purpose that drives its strategy, and its strategy that drives its pricing, not the other way around.

Strategic pricing just recognizes that different customers are willing and able to pay different prices. Economists call it price discrimination, and it is ubiquitous. So much so, that it destroys Ries’ argument.

Though I totally agree with Ries’ example of Lenovo and the American automobile companies. Trying to be everything to everyone is not a strategy—it’s a lack of strategy.

But that’s a bad strategic idea, not a pricing failure.

What do you think?

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