Whitepaper

Summary 2

KeyFindings 3

DetailedFindings 4

ResultsInterpretation 5

JDA’sViewpoint 6

Conclusion 11

Table of Contents:

2010 Pulse on Pricing and Revenue Management Study

Garneringseniorexecutivesupporttofundpricingandrevenuemanagementinitiativesmaybeoneofthebiggestobstaclesfacingrevenuemanagers,butwhentechnologyandbestpracticesareimplementedtherightway,theseskepticalexecutivescanbecomethebestadvocatesforrevenuemanagementprojects.That’sbecauseautomatedpricingandrevenuemanagementtechnologyoffersthekindofbusinessbenefitsseniorexecutivesvaluemost:rapidreturnoninvestmentandastrongincrementalrevenuegain.

JDASoftwarerecentlyqueried120customersandprospectsfromvariousindustriesforits2010 Pulse on Pricing and Revenue Management Study.Thegoalwastoidentifythebusinessimpactthatpricingandrevenuemanagementtechnologycanhave—andgetasnapshotofthestateofpricingandrevenuemanagementacrossarangeofindustries.ConductedattheannualJDAPricingandRevenueManagement2010Conference,thesurveyfoundthateventhoughalargepercentageoforganizationshadalreadyimplementedrevenuemanagementsystemsandexperiencedsubstantialpaybackfromtheirdeployments,therestillremainsasizablenumberofcompaniesthathaveyettodeploypricingandrevenuemanagementsystemsduetoanumberofchallenges,includingexecutivebuy-in.

Amongthosewithrevenuemanagementsystems,thestudyfoundthatmorethan75%earnedatleast1%inincrementalrevenuegainsasaresultoftheirtechnologydeployment,withclosetoathirdearningmorethan3%inincrementalgains.Asforreturns,awhopping96%ofpricingandrevenuemanagementsystemusersreportedachievingareturnoninvestment(ROI)withinthreeyearsofdeployment.Infact,morethan42%ofthosewithdeployedsystemsachievedROIwithinthefirstyear.

Andthosearejustthehardnumbers.Respondentswithrevenuemanagementsystemsinplacereportedotherpositivebenefitsfromtheirsystems,includingareducedneedforheadcount,betterandmoreobjectivedecisionmakingandbetterdataandreportstosupportthebusiness.

Thestudyalsofoundthat64%ofthosesurveyedhadnoautomatedrevenuemanagementsysteminplace.Withsuchclearvaluedrivenbypricingandrevenuemanagementsystems,theprevailingquestionremains:Whywouldanorganizationthatcouldbenefitfromdynamicpricingnotautomateitsprocesses?

Whenaskedaboutthebiggestbarrierstoacquiringanddeployingautomatedpricingandrevenuemanagementsystems,theresponsefromparticipantswasoverwhelming.Morethanhalfoftheparticipantscitedtheirinabilitytoattainseniormanagementsponsorshipand/orfundingastheirtopobstacle.

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Key Findings

Thefollowingkeyfindingsofferaninterestingperspectiveonthestateofpricingandrevenuemanagementwithintheaverageorganizationtoday.Clearly,therecognitionofpricingandrevenuemanagementbenefitsisgrowing.Thosewhohaveimplementedsystemsareexperiencingahostofadvantages.Buttherestillremainthosewhomustovercomeanumberoforganizationalchallengesbeforedeploying.Amongallparticipants,thereisalsoanexpectationforthepricingandrevenuemanagementindustrytoevolvetomeetchangingmarketconditionswithmoreadvancedautomatedcapabilities:

• 64%ofparticipantshavenotyetdeployedanautomatedrevenuemanagementsystem;9%useanin-houserevenuemanagementsystemand28%useathird-partyrevenuemanagementsystemeitherfromJDAoranothervendor

• 57%ofrespondentsagreedthatpricingandrevenuemanagementwasawellunderstoodandimportantfunctionoftheirbusiness

• 60%ofrespondentsreportedthattheircurrentrevenuemanagementpracticesgivethemfullflexibilityinpricingdecisions

• 75%ofthosewithautomatedrevenuemanagementsystemsearnedatleast1%inincrementalrevenuegainsasaresultoftheirtechnologydeployment,withclosetoathirdearningmorethan3%inincrementalgains.

• 96%ofpricingandrevenuemanagementsystemusersreportedachievingROIwithinthreeyearsofdeployment

• 35%ofrevenuemanagementsystemusersreportedthatautomationallowsthemtousefewerpeopletomanageprices

• 35%ofrevenuemanagementsystemuserssaidthetechnologyallowsthemtomakeobjectivedecisions

• Nearly18%ofrevenuemanagementsystemusersbelievethattheirdeploymentsgivethembetterdataandreportsthanamanualprocesswould

• Only15%ofrespondentsbelievethatconsumersunderstandthatdynamicpricingisaneffectivemeansofbalancingsupplyanddemand

• 47%ofparticipantssaidtheystilldonothavegood,usablecompetitorpriceinformationwithwhichtomakedecisions

Foradeeperdiveintothesefindingsandadditionaltrendsexaminedbythe2010 Pulse on Pricing and Revenue Management Study,pleasecontinueontotheDetailedFindingssection.

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4

Profiling

Atotalof120externaldelegatesattendedtheJDAPricingandRevenueManagement2010ConferenceonMarch24,2010.Followingarejustafewdetailsabouttheparticipants:

• 72%oftheparticipantsaremale;28%ofparticipantsarefemale

• Thelargestnumberofparticipantsrepresentedtherailindustry(28%),followedbyhospitality(18%),touroperators(12%)andconsulting(8%)

• 16%oftheparticipantsarecurrentlyusingaJDAsolution;12%usesoftwarefromanotherprovider;and9%oftheconferenceattendeeshaveanin-houserevenuemanagementsystem

• Approximately64%oftheconferenceattendeesdidnotcurrentlyhaveanautomatedrevenuemanagementsystem

Detailed Findings

Figure 1: Industry Breakdown

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1. Current industry practices around pricing and revenue management

Q:Doyourcurrentrevenuemanagementpracticesallowyoufullflexibilityinyourpricingdecisions?

A:60%ofrespondentsagreedorstronglyagreedwiththisstatement,withthoserespondentsrepresentingcompaniesfromlessregulatedindustries,suchasleisuretravelandhospitality,beingthemostpositive.Thosefromindustrieswherefareorpricechangesaremorerestricted,suchaspassengerrail,respondedmorenegatively.

Results Interpretation

Figure 3: Response Breakdown by Industry

Figure 2: Total

Tour

Air Cargo

Rail

Hospitality

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Q:Inyourindustryandcountrywhatisthebestdescriptionofconsumers’perceptionofdynamicpricing?

A:Almosthalfoftherespondentsindicatedthatdynamicpricingwasperceivedasatrickbytheoperatorstomakemoremoney,whereasone-thirdoftherespondentsagreedthatconsumersgenerallytoleratedadynamicpricingenvironmentasa“factoflife.”Interestingly,only15%ofrespondentsbelievedthatconsumersunderstandthatdynamicpricingisaneffectivemeansofbalancingsupplyanddemand.

Figure 5: Rail Response(toillustratethelowestlevelofacceptanceinthisindustry)

Figure 4: Total Response

Thereisclearmarketevidencethatproductsandservicesarebeingtradedinamoredynamicandflexiblepricingenvironment,withanincreasingpropensitytowardgreaterpricetransparencyandmorefrequentchanges.

2. Understanding the importance of pricing and revenue management and the associated benefits

Q:Myorganizationfullyunderstandstheimportanceofpricingandrevenuemanagement.

A: Acrossallindustries,around57%ofrespondentsagreedthatpricingandrevenuemanagementwasawellunderstoodandimportantfunctionoftheirbusiness.However,amongcompaniesthathaverecentlyintroducedautomatedpricingandrevenuemanagementsystems,almost73%ofrespondentsagreed.

JDA’s Viewpoint

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Figure 6: Total Responses

Figure 8: Responses from those who have revenue management automation

Figure 7: Respondents who’ve had a revenue management system for one to three years

Figure 9: Responses from those with revenue management automation for longer than three years

Q:Howmuchnetfinancialbenefitdoyoubelieveisgeneratedbyanypricingandrevenuemanagementautomationyoumayhave?

A: Amongthosewhohaveautomatedpricingandrevenuemanagementcapabilities,30%ofrespondentsexpectedorwereachievingmorethan3%incrementalrevenuegains,withone-thirdofthosebelievingthatbenefitsexceed5%.Oftheremainingrespondents,45%believetheyareachievingbetween1%and3%incrementalrevenuefromtheirautomatedsystems.Interestingly,respondentsagreethatbenefitsamongcompaniesthathavebeenusingautomatedsystemsformorethanthreeyearsareevengreater.

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Q:Howlongdoesittaketopaybacktheinitialinvestmentofimplementinganautomatedpricingandrevenuemanagementsystem?

A: Morethan40%ofrespondentsrepresentingcompaniesthathaveimplementedsystemsfromthird-partysoftwarevendorsindicatedthattheyachievedareturnoninvestmentwithinoneyear,withmorethan96%ofrespondentsachievingROIwithinthreeyears.

Q:Apartfromfinancialgains,whatdoyouseeasthemainbenefitofautomation?

A: Forthoserespondentsrepresentingcompanieswithexistingautomatedcapabilities,thefollowingkeythemesemergedasimportantfactors:

(a)Fewerpeoplerequiredtomanageprices

(b)Betterandmoreobjectivedecisionmaking

(c)Betterdataandreports

Figure 11: Respondents with revenue management automation

Figure 10:

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3. Embarking on automation of pricing and revenue management functions

Q:Whatarethebiggesthurdlestoasuccessfulacquisitionandimplementationofanautomatedpricingandrevenuemanagementsystem?

A: Conferenceparticipantsbelievedthatthebiggesthurdlestothesuccessfulimplementationofanautomatedpricingandrevenuemanagementsystemareseniormanagementsponsorshipandfunding.

Q:Whatisthemostimportantfactorinselectingarevenuemanagementsystem?

A:Nearlyhalfofthesurveyparticipants(49%)believedthatprovenresultsarethemostimportantfactorwhenchoosingarevenuemanagementsystem,followedbybusinessfit(22%).

Figure 12: Total Responses

Figure 13: Total Results

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4. Most important features of future revenue management systems

Q:Whichconceptsholdthegreatestpromiseintermsoffuturepricingandrevenuemanagementdevelopment?

A: Surveyparticipantsbelievedthatpricesensitivitymodeling,forecastaccuracy,real-timepricingandcompetitorpricingarethetopfourareasforfutureinnovationforsuccessfulpricingandrevenuemanagementsystems.

Q:Ihave“good”usablepriceinformationaboutmycompetition.

Figure 14: Important Future Revenue Management Concepts

Figure 15: Total Responses

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Conclusion

Inlookingcloselyatthefindingsfromthe 2010 Pulse on Pricing and Revenue Management Study,itbecomesclearthatorganizationsareincreasinglyrealizingthebenefitsofimplementingrevenuemanagementtechnologyandbestpractices.However,automateddeploymentsarenotwithouttheirchallengesandrisks,andsomerevenuemanagersarestillfiguringouthowtoovercomeobjectionstogainseniorexecutivesupportandfundingtoadoptandimplementpricingandrevenuemanagementsystems.

Clearly,moreorganizationsthaneverseethevalueinadoptingrevenuemanagementtechnology.Morethanhalfoftheparticipantssaidtheirrevenuemanagementpracticesarevaluabletotheirorganizations.Ifpresentedtoasimilargroupadecadeago,onlyone-fourthofrespondentsmayhaveansweredthatway.Yet,therestillremainsalargecontingentoforganizations(64%)thatstillhavenotautomatedrevenuemanagementprocesses.Additionally,participantsreportedthatcommunicatingthevalueofpricingandrevenuemanagementsolutionstoseniorexecutives,gainingtheirbuy-inandsecuringprojectfundingremainsthebiggestobstacle.

Itisourbeliefthatparticipantsseekingtoovercomeexecutiveobjectionsshouldconnectwiththosestudyparticipantswhohavealreadydeployedsolutionstogainanunderstandingofbestpracticesonbuildingabusinesscase.TheJDAstudyrevealedachievementofrapidROIamongthosesurveyedwhohaddeployedanautomatedrevenuemanagementsystem(96%achievedpaybackinthreeyearsorless).Thoserespondentsalsoindicatedasignificantgaininincrementalrevenueasaresultofimplementation(1to3%gainswereshowntobemostcommon).

Butthesurveyalsoconfirmedthatevenascompanieslooktoadopttechnologytointroducemoreflexiblepricingandgainthesebenefits,theyunderstandthereisachallengeincommunicatingthebenefitstotheirkeyconstituents.Thesechallengesexistbecausemanyorganizationsbelievecustomerswillreactnegativelytowardsignificantmovementsinprices,perceivingthatmovementassomekindoftricktosqueezemoneyoutoftheirpocketbooks.Thoughthisisawell-understoodpracticewithintheairlineindustry,inotherindustries,suchasrail,thereisstillaperceptionproblem.Interestingly,thisperceptionlagischangingaspricetransparencyincreasesacrossthetravel,transportationandhospitalitysectors.Theperceivedriskassociatedwithautomateddeploymentsalsocausesconcern.Surveyparticipantsseekingnewpricingtechnologyreportedthataboveallotherfactors,theywerelookingforasystemwithprovenresultswithintheirgivenindustry,evenaboveconsiderationsastowhetherasolutionhasalloftherightfeaturestosuittheirbusinesses.

Withgoodevidencethatpricingandrevenuemanagementsystemsofferprovenresults,moreandmoreorganizationsacrossthetravel,transportationandhospitalityindustriesarelikelytobuildacaseformovingtoanautomatedpricingandrevenuemanagement.Becauseevenwithjusta2%increaseinincrementalrevenueasaresultofdeployingasystem,a$1billionorganizationstandstoadd$20milliontoitsbottomlinewithnegligibleaddedcost;revenuemanagementrevenueuplifthasnocostassociatedwithit,soitgoesstraighttoprofit.

Thereisanobviousupsideintheadoptionofpricingandrevenuemanagementtechnologyintermsofrevenueimprovement,businessperformanceandcompaniescanrespondtotheirconsumers.Thedownsideisthatthesesystemsarerarelyperceivedasmissioncritical,especiallycomparedwithbig-ticketitemssuchasmaintenanceandupkeepofequipmentliketrainsandairplanes.Ifyoudon’timplementautomatedpricingandrevenuemanagement,businesswillcarryonasitalwayshas,justlessprofitably.

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Thisyear’sstudyalsofoundthatasmarketforceschange,pricingandrevenuemanagementtechnologyandpracticeswillcontinuetogrowinimportance.Themeansbywhichcustomersareacquiringticketstotravelisforcingthedynamicpricingenvironmenttobecomemuchmoreofareality.Asmultiplesaleschannelsopenupforvariousservices,themarketplacewillfeaturealmostcompletepricetransparencyinthecomingyears.

Therewillalsobeavastnumberofdifferentchannelstomarket,andconsumerswillhaveaccesstoatremendousvarietyofsourcesandproductvariationsforthesameservices.Understandinghowtomanageyourownpricinginaneraofcompetitivepricetransparencywillbeofparamountimportancefororganizations.Inmostsituationswe’veobservedthatthetechnologycapabilitiesofpricingandrevenuemanagementsystemsareverymuchleadingtheway.Thesecapabilitiescanhelpcompaniesmovefromatraditionalrevenuemanagementmodeltoacomprehensivepricingandrevenuemanagementmodelthatincludesfluiddynamicpricinganddynamiccompetitivepricingthatenablesaccuratedemandforecasting,pricingandrevenueoptimization.

Asthestakesrise,sodotherequirementsthatorganizationshavefortheirfuturepricingandrevenuemanagementsystems.Ourstudyalsoexaminedwhatparticipantswillexpectoffuturepricingandrevenuemanagementtechnologytomeetmarketdemands.Weheardloudandclearfromthosewequeriedthatthefourmostimportantrequirementsforsuccessfulpricingandrevenuemanagementsystemsofthefutureinclude:

• Pricesensitivitymodeling

• Forecastaccuracy

• Real-timepricing

• Competitorpricing

Whilenotconsideredmissioncriticalinthepast,webelievethatasconditionschange,pricingandrevenuemanagementtechnologywillbecomeamust-havewithinthenextfewyears.JDAstandscommittedtohelpingcompaniesachievethecomparableresultsillustratedbythislateststudy.

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08.20.10

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JDAPricingandRevenueManagementGroup,aglobalbusinessunitwithin

JDASoftware,isaleadingproviderofPriceSensitiveRevenueManagement™

solutionsthathelpcompaniesimproveprofitsbybalancingsupplyand

demandthroughinnovativeforecasting,pricingandrevenuemanagement.

Formorethan25years,companiesinthetravel,transportation,hospitality

andmediaindustrieshavebenefitedfromtheongoinginnovationand

deepdomainexpertisefromJDA.TolearnmoreaboutJDA,pleasevisit

www.jda.com/revenuemanagement.