Tag Archives: marketing

“What High Tech Marketing is … and isn’t” excerpts from book published by Pune’s @AbhijitAthavale

(Recently, Pune-based Abhijit Athavale, Founder of Markonix, a technology marketing and learning development company with deep roots in Silicon Valley, wrote a book called “The Edge of Zero: High Tech Marketing in the Age of Falling Growth”, with co-author Peter Gasperini. We invited Abhijit to give us a short write-up about the book and an excerpt from the book, for the benefit of PuneTech readers.)

What High Tech Marketing is … and isn’t

Many industries suffer from an incomplete understanding of what purpose Marketing actually serves. High Tech has been amongst the worst offenders in this, and the misconceptions of Marketing’s role and domain in the Technology business has persisted in various forms and levels of severity for all of the industry’s 40+ years. Internal characterizations of Marketing’s domain tend to inexorably converge on the following set of simple descriptions:

  • “Marketing is Sales”
  • “Marketing is Customer Service”
  • “Marketing manages Programs”
  • “Marketing runs Promotions and Ads”
  • “Marketing controls Pricing”

The insidiously deceptive factor common to the above statements is that they are all true – in part.

Does the above list encompass everything Marketing is supposed to do? Actually, NO. Operations and Engineering are quite correct in their assumptions that Marketing is the proper organization for handling the above mentioned problem areas. But there is much more to the proper practice of Marketing for High Tech than what was mentioned above.

It is a very broad field requiring depth and experience in both hard and soft disciplines, purely engineering and purely business fields, and both technical and customer interaction skillsets. And since these factors influence and interleave with each other, professionally complete High Tech marketers need to be able to swim these clashing currents without being pulled under or swept off to the side.

Marketing is, fundamentally, a LEADERSHIP role. The very act of initiating a Marketing plan to execute the strategy for a company and its products means identifying the Value propositions which will make a firm’s offerings compelling to its target market. This means a high Tech marketer must be able to simultaneously grasp the potential of the company’s engineering team, the aptitude of its operations arm, the expectations, desires and dreams of its customers, and the capacity of its sales force. When a Marketing plan is formulated correctly, an enterprise will have the knowledge to develop the kinds of products its customers will happily buy, which the factory can skillfully build, and the sales force can readily sell.

Our new book, ‘The Edge of Zero’ discusses challenges of high tech Marketing in the age of falling growth. Here’s an excerpt from ‘What Makes a Good Marketer’ chapter:

Crossfire – An excerpt from The Edge of Zero

If to do were as easy as to know what were good to do, chapels had been churches, and poor men’s cottages princes’ palaces. – Shakespeare, ‘The Merchant of Venice’

Marketers in High Tech can be overwhelmed by the 180 degree contradictions between the needs and desires of the Field and the Factory, especially at the junior level. Unfortunately, many choose the simplicity and expediency of picking a side. A technically oriented marketer will feel more drawn to their comfort zone thru siding with the Factory, whereas a more socially oriented or less technically savvy marketer will tend to gravitate towards the Field.

Either choice is extraordinarily destructive to the business as a whole. Borrowing liberally from basic Physics principles, one could make the analogy that Conservation of Energy – every action causes an equal and opposite reaction – takes hold in such companies in a very negative aspect, with long term crippling effects. By choosing a side, a Marketer reinforces and exacerbates any existing antagonism between the two warring camps.

A Marketer that fulfills his role properly is supposed to straddle the fence between Order and Chaos, reconciling them without forcing a damaging compromise on either. It’s no easy task, but skirting the challenge in favor of the easier path of taking sides creates a schism right down the center of the enterprise. It embeds conflict, distrust and friction between the Factory and Field, which ultimately translates into a complete disconnect between a company and its customers.

It boils down to a loss of vital information. The Factory cannot design and build good products and solutions in a vacuum, but can hardly expect to gain insight into customer concerns, difficulties and aspirations if the company salesmen are unable to deliver valued solutions and support from the Factory to those customers, building the foundation for a long term relationship of communication, trust and mutual support. If the Factory and the Field are divided, the enterprise is choosing a path of creating successful products by a combination of learning thru serial failures and hoping to come up with a lucky choice of feature sets along the way. In the end, this is like jumping out a plane without a parachute, hoping to find someone who is more thoughtfully equipped on the way down.
You can look inside the book here before buying a copy.

About the Author – Abhijit Athavale

Abhijit Athavale was born in Pune, India. He moved to the US for further education and lived and worked in the Silicon Valley before returning to Pune. He still lives in the same house on the same street. He has diverse interests – from hi-tech marketing to sports to WWII era history and mysteries and likes to read and write about them.

Abhijit studied Electricial Engineering in COEP, followed by a Masters in Texas A&M University, after which he spent 11+ years, ending as Senior Marketing Manager at Xilinx, developing the marketing strategy for their $150MM+ Xilinx Connectivity solution – including messaging, value proposition development and product positioning.

More recently, Abhijit has helping evangelize and market new technologies Markonix, a company he founded with the idea of helping lower the cost of marketing and learning for businesses worldwide.

Abhijit also founded and runs PuneChips, one of the technology community platform incubated by PuneTech. PuneChips is a network for Semiconductor, EDA and Embedded Systems professionals in the Pune (India) area. PuneChips provides networking and learning opportunities from Industry mavens to its members.

For more details see his Linkedin profile or follow him on twitter

IPMA Event: Leveraging Social Media for Market Research – 3 Dec

The next meetup of the Indian Product Managers Association (IPMA), Pune, will feature a talk on Leveraging Social Media as a Market Research Tool (as opposed to outbound marketing), by Pinkesh Shah, Founder and CEO at Adaptive Marketing. The event is on Saturday, 3rd December.

About the Speaker – Pinkesh Shah

Pinkesh Shah, is a Silicon Valley Executive who has been a Product Management Practitioner for the last 14 years in US. Most recently he was the global Vice President of Product Management at McAfee (now acquired by Intel). Having played a key role in understanding how global products have to be adapted to work in emerging markets, he also started the product management organization in McAfee India.

Before McAfee he had several senior management roles in product companies like IBM, netIQ and have launched new products in the high technology space in startups like Netrex and Captivo.

Shah is a gold medalist from M.S.University where he earned his Bachelors in Engineering in Computer Science and a UPE research scholar at Purdue University where he earned his Masters in Computer Science.

Shah started Adaptive marketing with a vision to create the next generation product managers and marketers in India to enable technology product and services companies to market their product globally. He is part of the Angel network which invests in early stage technology companies.

About IPMA

India Product Management Association (IPMA) is a not-for-profit, voluntary, grassroots organization. IPMA Mission is to Foster Product Design and Innovation and Catalyze Product Management/Marketing Talent in India across software, mobile, hardware, telecommunications sectors in the IT industry. IPMA organizes knowledge sharing and networking forums such as Monthly Speaker Series, Workshops, P-Camps etc for professionals interested in product management and marketing. IPMA operate chapters in major product hubs across India and for more information about upcoming events, visit indiapma.org

Fees and Registration

This event is free and open for anybody to attend. Register here

POCC Event: Exploring North American Market for Indian IT SMEs – 20 Aug

Parag Khair, an IT consultant with experience in IT offshoring who lives in Toronto is visiting Pune and will give a talk on how small and medium IT companies from India can target the North American market, at 4pm on Saturday, 20th August, at 7th floor, SICSR, (Symbiosis Institute of Computer Studies and Research, near Om Market, Model Colony).

Exploring the North American Market for Indian IT SMEs

Although the focus is North America, the topics discussed will be, to an extent, applicable to other regions also.

  • Current landscape and key selling points for established players
  • Constraints of scale and how to overcome them
  • What is your target customer
  • Innovative ways of reaching out
  • Today’s hot offerings for this segment
  • Gearing up for exports – inhouse checklist
  • Addendum – Macroeconomics view – will it change the game?

About the Speaker – Parag Khair

Parag has done his Engineering and MBA from Pune and since then has around 20 years of experience in various industries spanning manufacturing, stock trading, IT, etc. For the Last 10 years he has lived in North America, worked with leading Indian IT exporter (Infosys) on various assignments all over the globe including starting and growing the business in Canada. Currently, he is also into independent IT consulting with the focus on revitalizing IT function through the combination of Agile, Offshoring, PLM, Cloud and Social Media.

Fees and Registration

This event is free and open for anybody to attend. No registration required

Product Camp Pune: A free (un-)conference for Product Management & Marketing – 1 Aug

What: Product Camp Pune – A Collaborative, User-Organized, Conference (i.e. a barcamp) on Product Management and Marketing
When: Sunday, August 1st, 10am-4pm
Where: Symbiosis Institute of Computer Studies and Research, Atur Centre, Model Colony. Map.
Registration and Fees: This event is free for all. Register here

Product Camp Pune Logo
ProductCamp Pune is a free event that will give you an opportunity to meet people involved in product management and marketing. Click on the logo to be taken to the registration page.

The Importance of Product Management and Marketing

Have you ever wondered why some really cool products fail in the market, and some products that seem really stupid succeed? Have you ever noticed that some of the best features of the products you’re working on are hardly used by anybody? Have you ever completely failed to understand the roadmap of your product?

If you have experienced any of the above, you’re not alone. Most people, especially techies, and especially Indian techies, have a very poor understanding of what customers really want, what they need, and what they would be willing to pay for. This is the job of Product Management and Marketing. Most people’s career would improve significantly if they spent some time acquiring this skill, or at least understanding the basics.

Mark Pincus, founder and CEO of the incredibly successful Zynga Games (the creators of FarmVille), has this to say about what skills you should focus on acquiring for career advancement:

If you can be a product manager, you can acquire the experience of acting as a CEO. The skills gained in product roadmapping, prioritizing tasks, interoffice communications, customer understanding, and product marketing are absolute necessities for being an effective enterprise lead.

Similarly, Marc Andreessen, the creator of Netscape, successful serial entrepreneur, and investor points out that “the only thing that matters” for success of a startup is product/market fit. Product/market fit means being in a good market with a product that can satisfy that market. If you don’t have product/market fit, then you’re bound to fail, no matter how great your product is, and no matter how great your team is. With a bad product/market fit, you’ll struggle for years trying to find customers who don’t exist for your marvelous product, and your wonderful team will eventually get demoralized and quit, and your startup will die.

This is a new area for techies in India

For obvious reasons. Most of the work in the software technology sector in India has either been software services for companies abroad (in which case your company has no control over the product roadmap), or product development for companies whose main markets are in the US/Europe (in which case, the people doing product management/marketing are in US/Europe).

However, as the tech industry in India slowly matures, more and more product management and marketing roles are becoming available.

Here’s your opportunity to get started along this path

ProductCamp Pune is a collaborative, user organized unconference, focused on Product Management and Marketing topics. ProductCamp is a great opportunity for you to learn from, teach to, and network with professionals involved in the Product Management, Marketing, and Development process.

And it’s free.

Just register here and show up.

How can a Pune startup sell in the US? POCC event – Nov 7

This Saturday, 7th November, the Pune Open Coffee Club will meet to discuss an important issue facing many of Pune’s small startups. How can a small startup with limited funds sell effectively in the US market? First we’ll start with a couple of early achievers – Pune startups that launched on the world stage, with the entire world watching them: Dubzer, which launched at DEMOFall’09, and Onion.tv which launched at TechCrunch50. We will follow that up with a panel discussion on the details and mechanics and logistics and the strategy and the tactics of enterprise sales in the US – with panelists who have lots of experience in this area. Read on for details. This event is free for all to attend, and there is not registration required. So if you know someone who would benefit by this, please forward this article to them.

Pune OpenCoffee Club - POCC Logo
Click on the logo to find all punetech articles about the POCC

4pm-4:30pm: Dubzer’s experience with DEMOFall’09 AlphaPitch – Santosh Dawara

Dubzer, a SaaS offering that allows publishers to quickly and easily create translated versions of their websites without requiring any technology development or software changes, debuted at the AlphaPitch event at DEMOFall ’09. We have covered details of this here. Santosh will talk about the whole experience, how they got in, how they prepared, the expenses, and the benefits.

4:30pm-5pm: Onion.tv’s experience with TechCrunch50 – Nilesh Diane

Onion.tv, another SaaS offering that allows publishers of video content to add tags, notes, tables-of-content, and other rich meta-data to their videos, was selected for the TechCrunch50 DemoPit. We covered the details of that here. Nilesh Diane will talk about their experience, and other Pune startups can get a feel for what they need to do to be in the same situation.

5pm-6:15pm: How to bootstrap enterprise sales in the US Panel Discussion

We have three panelists – Abhijit Athavale, Devendra Deshmukh, and Amit Paranjape  – each of whom have over 10 years of experience doing enterprise sales in the US. Each panelist will speak for about 15 minutes about specific topics related to the theme (as given below), and answer questions from the audience. After that we’ll have about 30 minutes of a general Q&A where startups can ask any questions to the panelists.


  • Devendra Deshmukh, will talk about “How to set up a sales channel; How to increase your reach; and also talk about his early experiences in this area while setting up eZest.” Devendra is a founder and executive director of e-Zest Solutions Ltd., e-Zest Inc. & e-Zest (UK) Ltd. He is also a co-founder of Webizus Technologies, the IT (Information Technology) consulting company. He has experience of working with Indian software companies in both the operational and business development functions. For more, see his linked-in profile.
  • Abhijit Athavale will cover: “How to hire a Sales Rep; Why and how much time to spend in the field; The difference in sales and distribution and why it matters.” Abhijit is President and CEO of Markonix, and a high-tech marketing consultant. He has 16+ years of high-technology industry experience. Prior to Markonix, Abhijit spent over 11 years at Xilinx, Inc. in various engineering, applications and marketing roles. In his role as a marketing consultant, he has held executive management positions at Taray, Inc and Sanved DA. He has a masters degree in electrical engineering from Texas A&M University and a bachelors degree in electrical engineering from University of Pune. He is an accomplished speaker and author of several publications including a book. For more, see his linked-in profile.
  • Amit Paranjape will talk about: “The dynamics of enterprise sales (understanding your customer, his ecosystem, his business) and the kinds of problems you run into if you don’t understand all of this.” Amit has been in senior positions with enterprise product companies for over 12 years, most of it with i2 in Dallas, USA. He has extensive leadership experience across Product Management/Marketing, Strategy, Business Development, Solutions Development, Consulting and Outsourcing. For more, see his linked-in profile.

The panel discussion will be moderated by me (Navin Kabra). If you have any specific questions or areas that that you’d like the panelists to cover, please send them to navin @ punetech, or leave a comment below.

6:15-7pm: General Networking

Practise your startup pitch, bring your business cards, mingle, portray the confidence that you don’t always feel, ask the seniors for free advice, convince the juniors that working nights and evenings for your startup will be the most fun thing they’ve ever done, and feel out your peers for potential co-founders. Ask the panelists questions that you were too shy to ask in public, practise your startup pitch, set-up follow-up meetings with potential advisors, mentors, CAs, HR outsourcers, php coders, facebook app developers, potential angel investors, and people who will help you get in touch with potential angel investors. Or just talk about beer, or Pune’s new microbrewery, or ask around for new and interesting restaurants in town,  practise your pitch, and find new and interesting people to be friends with. And, did I mention, practise your pitch? All of this…possible only at a Pune Open Coffee Club meeting. Be there.


What: Pune OpenCoffee Club meeting on How Pune’s startups can sell in the US enterprise market. Featuring presentations by Dubzer & Onion.tv’s recent success at DEMOFall’09 and TechCrunch50, and a panel discussion with Abhijit Athavale, Devendra Deshmukh, and Amit Paranjape
When: Saturday, Nov 7th, 4pm-7pm
Where: Symbiosis Institute of Computer Studies and Research, Atur Centre, Model Colony. Map.
Registration and Fees: This event is free for all to attend. No registration required.

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Branding and Marketing for your startup: PoCC meet, 18 April

What: POCC meeting on “Branding your IP: A mantra to global success” and “Hi-Technology Marketing”
When: Saturday, 18th April (today!), 4pm
Where: Symbiosis Institute of Computer Studies and Research, Atur Centre, Model Colony. Map.
Registration and Fees: This event is free for all. No registration required

Pune OpenCoffee Club - POCC Logo

Branding your IP: Your mantra for global success – Prantik Mazumdar

Prantik Mazumdar, Consultant and Country Manager for StrategiCom, has kindly agreed to take a branding session. StrategiCom mainly deals for brand evaluation and positioning for SME’s around the globe.

He shall be accompanied by Prof Kaustubh, Associate Prof and Faculty for Corporate Training at SIBM, Lavale. The 2 together operate the free weekly brand health clinic at SIBM for SME’s

Abstract of the talk

The brand's social penetration
Social penetration of your brand. Image by activeside via Flickr

They say “Necessity is the mother of all inventions” and it is some of these inventions that empower and transform our world. Some of the grandest inventions that have had a significant impact on our lives today include the wheel, electricity, the light bulb, the automobile, telephones, mobile phones, the internet, etc. But was just inventing these ideas, concepts and processes enough for them to succeed and transform our world?

Just google “why startups fail” and there would be a host of sites proclaiming that about 9 out of 10 startups fail within the first two to three years of business! Is there something that can help increase and insure your chances of success? Something that can ensure and protect your growth? – The answer lies in commercializing, protecting and most importantly branding your intellectual property right from day one!

The session would focus on 7 key steps that entrepreneurs must take to build strong brands out of their inventions and innovations

Hi-Technology Marketing – Abhijit Athavale

Abhijit Athavale shall be talking on identity, positioning, sementation and market analysis, value proposition, messaging, campaigning and measurement.

See the PuneTech calendar for information about other tech events happening in this weekend.

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Marketing for Startups: A Pune OpenCoffee Club event – Mar 7th

What: POCC program on Marketing for Startups. Pune
When: Saturday, 7th March. 4pm to 8pm
Where: Symbiosis Institute of Computer Studies and Research, Atur Centre, Model Colony. Map.
Registration and Fees: This event is free for all to attend. No registration required.

Pune OpenCoffee Club - POCC Logo


4.00pm – 4.50pm – Anuj Khurana, “How to build traffic for your online product? PurpleTrail.com – a case study”.
5.00pm – 5.50pm – Alok Kejriwal, CEO, Games2Win “My Games2Win story”.
6.00pm – 6.50pm – Abhishek Goyal, Accel Partners “What Accel looks for in Startups”.
7.00pm – 8.00pm – Networking.
The event will start at 4pm sharp.

About the speakers

Image representing Accel Partners as depicted ...
Image via CrunchBase

Abhishek Goyal represents Accel India Venture Fund and will walk the OCC through the critical aspects of Businesses from an Investor’s perspective. Accel India Venture Fund works with early-stage Business in Web and Mobile technologies. Accel provides both Investment and Venture Development acumen for their Portfolio companies.

Image representing Games2Win as depicted in Cr...
Image via CrunchBase

Alok Kejriwal is a serial entrepreneur and founded Contests2win (c2w) in 1998. Alok and c2w have gone on to create 3 more exciting businesses – Mobile2win in China and India, Media2win and Games2win. Alok will talk about the Games2Win story, about how Games2Win hit the sweet spot on the web. Alok also mentors first-generation Entrepreneurs in building Strong Brands, Strategy, Funding and several other areas.

Image representing PurpleTrail as depicted in ...
Image via CrunchBase

Anuj Khurana will present his first hand experience with PurpleTrail – an online invitations and party planning website (focused on the U.S market). 6 months into going live; the site has tried all the tricks in the book with varying degrees of success. Today it is growing at a steady clip and is drawing hundreds of thousands of visitors a month. Though these are early days for the service it makes for a useful case study and presents the success and impact of various online marketing efforts. Anuj is Director of Products at MangoSpring, Pune.

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Revenue Optimization – Increasing profits for free

Air India Boeing 747-400. The Government of In...Image via Wikipedia

Business intelligence and analytics company SAS announced a few days back that it is acquiring revenue optimization company IDeaS. Both, SAS and IDeaS have major development centers in Pune. This article gives an overview of the software that IDeaS sells.

I always found airfares very confusing and frustrating (more so in the US than in India). A roundtrip sometimes costs less than a one-way ticket. Saturday night stayovers cost less. The same flight can cost $900 or $90 (and those two guys might end up sitting on adjacent seats). The reason we see such bizarre behavior is because of a fascinating field of economics called Revenue Optimization.

IDeaS software (which has a major development center in Pune) provides software and services that help companies (for example hotels) to determine what is the best price to charge customers so as to maximize revenue. The technology called pricing and revenue optimization – also called Revenue Management (RM) – focuses on how an organization should set and update their pricing and product availability across its various sales channels in order to maximize profitability.

First it is necessary to understand some basic economic concepts.

Market Segmentation

If you don’t really know what market segmentation is, then I would highly recommend that you read Joel Spolsky‘s article Camels and Rubber Duckies. It is a must read – especially for engineers who haven’t had the benefit of a commerce/economics education. (And also for commerce grads who did not pay attention in class.)

Here is the very basic idea of market segmentation

  • Poor Programmer want to take a 6am Bombay-Delhi flight to attend a friend’s wedding. He is willing to pay up to Rs. 4000 for the flight. If the price is higher, he will try alternatives like a late-night flight, or going by train.
  • On another occassion, the same Poor Programmer is being sent to Delhi for a conference by his company. In this case, he doesn’t care if the price is Rs. 8000, he will insist on going by the 6am flight.

If the airline company charges Rs. 8000 to all customers, a lot of its seats will go empty, and it is losing out on potential revenue. If it charges Rs. 4000 for all seats, then all seats will fill up quickly, but it is leaving money on the table since there were obviously some customers who were willing to pay much more.

The ideal situation is to charge each customer how much she is willing to pay, but that involves having a salesperson involved in every sale, which has its own share of problems. Better is to partition your customers into two or three segments and charge a different price for each.

Guessing a customer’s market segment

Unfortunately, customers do not come with a label on their forehead indicating the maximum amount they are willing to pay. And, even the guy paying Rs. 8000 feels cheated if he finds out that someone else paid Rs. 4000 for the same thing. This is where the real creativity of the marketers comes in.

The person in the Rs. 4000 market segment (leisure travel) books well in advance and usually stays over the weekend. The person in the Rs. 8000 market segment (business travel) books just a few days before the flight, and wants to be back home to his family for the weekend. This is why the airlines have low prices if you book in advance, and why airlines (at least in the US) have lower prices in case of a weekend stayover.

This also keeps the rich customer from feeling cheated. “Why did I pay more for the same seat?” If you try saying “Because you are rich,” he is going to blow his top. But instead if you say, “Sir, that’s because this seat is not staying over the weekend,” the customer feels less cheated. Seriously. That’s how psychology works.

Exercise for the motivated reader – figure out how supermarket discount coupons work on the same principle.

Forecasting demand

This is the key strength of IDeaS revenue optimization software.

You need to guess how many customers you will get in each market segment and then allocate your reservations accordingly. Here is an excerpt from their excellent white-paper on Revenue Management:

The objective of revenue management is to allocate inventory among price levels/market segments to maximize total expected revenue or profits in the face of uncertain levels of demand for your service.

If we reserve a unit of capacity (an airline seat or a hotel room or 30 seconds of television advertising time) for the exclusive use of a potential customer who has a 70 percent probability of wanting it and is in a market segment with a price of $100 per unit, then the expected revenue for that unit is $70 ($100 x 70%). Faced with this situation 10 times, we would expect that 7 times the customer would appear and pay us $100 and 3 times he would fail to materialize and we would get nothing. We would collect a total of $700 for the 10 units of capacity or an average of $70 per unit.

Suppose another customer appeared and offered us $60 for the unit, in cash, on the spot. Should we accept his offer? No, because as long as we are able to keep a long-term perspective, we know that a 100 percent probability of getting $60 gives us expected revenue of only $60. Over 10 occurrences we would only get $600 following the “bird in the hand” strategy.

Now, what if instead the customer in front of us was offering $80 cash for the unit. Is this offer acceptable to us? Yes; because his expected revenue (100% x $80 = $80) is greater than that of the potential passenger “in the bush”. Over 10 occurrences, we would get $800 in this situation or $80 per unit.

If the person offers exactly $70 cash we would be indifferent about selling him the unit because the expected revenue from him is equal to that of the potential customer (100% x $70 = 70% x $100 = $70). The bottom line is that $70 is the lowest price that we should accept from a customer standing in front of us. If someone offers us more than $70, we sell, otherwise we do not. This is one of the key concepts of Revenue Management:

We should never sell a unit of capacity for less than we expect to receive for it from another customer, but if we can get more for it, the extra revenue goes right to the bottom line.

What would have happened in this case if we had incorrectly assumed that we “knew” certainty that the potential $100 customer would show up (after all, he usually does!). We would have turned away the guy who was willing to pay us $80 per unit and at the end of 10 occurrences, we would have $700 instead of $800.

Thus we can see that by either ignoring uncertainty and assuming that what usually happens will always happen, or by always taking “the bird in the hand” we are afraid to acknowledge and manage everyday risk and uncertainty as a normal part of doing business, we lose money.

The Expected Marginal Revenue

The previous section gave an idea of the basic principle to be used in revenue maximization. In practice, the probability associated with a particular market segment is not fixed, but varies with time and with the number of units available for sale.

One of the key principles of revenue management is that as the level of available capacity increases, the marginal expected revenue from each additional unit of capacity declines. If you offer only one unit of capacity for sale the probability of selling it is very high and it is very unlikely that you will have to offer a discount in order to sell it. Thus, the expected revenue estimate for that first unit will be quite high. However, with each additional unit of capacity that you offer for sale, the probability that it will be sold to a customer goes down a little (and the pressure to discount it goes up) until you reach the point where you are offering so much capacity that the probability of selling the last additional unit is close to zero, even if you practically give it away. At this point the expected revenue estimate for that seat is close to zero ($100 x 0% = $0). Economists call this phenomenon the Expected Marginal Revenue Curve, which looks something like this:

EMR Curve

There is an EMR curve like this for each market segment. Note that it will also vary based on time of the year, day of the week (i.e. whether the flight is on a weekend or not), and a whole bunch of other parameters. By looking at historical data, and correlating it with all the interesting parameters, Revenue Management software can estimate the EMR curve for each of your market segments.

Now, for any given sale, first plot the EMR curves for the different market segments you have created, and find the point at which the rich guys’ curve crosses and goes under the poor guys’ curve. See the number of units (on the x-axis) for this crossover point and sell to the poor guy only if the number of units currently remaining is less than this.

EMR curves crossing over


Revenue Optimization of this type is applicable whenever you are in a business that has the following characteristics:

  • Perishable inventory (seats become useless after the flight takes off)
  • Relatively fixed capacity (can’t add hotel rooms to deal with extra weekend load)
  • High fixed costs, low variable costs (you’ve got to pay the air-hostess whether the flight is full or empty)
  • Advance reservations
  • Time variable demand
  • Appropriate cost and pricing structure
  • Segmentable markets

Due to this, almost all major Hotel, Car Rental Agencies, Cruise Lines and Passenger Railroad firms have, or are developing, revenue management systems. Other industries that appear ripe for the application of revenue management concepts include Golf Courses, Freight Transportation, Health Care, Utilities, Television Broadcast, Spa Resorts, Advertising, Telecommunications, Ticketing, Restaurants and Web Conferencing.

Revenue Management software helps you with handling seasonal demand and peak/off-peak pricing, determining how much to overbook, what rates to charge in each market segment. It is also useful in evaluating corporate contracts and market promotions. And there are a whole bunch of other issues that make the field much more complicated, and much more interesting. So, if you found this article interesting, you must check out IDeaS white-paper on Revenue Management – it is very well written, and has many more fascinating insights into this field.

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