Revenue Management...Evil?

Intended for constructive conversations. Exhibits of polarizing tribalism will be deleted.
SustainableHappiness
Posts: 266
Joined: Tue Jun 28, 2016 6:39 pm

Revenue Management...Evil?

Post by SustainableHappiness »

In my role I get to sit in strategy sessions determining key moves to either grow revenue or reduce costs in the next 1, 2, 5 years. Occasionally we get consultants in to give us good ideas and generally share knowledge. One aspect of this is called revenue management which is according to the Wiki “is the application of disciplined analytics that predict consumer behaviour at the micro-market level and optimize product availability and price to maximize revenue growth”.

One key application of this is the effective use of downsizing, upsizing, “right-sizing” and pricing manipulation in conjunction with all the sizing crap. An example is probably the easiest way to portray this and luckily this is real life.

Frito Lay (Pepsi) follows a 3 phase cycle that goes something like this (this is common knowledge and has multiple studies in the HBR, google WUPU, Weight Up Price Up).

Phase 1 -> Sell product at 500g for $2.99

Phase 2 -> Downsize, remove less than 10% (consumers generally only recognize a downsize on a product if it is 10% or greater), in this case let’s pretend it is 25g. New weight 475g price the same $2.99

Phase 3 -> Upsize by 25g, place large lettering on package that states “NEW BIGGER 25G MORE!” With the positive news of an upsize increase price. “New” weight 500g price at $3.49....Check your latest bag of Lay's chips and see what it says on top, regardless of what it is that size has almost certainly been used before.

Wash, rinse, repeat. Also the retailers who are smart (lots aren't more than 1 year thinkers) are on board with this because everyone wins long term.

It is a brilliant application of consumer behaviour combined with price elasticity analytics. It also feels wrong, not just because it is inflation in action, but because it is so manipulative at heart, it feels like the opposite of an honest day’s work and propels me closer to finding something new to do with my time.

Is revenue management evil?

SustainableHappiness
Posts: 266
Joined: Tue Jun 28, 2016 6:39 pm

Re: Revenue Management...Evil?

Post by SustainableHappiness »

I should also clarify, this is revenue management in CPG. In hotels and airlines it's a completely different beast (and more operations driven pricing modeling than a marketing ploy, i.e. 50 rooms open 1 day from now = drop the price)

Dragline
Posts: 4436
Joined: Wed Aug 24, 2011 1:50 am

Re: Revenue Management...Evil?

Post by Dragline »

No, except to the extent that all marketing practices that take advantages of cognitive biases are "evil". Without defining "evil" more precisely, though, you are just engaging in an exercise in labeling and then arguing about what those labels might mean.

On a legal level, this type of price manipulation is usually only forbidden in the face of natural disasters -- i.e., price gouging laws, or when its also part of monopolistic behavior that violates antitrust laws. Otherwise, it might just be categorized as attempts to gauge demand and match supply to it at a price that will be accepted.

But this is yet another reason not to consume processed foods in boxes and bags, which are most amenable to this kind of marketing.

ThisDinosaur
Posts: 997
Joined: Fri Jul 17, 2015 9:31 am

Re: Revenue Management...Evil?

Post by ThisDinosaur »

I don't accept that anything is evil. Its intentionally manipulative and self serving. I would be angry to find if i was being manipulated, and I appreciate whistleblowers who reveal this stuff. But I don't hold it against anyone for using a loophole that benefits them.

vexed87
Posts: 1521
Joined: Fri Feb 20, 2015 8:02 am
Location: Yorkshire, UK

Re: Revenue Management...Evil?

Post by vexed87 »

I almost always use cost/unit in my decision to purchase goods in any given context, so I'd argue I would be immune to the tactic, at least where I buy the product often enough to register the change in price. My own moral compass would be ok with this line of work, providing the activity was being undertaken in a free market, with open competition, no moats, or monopolies. However, if a business with a regional or national monopoly enaged in this practive, i.e. train service, telecoms etc, I'd be pissed.

Usually, larger sizes of goods are cheaper per unit, but I hate it when manufacturers introduce smaller sizes that are priced less per unit than larger packages, then we are forced to buy more packaging, which I think is an immoral tactic and can only be designed to catch out the consumer who opts for the biggest package every time in the hope to get the best deal.

If I don't like the price, I don't buy the cola. Here in the UK, Coca cola have done the same thing, by shrinking the usual 2L bottle to 1.75L. I used to drink it regularly, it's one of the reasons* I now rarely consume it, walking past the smaller bottles in the supermarket isle now stimulates an amusing angry response toward the brand. (* Aside from obvious health benefits of abstaining)

That said, as Dragline says, if you avoid processed crap and stick to commodity foods you can mostly avoid dealing with the problem. Not sure you could consider the tactic immoral if the consumer doesn't really need the product in the first place and has failed to safeguard their financial health by ignoring the cost/unit and going elsewhere for their product.

Spartan_Warrior
Posts: 1659
Joined: Fri Dec 02, 2011 1:24 am

Re: Revenue Management...Evil?

Post by Spartan_Warrior »

It certainly is infuriating capitalist bullshit built on deceiving the poor to enrich the wealthy. Whether you define that as evil or not is a matter of opinion, I suppose. It would be hard for me to do it.

SustainableHappiness
Posts: 266
Joined: Tue Jun 28, 2016 6:39 pm

Re: Revenue Management...Evil?

Post by SustainableHappiness »

Hmm... Maybe evil was the wrong word and it was the wrong question (and overdramatic). I think my question is, if you worked in an industry where this was a regular practice (definitely not illegal, in fact highly rewarded and commended when executed well) would you be o.k. with it, OR would it make you want to change industries?

George the original one
Posts: 5404
Joined: Wed Jul 28, 2010 3:28 am
Location: Wettest corner of Orygun

Re: Revenue Management...Evil?

Post by George the original one »

Yes, I am okay with it. Changes are not a deceptive practice, though they can be frustrating if you come to rely on a specific item.

ThisDinosaur
Posts: 997
Joined: Fri Jul 17, 2015 9:31 am

Re: Revenue Management...Evil?

Post by ThisDinosaur »

SustainableHappiness wrote:
Tue Apr 25, 2017 10:34 am
if you worked in an industry where this was a regular practice (definitely not illegal, in fact highly rewarded and commended when executed well) would you be o.k. with it, OR would it make you want to change industries?
I would do it so long as it was the highest income I could find for my skill set. Until I had enough assets to FIRE or my distaste overtook my greed.

BRUTE
Posts: 3797
Joined: Sat Dec 26, 2015 5:20 pm

Re: Revenue Management...Evil?

Post by BRUTE »

reframe: since eating chips and drinking soda is unhealthy for humans in general, the company is tricking customers into healthier behavior.

Tyler9000
Posts: 1758
Joined: Fri Jun 01, 2012 11:45 pm

Re: Revenue Management...Evil?

Post by Tyler9000 »

Nah -- it's not evil. It's just marketing.

More examples:

Ever wonder why so many product prices end in 29, 49, and 99? Retailers have studied the data and found that humans prefer these numbers. On average, people are more likely to purchase a product priced at $49 than $36. Go figure.

Ever wonder why the least expensive product option on a shelf is ugly? It's not necessarily because you're not paying for design services. To the contrary -- marketing teams intentionally make some products and packaging unattractive to make more profitable products more attractive in comparison.

Ever wonder whether there's really a huge difference in quality between all of the products on the shelf? There's a decent chance that only one of those options was actually produced by an outside company. The rest are direct sourced from China by the retailer itself (sometimes from the same factory) and labeled with their own made-up house brand names. And they usually have at least two house brands -- one cheap & ugly one, and a second "mid-tier" brand that looks really tempting in comparison to the expensive name brand option and intentionally cheap entry-level option. The goal is to drive you to the most profitable product for the bottom line.

I was in this loop for many years, and could go on and on. I see it as viewing capitalism through the lens of human psychology, and actually found it kinda fascinating. I eventually got out not because I felt bad about optimizing revenue, but simply because the product treadmill is exhausting.

Chad
Posts: 3844
Joined: Fri Jul 23, 2010 3:10 pm

Re: Revenue Management...Evil?

Post by Chad »

It also doesn't seem that evil when it involves Doritos. No one needs Doritos.

SustainableHappiness
Posts: 266
Joined: Tue Jun 28, 2016 6:39 pm

Re: Revenue Management...Evil?

Post by SustainableHappiness »

Tyler9000 wrote:
Tue Apr 25, 2017 12:34 pm
Nah -- it's not evil. It's just marketing.
Yes, I am in Marketing/Sales and am frustrated by the fact that even though I know the meaning attached to the situation stems from my own biases and like most here have pointed out, your moral compass is your own and evil is what you make of it. However I can't get over the underlying sensation that the more effective I am in my role the more I am a part of the problem, not the solution (so maybe I should just work towards shit performance? :))

Like ThisDinosaur pointed out, my distaste may be over taking my greed.

IlliniDave
Posts: 3845
Joined: Wed Apr 02, 2014 7:46 pm

Re: Revenue Management...Evil?

Post by IlliniDave »

The store where I buy food displays the unit price ($ per oz, lb, whatever) so I'm impervious to this. I also mostly avoid the types of "food" these games usually apply too (factory food no one needs).

My dad always likes to gripe about how much less stuff would cost if there weren't rooms full of college-educated people thinking these things up. It also takes him 3-5 years to get over the addition of a new traffic signal on a road he drives regularly.

SustainableHappiness
Posts: 266
Joined: Tue Jun 28, 2016 6:39 pm

Re: Revenue Management...Evil?

Post by SustainableHappiness »

IlliniDave wrote:
Tue Apr 25, 2017 1:16 pm
The store where I buy food displays the unit price ($ per oz, lb, whatever) so I'm impervious to this.
The tricky thing is remembering the cost of something you don't buy on a regular basis 4 months after you purchased it last, although the ERE lifestyle seems more inclined to a regular consistent purchase pattern of regular food stuffs than a typical consumer. This fact combined with the avoidance of center of store packaged goods is a great insulator against this sort of thing.

Campitor
Posts: 1227
Joined: Thu Aug 20, 2015 11:49 am

Re: Revenue Management...Evil?

Post by Campitor »

At the end of the day we all buy items that we derive some utility from knowing that an acceptable alternative may exist at a cheaper or more expensive cost. I say manipulate to your heart's content. If the the general public falls for these Jedi mind tricks it's their fault. Consumer marketing and manipulation isn't a secret and can be researched if desired. There is a reason why "buyer beware" is an old adage.

IlliniDave
Posts: 3845
Joined: Wed Apr 02, 2014 7:46 pm

Re: Revenue Management...Evil?

Post by IlliniDave »

SustainableHappiness wrote:
Tue Apr 25, 2017 1:34 pm
IlliniDave wrote:
Tue Apr 25, 2017 1:16 pm
The store where I buy food displays the unit price ($ per oz, lb, whatever) so I'm impervious to this.
The tricky thing is remembering the cost of something you don't buy on a regular basis 4 months after you purchased it last, although the ERE lifestyle seems more inclined to a regular consistent purchase pattern of regular food stuffs than a typical consumer. This fact combined with the avoidance of center of store packaged goods is a great insulator against this sort of thing.
That is not a huge concern for me. I get that prices go up and down over time, and if there's something I need or want today what it cost 4 months ago doesn't usually drive my decision. I also have very little brand loyalty when it comes to food, so 95% of the time I'm just looking for my cheapest option today (without wasting time and fuel comparison shopping). So whatever the clever people are doing is simply lost on me. I am not the kind of customer anybody stays up nights trying to attract.

Riggerjack
Posts: 3182
Joined: Thu Jul 14, 2011 3:09 am

Re: Revenue Management...Evil?

Post by Riggerjack »

The other side of this is how effective you believe this to be. I believe in human agency. The right and ability of competent humans (legal competence, not so much actual competence) to choose their own solutions. Such people are not likely to conform to the models, and in my experience, most people fit that level of competence.

I think those models fail often, but like EMT, if you acknowledge the many counter examples, soon you can't make a living teaching your hypothesis (or consulting, as the case may be). It is in the interests of the consultants to sell this as established science. Maybe take a step back, realize that the consultants are sales people, your company is the customer, and re-evaluate the situation.

If you are concerned about morality, marketing should provide you with more, and more difficult challenges than this.

black_son_of_gray
Posts: 504
Joined: Fri Jan 02, 2015 7:39 pm

Re: Revenue Management...Evil?

Post by black_son_of_gray »

vexed87 wrote:
Tue Apr 25, 2017 9:29 am
Usually, larger sizes of goods are cheaper per unit, but I hate it when manufacturers introduce smaller sizes that are priced less per unit than larger packages, then we are forced to buy more packaging, which I think is an immoral tactic and can only be designed to catch out the consumer who opts for the biggest package every time in the hope to get the best deal.
Not disagreeing with you about the excess packaging - just wanted to point out that sometimes grocery/food companies have other pricing motivations that are a little opaque to consumers. For example, food companies are constantly jockeying for shelf space at grocery stores. You can't sell a product that isn't displayed (and if you have more space, your competitors have less), and eye level shelves and end displays are premium real estate. The grocery store also doesn't want to stock product that isn't going to move. This becomes a problem for companies introducing new products or new sizes, because the grocery store doesn't know how well it will sell. Often, this means that companies will underprice their new product (lots of promo deals and coupons too) to juice up early sales in a bid to convince the grocery store that this is a product worth making room for long term.

So that's one way that you might sometimes see bizarre pricing of different sized produced. Presumably, these principles also apply to most retail stores selling a wide number of products and brands.

halfmoon
Posts: 697
Joined: Mon Nov 07, 2016 10:19 pm

Re: Revenue Management...Evil?

Post by halfmoon »

I have nothing to add from a marketing POV, but as a consumer I believe that the burden is on me not to be gullible. Having said that: DH would probably pay money not to watch me choose what toilet paper to buy. The exercise inevitably starts with a diatribe on the shrinking toilet paper roll, because I remember when standard ones had 330 sheets. About 10 years ago, they started shrinking more quickly than Alaskan glaciers. Now 220 sheets equals a **JUMBO DOUBLE ROLL** worthy of a triple price. I pace back and forth calculating the price per square foot (is it one ply or two??), hissing and grousing and scaring off the other shoppers. DH has gently suggested that I buy toilet paper online. :lol:

Locked