Ahmet Kuyumcu on Revenue Management
Setting the price for a product or service is an ancient practice; even bartering was a form of pricing. On the other hand, data-driven pricing, or Revenue Management (RM), is a relatively new field, initially pioneered in the 1980’s. I have been lucky to have been a part of its journey since the mid-1990’s.
The pricing process fundamentally relies on the law of supply and demand; in fact, RM is considered in some circles to be the most successful, repetitively used, and largest application of micro-economic theory to date. The pricing process also involves the most profit-sensitive decisions for any business, as it directly influences sale-purchase transactions. Put simply, RM focuses on finding the right price, at the right time for each product or service so that sellers can sustain long-term revenue growth and buyers are content with their purchase decisions.
Today, the use of RM is well-established in the travel and hospitality industries and is widely recognized as a critical business process by leading airlines, hotels and car rental companies. It has recently grown exponentially to other industries as many firms discover the power of big data to achieve better pricing decisions.
The RM process consists of four stages: (1) Data Collection; (2) Market Segmentation; (3) Forecasting; and (4) Optimization. Each stage can involve many challenging problems and attendant solutions. The use of RM cuts across many disciplines including mathematics, operations research, statistics, economics, marketing, finance, accounting, computer science, sociology, politics and psychology.
Revenue Management’s multi-faceted nature fascinates and motivates me to continue to learn and excel in my career. Upon graduating with my PhD in industrial engineering from Texas A&M University, I decided to keep focusing on pricing and joined an RM company called Talus (now JDA). During this time, I had the opportunity to pioneer the first of their kinds RM systems in a broad range of sectors. I then joined Zilliant as chief pricing scientist and led their price optimization solution suite from scratch.
In 2006, I founded Prorize, whose name comes from my hometown, Rize, in Turkey. Since then, Prorize has been at the forefront of revolutionizing pricing in many industries, including apartment, self-storage, senior living, gaming resort, high-tech manufacturing and telecommunication.
We recently won the world’s top prize for advanced analytics and operations research, the 2017 Franz Edelman Award, for our work with Holiday Retirement (Holiday). Holiday is the largest private owner and operator of independent senior living communities in the United States with more than 300 facilities and approximately $1 billion in annual revenue. This work resulted in a win-win for Holiday and its residents as we were able to lower apartment rents and achieve over nine percent revenue lift. Prorize is the only RM vendor to ever win the Edelman award, significantly enhancing our company’s image in the business community.
Our work for the growing senior living industry is a great example of the potential of RM to revolutionize pricing in new sectors. Revenue Management sits at the intersection of data and technology; extracting value from available data and is positioned to revolutionize the businesses in ways we’ve never imagined. I feel very fortunate to be a part of this amazing journey.