MS 4227 Pricing & Revenue Management

Semester A 2017/18
Department of Management Sciences

Teaching Staff

Course Coach: Stephen Shum

E-mail: swhshum@cityu.edu.hk
Office: 7-269, Academic 3
Phone: 3442-8571

Course Description

Every firm eventually has to sell its products and/or services. Questions that arise include:
What sales channels should the firm use? How should products/services be priced in different
channels? How should prices and availability be adjusted? Revenue Management focuses on
how a firm should set and update pricing and product availability decisions across its various
selling channels in order to maximize its profitability. A familiar example comes from the
airline industry, where tickets for the same flight may be sold at many different fares, the
availability of which is changing throughout the booking horizon until the departure date. The
adoption of similar strategies and tactics has transformed the transportation and hospitality
industries, and is increasingly important in retail, entertainment, financial services and health
care industry. At the same time, revenue management has become a rapidly expanding
practice in consulting services.

Through a combination of case studies, lectures and class activities, you will learn to identify
and exploit opportunities for revenue optimization in different business contexts. The course
will review the main methodologies used in different areas and survey the pricing strategies
and practices in different industries. As the ensuing course outline reveals, most of the topics
covered in the course are either directly or indirectly related to pricing issues faced by firms
that operate in environments where they enjoy some degree of market power. This course
places particular emphasis on tactical optimization of pricing and capacity allocation
decisions, tackled using quantitative models of consumer behavior, demand forecasts and
market uncertainty, and the tools of constrained optimization – the two main building blocks
of revenue management systems.

Course Materials

1) Course website on Canvas

2) Cases from: http://cb.hbsp.harvard.edu/cbmp/access/66530598
3) Recommended reference:
• Phillips, R, “Pricing and Revenue Optimization,” Stanford Business Books, 2005.

Performance Evaluation

Individual Team
Case Memos 15% In-class Assignments 15%
Participation 10% Final Project 30%
Final Exam 30%
Note: In addition to the 10% participation score, up to 10 points of additional
bonus score may be added for excellent performance in class participation.

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MS4227 Syllabus Semester A 2017-18

Teams

Team work constitutes a significant part of this course. You are expected to work in teams of
4-5 members. You should form your team by the end of the second week and pick a
coordinator for the team. In each team, there should be at least one student who is familiar
with using Microsoft Excel Solver.

You are expected to sit with your teammates in class. Each team should bring at least one
notebook computer to class with Microsoft Excel installed and Excel Solver enabled.

Class Participation

Class participation is critical for this course. You will be assessed by your contribution to in-
class discussion as an individual. Both quality and frequency of participation will be taken
into account, with more emphasis on quality. Your team will also be evaluated based on how
well you collaborated in class work and games, and how well your team members help out
each other in class.

All mobile phones and ringing devices should be turned off or silent in class. Class
attendance is mandatory. Attendance will be taken randomly either at the beginning or the
end of classes. If you miss more than two classes without a legitimate excuse, you lose 2
points in your total course score for the third class that you miss, 2+4=6 points for the forth
class that you miss, 2+4+8=14 points for the fifth, 2+4+8+16=30 points for the sixth, and so
on.

Cases

There are eight cases in this course:

1. The Springfield Nor’ easters: Maximizing Revenues in the Minor Leagues
2. Cambridge Software Corp.
3. What Price Vertigo?
4. Personal Training at the New York Health Club
5. Transportation National Group
6. Retailer Pricing Using Retailer
7. Break.com

You are expected to read the cases and be prepared for in-class case discussion. However,
you have to submit a case preparation memo for only 5 out of the 7 cases. You are not
expected to solve the case, but you are expected to think about the following questions:
1. What are the main issues/problems in the case? What data/information is available?
2. What have you learned from the previous case? Compare the case with previous
case(s). What are the similarities? And what are the differences? Are the
methodologies taught in previous cases applicable?
Each memo should be at most two pages long and it is due at 10pm the day before the class
in which the case will be discussed. You should submit the case memos on Canvas. Late case
preparation memos will not be accepted.

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MS4227 Syllabus Semester A 2017-18

Final Exam

There will be only one exam for this course. It will be held at a university-scheduled time.
The exam will be open-book and open-notes, and it will cover materials taught in the whole
course. If you miss the exam, the make-up exam may be a written exam or oral exam or a
combination of both.

Final Project

The project will be an opportunity for you to learn more about revenue management or to put
into practice what you have learned in class. Choose a business example of pricing and/or
capacity allocation. Your job is to identify and exploit opportunities for revenue improvement
in your chosen example.

As broad guideline for these projects, put yourself in the shoe of a team of analysts trying to
analyze some particular issues of an organization that is related to the content of this course.
Your study should hopefully culminate with an assessment of the strengths and weaknesses
of the associated revenue management practice and some suggestions for improvements. This
could roughly follow the following outline:

a. Understand and describe application setting: industry overview, market positioning,

customer characteristics, operations issues, etc.
b. Describe the current revenue management practice.
c. Assess the strengths and weaknesses of the current practice, possibly with an
assessment of the magnitude of benefits (harms) brought by the strengths
(weaknesses).
d. Propose some improvement opportunities, with as assessment of the difficulty to
implement such improvements

A one-page proposal is due on October 16 at the beginning of class. Each team will be given
time to present its project on either Nov 20 or Nov 27. The presentation schedule will be
decided after the proposals are received. A one-page executive summary and two copies of
the presentation slides should be submitted before the presentation. However, no detailed
written report is needed.
**Concept from courses
Free Riders 20-25 mins
topic broader
Free riders for group assessment tasks are strictly prohibited and will be penalized once they
are identified. If this is the case, the affected team members have the obligations to report it
to the course leader via email before week 13. When it is deemed appropriate, all members
within the team will be asked to perform a self- and peer-evaluation. Disciplinary
proceedings such as marks/grades adjustment might be made to free-riders once the case is
substantiated.

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MS4227 Syllabus Semester A 2017-18

Tentative Schedule

Module 0: Introduction

0. Introduction (Sep 4)
• Introduction to course and revenue management
• Experiencing revenue management

Module 1: Pricing Analytics

1. Basic Price Optimization (Sep 11)

• Case: The Springfield Nor’easters: Maximizing Revenues in the Minor Leagues
• Review of price theory, customer valuations

2. Market Segmentation (Sep 18)

• Case: Cambridge Software Corp.
• Differential pricing, versioning, bundling

3. Capacity & Constrained Supply (Sep 25)

• Case: What Prices Vertigo?
• Pricing as constrained optimization, linear demand models

4. Quantitative Models of Consumer Demand (Oct 9)

• Case: Personal Training at the New York Health Club
• Models of consumer demand, discrete choice (MNL) model, fitting model parameters

Mid-semester Review – Oct 16 One page proposal ( group )

Module 2: Revenue Management

1. Network Revenue Management (Oct 23)

• Case: Transportation National Group
• Network revenue management, network bid pricing

2. Markdown Management (Oct 30)

• Case: Retail Pricing (http://www.retailer2.net)
• LP approach to markdown management, dynamic pricing, strategic behavior,
customer response

3. Contract Management (Nov 6, 13)

• Case: Break.com
• Role Play Simulation
• Uncertain capacity, customized pricing, strategic uncertainty, negotiation

Final Project Presentations – Nov 20

Final Review – Nov 27