How to spare the knife and increase your sales

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The Independent Online
Wall Street's "guru of downsizing" might have recanted and companies on both sides of the Atlantic may be talking about their new focus on growth, but many managers' first response to the arrival of serious competition or any other upset is still to reach for their knife and cut costs.

Knee-jerk as that reaction may be, neither it nor the equally popular streamlining of processes by re-engineering is necessarily the right answer. Indeed, Robert Cross, author of a book soon to be published in Britain*, argues that such approaches "address only one component of the profit picture".

The other side of the coin is increasing sales. And Mr Cross's method of achieving that is described in the title of his book Revenue Management, one of the first titles to come out under the Orion Business imprint on 17 May. As Mr Cross happily admits, the concept is not rocket science. "It's out there waiting for people to discover it. It's just heads-up entrepreneurship," he said.

Though they may not give it the same name, many organisations already use the idea. It is, for example, behind the electricity companies' policy of charging customers less to encourage them to use their washing machines at night when demand is reduced.

Mr Cross, whose book has created huge interest from all sorts of businesses since it was published in the United States in January, claims that the airlines are particularly adept at it. As the name of his company, Aeronomics Incorporated, suggests, his business began in this field, and he says that 12 years later the industry benefits by several hundred million dollars a year through the sophisticated application of the method.

"The key is to forecast demand," he said, pointing out that at Delta Airline, for example, there are 900,000 flights a year, and each has to be looked at a year ahead to predict what will be happening in terms of the competitive environment and other circumstances. The result is not just higher prices in the summer and at holiday periods, but several different fares on each flight.

But you do not have to run a large and sophisticated organisation to make use of revenue management. One of the examples in the book relates to the barber's shop that Mr Cross reputedly patronises. The business experienced a jump in total revenues, without an increase in costs, simply as a result of raising prices 20 per cent on Saturdays, when there was a queue in the waiting room, and dropping them 20 per cent on Tuesdays, when business was slow.

For retailers, the concept is all about understanding the notion that products have a value cycle. Shorts will be much more valuable to most Northern Hemisphere consumers in May than in November. But without that there are levels of value and the key to discounting goods is to come down in incremental steps.

Mr Cross insists this "antidote to downsizing" is applicable to any kind of business. But the key is to tell the customer or client what is going on. People don't necessarily want the cheapest price, they want options, he says.

* Revenue Management by Robert Cross, published by Orion Business (pounds 12.99)