May 16, 2018
Robert G. Cross never set out to become the godfather of revenue management. He was supposed to be a thoracic surgeon, but after graduating from Texas Tech University with a degree in chemistry, he enlisted in the Air Force to avoid the Vietnam War draft. He trained as a pilot, and by the time he got out he’d decided on law school.
After a stint at the Texas Court of Appeals and as general counsel for the Texas Aeronautics Commission, he went to work in the legal department at Delta Air Lines. That’s where he started to make his way to revenue management. Delta was losing money, and in what Cross describes as “a bizarre move,” the airline decided to transfer him to the marketing department. “I didn’t know anything about marketing,” Cross said, “so I walked around looking at all these different departments to see what we could do to stop losing money. I came across 50 people that were in the basement of the reservations building. Their job was to determine how many discount seats we had on each future flight.
“It was all manual,” Cross said. “They were making gut-based decisions on how many discount seats to allocate on each flight. What drove me crazy was, we had 550,000 flights a year, so each person then was responsible for 11,000 future flights. No wonder we were losing money!”
Cross helped develop decision support systems to allocate discount seats — a process called yield management. Delta made $300 million in incremental revenues that first year, and the story landed on the front page of The Wall Street Journal. Headhunters came calling, but Cross opted to make his own way by launching a consulting company called Aeronomics Incorporated in 1984. He went on to help define modern-day revenue management, advising companies such as Delta, Ford, and UPS — plus Marriott, IHG, and other hospitality brands — and writing the New York Times bestseller Revenue Management: Hard-Core Tactics for Market Domination. Today he serves as chairman of Atlanta-based Revenue Analytics, which helps some of the world’s biggest companies make important revenue decisions, such as what to charge, what to stock, and what to promote. Cross is the recipient of the 2018 Vanguard Award for Lifetime Achievement in Revenue Management, which will be presented at HSMAI’s Revenue Optimization Conference (ROC) in Houston next month.
Here are five things we learned in a recent interview with Bob Cross:
1. He invented the term revenue management. “Originally, everyone called it yield management. In airlines, ‘yield’ was the revenue per passenger mile, so we’re trying to improve the yield we got. As the discipline spread to other industries and as I was writing my book, my publisher said, ‘Yield is an airline term, so we have to come up with a different name.’ So I said let’s call it revenue management.”
2. His first hospitality client was Marriott. “Bill Marriott heard about what we were doing from Bob Crandall, who was the CEO of American Airlines. I remember the implementation being harder than we thought. Superficially, it looks like you’re solving the same problem: Hotels have perishable assets — they call them rooms instead of seats. They have a variety of different rates that they’re charging, and you need to manage that inventory. Sounded just like the airline problem.
“However, here’s the big difference: the relationship that the hotels had with their customers versus the relationship that the airlines had with the customers. At that point, the airlines saw their job as just maximizing the revenue they got from each individual passenger, and they had much more of a transient relationship with their passengers. Hotels had a much deeper relationship with their customers. In fact, they called them guests, right? Hoteliers told me: ‘They’re guests of ours and we treat them differently than airlines treat passengers. And we’re not just trying to maximize short-term room revenue we’re getting from them. They’re coming to our house and we’re trying to build a relationship with them.’ It was hugely different.”
3. He has a guiding philosophy. “It has to be win-win— a win for the seller, and for their customers. Most of the companies that bring us in do it have a revenue shortfall. They’re wanting to generate more revenue, and they’re focused on ‘how do we get more from our customers?’ We have to proactively say, ‘Yes, you can get more money from existing customers. But equally important, you’ve got to look just as hard for the opportunities to discount with discretion to sell more to others who aren’t your current customers or who would be your customers. And you’ve got to do it in such a way that you’re not going to dilute the revenue from people willing to pay more.’ You’ve got to figure out, what’s the customer’s win?”
4. He’s watched technology disrupt everything. “The biggest change that I’ve seen is the shift in what I call ‘information asymmetry.’ When I first got into the game in the late-’80s and early-’90s, the sellers had all the information. They knew who their competitors were, they knew what their competitors were charging, etc. Now, with the advent of mobile devices, customers have more info about what products they want, their price and purchase options, and they can make instantaneous decisions on their mobile devices. This shift of information power to the hyper-informed consumer, and the concurrent shift of pricing power, is by far the biggest change.”
5. He’s very proud of one particular thing. “The thing I’m proudest of is that I’ve gotten a collection of tremendously talented people to share my vision about how to change the world and make the world better leveraging revenue management and bringing the win-win concept to customers. I’m delighted we’ve had an impact on the order of tens of billions of dollars for our customers. To help grow this discipline and make it such an integral part of what companies are doing has been phenomenal.”