Why Your RMS Doesn’t Need What-If Scenarios
A “What-If” tool is like the Magic 8 Ball of a legacy RMS.
Don’t get me wrong – when I was a kid, I loved playing with a Magic 8 Ball instead of doing my homework.
Me: “Does Charlie really love me?”
*Vigorously shakes magic 8 ball in hopes of an “of course” answer*
Magic 8 Ball: “Try again later”
But I’ve come a long way since my school days, and now I recognize this toy for what it was: a distraction. And I don’t know about you, but the last thing I need is to be distracted while I’m trying to do my present-day, grownup job.
While your RMS is hardly a toy, the What-If tools included in some legacy RMSs can definitely be distracting. They can instill a false sense of confidence, but the results aren’t based on reality.
A few more ways in which a What-If tool is reminiscent of my favorite childhood toy:
| Magic 8 Ball |
What-If RMS Tool |
| When you don’t like the answer you get, you just ask the question slightly differently, hoping for a better answer. |
When you don’t like the optimal price your RMS provides, you try a different one – a “what-if” one, hoping for a “better” answer. |
| All of the responses were written by someone else, not you – so you can’t change them. |
The “solver” that answers your what-if question was written by someone else. The same someone else who used the same algorithm to produce an optimal price that you didn’t like to begin with. |
| It's fun, but ultimately a waste of time. |
Also fun, if you consider trying to “beat the optimizer” entertaining. But it’s a game you can’t win: the solver uses the same algorithm that produced the original optimal price. So, unfortunately, this is also a waste of time. |
But I have to answer to owners!
Answering to owners is hard because they want to understand how you arrived at an optimal price. It would make sense to look to your RMS for the answer, but legacy RMSs are complicated. Taking a screenshot of 20+ columns of data may confuse owners more than it will help them to understand. This is why your RMS may include built-in calculator that allows you to play the What-If game to your (or your owner’s) heart’s content.
Beating the optimizer: a game you can’t win
The reason we have optimization is to give us an optimal answer. At their core, what all price optimizations consider is the demand forecast, competitive price positions, and the customer’s price sensitivity. These are what we call the Big 3 in our N2Pricing™ RMS.
What-If tools operate in one of two ways: (1) playing what-if with the inputs, or (2) playing what-if with the output. Neither are particularly useful.
- Inputs: Playing What-If on the inputs means plugging in a different demand forecast, competitive price position, or price sensitivity measure. The question you should be asking yourself is:
We know that we’ll always need the human touch of Revenue Managers (RMs). No system is perfect, and RMs have intrinsic market knowledge the machine doesn’t. But the best way RMs can interact with the system is to apply that market intelligence to make a forecast override, but they let the system do the heavy lifting of calculating an optimal price.
When overriding a forecast, RMs should keep the 80/20 rule in mind: they should only be intervening 20% of the time, and when they do intervene, it should be done with confidence. Override the demand forecast, re-optimize, and run with the new optimal price rather than playing with a What-If tool. - Outputs: Playing What-If with the output means plugging in a different price and asking: What if I charged $250 instead of the $240 recommended by the system? What revenue impact would that have? The answer you’ll get is that you’d make more money at $240 than $250. Every. Single. Time.
And how do I know that? The What-If tool is doing the reverse math that it did to give you the original $240 recommendation. It’s already considered your What-If price as a possible recommendation and decided it wasn’t revenue optimal. You can’t beat the optimizer, remember?
If you don’t think your competitive price position or the price sensitivity is correct, then you should work with your RMS provider to recalibrate the system. If you have to rely on a What-If tool to adjust the inputs and re-calculate an optimal price every day, you should recognize that you have essentially been provided with a toy to make important pricing decisions, and you are owed a higher quality of customer service.
So, what is the answer?
Modern, intuitive technology.
You won’t find a What-If tool in N2Pricing. It doesn’t need one. N2 gives you a straightforward, transparent answer to the optimal price question. And the interface is so intuitive, any non-revenue person (like your owner) can look at it and see:
- We’re not close to a sellout, but competitors are priced higher than usual, and customers aren’t very price sensitive. A small price increase makes sense here.
OR
- We’re not close to a sellout, competitors are priced higher than usual, but customers are very price sensitive. Better hold or even slightly drop the rate to pick up more demand.
OR
- Business is booming! We’re forecasted at a sellout, competitors are priced lower than usual, and customers are only slightly price sensitive. We can raise prices and make additional money on the surplus of demand!
The key to making these recommendations so intuitive is ensuring that the sophisticated analytical algorithms behind N2 are appropriately tuned to your business. And that’s something I’m so proud of our team for doing – providing the highest quality customer service to ensure results make business sense.
Don’t waste your time on what-if’s. Invest in a tool you can trust instead. Connect with an expert on our team to learn more about N2Pricing today.
