To answer this question, let’s take a closer look at the solution itself. Dynamic pricing is a form of yield management (also called targeted pricing, flexible pricing, tailored pricing or discriminatory pricing), which formally emerged in the mid-1980s as a means for airlines to capture some value from plane seats that would otherwise go empty by offering, for example, lower than published fares for customers willing to forego other benefits (such as the ability to change a flight date or cancel the ticket). This breakthrough science allows organizations to understand, anticipate and influence consumer behavior in order to maximize revenue or profits from a fixed, perishable resource (e.g. airline seats, hotel room reservations, etc.). In the case of the San Francisco Giants, dynamic pricing is being implemented to allow them to dynamically adjust prices by weighing ticket sales data, weather forecasts, upcoming pitching matchups and other variables to help decide whether the team should raise or lower prices right up until the day of the game.

The problem with dynamic pricing is that it doesn’t enable organizations to truly understand the needs, preferences and spending propensities of each and every customer they serve. For example, the problem I see with dynamic pricing for baseball franchises is that it relies on a basic set of variables (e.g. weather, starting lineup, etc.) to determine how to price to the masses, instead of focusing on – and pricing to – each customer’s specific needs. Let’s say I want to go to a baseball game on my birthday. Will the dynamic pricing system offer me a discounted ticket (or should it predict that I am more spendthrift on my birthday)? If my favorite pitcher is starting will the system recognize my willingness to pay more and increase my ticket price? If I regularly attend games throughout the season will the system consider my loyalty and offer me discounts to other games? The respective answers are no, no and no. The advantage here clearly goes to scalpers, as they can still adjust and negotiate prices with each customer they interact with directly. However, where I see the limitations of dynamic pricing end, the benefit of revenue optimization begins.

Revenue optimization technology can provide baseball franchises an accurate picture of demand down to the single customer-level, where the software can codify each customer’s preferences and adjust prices according to their needs, total amount spent and even longevity as a fan (i.e. brand loyalty). Baseball teams already capture tons of customer data through the MLB web portal, where fans can upload and track their favorite teams/players and purchase tickets and merchandise. All of this data can be mined to figure out each customer’s specific price point for every seat of every game! The technology enables baseball franchises to increase ticket sales volume for less popular games, reduce the number of tickets resold in the secondary market, and increase profits for every game. In addition, baseball teams can begin to cross-sell other items like concessions and merchandise to these loyal fans, or even optimize the sale of bundled tickets and/or merchandise. With this increased ability to effectively market to each fan, baseball franchises will become more adept at selling tickets than the scalpers and can soon “steal” their profits back – forcing scalpers to buy tickets if they want to see Major League Baseball’s most prolific stealers.

The problem many corporations frequently suffer from is fractured pricing policies where disparate departments within the organization have conflicting rules regarding pricing strategy. This is often a result of unimpeded change within each department, where every manager relies on their own gut instincts at pricing based on their limited view of the ever-changing picture of customer demand. In addition to this proliferation of pricing policies with the potential to impact the market’s demand, other departments in the organization are also making demand-impact decisions, such as advertising and product mix. These practices are often left to chance because most leaders A) don’t realize the problem exists, B) are currently surviving this economy with a meager profit that is most often derived from a “survivalist” measure like cost cutting, layoffs, and running tighter operations, etc., C) are consumed by the sheer volume and complexity surrounding marketing decisions due to the proliferation of advertising channels, products, customers, and supplier networks, or D) if they realize there is a problem, they aren’t aware of what solutions may exist. What these business leaders don’t realize is that they’re leaving enormous profits on the table all the while giving competitors the opportunity to lure their customers away with the “right” price.

To help shed light on the problems these business leaders are facing, I reflect on a quote from John Wooden – one of the most respected college basketball coaches of all-time with 10 NCAA basketball championships during his tenure at UCLA – where he said, “Before you can lead others, you must be able to lead yourself.” This brilliant insight by a legendary sports icon can also serve as an invaluable business axiom: you can’t lead your market until you lead your organization. Simply put, companies – especially those struggling in this economy – should turn their attention inward. Doing so will require new thinking, advanced technology and a change of focus towards effectively generating growth organically (as opposed to via manic serial mergers and acquisitions) for your firm. Forget about the credit crunch (i.e. insufficient investment capital, the dried up commercial-paper market, etc.), falling consumer demand and other external factors that you can’t control.

I believe that in order for companies to be profitable in this economy, they need to adopt both an enabling technology and decision-making infrastructure to help them determine the optimal prices, marketing mix, and product assortments that will maximize revenue and profitability. Successful implementation requires leadership from the executive suite and bottom-up support from the people who work in all functions throughout the organization. Technology is a necessary component and must be able to serve the firm across its organizational silos in ways that allow each part of the organization to achieve optimal productivity and profitability, taking into account both departmental and firmwide objectives. Visibility throughout the organization is also essential, where the stewards of each of the demand and supply levers in effect have the ability to discover previously unknown or misunderstood elasticities – this can lead to a virtuous loop of discovery and profit.

Times like these require business leaders to move past temporary measures to be successful in both the short and long-term – to not only help their companies survive this downturn, but also to be visionary and lead their market! The insight a company requires to effectively manage their marketing decisions should be robust and holistic – not only do they need optimal prices, but also recommendations on products for customer penetration (cross-selling), optimal deals and promotions and guidance to curtail customer churn. These organizations that are able to not only manage, but also execute their ever-growing array of marketing decisions will have the ability to drive their markets, rather than being driven by them, and will be better positioned to continue leading their markets when the economy returns with vigor, as they will be more adept to discover, view, analyze and act upon the opportunities present in their demand environment. I can only assume that the shrinking credit supply, weak consumer demand and other external factors will likely be with us for some time, but they are of little relevance to any business leader looking to grow their firm organically, and seek to embody John Wooden’s principles in the process.

Here’s an example to help you understand the magnitude of the problem your organization is facing: you sell thousands of products to tens of thousands of different customers each and every day, which is equivalent to millions (if not billions) of distinct customer-product interactions every day – impossible for even the most experienced sales managers to analyze individually. Now grab a pen and some paper and write this down: every sale is an interaction whose revenue can be uniquely maximized! Most companies fail to detect the subtle changes in their customers’ preferences over time, leaving significant profits on the table. And hence the reason for the detective work we’re often called to do; companies don’t realize they have all of the necessary data to maximize revenues right under their noses.

The solution here is Scientific Micromarket Management, which makes it possible for organizations to assess how each customer values your product and offer exactly that price every day in every market. Sure, we may be talking pennies and nickels here, but if you multiply these adjustments by the millions of potential customer-product combinations, then multiply these daily adjustments over the course of a year, and you will realize the significant amount of impact this will have on your bottom-line. Capitalizing on these billions of tiny demand shifts with a dynamic pricing system more targeted than human intuition enables companies to finally understand why every single customer buys what they buy from you and what they are willing to pay for it every time. This is far more comprehensive than any pricing strategy; this is a complete revenue optimization solution. Your customers are getting smarter about you, I think its time you got smarter about them.

In October 2004, Chris Anderson coined the term the “Long Tail,” referring to a new economic model where companies sell more of less. This was a direct result of the ubiquity of the Internet (along with increased processing power and cheap online data storage), where an unlimited selection exists for information, products and services 24/7/365. He argued that consumers were no longer confined to a narrow list of choices that emerge from large corporate entities in the form of “blockbuster” hits that are meant to satisfy the masses. Instead, consumers were wandering further from mainstream tastes and discovering that their preferences lie in the form of smaller niche movies, books, music, websites, services, etc. I found the theory intriguing back in 2004, but am now reconsidering it’s viability in the context of the global economic crisis: will the long tail survive?

To answer this, I can simply skim the news headlines to find companies scrambling to trim the fat off their product portfolios. No longer is cutting prices a viable strategy for dealing with declining consumer demand. Companies have turned to the ax to focus marketing dollars on their higher-margin, best-selling brands to help retain consumers, who are trading down in the recession. Auto companies have been hardest hit, where GM’s Hummer, Saturn and Saab brands will likely be lost if a buyer isn’t found. Chrysler management has already stated that the company has too many brands and too many dealers. Ford remains afloat, but for how long? Food companies from Sara Lee Food Corp. to H.J. Heinz Co. are trimming their offerings. In the airline industry, Aloha, ATA, MAXjet, Skybus, and Champion Air grounded their planes. Simply put, the long tail just got a little shorter. OK, a lot shorter. As shrinking payrolls, housing values and credit availability continue to push consumer demand down, I think it’s likely Chris Anderson will annotate the theory of the Long Tail to show its existence is more often a byproduct of exuberance in the markets rather than a permanent trend.