Teaching Pricing and Revenue Optimization

Pricing and revenue optimization, defined as the formulation and solution of tactical pricing decisions using constrained optimization, is becoming an increasingly popular subject to be taught at the MBA level. Perhaps the best-known example of pricing and revenue optimization is revenue management whereby airlines, hotels, and other companies seek to maximize operating contribution by opening and closing fare classes. However, a number of other important business problems including markdown management, dynamic pricing for ecommerce, and customized pricing are also parts of pricing and revenue optimization. This article gives an overview of the field for those who are considering teaching the topic to MBA students. I outline the scope of the area, describe specific topics that can be included, present a sample syllabus and provide some guidance based on my own experience and links to additional resources. Editor's note: This is a pdf copy of an html document which resides at http://ite.pubs.informs.org/Vol4No1/ Phillips/ There is growing interest among business schools in teaching MBA courses in revenue management and pricing optimization. In the Fall of 2002, I developed and taught an MBA elective course entitled "Pricing and Revenue Optimization" at the Columbia University Graduate School of Business. This was the first MBA-level course at Columbia on this topic and one of the first of its kind in the United Sates. Among the few previous courses covering similar material are "Dynamic Pricing and Revenue Management", developed and taught by Ioana Popescu at INSEAD and "Demand and Revenue Management" taught by Anton Kleywegt as part of the Executive Masters of International Logistics program at Georgia Tech. In addition, there have been a number of specialized courses within Hotel Administration schools such as the "Yield Management" and "Restaurant Revenue Management" course developed by Sheryl Kimes at Cornell. There have also been a number of PhDlevel seminars that have been offered in Operations Research or Management Science departments. Finally, business schools that do not offer a separate course are increasingly including a module on "revenue management" or price optimization within an Operations Management or Decision Models core course. However, more and more business schools are considering the possibility of teaching a full course devoted to the topic. In the Spring of 2003, Michael Harrison and I co-taught a course on pricing and revenue optimization at the Stanford University School of Business and I have talked to a number of instructors who are planning (or at least contemplating) to teach similar courses. While interest is growing, there is no uniformity of thought on what should (or should not) be included in such a course or even in what the course should be named. There is no textbook or canonical reading list and cases are scarce. Someone developing a course will need to assemble reading lists, formulate problems, and develop lecture material largely from scratch. For me, the extra effort required to create a course in a relatively new area was outweighed by the freedom to craft the course in a way that reflected my own experience developing and implementing revenue management systems over the previous fifteen years. In the remainder of this article, I will give my perspective on why an instructor might be interested in developing and teaching an MBA-level course on pricing and revenue optimization, what the overall scope of the course should be and the topics that should be covered.