Revenue Management system: Design & Implementation in Plastic surgery industry
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Transcript of Revenue Management system: Design & Implementation in Plastic surgery industry
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Georgia Tech Faculty advisor: Dr. Mark FergusonTeam Members:
Narasimhadevara PrabhakarAyanambakkam Nambi Andiran
Bharathram SrinivasanGovindan Praveesh
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Industry overviewIndustry overview
Decent growth - Despite the economy
•12.1 million cosmetic procedures
•10 Billion Dollar industry
• 3% increase over 2008
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The PotentialThe Potential
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How do we build micro-markets?How do we build micro-markets?
Customer Characteristics◦ Size (volume or revenue)? How much demand?◦ Historical market relationships◦ Customer needs (type and mix of products demanded)
Competitor Information◦ Competitor’s price offers◦ Image or “brand equity”◦ Products offered◦ Other services
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How is the Demand classified?How is the Demand classified?
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Surgical Services
Minimally invasive Surgical services
Spa services
Types of servicesTypes of services
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Segment based strategiesSegment based strategies
Customized Pricing model
Capacity based Revenue Management
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How is the Demand Captured?How is the Demand Captured?
Free consultation – Quotation of costs - Demand class characterization Win-loss data – For every bid and every segment
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Customized Pricing in Competitive SettingsCustomized Pricing in Competitive SettingsThe General ModelThe General Model
Objective: Maximize Expected Profits
( ) )pMaximize p p p
Deal Contribution Function: ) ( )pp Q p c
Bid-Response Function: p
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Segmentation Variables:Segmentation Variables:
•Gender of the individual
•The Age group
• Returning customers
•Marital status
• Profession – e.g model, homemaker etc
•Location.
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Market SegmentationMarket Segmentation
•Gender – Female patients – 91% of procedures
•Lead Source of Information-Internet, Paper promotion, Referrals. 35% of all patients were referred to the clinic by a former customer.
•The Age group
Age group distribution
Distribution for Lead source
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Market Segmentation:Market Segmentation:
•Surgery Fees – compared to state average
•Whether a Return patient? 10 % of all patients are returning patients
•Marital status
•Home maker or career oriented: Affects availability for surgery, thus affects willingness to pay. The 45% of employees are women, and this affects about nearly 60% of women are potential customers.
Distribution ofMarital Status
Fig 3
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The Logit Model Price-Response CurveThe Logit Model Price-Response Curve
Probability of winning a bid for a given price p
1( )
a bp c xi ii
a bp c xi ii
ee
p
Price coefficient
intercept Segmentation variables
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Finding the optimal priceFinding the optimal price
Generally, we will be looking to maximize the expected profit from every bid:
Expected Profit
Prob weWin the customer over
Unit Margin
Profit(p)= (p)*(p-c)
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Most popular procedures: Most popular procedures:
•Surgical cosmetic procedures•Breast Augmentation•Nose-Reshaping(Rhinoplasty)•Liposuction•Eyelid Surgery•Tummy Tuck
•Minimally invasive cosmetic procedures•Botox®
•Hyaluronic acid•Chemical peel •Laser hair removal•Microdermabrasion
High RevenueItem
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Rhinoplasty(Nose Reshaping)Rhinoplasty(Nose Reshaping)•Average Fees charged by a surgeon: $4197
•Total Potential Demand available: 220 surgeries on an average/year in Atlanta
•Capacity : 90/year (client estimation)
•The Price optimization Result: 29% increase in revenues
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Spa related activitiesSpa related activities&&
Minimally Invasive Cosmetic proceduresMinimally Invasive Cosmetic procedures•Represents 40% of the Total cosmetic procedures opportunity
•Ideal for Capacity based Revenue Management:
•The Spa/Minimally Invasive procedures are similar to treatments at a Barber shop or A beauty Salon.
•There is a fixed capacity on how many customers can be served-40-1 hr slots per week.
•Strategy: Pricing the capacity based on the availability of capacity on Weekdays and Week-ends.
•Customers insensitive to 10% price rise on weekends (Empirical data)
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Major customer Segments:◦Customers Specific to Spa/MIC procedures:
Weekend Customers Weekday Customers Practice remains closed on Thursday, Sunday.
◦Returning Customers for whom the minimally Invasive procedures are post-surgery treatments
Spa related activitiesSpa related activities&&
Minimally Invasive Cosmetic proceduresMinimally Invasive Cosmetic procedures
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Major customer Segments:◦Customers Specific to Spa/MIC procedures:
Weekend Customers: Weekday Customers:
Week-end customers Week-day customers
The age distribution shift: Suggests older customers have flexibility to move into week-days
Spa related activitiesSpa related activities&&
Minimally Invasive Cosmetic proceduresMinimally Invasive Cosmetic procedures
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Results / suggestions:Results / suggestions:Increase price of Weekend services:Dermabrasion:
◦Old Flat rate:$210◦New Price: $240◦New Week day price: $200◦Results:
Total number of slots: 40, 32 week day, 8 weekend.
Total increase in Revenue:15% over the actual flat rate applied to same demand.
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Future scopeFuture scope
Designing Packages for Surgeries and Post-op minimally invasive treatments.
Apply Customized pricing to Minimally invasive surgeries that are currently difficult to handle with Capacity based Revenue Management.
Analyze Spa customers for targeted promotions.
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ConclusionConclusion
Identified new market for RM
Analyzed market players and segments
Applied Customized pricing
Developed ideas for other industry facets
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ReferencesReferences NATIONAL CLEARINGHOUSE of Plastic Surgery Statistics-
American Society of Plastic surgeons Price Optimization Using R- Tudor Bodea, IHG, Dev Koushik,
IHG, Mark Ferguson, Georgia Tech In-Store Experiments to Determine the Impact of Price on
Sales- Vishal Gaur, Marshall L. Fisher Customized Pricing- Mark Ferguson, Georgia Tech Bid Price Response Models- Mark Ferguson, Georgia Tech