What do Bolt Bus and the waste hauling industry have in common? They both can benefit from yield management. But while Bolt Bus has used this variable pricing concept to build its brand, haulers have largely not taken advantage of this model.
Prior to Bolt Bus, bus operators running from major cities such as D.C, New York and Boston faced stiff competition from low-cost lines, such as those running from those cities’ Chinatown neighborhoods. So in 2008, Greyhound launched Bolt Bus, which simultaneously marketed itself as low-cost and high-end, which it was able to do thanks to yield management.
This model works by adjusting seat prices based on inventory and the likely customer type. While it’s often used in the airline and hotel industry, such as by offering discounts for early bookers, Bolt Bus was able to go even further and incorporate it into its marketing strategy. For a select number of seats sold early, Bolt Bus only charged $1, thereby creating the branding tagline of “Bolt for a buck.”
Even though the $1 seats were hard to come by, this model generated buzz for the company and allowed them to start selling seats. Then as the bus started to fill up and it got closer to the departure date, Bolt Bus increased prices, thereby getting more yield from their available inventory.
Yield management also involves adjusting pricing based on demand, rather than simply charging more as the bus fills up. Just as airlines tend to charge more around holidays, Bolt Bus prices move up significantly during times they know people are likely to travel by bus, such as the end of a long weekend when college kids need to get back to Boston from New York.
Applying the Bolt Bus Model to Waste Collection
Even though haulers have a different business model than bus companies, their price modeling can be similar. Buses have a fixed capacity, so revenue is based on the number of seats filled and the average cost paid per seat. Similarly, waste collection trucks should be looked at as having a fixed capacity where prices can be adjusted as space within the truck fills up.
For example, you may find that it makes sense to discount prices for customers in a high-competition area. And as the truck fills up with their waste, the remaining space could then be filled up with a customer in another location who is willing to pay more.
In that scenario, using the traditional pricing model of charging early customers what you need to cover your costs and then discounting prices after that could lead to less overall yield from your inventory, because you’re not capturing the full cost that the remote customer is willing to pay.
Plus, those early customers that you discount could then lead to strong referrals in competitive markets. Just as “Bolt for a buck” helped elevate Bolt Bus’s status by getting people talking about the brand, discounted pricing for certain customers could get your foot (or truck) in the door in certain markets, and these customers would then refer your waste services to other businesses.
Even if it seems like it would be easier to stick with your current pricing model, it’s worth the time to experiment with yield management to maximize your earnings. Even just a 1% increase in price leads to an average profits increase of 11%, according to research from McKinsey.
Arguably, analyzing your pricing could be the most important thing you do for your business.
“Decades of research has shown that investing in improved pricing capabilities has a higher rate of return than any other improvement initiative you might launch within your organization,” writes Juan Jose Suarez Coppel, CEO & Chairman, Pemex-Exploreation & Production, Petroleos Mexicanos, in the book Pricing and Profitability: A Practical Guide for Business Leaders.
So give your prices a closer look, and sign up for Grid Waste so that when you do determine a pricing strategy, you can more easily generate quotes for potential customers.