Neelam Sanghi

General Manager/IT
DFCCIL/IR
 Agenda
 Revenue Management
 Dynamic Pricing
 Industries that adopt dynamic Pricing
 Airline Industry
 Indian Railways
 Why Dynamic Pricing in Indian Railways?
 Agenda
 Case Study
 Scope for Dynamic Pricing in IR
 IR’s Experiment with Dynamic Pricing
 Benefits
 Challenges
 Dynamic Pricing in Airlines Viz IR
 Food For Thought
 Interactive session
 Revenue Management
 Revenue Management is selling the right product
to the right customer at the right time at the right
price
 Dynamic Pricing is one aspect of a complete
revenue management programme
 The technique is most useful when two
characteristics co-exist
 The product expires in a point of time
 The capacity is fixed well in advance and can be
augmented only at a relatively high marginal cost
 Dynamic Pricing
 These characteristics create the potential for
large swings in the opportunity cost of sale
 The opportunity cost of sale is a potential
foregone subsequent sale
 The value of a unit in a shortage situation is
the highest value of an unserved customer
 Forecasting this value given current sales and
available capacity represents dynamic pricing
 Dynamic Pricing
 The customers are price sensitive
 The aim is to sell the “perishable” inventory
for maximum revenue
 Giving discounts to price-sensitive
customers and charging premiums to less
price sensitive customers
 The customers differ in more ways than
just price sensitivity so market needs to be
segmented on multiple variables
 Dynamic Pricing
 Dynamic Pricing is pricing based on demand and
timing .
 The price is not firmly set it changes based on
changing circumstances
 High demand, higher pricing and vice versa
 Segmented Pricing: Some customers may be
willing to pay more for faster service, higher
quality or more features
 Peak User Pricing: Higher prices for “Rush Hour"
 Dynamic Pricing in the following
 Airlines Industry
 Hotels
 Car Rental Industry
 Ocean Cargo Industry
 Retail Industry –Fashion Apparel Industry
 Entertainment Industry –ticket pricing
 Cruise Lines
 Manufacturing Industry
 Airline Industry
 Prices in the Airline Industry were regulated until
1978
 Price and quantity changes had to be approved by
CAB
 “American Airlines” is considered the pioneer in
dynamic pricing
 Advanced software has propelled e-commerce
forward with dynamic pricing
 In America for example One way fares exceed
round trip fares
 Airline Industry
 Price changes frequently
 Low fares on a particular flight being available,
then not, and then available again
 Listed fares vary depending on the time of the
year, time of the week, remaining seats available
and remaining time until departure
 For example, average prices for round trips
between Phoenix and Los Angeles differ
depending on whether they originate in Los
Angeles or Phoenix
 Indian Railways
 114,500 km of total track over a route of 65000
km
 7500 railway stations
 Carries 30 million passengers daily
 Transports 2.8 million tonnes of freight daily
 Fourth largest railway network after USA, Russia
and China
 1.36 million employees
 Indian Railways
 In 1951 the various state Railways were
nationalized as 1 unit wholly owned by the
Government of India
 It is virtually a monopoly in medium-long distance
travelling passengers in India but for short
distance faces stiff competition from Roadways
 Passenger revenues are cross subsidized by
freight earnings
 Each train has multiple stops
 Indian Railways
 There are different types of concessions
given to different segments of customers
like senior citizens, students, military
warrants, members of Parliament, Railway
employees
 Currently static pricing is followed for all
trains
 Same ticket price all the year round for the
same train
 Why Dynamic Pricing in IR?
PRODUCT OFFERING FULFILLS ALL
CRITERION
• Product is perishable in nature
• Multiple product options available over a
significant time period
• Vacant capacity exists across similar product
offerings
• Demand varies across time & similar product
offerings
 Why Dynamic Pricing in IR?
IMPROVEMENT IN COACHING EARNINGS
• Filling up vacant capacities through spreading
of demand
• Increased customer base through below base
level fare offering – will benefit the EWS
• Exponential increase in revenue for trains in
high demand
 Why Dynamic Pricing in IR?
 Currently the loss in the passenger sector is
touching Rs 26,000 crore in a year
 It is being cross subsidised from freight earnings
 While the waiting list of Passengers is getting
longer and longer yet passenger business is
making a loss
 Many passengers are willing to pay for travelling
in comfort
Why Dynamic Pricing in IR?

MARKET FORCES INFLUENCE DEMAND

 It factors in all variables
 Category of train & class
 Regional & Seasonal variations in demand
 Temporary surges / slumps
 Convenience of timings
 Weekend syndrome
 Case Study
%AGE OCCUPANCY: HWH-PUI (OCT'11-SEP'12)

103.18

87.18
12837
95.97
22835
TRAIN

77.9 12895

99.09 12881
12887
92.9
18409
34.82
12277 (CC)
113.48 12821 (CC)

0 20 40 60 80 100 120
%AGE OCCUPANCY (CC/3A)
 Case Study
MONTHWISE OCCUPANCY: HWH-PUI (OCT'11-SEP'12)
140

120

100
12821 (CC)
%AGE OCCUPANCY

12277 (CC)
80
18409
12887
60
12881
12895
40
22835
12837
20

0
1 2 3 4 5 6 7 8 9 10 11 12
MONTH
 Scope for Dynamic Pricing
 Scope exists for balancing the demand across multiple trains
to same destination.
 Demand varies across seasons and across trains to same
destination
 The definition of season would vary across regions.
 Even within a season, there could be short surges / slumps in
demand.
 Weekend syndrome is another example of demand fluctuation
 Demand also varies across classes in the same train
 Advantage can be derived by smoothening the seasonal
fluctuations in demand by accentuating benefits of vacant
capacities in off season
 IR’s experiment with Dynamic Pricing
Pilot Project
 For the first time, railways experimented with
dynamic fares on the pattern of airlines by
operating Rajdhani type AC special trains
between Delhi and Mumbai
 Four trips from 24th December 2013 till 2nd
January 2014 of the premium AC special trains
on the busy New Delhi-Mumbai sector
 IR’s experiment with Dynamic Pricing
 The fare will vary based upon a pre defined
formula
 Dynamic fare charged for only confirmed and
RAC passengers
 Tickets sold on higher rate than the existing rate
as per the dynamic pricing policy to encash the
peak demand during festive season of Christmas
and New Year
 IR’s experiment with Dynamic Pricing
 The Premier AC special trains will have only AC-2
and AC-3 classes with Rajdhani like facility including
catering
 The fares to increase depending on demand
intensity
 The train designed to clear the last minute peak time
demand
 There are no stoppages enroute
 IR’s experiment with Dynamic Pricing
 There shall be no waitlist passengers
 Advance Reservation for this train would be a
maximum of 15 days only
 No Concession will be applicable on this train
 Free passes/complimentary
passes/warrant/concessional voucher etc. shall
not be permitted in this train
 Adult fares would be charged for all passengers
irrespective of their age
 IR’s experiment with Dynamic Pricing
 Only e-tickets will be permitted for booking through
Internet/IRCTC portal
 The fare applicable each day /transaction shall be
indicated at the time of booking on the IRCTC website
 Hence Modification/Duplicate ticket/cluster booking/BPT
will not be allowed
 Only end to end general quota booking will be applicable
 Upgradation option shall not be applicable in this train
 The passengers are required to carry the prescribed
original photo identity which is used at the time of
booking
 IR’s experiment with Dynamic Pricing
 Current Booking will be allowed at current
reservation counters only after Charting as this
facility is not available on internet
 If current counter is enabled vacant berths left at the
time of charting will be offered for current booking at
the Originating Station
 Tickets at Current Counter will be sold at the “Base
Price” (Rajdhani Base Fare plus Tatkal charges) and
other supplementary charges like reservation fee,
superfast charges,catering charges and service tax
as applicable
IR’s experiment with Dynamic Pricing

 Coach damage / suspension /addition / profile change

will not be applicable within advance reservation
period under Dynamic fare policy
 However if berth cannot be given to passenger by
Indian Railways full refund shall be granted to the
passenger manually
 No refund shall be granted. However,full refund shall
be admissible in case the train is fully cancelled
 IR’s experiment with Dynamic Pricing
 The menu and tariff of Catering services for the
proposed train will be similar to other Rajdhani
trains
 The days of running of this train and composition
of the train shall be as per the notification of the
Coaching Directorate of Railway Board / CPTM’s
of Zonal Railway
 Zonal Railways to arrange wide publicity through
media
 IR’s experiment with Dynamic Pricing
 There was a 30 percent jump in fares in AC-2
 Ticket fares went up by Rs 737 in AC 2 and Rs 627
in AC 3
 35 per cent jump in AC 3 fares
 The trip for Dec 13 was booked to capacity with 746
births sold out in AC 3 and 219 births sold out in AC
2
 This train was equipped with 17 coaches.
 Railways plans to introduce DP in 17 more trains
 Benefits
Increase in passenger earnings by
• Filling up vacant capacities through spreading of
demand.
• Increased customer base through below base level
fare offering
• Exponential increase in revenue for trains in high
demand

• Reduced burden on PRS due to increased online

behavior
• Touting will get discouraged
 Benefits
 The initial frenzy will cause a surge in the DP, resulting in
an immediate slowdown in the booking rate
 The difference in highest and lowest fare as seen by the
customer will tempt him to less popular trains
 The price conscious buyer will shift to vacant capacities
in less popular trains, while the price inelastic buyer will
continue to book
 Phenomenon of full booking within minutes of opening
may not happen anymore and confirmed seat availability
on popular trains will be spread over larger period
 Fares of highly popular trains will continue to be much
over the base fare
Dynamic Pricing in Airlines viz IR
Airlines
 Airlines are owned privately
 They compete with each other
for the same route and for the
same passengers
 Airlines decide fares within the
framework of guidelines of
DGCA
 Greater flexibility in operations
and fare fixation
 Over 90% Revenue from
Passenger Operations
Indian Railways
 IR fully Government owned
 No competition as it is a
monopoly
 Fares fixed by Railway Ministry
 Introduction of new trains,
routes and fares subject to
Parliamentary approval
 75% revenue from Freight
Operations.
 Challenges
 Intermediate Station Quotas
 Passengers not having access to Internet or
IRCTC Portal
 Credit card /e-banking required for booking
 Dovetailing with existing PRS
 Modalities for booking in PRS offices
 Data mining with respect to customer
preferences for different trains and routes
 Challenges
 The pilot project confined to 2nd and 3rd AC on
premium train plying on premium route
 The ticket price should be significantly lesser
than the low cost airlines
 Quality of service like cleanliness, safety,
security, punctuality would require considerable
improvement
 Challenges
 Maximum seats in most trains are in the sleeper
class
 Policy of granting concessions not consistent
with dynamic pricing
 Profit maximization cannot be the only goal for a
Government run organization
 Govt has notified a Rail Tariff Authority which will
develop an “integrated, transparent and
dynamic” pricing mechanism
 Food for Thought
 “At many companies, little cost-cutting juice can
easily be extracted from operations. Pricing is
therefore one of the few untapped levers to boost
earnings, and companies that start now will be in
a good position to profit fully from the next
upturn”– McKinsey Quarterly, 2003
 Dynamic Pricing in IR can be introduced in luxury
classes in premium trains during peak seasons
Interactive Session
Thank You