"Now we can say, for example, that we'll reduce prices for some items 35 percent, increase the others by 10 percent and still get a 4 percent average increase," Elver says. That mix of price changes might be far more effective in stimulating demand and boosting revenue than an across-the-board 4 percent increase would have been, he says.

Rolling out price optimization software required Seton to examine the ad hoc rules that hospital managers had carried in their heads over the years, like such-and-such an item ought to be priced at a certain multiple of some other item. Some of those rules of thumb were scrapped, some were codified into the models, and some new ones were developed, Elver says. "For the first time, we got an understanding of the absurdities in some of those rules," he says.

But Seton's new pricing methods, although much more flexible and powerful than previously, met some resistance from hospital managers, especially when they were told they must reduce certain prices -- and, hence, their revenue -- because the models showed that would improve revenue or profits for the medical chain as a whole. "So the biggest challenge for me is one of change management," Elver says. "There is a suspicion of 'black boxes.' "

Value pricing

Traditionally, companies have focused their efforts to maximize profits on cutting costs and boosting sales. They organize themselves accordingly, with entire departments focusing on one objective or the other. Rarely is even a fraction of that effort put into optimizing the third variable that makes up a company's profit: unit price.