SETTING PRICES & IMPLEMENTING REVENUE MANAGEMENT

Effective Pricing is Central to Financial Success

The creation of a viable service require

Any pricing strategy must be based on
a business model that allows for the
clear understanding of a company’s
costs of creating and delivering the
pricing objectives.
service.
Objectives of Service Pricing

• Gain Profit and cover costs

• Build demand and develop a
user base
• Support positioning strategy
Pricing Tripod

1. Unit Cost to Firm 2. Value to Customer

(Cost-based (Value-based
Pricing) Pricing)

3. Competitor Pricing
(Competitor-based
Pricing)
1. Cost-based Pricing
• Establishing the Costs of Providing Service
• Activity-Based Costing
• Pricing Implications of Cost Analysis
2. Value-based Pricing
• Understanding Net Value
• Managing the Perception of Value
• Reducing Related Monetary and Non-Monetary Costs
3. Competition-based Pricing
• Price Competition Intensifiers
• Price Competition Inhibitors
 Revenue Management
• It is most effective when applied to service businesses
characterized by :
– High fixed cost structure and relatively fixed capacity, which
result in perishable inventory
– Variable and uncertain demand
– Varying customer price sensitivity
 Reserving Capacity for High-Yield Customers
• Revenue management involves setting prices according to predicted
demand levels among different market segments.
• Firms need a disciplined approach to save capacity for them instead
of simply selling on a first-come, first-served basis.
 Price Elasticity
• How sensitive demand is to changes in price.
• If a small change in price has a big impact on sales, demand for that
product is said to be price elastic.
 Rate Fences

• Price Customization - Charging different customers different prices

for what is actually the same product.
• Rate fences allow customers to self-segment on the basis of service
characteristics and willingness to pay.
• Fences can be either physical or non-physical.
Key Categories of Rate Fences

• Physical (Product-related) Fences

– Basic Product
– Amenities
– Service Level
– Other Physical Characteristics

• Non-Physical Fences
Transactional Characteristics
Time of booking or reservation
Location of booking or reservation
Flexibility of ticket usage
Consumption Characteristics
Time or duration of use
Location of consumption
 Fairness & Ethical Concerns in Service Pricing

• Service Pricing is Complex

• Piling on the Fees
• Designing Fairness into Revenue Management
– Design Price Schedules & Fences That Are Clear, Logical & Fair.
– Use High Published & Frame Fences as Discounts.
– Communicate Consumer Benefits of Revenue Management.
– “Hide” Discounts through Bundling, Product Design & Targeting.
– Take Care of Loyal Customers.
– Use Service Recovery to Compensate for Overbooking.
 Putting Service into Pricing

• How Much Should Be Charged?

• What Should Be the Specified Basis for Pricing?
• Who Should Collect Payment and Where Should Payment Be Made?
• When Should Payment Be Made?
• How Should Payment Be Made?
• How Should Prices Be Communicated to the Target Markets?
THANK YOU