10. The Pricing of Services

Question 1

Area of Price Discretion

Answer 1

Between price ceiling (maximum price customers are prepared to pay, or price cap imposed by regulator) and price floor (cost of production)

Question 2

Approaches to Problems of Variable Demand

Answer 2

• Manage pattern of demand to smooth out peaks and troughs (price/ non-price based)
• Manage supply of service to match pattern of demand

Question 3

Yield Management

Answer 3

• Aim to make maximum achievable revenue from each unit of available capacity
• Based on forecast of demand and “holding out” for highest rate
• Lower prices to try and fill off-peak capacity

Question 4

Problems of Yield Management

Answer 4

• Variable pricing may undermine trust
• Confuses organisation’s perceived price position
• May be an inverse relationship between price and service quality