Services Pricing & Revenue Management + TB Chapter 6

Question 1

2 objectives for pricing of services

Answer 1

Revenue and profit objectives
Patronage and user-based objectives

Question 2

Revenue and profit objectives

Answer 2

Seek profit
Cover costs

Question 3

Patronage and user-based objectives

Answer 3

Build demand (demand maximization, full capacity utilization)
Build a userbase (stimulate trial and adoption of new service, build market share/large user base)

Question 4

The pricing tripod

Answer 4

The basis for any pricing strategy

Pricing strategy

Costs
Competition
Value to customer

Question 5

Cost-based pricing

Answer 5

Sets prices relative to financial costs

Question 6

Strategy-related objectives

Answer 6

Support positioning strategy
Support competitive strategy

Question 7

Value-based pricing

Answer 7

Priced based on the understanding of how customers perceive service value in order to set an appropriate price

Question 8

Net value

Answer 8

The sum of all perceived benefits (gross value) minus the sum of all perceived costs of a service

Question 9

Four broad expressions of value

Answer 9

Value is a low price
Value is whatever I want in a product
Value is the quality I get for the price I pay
Value is what I get for what I give

Question 10

Reducing related monetary and non-monetary costs

Answer 10

Related monetary costs (customers often incur high financial costs in searching for, purchasing, and using a service)
Non-monetary costs (reflect the time, effort, and discomfort associated with the search, purchase, and use of a service)

Question 11

Competition-based pricing

Answer 11

Charge and price services according to what competitors are

Question 12

Price-competition intensifiers

Answer 12

Increasing competition, substitutes, distribution, surplus capacity

Question 13

Price-competition inhibitors

Answer 13

Non-price-related costs of using competing alternatives are high
Personal relationships matter
Switching costs are high
Time and location specificity reduces choice

Question 14

Revenue management

Answer 14

Focuses on strategies to maximize the revenue that can be obtained from the available capacity at any given point in time

Question 15

Revenue management is most affective when

Answer 15

High fixed-cost structure and relatively fixed capacity, results in perishable inventory
Variable and uncertain demand
Varying customer price sensitivity

Question 16

Yield Management

Answer 16

Setting prices according to predicted demand levels among different market segments
eg: flights to Hawaii during spring break

Question 17

Key categories of physical rate fences

Answer 17

Physical (product-related fences)
Basic product (size of rental car)
Amenities (free golf cart)
Service level (personal butler)

Question 17

Transaction characteristic categories of non-physical rate fences

Answer 17

Time of booking or reservation (discounts for early purchase)
Location of B or R (air-tickets purchased in different countries)
Flexibility of ticket usage (fees for cancelling)

Question 18

Consumption characteristics categories of non-physical rate fences

Answer 18

Time or duration of use (happy hour)
Location of consumption (price depends on departure location eg YVR instead of Abbotsford)

Question 19

Buyer characteristics categories of non-physical rate fences

Answer 19

Frequency or volume of consumption (black visa)
Group membership (alumni)
Size of customer group (discounts based on bulk)
Geographic location (local shipping charged less)

Question 20

Ethical concerns in pricing

Answer 20

Customers are vulnerable when services are hard to evaluate
many services have complex pricing (hard to understand and difficult to calculate full costs in advance)
Quoted prices are not the only prices (hidden charges and fees)
Too many rules and regulations (customers feel constrained)

Question 21

Piling on the fees

Answer 21

Growing trend of imposing fees that have little to do with usage
eg: car rental fees (collision insurance, personal insurance, etc)

Question 22

Ways management can design fair revenue management

Answer 22

Design price schedules and fences that are clear, logical, and fair
Use high published prices and frame fences as discounts
Communicate consumer benefits of revenue management