Services Pricing & Revenue Management + TB Chapter 6 Flashcards
2 objectives for pricing of services
Revenue and profit objectives
Patronage and user-based objectives
Revenue and profit objectives
Seek profit
Cover costs
Patronage and user-based objectives
Build demand (demand maximization, full capacity utilization)
Build a userbase (stimulate trial and adoption of new service, build market share/large user base)
The pricing tripod
The basis for any pricing strategy
Pricing strategy
Costs
Competition
Value to customer
Cost-based pricing
Sets prices relative to financial costs
Strategy-related objectives
Support positioning strategy
Support competitive strategy
Value-based pricing
Priced based on the understanding of how customers perceive service value in order to set an appropriate price
Net value
The sum of all perceived benefits (gross value) minus the sum of all perceived costs of a service
Four broad expressions of value
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
Reducing related monetary and non-monetary costs
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)
Competition-based pricing
Charge and price services according to what competitors are
Price-competition intensifiers
Increasing competition, substitutes, distribution, surplus capacity
Price-competition inhibitors
Non-price-related costs of using competing alternatives are high
Personal relationships matter
Switching costs are high
Time and location specificity reduces choice
Revenue management
Focuses on strategies to maximize the revenue that can be obtained from the available capacity at any given point in time
Revenue management is most affective when
High fixed-cost structure and relatively fixed capacity, results in perishable inventory
Variable and uncertain demand
Varying customer price sensitivity
Yield Management
Setting prices according to predicted demand levels among different market segments
eg: flights to Hawaii during spring break
Key categories of physical rate fences
Physical (product-related fences)
Basic product (size of rental car)
Amenities (free golf cart)
Service level (personal butler)
Transaction characteristic categories of non-physical rate fences
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)
Consumption characteristics categories of non-physical rate fences
Time or duration of use (happy hour)
Location of consumption (price depends on departure location eg YVR instead of Abbotsford)
Buyer characteristics categories of non-physical rate fences
Frequency or volume of consumption (black visa)
Group membership (alumni)
Size of customer group (discounts based on bulk)
Geographic location (local shipping charged less)
Ethical concerns in pricing
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)
Piling on the fees
Growing trend of imposing fees that have little to do with usage
eg: car rental fees (collision insurance, personal insurance, etc)
Ways management can design fair revenue management
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
