Week 10: Understanding Costs and Developing Pricing and Balancing Capacity

Question 1

LO1: Formulate pricing objectives.

Answer 1

• Revenue and Profit Objective: Seek Profit, Cover Costs
• Patronage and User Based Objective: Build Demand, Build a User Base
• Non Monetary pricing objectives: Express values and ensure positive attitudes

Question 2

LO2: Describe the foundations of pricing strategy.

Answer 2

Pricing Strategy Tripod:

• Costs to be recovered set a floor price to charge
• Value of a service sets a ceiling price
• Price charged by competitors determines where price sits in the range

Question 3

LO4: Define and distinguish different types of costs.

Answer 3

Financial (Monetary Cost)
Time and Effort (Time and effort required to find, purchase and access)
Functional risk: ability of service to meet the needs
Psychological risk: confidence in service provider
Social: Approval of friends and family

Question 4

LO5: Describe the significance of revenue management for service firms.

Answer 4

Yield management is:
To sell the right inventory unit (service quality, satisfaction)
To the right customer (willingness to pay, needs)
At the right time (Demand patterns, booking patterns)
At the right price (value and competitive pricing)

Question 5

LO6: Understand how to communicate and implement service pricing strategies.

Answer 5

How much should be charged for the service?
What should be the basis of pricing (e.g. bundling, discounting)?
Who should collect payment? Where should payment be made?
When should payment be made?
How should payment have made?
How should prices be communicated to the target market?