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L4. Setting price & implementing revenue management (Effective…
L4. Setting price & implementing revenue management
Effective Pricing
What makes service pricing strategy different & difficult from product pricing?
Hard to determine the actual financial cost of creating the service, ie. how much does labour cost supposed to be???
Variability of input and output
"Time Factor" ; the same service that is delivered fast may be valued more
"The Pricing Tripod"
- Pricing Strategy
Cost-Based Pricing
Set price relatives to financial cost (problem: how to define cost?)
Activity Based Cost
Price is set in a way of cost + profit desired to gain
Value-Based Pricing
Relate price to value perceived by customers
Net-value = perceived benefit - perceived cost of the service
Managers must help customers to see the value of the service
Some values may not be seen by customers as service is performed backstage
Therefore communication is needed to help customers to understand the value they receive
Competition-Based Pricing
Monitor competitor's pricing strategy
Little differentiation from competitors
Personal relationship matter
High switching cost
Managers should not only look at competitor's pricing but also all related financial & non-financial monetary costs
Trading off monetary and non-monetary
Revenue Management: Maximising revenue from available capacity at a given time
Price customization
based on different value segments, different prices for same product
Key categories of rate fences
:
Physical (product related) fences
Non-physical fences
Consumption characteristic
Buyer characteristic
Airlines often uses "Price Bucket" to determine price
Early bird gets cheaper rate
Late buyers pay a higher price
Defining Total User Costs
Search Costs
Purchase and Service Encounter Costs
Money
Purchase Price
Operating Cost
Incidental Expenses
Time
Physical Effort
Psychological Burdens
Sensory Burden
Post Purchase Costs
Necessary Follow-up
Problem Solving