Pricing and Revenue Management

1. Dr.Jayashree R. Kotnal
Asst. Professor , M.Com Vijayapur
ASP College of Commerce
PRICING AND REVENUE
MANAGEMENT

2. WHAT MAKES SERVICE PRICING
STRATEGY DIFFERENT (AND
DIFFICULT)?
 No ownership of services--hard for firms to calculate
financial costs of creating an intangible performance
 Variability of inputs and outputs--how can firms
define a “unit of service” and establish basis for pricing?
 Many services hard for customers to evaluate--what
are they getting in return for their money?
 Importance of time factor--same service may have
more value to customers when delivered faster
 Delivery through physical or electronic channels--
may create differences in perceived value

3. WHAT MAKES SERVICE PRICING
STRATEGY DIFFERENT (AND
DIFFICULT)?
 No ownership of services--hard for firms to
calculate financial costs of creating an intangible
performance
 Variability of inputs and outputs--how can
firms define a “unit of service” and establish
basis for pricing?
 Many services hard for customers to
evaluate--what are they getting in return for
their money?
 Importance of time factor--same service may
have more value to customers when delivered
faster
 Delivery through physical or electronic
channels--may create differences in perceived
value

4. THE PRICING TRIPOD
Pricing Strategy
Costs
Competition
Value to customer

5. THREE MAIN APPROACHES TO
PRICING
 Cost-Based Pricing
Set prices relative to financial costs
(problem: defining costs)
 Competition-Based Pricing
Monitor competitors’ pricing strategy
(especially if service lacks differentiation)
Who is the price leader? (one firm sets the
pace)
 Value-Based
Relate price to value perceived by customer

6. ACTIVITY-BASED COSTING: RELATING
ACTIVITIES TO THE RESOURCES THEY
CONSUME
 Managers need to see costs as an integral part of a
firm’s effort to create value for customers
 When looking at prices, customers care about value to
themselves, not what production costs the firm
 Traditional cost accounting emphasizes expense
categories, with arbitrary allocation of overheads
 ABC management systems examine activities needed
to create and deliver service (do they add value?)
 Must link resource expenses to:
 variety of products produced
 complexity of products
 demands made by individual customers

7. NET VALUE = (BENEFITS –
OUTLAYS)
Perceive
d
Benefits
Time
e
Effort
Perceived
Outlays

8. ENHANCING GROSS VALUE
 Pricing Strategies to Reduce Uncertainty
 service guarantees
 benefit-driven (pricing that aspect of service that creates
value)
 flat rate (quoting a fixed price in advance)
 Relationship Pricing
 non-price incentives
 discounts for volume purchases
 discounts for purchasing multiple services
 Low-cost Leadership
 Convince customers not to equate price with quality
 Must keep economic costs low to ensure profitability at low
price

9.  Thank you

10.  Thank you