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Essentials of Services Marketing,
2nd Edition
Instructor Supplements
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
3
Developing Service Product:
Setting Prices and Implementing Revenue
Management
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
4
Chapter 6 Outline
6.1 Effective Pricing is Central to Financial Success
6.2 Pricing Strategy Stands on Three Legs
6.3 Revenue Management: What it is and How it Works
6.4 Ethical Concerns in Service Pricing
6.5 Putting Service Pricing into Practice
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
5
6.1
Effective Pricing is Central to Financial Success
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
6
6.1 Effective Pricing is Central to Financial Success
What Makes Service Pricing Strategy Different and
Difficult?
• Harder to calculate financial costs of creating a service process or
performance than a manufactured good
• Variability of inputs and outputs: How can firms define a “unit of
service” and establish basis for pricing?
• Importance of time factor – same service may have more value to
customers when delivered faster
• Customers find service pricing difficult to understand, risky and
sometimes even unethical
• Note opening vignette on dynamic pricing – see ScoreBig and airline
pricing
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
7
6.1 Effective Pricing is Central to Financial Success
Objectives for Pricing of Services (Table 6.1)
• Revenue and Profit Objectives
– Seek profit
– Cover costs
• Patronage and User-Based Objectives
– Build demand
○ Demand maximization
○ Full capacity utilization
– Build a user base
○ Stimulate trial and adoption of new service
○ Build market share/large user base
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
8
6.2
Pricing Strategy Stands on Three Legs
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
9
6.2 Pricing Strategy Stands on Three Legs
The Pricing Tripod (Fig. 6.3)
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
10
6.2 Pricing Strategy Stands on Three Legs
Three Main Approaches to Pricing
• Cost-Based Pricing
– Set prices relative to financial costs (problem: defining costs)
– Activity-Based Costing
– Pricing implications of cost analysis – bottom line – have to cover
costs – being the low-price competitor requires careful analysis
• Value-Based Pricing
– Relate price to value perceived by customer – see p. 154
• Competition-Based Pricing
– Monitor competitors’ pricing strategy (especially if service
lacks differentiation)
– Who is the price leader - does one firm set the pace?
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
11
6.2 Pricing Strategy Stands on Three Legs
Cost-Based Pricing:
Traditional vs. Activity-Based Costing
• Traditional costing approach
– Emphasizes expense categories (arbitrary overheads allocation)
– May result in reducing value generated for customers
• ABC (Activity-based costing) management systems
– Link resource expenses to variety and complexity of
goods/services produced
– Yields accurate cost information
Example: One hotel room - besides direct costs, what overhead
costs have to be applied – depreciation, manager salaries, insurance,
etc. OR – how do you price a client service – an hour with personal
trainer – besides labor cost, how much of facility cost needs to be
covered?
• When looking at prices, customers care about value to themselves,
not what service production costs the firm
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
12
6.2 Pricing Strategy Stands on Three Legs
Value-Based Pricing
Understanding Net Value (Fig. 6.7)
• Value exchange will not take place unless customer sees positive
net value in transaction
• Net Value = Perceived Benefits to
Customer (Gross Value) minus All
Perceived Outlays (Money, Time,
Mental/Physical Effort)
• Monetary price is not only perceived
outlay in purchasing, using a service
• When looking at competing services,
customers are mainly comparing
relative net values
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
13
6.2 Pricing Strategy Stands on Three Legs
Value-Based Pricing:
Managing Perception of Value
• Need effective communication and personal explanations to explain
value
• Reduce related-monetary costs
– Cut time spent searching for, purchasing and using service
• Reduce non-monetary costs
– Time Costs
– Physical Costs
– Psychological (Mental) Costs
– Sensory Costs (unpleasant sights, sounds, feel, tastes, smells)
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
14
6.2 Pricing Strategy Stands on Three Legs
Defining Total User Costs (Fig. 6.11)
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
15
6.2 Pricing Strategy Stands on Three Legs
Value-Based Pricing: Approaches to Reducing Non-
monetary and Related-monetary Costs
• Reduce time costs of service at each stage
• Minimize unwanted psychological costs of service
– e.g. eliminate/redesign unpleasant/ inconvenient procedures
• Eliminate unwanted physical costs of service
• Decrease unpleasant sensory costs of service
– Unpleasant sights, sounds, smells, feel, tastes
• Suggest ways for customers to reduce other monetary costs
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
16
6.2 Pricing Strategy Stands on Three Legs
Trading Off Monetary and Non-Monetary Costs
(Fig. 6.12)
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
17
6.2 Pricing Strategy Stands on Three Legs
Competition-Based Pricing:
When Price Competition is Reduced
• Non-price-related costs of using competing alternatives are high
• Personal relationships matter
• Switching costs are high
• Time and location specificity reduces choice
• Managers should not only look at competitor’s prices dollar for
dollar, but should examine all related financial and non-monetary
costs – what is the total package that the competition offers the
potential customer?
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
18
6.3
Revenue Management: What it is and How it Works
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
19
6.3 Revenue Management: What it is and How it Works
Maximizing Revenue from Available Capacity at a
Given Time (1)
• Most effective when:
– Relatively high fixed capacity
– High fixed cost structure
– Perishable inventory
– Variable and uncertain demand
– Varying customer price sensitivity
• Revenue management is price customization
– Charge different value segments different prices for same
product based on price sensitivity
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
20
6.3 Revenue Management: What it is and How it Works
Maximizing Revenue from Available Capacity at a
Given Time (2)
• Revenue management uses mathematical models to examine
historical data and real time information to determine
– What prices to charge within each price bucket
– How many service units to allocate to each bucket
• Rate fences deter customers willing to pay more from trading down
to lower prices (minimize consumer surplus)
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
21
6.3 Revenue Management: What it is and How it Works
Price Elasticity (Fig. 6.15)
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
22
6.3 Revenue Management: What it is and How it Works
Key Categories of Rate Fences: Physical (Table 6.2)
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
23
6.3 Revenue Management: What it is and How it Works
Key Categories of Rate Fences: Non-Physical (1)
(Table 6.2)
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
24
6.3 Revenue Management: What it is and How it Works
Key Categories of Rate Fences: Non-Physical (2)
(Table 6.2)
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
25
6.3 Revenue Management: What it is and How it Works
Key Categories of Rate Fences: Non-Physical (3)
(Table 6.2)
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
26
6.3 Revenue Management: What it is and How it Works
Relating Price Buckets and Fences to Demand Curve
(Fig. 6.17)
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
27
6.4
Ethical Concerns in Service Pricing
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
28
6.4 Ethical Concerns in Service Pricing
Ethical Concerns in Pricing
• Customers are vulnerable when service is hard to evaluate as they
assume that higher price indicates better quality
• Many services have complex pricing schedules
– Hard to understand
– Difficult to calculate full costs in
advance of service
• Quoted prices not the only prices
– Hidden charges
– Many kinds of fees
• Too many rules and regulations
– Customers feel constrained, exploited
– Customers face unfair fines and penalties
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
29
6.4 Ethical Concerns in Service Pricing
Designing Fairness into Revenue Management
• Design clear, logical and fair price schedules and fences
• Use high published prices and present fences as opportunities for
discounts (rather than quoting lower prices and using fence as basis
to impose surcharges
• Communicate consumer benefits of revenue management
• Use bundling to “hide” discounts
• Take care of loyal customers
• Use service recovery to compensate for overbooking –
compensation, offer substitute, ticket for the future, etc.
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
30
6.5
Putting Service Pricing into Practice
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
31
6.5 Putting Service Pricing into Practice
Pricing Issues:
Putting Strategy into Practice (Table 5.3)
• How much to charge?
• What basis for pricing?
• Who should collect payment?
• Where should payment be made?
• When should payment be made?
• How should payment be made?
• How to communicate prices?
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
32
6.5 Putting Service Pricing into Practice
Putting Service Pricing into Practice (1)
• How much to charge?
– Pricing tripod model is useful to use for costs, price sensitivity of
customers and competitors
– Depends on whether discounts are offered
– Any psychological pricing points used?
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
33
6.5 Putting Service Pricing into Practice
Putting Service Pricing into Practice (2)
• What basis for pricing?
– Completing a task
– Admission to a service performance
– Time based
– Monetary value of service delivered
(e.g., commission)
– Consumption of physical resources
(e.g, food and beverages)
– Distance-based (e.g., transportation)
– Should price-bundling be used?
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
34
6.5 Putting Service Pricing into Practice
Putting Service Pricing into Practice (3)
• Who should collect payment?
– Service provider or specialist intermediaries
– Direct or non-direct channels
• Where should payment be made?
– Conveniently-located intermediaries
– Mail/bank transfer
– Credit card payment through internet,
phone, fax
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
35
6.5 Putting Service Pricing into Practice
Putting Service Pricing into Practice (4)
• When should payment be made?
– In advance
– Once service delivery has been completed
• How should payment be made?
– Cash
– Check
– Charge Card (Debit / Credit)
– Tokens or vouchers
– Stored value card
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
36
6.5 Putting Service Pricing into Practice
Putting Service Pricing into Practice (5)
• How to communicate prices?
– Relate the price to that of competing products
– Use salespeople and customer service representatives
– Good signage at retail points
– Ensure price is accurate and intelligible
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
37
Summary of Chapter 6:
Pricing and Revenue Management (1)
• Pricing objectives can include
– Generating revenues and profit
– Building demand
– Developing user base
• Three main foundations to pricing a service
– Cost-based pricing
– Value-based pricing
– Competition-based pricing
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
38
Summary of Chapter 6:
Pricing and Revenue Management (2)
• Cost-based pricing seeks to recover costs plus a margin for profit;
includes both traditional and activity-based costing
• Value-based pricing should reflect net benefits to customer after
deducting all costs
• Firm must be aware of competitive pricing but may be harder to
compare for services than for goods
• Revenue management
– Maximizes revenue from a given capacity at a point in time
– Helps manage demand and set prices for each segment closer to
perceived value
– Involves use of rate fences to deter segments willing to pay more
from trading down to lower prices
© Pearson Education South Asia Pte Ltd 2013. All rights reserved
39
Summary of Chapter 6:
Pricing and Revenue Management (3)
• Ethical issues in pricing
– Customers are vulnerable when service is hard to evaluate
– Many services have deliberately complex pricing schedules
– Fees and hidden charges catch customers by surprise
– Too many rules and regulations
• Questions to ask when putting service pricing into practice
– How much to charge?
– What should the specified basis for pricing be?
– Who should collect payment
– Where should payment be made?
– When should payment be made?
– How should payment be made?
– How should prices be communicated to the right target market?
Thank you

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developing service productdeveloping service product

  • 1.
  • 2. Essentials of Services Marketing, 2nd Edition Instructor Supplements
  • 3. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 3 Developing Service Product: Setting Prices and Implementing Revenue Management
  • 4. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 4 Chapter 6 Outline 6.1 Effective Pricing is Central to Financial Success 6.2 Pricing Strategy Stands on Three Legs 6.3 Revenue Management: What it is and How it Works 6.4 Ethical Concerns in Service Pricing 6.5 Putting Service Pricing into Practice
  • 5. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 5 6.1 Effective Pricing is Central to Financial Success
  • 6. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 6 6.1 Effective Pricing is Central to Financial Success What Makes Service Pricing Strategy Different and Difficult? • Harder to calculate financial costs of creating a service process or performance than a manufactured good • Variability of inputs and outputs: How can firms define a “unit of service” and establish basis for pricing? • Importance of time factor – same service may have more value to customers when delivered faster • Customers find service pricing difficult to understand, risky and sometimes even unethical • Note opening vignette on dynamic pricing – see ScoreBig and airline pricing
  • 7. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 7 6.1 Effective Pricing is Central to Financial Success Objectives for Pricing of Services (Table 6.1) • Revenue and Profit Objectives – Seek profit – Cover costs • Patronage and User-Based Objectives – Build demand ○ Demand maximization ○ Full capacity utilization – Build a user base ○ Stimulate trial and adoption of new service ○ Build market share/large user base
  • 8. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 8 6.2 Pricing Strategy Stands on Three Legs
  • 9. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 9 6.2 Pricing Strategy Stands on Three Legs The Pricing Tripod (Fig. 6.3)
  • 10. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 10 6.2 Pricing Strategy Stands on Three Legs Three Main Approaches to Pricing • Cost-Based Pricing – Set prices relative to financial costs (problem: defining costs) – Activity-Based Costing – Pricing implications of cost analysis – bottom line – have to cover costs – being the low-price competitor requires careful analysis • Value-Based Pricing – Relate price to value perceived by customer – see p. 154 • Competition-Based Pricing – Monitor competitors’ pricing strategy (especially if service lacks differentiation) – Who is the price leader - does one firm set the pace?
  • 11. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 11 6.2 Pricing Strategy Stands on Three Legs Cost-Based Pricing: Traditional vs. Activity-Based Costing • Traditional costing approach – Emphasizes expense categories (arbitrary overheads allocation) – May result in reducing value generated for customers • ABC (Activity-based costing) management systems – Link resource expenses to variety and complexity of goods/services produced – Yields accurate cost information Example: One hotel room - besides direct costs, what overhead costs have to be applied – depreciation, manager salaries, insurance, etc. OR – how do you price a client service – an hour with personal trainer – besides labor cost, how much of facility cost needs to be covered? • When looking at prices, customers care about value to themselves, not what service production costs the firm
  • 12. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 12 6.2 Pricing Strategy Stands on Three Legs Value-Based Pricing Understanding Net Value (Fig. 6.7) • Value exchange will not take place unless customer sees positive net value in transaction • Net Value = Perceived Benefits to Customer (Gross Value) minus All Perceived Outlays (Money, Time, Mental/Physical Effort) • Monetary price is not only perceived outlay in purchasing, using a service • When looking at competing services, customers are mainly comparing relative net values
  • 13. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 13 6.2 Pricing Strategy Stands on Three Legs Value-Based Pricing: Managing Perception of Value • Need effective communication and personal explanations to explain value • Reduce related-monetary costs – Cut time spent searching for, purchasing and using service • Reduce non-monetary costs – Time Costs – Physical Costs – Psychological (Mental) Costs – Sensory Costs (unpleasant sights, sounds, feel, tastes, smells)
  • 14. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 14 6.2 Pricing Strategy Stands on Three Legs Defining Total User Costs (Fig. 6.11)
  • 15. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 15 6.2 Pricing Strategy Stands on Three Legs Value-Based Pricing: Approaches to Reducing Non- monetary and Related-monetary Costs • Reduce time costs of service at each stage • Minimize unwanted psychological costs of service – e.g. eliminate/redesign unpleasant/ inconvenient procedures • Eliminate unwanted physical costs of service • Decrease unpleasant sensory costs of service – Unpleasant sights, sounds, smells, feel, tastes • Suggest ways for customers to reduce other monetary costs
  • 16. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 16 6.2 Pricing Strategy Stands on Three Legs Trading Off Monetary and Non-Monetary Costs (Fig. 6.12)
  • 17. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 17 6.2 Pricing Strategy Stands on Three Legs Competition-Based Pricing: When Price Competition is Reduced • Non-price-related costs of using competing alternatives are high • Personal relationships matter • Switching costs are high • Time and location specificity reduces choice • Managers should not only look at competitor’s prices dollar for dollar, but should examine all related financial and non-monetary costs – what is the total package that the competition offers the potential customer?
  • 18. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 18 6.3 Revenue Management: What it is and How it Works
  • 19. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 19 6.3 Revenue Management: What it is and How it Works Maximizing Revenue from Available Capacity at a Given Time (1) • Most effective when: – Relatively high fixed capacity – High fixed cost structure – Perishable inventory – Variable and uncertain demand – Varying customer price sensitivity • Revenue management is price customization – Charge different value segments different prices for same product based on price sensitivity
  • 20. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 20 6.3 Revenue Management: What it is and How it Works Maximizing Revenue from Available Capacity at a Given Time (2) • Revenue management uses mathematical models to examine historical data and real time information to determine – What prices to charge within each price bucket – How many service units to allocate to each bucket • Rate fences deter customers willing to pay more from trading down to lower prices (minimize consumer surplus)
  • 21. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 21 6.3 Revenue Management: What it is and How it Works Price Elasticity (Fig. 6.15)
  • 22. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 22 6.3 Revenue Management: What it is and How it Works Key Categories of Rate Fences: Physical (Table 6.2)
  • 23. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 23 6.3 Revenue Management: What it is and How it Works Key Categories of Rate Fences: Non-Physical (1) (Table 6.2)
  • 24. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 24 6.3 Revenue Management: What it is and How it Works Key Categories of Rate Fences: Non-Physical (2) (Table 6.2)
  • 25. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 25 6.3 Revenue Management: What it is and How it Works Key Categories of Rate Fences: Non-Physical (3) (Table 6.2)
  • 26. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 26 6.3 Revenue Management: What it is and How it Works Relating Price Buckets and Fences to Demand Curve (Fig. 6.17)
  • 27. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 27 6.4 Ethical Concerns in Service Pricing
  • 28. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 28 6.4 Ethical Concerns in Service Pricing Ethical Concerns in Pricing • Customers are vulnerable when service is hard to evaluate as they assume that higher price indicates better quality • Many services have complex pricing schedules – Hard to understand – Difficult to calculate full costs in advance of service • Quoted prices not the only prices – Hidden charges – Many kinds of fees • Too many rules and regulations – Customers feel constrained, exploited – Customers face unfair fines and penalties
  • 29. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 29 6.4 Ethical Concerns in Service Pricing Designing Fairness into Revenue Management • Design clear, logical and fair price schedules and fences • Use high published prices and present fences as opportunities for discounts (rather than quoting lower prices and using fence as basis to impose surcharges • Communicate consumer benefits of revenue management • Use bundling to “hide” discounts • Take care of loyal customers • Use service recovery to compensate for overbooking – compensation, offer substitute, ticket for the future, etc.
  • 30. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 30 6.5 Putting Service Pricing into Practice
  • 31. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 31 6.5 Putting Service Pricing into Practice Pricing Issues: Putting Strategy into Practice (Table 5.3) • How much to charge? • What basis for pricing? • Who should collect payment? • Where should payment be made? • When should payment be made? • How should payment be made? • How to communicate prices?
  • 32. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 32 6.5 Putting Service Pricing into Practice Putting Service Pricing into Practice (1) • How much to charge? – Pricing tripod model is useful to use for costs, price sensitivity of customers and competitors – Depends on whether discounts are offered – Any psychological pricing points used?
  • 33. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 33 6.5 Putting Service Pricing into Practice Putting Service Pricing into Practice (2) • What basis for pricing? – Completing a task – Admission to a service performance – Time based – Monetary value of service delivered (e.g., commission) – Consumption of physical resources (e.g, food and beverages) – Distance-based (e.g., transportation) – Should price-bundling be used?
  • 34. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 34 6.5 Putting Service Pricing into Practice Putting Service Pricing into Practice (3) • Who should collect payment? – Service provider or specialist intermediaries – Direct or non-direct channels • Where should payment be made? – Conveniently-located intermediaries – Mail/bank transfer – Credit card payment through internet, phone, fax
  • 35. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 35 6.5 Putting Service Pricing into Practice Putting Service Pricing into Practice (4) • When should payment be made? – In advance – Once service delivery has been completed • How should payment be made? – Cash – Check – Charge Card (Debit / Credit) – Tokens or vouchers – Stored value card
  • 36. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 36 6.5 Putting Service Pricing into Practice Putting Service Pricing into Practice (5) • How to communicate prices? – Relate the price to that of competing products – Use salespeople and customer service representatives – Good signage at retail points – Ensure price is accurate and intelligible
  • 37. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 37 Summary of Chapter 6: Pricing and Revenue Management (1) • Pricing objectives can include – Generating revenues and profit – Building demand – Developing user base • Three main foundations to pricing a service – Cost-based pricing – Value-based pricing – Competition-based pricing
  • 38. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 38 Summary of Chapter 6: Pricing and Revenue Management (2) • Cost-based pricing seeks to recover costs plus a margin for profit; includes both traditional and activity-based costing • Value-based pricing should reflect net benefits to customer after deducting all costs • Firm must be aware of competitive pricing but may be harder to compare for services than for goods • Revenue management – Maximizes revenue from a given capacity at a point in time – Helps manage demand and set prices for each segment closer to perceived value – Involves use of rate fences to deter segments willing to pay more from trading down to lower prices
  • 39. © Pearson Education South Asia Pte Ltd 2013. All rights reserved 39 Summary of Chapter 6: Pricing and Revenue Management (3) • Ethical issues in pricing – Customers are vulnerable when service is hard to evaluate – Many services have deliberately complex pricing schedules – Fees and hidden charges catch customers by surprise – Too many rules and regulations • Questions to ask when putting service pricing into practice – How much to charge? – What should the specified basis for pricing be? – Who should collect payment – Where should payment be made? – When should payment be made? – How should payment be made? – How should prices be communicated to the right target market?