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Exploring Business
Models:
Pricing and Revenue
Management
Chapter 5 - 1
Overview of Chapter 5
Effective Pricing Is Central to Financial Success
Pricing Strategy Stands on Three Legs
Revenue Management: What It Is and How It Works
Ethical Concerns in Service Pricing
Putting Service Pricing into Practice
Chapter 5 - 2
Advertisers
Health insurers
Donors to nonprofit organizations
Tax subsidies for public services
Chapter 5 - 3
Chapter 5 - 4
Chapter 5 - 5
Pricing strategy
Costs
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Competition
Value to customer
Services Marketing 6/E
Chapter 5 - 6
Competition-based pricing
Monitor competitors pricing strategy (especially if service
lacks differentiation)
Who is the price leader? Does one firm set the pace?
Value-based pricing
Relate price to value perceived by customer
Chapter 5 - 7
Cost-based Pricing:
Traditional vs. Activity-based Costing
Traditional costing approach
Emphasizes expense categories (arbitrary overhead allocation)
May result in reducing value generated for customers
Chapter 5 - 8
Value-based Pricing
Understanding Net Value
(Fig 5.2)
Perceived
benefits
Perceived
outlays
Chapter 5 - 9
Value-based Pricing:
Strategies for Enhancing Net Value
Enhance gross valuebenefits delivered
Add benefits to core product
Enhance supplementary service
Manage perceptions of benefits delivered
Chapter 5 - 10
Value-based Pricing:
Enhancing Perceptions of Gross Value
Reduce uncertainty
Service guarantees
Benefit-drivenpricing aspect(s) of service that create value
Flat rate (quoting a fixed price in advance)
Relationship pricing
Nonprice incentives
Discounts for volume purchases
Discounts for purchasing multiple services
Low-cost leadership
Convince customers not to equate price with quality
Keep economic costs low to ensure profitability at low price
Chapter 5 - 11
Nonmonetary costs
Time costs
Physical costs
Psychological (mental) costs
Sensory costs (unpleasant sights, sounds,
feel, tastes, smells)
Chapter 5 - 12
Clinic A
Clinic B
Clinic C
Price $45
Price $85
Price $125
Next available
appointment is in 3
weeks
Next available
appointment is in 1
week
Next appointment is
in 1 day
Chapter 5 - 13
Chapter 5 - 14
Chapter 5 - 15
Predictable
Quadrant 1
Quadrant 2
Movies
Stadiums/arenas
Function space
Hotel rooms
Airline seats
Rental cars
Cruise lines
Quadrant 3
Quadrant 4
Restaurants
Golf courses
Continuing care
Hospitals
Duration
Unpredictable
Variable
Chapter 5 - 16
Fenced pricing
Bundling
Categorizing
High published price
customers
Unfulfilled price expectation of
group customers
Change in nature of service
alternatives
Physical segregation and perceptible
extra service
Set optimal capacity utilization level
Source: J. Wirtz, S.E. Kimes, J.H.P. Ho and P. Patterson, Revenue Management: Resolving Potential Customer Conflicts, Journal of Revenue and Pricing
Management, 2003, Vol. 2 (3): 216-228.
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Services Marketing 6/E
Chapter 5 - 17
Examples
Amenities
Service level
Priority wait-listing
Increase in baggage allowances
Dedicated service hotlines
Dedicated account management team
Chapter 5 - 18
Nonphysical Fences
Transaction Characteristics
Time of booking or
reservation
Location of booking
or reservation
Flexibility of ticket
usage
Chapter 5 - 19
Location of
consumption
Chapter 5 - 20
Group membership
Chapter 5 - 21
Capacity of aircraft
* Dark areas denote amount of consumer surplus (goal of segmented pricing is to reduce this)
Chapter 5 - 22
Chapter 5 - 23
Chapter 5 - 24
Chapter 5 - 25
Chapter 5 - 26
Chapter 5 - 27