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PRICING & REVENUEMANAGEMENT IN

SERVICES

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Whats Pricing???Marketing is the only revenue generating function in

an organization

Rest incur costs

Pricing is the mechanism by which sales aretransformed into revenues

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Objectives of Pricing Strategies

Revenue and profit obectives!eek profit (Ma"imize revenue from fi"ed

capacity)

#over costsPatronage and user base$related obectives%uild demand (hotels discount during non$peak

season)

%uild a user base (encourage trial&mobile phoneservices)

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he Pricing ri!od

Pricing Strategy

CostsCompetition

Value to customer

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hree Main "!!roaches to

Pricing

Cost-Based Pricing

!et prices relative to financial costs

Competition-Based PricingMonitor competitors' pricing strategy (especially if

service lacks differentiation)

Value-Based

Relate price to value perceived by customer

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Cost-Based Pricing

!trategy is to cover the costs (fi"ed variable ) thenprice accordingly

eed to evaluate (break even point)

Eg: For a 200 room hotel to cover fixed &variale costs of ! cr"#r$ if the avg room rentis %s 2000$ it 'ill need to sell 20000 roomnights to customers out of the total capacit#of ()000

*f the price charged is %s +,00$ the reaeven volume 'ill rise to 2.000 room nights

*f the price no' is increased to %s 2.00$ the

rea even volume 'ill come do'n to +,000

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#o$!etition %ased Pricing*irms with undifferentiated service offerings go for it#ustomers may go for the cheapest in absence of any

perceived difference

Price #ompetition increases with

+ -ncreasing no of competitors

. -ncrease of substitute offers

/ -ncreasing surplus capacity in the industry

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Perceived

Benefits

Time

eEffort

'et alue (%enefits * Outlays)

3alue is whatever - want in a product4uality - get for the

price - pay

Perceived

Outlays

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alue %ased Pricing

Pricing !trategies to Reduce 2ncertainty

service guaranteesbenefit$driven (pricing that aspect of service that directly

benefits the customers)

Relationship Pricing

non$price incentives (eg0 complimentary spas in 5otels)

discounts for volume purchasesdiscounts for purchasing multiple services 6g0 71our 1ravel

service8 prices charged according to customization (ac car, /star hotel, customized sight seeing)9

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alue %ased Pricing&:ow$cost :eadership

;ppeal to customers on tight financial budget6g0 -ndian Railways P!2 banks

Managing the Perception of 3alue

o 1rue for credence services

o #ustomers have the feeling of being e"ploited

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aking the e+a$!le of ata Sky

v services&,,

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Pricing to reduce uncertainty&

Benefit driven pricing/1ata sky has priced itsservices on the basis of the benefits it gives to acustomer0clarity of viewing, better

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Pricing to reduce uncertainty&

%elationship pricing/ 5ow does 1ata sky'spricing strategies relate to developing andmaintaining long$term customer relationships?

>ffering free +. movies on a yearly package;dditional facilities like ;ctive cooking, ;ctivecricket, ;ctive darshan, ;ctive 6nglish speakingchannels

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o' cost leadership/1ata sky offers it's 13services at a cut cost of that a cable operator wouldcharge=plus giving added advantage of betterfacilities attract customers promises

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rading off Monetary and 'on-

Monetary #osts

Which clinic would you patronize if you needed a chest x-ray (assuming all three clinics offer good quality !

Price "#$ %ocated &$ min away

'y car or transit ext a)aila'le

appointment is in &wee*

+ours, onday ./riday0 #am . &1pm

2stimated wait atclinic is a'out 31 - 4$minutes

Price "#$

%ocated &$ min away'y car or transit

ext a)aila'leappointment is in &wee*

+ours, onday .

/riday0 #am . &1pm 2stimated wait at

clinic is a'out 31 - 4$minutes

Clinic 5Clinic 5

Price "&6$ %ocated next to your

office or college ext appointment is

in & day +ours, o .Sat0 #am

. &1pm 5y appointment -

estimated wait atclinic is a'out 1 to &$minutes

Price "&6$

%ocated next to youroffice or college

ext appointment isin & day

+ours, o .Sat0 #am. &1pm

5y appointment -estimated wait atclinic is a'out 1 to &$minutes

Clinic CClinic CClinic 7Clinic 7

Price "4$ %ocated & hour away

'y car or transit ext a)aila'le

appointment is in 3wee*s

+ours, onday ./riday0 8am . $pm

2stimated wait atclinic is a'out 6 hours

Price "4$

%ocated & hour away'y car or transit

ext a)aila'leappointment is in 3wee*s

+ours, onday .

/riday0 8am . $pm 2stimated wait at

clinic is a'out 6 hours

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.evenue Manage$ent

#oncept ofma"imizing revenue from available capacity@ agiven time

%ased onprice customiation$ charging differentcustomers3value segments4 different prices for sameproduct

;lso called as Ayield management' is basically supply

demand management1heleast price sensitive segment is allotted capacity at

highest price, followed by the ne"t segment @ lower price so on

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.evenue Manage$ent2seful in dynamic marketswhere demand can be divided

into differentprice ucetsaccording to price sensitivity

6g0 2seful in pricing tickets of ;irlines, hotels offeringdiscounts during non peak periods

Revenue Managementuses mathematical modelstoe"aminehistorical dataand real time information

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.evenue Manage$ent /ith

"irline Services e+a$!le

%usiness travelers often reserve airline tickets @ ashort notice, but vacationers may book it about fewmonths in advance

; good revenue management system is able topredictaccurately how many customers will use a service for agiven slotBtime period

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he Strategic 0evers of

.evenue (1ield) Manage$ent

Quadrant 4:

+ospitals

Quadrant 3:

9estaurants

:olf Courses

;npredicta'le

Quadrant 2:

+otel 9ooms

7irline Seats

Quadrant 1:

o)ies

Stadiums

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2thical #oncerns in Pricing

Many services have comple" pricing schedules (6g0 relatedto hospital8 legal services)

hard to understanddifficult to calculate full costs in advance of service

2nfairness and misrepresentation in price promotions

misleading advertising

hidden charges

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3"'4 1O5