1. Chapter 6: Setting Prices and Implementing Revenue Management
Services Marketing, 7e, Global Edition
Chapter 6:
Setting Prices and
Implementing
Revenue Management

2. Overview Of Chapter 6
1. Effective Pricing is Central to Financial Success
2. Pricing Strategy as Represented by the Pricing Tripod
3. Revenue Management: What it is and How it Works
4. Ethical Concerns in Service Pricing
5. Putting Service Pricing into Practice

3. Central to Financial Success
1. Effective Pricing is
Central to Financial Success
訂價訂的好，錢賺到久久。
若訂得不好，要飯要到老。
不是你的菜，不要掀鍋蓋。

4. 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” ? e.g., 製造與維修 汽車或飛機引擎
Importance of time factor – same service may have more value to customers when delivered faster. e.g., FBC
Customers find service pricing difficult to understand, risky, and sometimes even unethical e.g., 相同房間不同價。太早下訂後來不能去，不能退費。

5. Objectives for Pricing of Services
1. Revenue and Profit Objectives
Cover costs, Seek profit
2. Patronage and User-Based Objectives
Build demand
Demand maximization, 賣座，滿場，吸引其他顧客
Full capacity utilization, 存貨不能留
Build a user base
Stimulate trial and adoption of new service, e.g., 限量新版名牌包
Build market share / large user base, e.g., 初期價格折扣

6. 2. Pricing Strategy As Represented by the Pricing Tripod

7. The Pricing Tripod

8. Floor and Ceiling of Price
1.Costs
2.Value to customer
3.Competition

9. Three Main Approaches to Pricing, 港埠費率、成本研究，公車費率、補貼
1. Cost-Based Pricing
Set prices relative to financial costs
Activity-Based Costing (ABC)
2. Value-Based Pricing
Relate price to value perceived by customer
3. Competition-Based Pricing
Monitor competitors’ pricing strategy
Dependent on the price leader

10. Cost-Based Pricing: Cost markup! Traditional vs. Activity-Based Costing
Traditional costing approach
Emphasizes expense categories (arbitrary overheads allocation, 工資、地租、利息、利潤; FC, VC; DL, DM, FO)
May result in reducing value generated for customers (Cost down! decrease service employees, 大榮百貨陷入惡性循環)
ABC management systems
Link resource expenses to variety and complexity activity (process) of goods/services produced, KLEM: 車輛、設備折舊，行車、修車員工 薪資，燃料，輪胎、行車附支等18項
Yields accurate cost information. BUT, customers care about value to themselves, not what service production costs the firm. Value up!

11. Cost-Based Pricing: Traditional vs. Activity-Based Costing
Traditional costing approach
Emphasizes expense categories (arbitrary overheads alloca
May result in reducing value generated for customers (decr employees)
ABC management systems
Link resource expenses to variety and complexity of goods/services produced
Yields accurate cost information

12. 企業價值鏈

13. 作業基礎經濟地圖

14. Value-Based Pricing: Value up! Understanding Net Value
Net Value = Perceived Benefits to Customer (Gross Value) All Perceived Outlays (Money, Time, Mental/Physical Effort)
Consumer surplus: difference between price paid and amount customer would have been willing to pay in absence of other options
Competing services are then evaluated via comparison of net value

15. Consumer surplus

16. Value-Based Pricing: Strategies for Enhancing Net Value
Enhance gross value – benefits delivered
Add benefits to core product
Enhance supplementary service
Manage perceptions of benefits delivered, 顧客看不到後勤支援成本
Reduce costs incurred by
Reducing monetary costs of acquisition and usage,
Cutting amount of time required to evaluate, buy, use service,
Lowering effort associated with purchase and use, e.g., 夥伴供應商折扣（停車費），改善流程，訓練服務員，到家服務

17. Defining Total User Cost
Physical Effort
Psychological Burdens
Sensory
Burdens
Incidental Expenses
Operating Costs
Purchase
Time
* Includes all five
cost categories
Purchase and Service Encounter Costs
Search Costs*
Post Purchase Costs*
Necessary
Follow-up
Problem
Solving
Money

18. Competition-Based Pricing
Price competition increases due to:
Increasing competition
Increase in substituting offers
Increasing surplus capacity in the industry
Price competition can decrease:
High non-price-related costs of using alternatives
Personal relationships matter
Switching costs are high
Time and location specificity reduces choice

19. Competitive-Based Pricing: C/P 值 (Capability/Price, Cost/Performance) 性價比

20. 炫耀性消費 vs. 性價比 iPhone 8 的銷售低於預期? 經濟效益: iPhone X 比 iPhone 8 貴很多，性價比並不值得。
社會認同: 手機屬於消費品 (H&M), 但哀鳳不只是手機，從地位象徵的角度她是奢侈品 (LV).
很多消費者會延遲購買 i8, 等待更貴的 iX.
iX 每支賺到的錢比 i8及其他手機都高，而且將做多少賣多少。

21. What it is and How it works
3. Revenue Management:
(Yield Management)
What it is and How it works

22. Revenue management is price customization
1. Capacity is perishable, 2. high fixed costs, 3. demand varies by time, 4. different (customers) willing to pay
自助式網咖 Passes: 1. unlimited access, 2. dynamic pricing:
Busy periods: no. of minutes decrease, line move faster
Another time: price sensitive customers
Airlines, 高鐵，旅館，理髮店？

23. Maximizing Revenue from Available Capacity at a Given Time
RM 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) 出差，渡假? 單身，帶家人?
One country / one market, Taiwan, USA one country / many market, China, 一線都市奶粉清潔用品貴，去二線都市 買來賣 (P&G)

24. Price Elasticity

25. Key Categories of Rate Fences: Physical Fences
1. Product-Related Fences
Rate Fences
Examples
Basic Product
Class of travel (Business/Economy class)
Size and furnishing of a hotel room
Seat location in a theater
Amenities
Free breakfast at a hotel
Airport pick up
Free golf cart at a golf course
Service Level
Priority wait listing
Increase in baggage allowances
Dedicated service hotlines/ account management team

26. Key Categories of Rate Fences: Non Physical Fences
2. Transaction Characteristics
Rate Fences
Examples
Time of booking or reservation
Requirements for advance purchase
Must pay full fare two weeks before departure
Location of booking or reservation
Passengers booking air tickets for an identical route in different countries are charged different prices
Flexibility of ticket usage
Fees/penalties for canceling or changing a reservation (up to loss of entire ticket price)
Non-refundable reservation fees

27. Key Categories of Rate Fences: Non Physical Fences
3. Consumption Characteristics
Rate Fences
Example
Time or duration of use
Early bird special in restaurant before 6pm
Must stay at least five days
Location of consumption
Price depends on departure location, especially in international travel
Prices vary by location (between cities, city centre vs. edges of city)

28. Key Categories of Rate Fences: Non Physical Fences
4. Buyer Characteristics
Rate Fences
Examples
Frequency or volume of consumption
Member of certain loyalty tier with the firm get priority pricing, discounts or loyalty benefits
Group membership
Child, student, senior citizen discounts
Affiliation with certain groups (e.g., Alumni)
Size of customer group
Group discounts based on size of group

29. Relating Price Buckets and Fences to Demand Curve

30. 4. Ethical Concerns in Service Pricing

31. 4. Ethical Concerns in Pricing
Many services have complex pricing schedules (pilling)
hard to understand, difficult to calculate full costs in advance of service. e.g., 逾期還 DVD, 部分繳信用卡費, 取消飯店預約, 0元手機 換電信公司優惠
Unfairness and misrepresentation in price promotions
misleading advertising, hidden charges. e.g., shopping 團,大車換小 車加錢
Too many rules and regulations
customers feel constrained, exploited, customers unfairly penalized when plans change. e.g., 臨時被通知扣錢, 事先不知情。 郵件未準時寄達，非我能控制。

32. 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
Communicate consumer benefits of revenue management
Use bundling to “hide” discounts
Take care of loyal customers
Use service recovery to compensate for overbooking

33. 5. Putting Service
Pricing into Practice

34. Pricing Issues: Putting Strategy into Practice
1. How much to charge?
2. What basis for pricing?
3. Who should collect payment?
4. Where should payment be made?
5. When should payment be made?
6. How should payment be made?
7. How to communicate prices?

35. Putting Service Pricing into Practice
How much to charge?
Pricing tripod provides a useful starting point
A specific figure must be set for the price
Need to consider the pros and cons, and ethical issues
What basis for pricing?
Completing a task （論件）
Time based （計時）
Monetary value of service delivered (e.g., commission) (%)
1. How much to charge?

36. Putting Service Pricing into Practice
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
When should payment be made?
In advance
Once service delivery has been completed
3. Who should collect payment?
4. Where should payment be made?
5. When should payment be made?

37. Putting Service Pricing into Practice, Apple Pay, 支付寶
How should payment be made?
Cash
Token
Stored value card
Electronic fund transfer
Charge Card (Debit/Credit)
How to communicate prices?
Relate the price to that of competing products
Ensure price is accurate and intelligible
6. How should payment be made?

38. Summary Pricing objectives can include
Generating revenues and profit, building demand, and developing user base
Three main foundations to pricing a service
Cost-based pricing (minimum)
Competition-based pricing (C/P 值)
Value-based pricing (maximum, ceiling)
Firm must be aware of competitive pricing but may be harder to compare for services than for goods

39. Summary Revenue management Ethical issues in pricing
Maximizes revenue from a given capacity at a point in time
Manage demand and set prices for each segment closer to perceived value, can be highly creative
Use of rate fences
Ethical issues in pricing
Complex pricing schedules, Unfairness and misrepresentation in advertising, Hidden charges
Loss of trust, perceived unfairness, dissatisfaction
Too many rules and regulations