Pricing Objectives Financial performance – profit, cash flow, return on investment Volume – sales/revenue, market share Competition – leader, follower, parity Image – positioning, quality

Consumer Price Sensitivity Price-quality effect Unique value effect Perceived substitutes effect Difficult comparison effect Shared cost effect Expenditure effect End-benefit effect

Environmental Factors Affecting Price Economic Social Political Technological Competitive

Broad Pricing Strategies Skim Pricing – high price, exclusive market, unique product Penetration Pricing – low price, high volume, economies of scale, price sensitive consumers Neutral Pricing – moderate price, value conscious consumers

Economic Value and Price Relative Price low high Skim Pricing low Neutral Economic Value Penetration Pricing Neutral high

Pricing Techniques Cost-Oriented Pricing Demand-Oriented Pricing Break-even pricing Cost-plus pricing Target-return pricing Demand-Oriented Pricing Prestige pricing Odd/even pricing Price lining Competitive Pricing

Breakeven Analysis

Price Elasticity of Demand

Table 15.2 Segmented Pricing Examples across Industry Segments Segmentation Strategy Lodging Food Service Travel Leisure Buyer Identification Business vs. leisure Seniors and children Seniors, students Golf memberships for ladies, children, seniors Purchase Location City, suburban, airport, resort Mall, airport, corporate dining Online vs. calling or using a travel agent Theme parks on-site vs. off-site Time of Purchase Weekend vs. weekday Peak hours vs. early-bird (before 6 p.m.) Peak business travel vs. leisure Theme parks and golf courses with twilight discounts Purchase Volume Meetings and corporate contracts vs. transient Banquets vs. restaurants in hotels Airlines and rental car companies that offer corporate rates Golf course discounts for tournaments Product Design Concierge or business level Corporate dining facilities often have fine dining and cafeterias Southwest Airlines “business select” and airline first class seats Country clubs offer social memberships and full memberships Product Bundling Overnight stay with champagne brunch and/or theater tickets “Value” meals or combos (e.g., meal deal at Subway) Cruise lines offer airline tickets and online travel agents package hotels, airlines, and rental cars Grouping museum admissions (e.g., Ripley’s Believe It Or Not and Guinness World Records)

Segmented Pricing Segmenting by buyer identification Segmenting by purchase location Segmenting by time of purchase Segmenting by purchase volume Segmenting by product design Segmenting by product bundling

Yield Management Yield management refers to a technique used to maximize the revenue, or yield, obtained from a services operation, given limited capacity and uneven demand.

Reasons for Yield Management Perishable inventory Fluctuating demand Ability to segment customers Low variable costs

Historical Booking Analysis

Legal Issues in Pricing Explicit Agreements Nonexplicit Agreements Price Discrimination Tie-in Sales

Ethical Restraints in Pricing   Level of Ethical Restraint 1 2 3 4 5 Price is paid voluntarily X Price is based on equal information Price is not exploiting buyers essential needs Price is justified by costs Price provides equal access to goods regardless of one’s ability to cover the cost © 2010 John Wiley & Sons, Inc.