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

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

3. Environmental Factors Affecting Price
Economic
Social
Political
Technological
Competitive

4. 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

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

6. 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

7. Breakeven Analysis

8. Price Elasticity of Demand

9. 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)

10. 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

11. 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.

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

13. Historical Booking Analysis

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

15. 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.