1 / 113

Pricing and Revenue Management

Pricing and Revenue Management. Les Miserables.

devon
Télécharger la présentation

Pricing and Revenue Management

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Pricing and Revenue Management (c) Stowe Shoemaker, Ph.D

  2. Les Miserables The duty of the innkeeper is to sell to the first comer, food, rest, light, fire, dirty linen, servants, fleas, and smiles; to charge for the open window, the closed window, the chimney corner, the sofa, the chair, the stool, the bench, the feather bed, the mattress, and the straw bed; to know how much the mirror is worn and to tax that; and by five hundred thousand devils, to make the traveler pay for everything, even the fleas that is dog eats. (c) Stowe Shoemaker, Ph.D

  3. Objective of this section • Understand steps to better pricing • Understand Competitive Value Analysis • Review basics of revenue management • Understand price customization • Understand Value (c) Stowe Shoemaker, Ph.D

  4. The Challenge of PricingTaxi (c) Stowe Shoemaker, Ph.D

  5. “There is no easy way to find out what the actual true price of any car is. Oh sure, there is a “sticker price,” but only a very naïve fungal creature just arrived from a distant galaxy would dream of paying this. In fact, federal law now requires that the following statement appear directly under the sticker price: WARNING TO STUPID PEOPLE DO NOT PAY THIS AMOUNT -- Dave Barry (c) Stowe Shoemaker, Ph.D

  6. Assume that you go to make a reservation at the luxury hotel you are loyal to and you find out that they are charging you $50 per night more than they usually do because they have only a few rooms left. Please answer each of the questions based on this knowledge. • 60.3% claimed they definitely would ask about the room rate the next time they made a reservation • 35.7% claimed they would definitely check rates at other properties the next time they planned to visit this hotel (c) Stowe Shoemaker, Ph.D

  7. Steps to Better Pricing • Assess what value your customers place on a product or service • How to create value • What is the economic value of this product or service to customers • Case study on Coca-Cola • Look for variation in the way customers value the product • Do customers vary in their intensity of use • Do customers use the product differently • Does product performance matter more to some customers, even if the application is the same (c) Stowe Shoemaker, Ph.D

  8. Steps to Better Pricing • Look for variation in the way customers value the product - continued • How do differences in both perceived value and non value factors influence price sensitivity and divide customers into market segments • How can members of different segments be identified prior to purchase • How can fences between segments be established • How can the firm avoid violating legal constraints (c) Stowe Shoemaker, Ph.D

  9. Steps to Better Pricing • Assess customers’ price sensitivity - How could an effective marketing and positioning strategy influence the customers’ willingness to pay - Market research techniques using Excel - Behavioral aspects of pricing • Identify an optimal pricing structure • Bundle pricing (c) Stowe Shoemaker, Ph.D

  10. Steps to Better Pricing • Consider competitors reactions • Who are key current and potential competitors • If competitors are currently in this market, what actual transactional prices do they charge • Given competitors’ past behavior, personalities, and organization structures, what is their goal in pricing (c) Stowe Shoemaker, Ph.D

  11. Steps to Better Pricing • Consider competitors reactions - continued • What are competitors’ strengths and weaknesses relative to the firm • How might a firm use information to influence competitors’ behavior in ways that would make its goals more achievable or profitable (c) Stowe Shoemaker, Ph.D

  12. Steps to Better Pricing • Monitor prices realized at the transaction level - pricing across different channels • Assess customers’ emotional response • Analyze whether the returns are worth the cost to serve (c) Stowe Shoemaker, Ph.D

  13. Steps to Better Pricing • Understand costs • What is the incremental variable cost of sales • At what levels of output will additional expenditures on semi-fixed costs be required, and how much will they be • What are the avoidable (not yet sunk) fixed costs involved to offer this product at the proposed price (c) Stowe Shoemaker, Ph.D

  14. Steps to Better Pricing • Understand Supply • Cost structure • Capacity utilization • Product perishability • Extent of product differentiation • Number and diversity of competitors • Impact of sales volume on cost (c) Stowe Shoemaker, Ph.D

  15. Steps to Better Pricing • Understand Demand • Price sensitivity of selective demand • Efficiency of price shopping • Degree of brand loyalty • Industry growth rate • Buyer concentration • Complementary product (c) Stowe Shoemaker, Ph.D

  16. Steps to Better Pricing • Understand Distribution Channels (c) Stowe Shoemaker, Ph.D

  17. Competitor Analysis and Positioning: Key to Pricing (c) Stowe Shoemaker, Ph.D

  18. Index of Competitive Strength The competitive advantages and disadvantages which are shown in the matrix of competitive advantages can be condensed into one single index, the index of competitive strength. All relative performances of the product on the individual factors are weighted with their importance and summed up. (c) Stowe Shoemaker, Ph.D

  19. Example: Importance Question • Next, please think for a moment about the reason for visiting a specific hotel in Las Vegas for gambling. Please tell me how important each reason is for you in your decision to visit one specific property over another. Please use a 1 to 10 scale, where a “1” means the reason is not at all important and a “10” means the reason is very important in your decision to choose one establishment over another for gambling. You may use any number on this 1 to 10 scale. [Ask questions in random order] • How important is…_______________…in your decision to choose one place to visit over another? • It is a place my friends like to go (c) Stowe Shoemaker, Ph.D

  20. Example: Attitude Question • Now I am going to read you a list of features that may or may not describe some of the hotels in the Las Vegas area. We’ll use a 1 to 10 scale, where a 1 means it “does not describe the hotel at all” and a 10 means “describes the hotel perfectly”. If you have not been to the hotel personally, please base your answers on what you have heard, or what you believe to be true. [Ask questions in random order] • How well does this feature describe…(brand to be rated)? • It is a place my friends like to go (c) Stowe Shoemaker, Ph.D

  21. Calculation of Competitive Index • Sum the importance ratings for all features and multiply by the number of scale points. (The numbers are in column A in Table on next page) • For each attribute, multiple average importance x average performance. Answers in Column C • Sum all numbers in column C • Calculate the CSI as -- Total C/Total in A • Repeat steps for competitor's: see columns D and E (c) Stowe Shoemaker, Ph.D

  22. Calculation of Competitive Index (c) Stowe Shoemaker, Ph.D

  23. Matrix of Competitive Advantages Example: Casino high Slot Club Friendly Staff Value of Promotions Brand Feel Safe Service Package Level of Importance Price Good Entertainment Non Smoking low Relative Performance (c) Stowe Shoemaker, Ph.D

  24. Steps to Developing a Positioning Strategy • Identify the competitors • From customer’s point of view • Different competitors in different segments (c) Stowe Shoemaker, Ph.D

  25. Best Way to Define True Competitors • Ask 50 – 100 customers at check-in, “If you did not stay here tonight, where would you stay?” • Those hotels who, if they took a pricing action, would force you to take a pricing action • Where do you currently “walk” guests? (c) Stowe Shoemaker, Ph.D

  26. Best Way to Define True Competitors • Based upon a definition of the core customer; different competitors for different segments • Avoid emotional opinions (c) Stowe Shoemaker, Ph.D

  27. Steps to Developing a Positioning Strategy • Determine how the competitors are perceived and evaluated • Determine the competitors’ positions • Critical to also have reference points for data analysis (c) Stowe Shoemaker, Ph.D

  28. Identify competitive set • Upper tier: member of competitive market with a rate premium above our hotel • Direct tier: member of our competitive market, with a rate price point approximately “equal” to our hotel • Lower tier: member of our competitive market, with a rate price point below our hotel (c) Stowe Shoemaker, Ph.D

  29. Calculate for your three core customers in all three competitive tiers: a total of nine analysis • Three core customers • Business transient • Pleasure transient • Group customer • Thee competitive tiers • Upper tier • Direct tier • Lower tier (c) Stowe Shoemaker, Ph.D

  30. Conduct competitive pricing analysis Shops for • Local hotel reservations office • Hotel 800 number • GDS system • Internet • Shop for leisure peak, leisure non-peak, business peak, business non-peak, group peak, and group non-peak (c) Stowe Shoemaker, Ph.D

  31. Use chart to plot each competitors’ overall value • Horizontal axis: plot each competitors’ overall value assessment • Vertical axis: plot each competitors lowest available retail rate obtained via blind shop • Center axis: your hotel with rate equal to lowest available retail price point (c) Stowe Shoemaker, Ph.D

  32. (c) Stowe Shoemaker, Ph.D

  33. 53.16 Caesar $189 47.91 Bally $185 $180 $179 59.97 Rio 63.92 Boulder 43.41 Circus Circus $159 54.3 Fiesta $155 52.07 Excalibur $140 (c) Stowe Shoemaker, Ph.D

  34. Creating Loyalty (44) Process Exit Exit Exit Value (Added and Recovery) Communication Exit Fluid (c) Stowe Shoemaker, Ph.D

  35. Value-Based Pricing • Involves choosing a price after developing estimates of market demand based on how potential customers perceive the value of the product or service. • Can satisfy diverse product strategies, including, for example, market penetration or profit maximization. • Should be the preferred pricing methodology (c) Stowe Shoemaker, Ph.D

  36. Question: Where Would You Buy Gas? Station A: Sells gasoline for $ 2.30 per gallon, and gives a $ 0.10 discount if the buyer pays with cash. Station B: Sells gasoline for $ 2.20 per gallon, and charges a $ 0.10 surcharge if the buyer pays with a credit card. (c) Stowe Shoemaker, Ph.D

  37. Examples • Which do you choose? A____ or B____ • A. Receive $50 • B. 55% chance of receiving $100; 45% chance of earning nothing (c) Stowe Shoemaker, Ph.D

  38. Examples • Which do you choose? C____ or D____ • C. Loose $20 • D. 20% chance of loosing $100; 80% chance of losing nothing (c) Stowe Shoemaker, Ph.D

  39. Answer to Previous Question Pertains to Prospect Theory (c) Stowe Shoemaker, Ph.D

  40. Daniel Kahneman Toasting Noble Prize (c) Stowe Shoemaker, Ph.D

  41. Prospect Theory: Basic Idea • Value is associated not with actual levels of consumption, but with anticipated changes in well being • Buyer assesses prospective decision outcomes (prospects) by mentally categorizing them as either gains or losses relative to reference point (c) Stowe Shoemaker, Ph.D

  42. Explanation Station A sets reference point at $2.30 and then rewards buyers who pay cash; that is; a gain relative to the reference point; Station B first establishes a reference point at $2.20 and then penalizes buyers who use credit cards; a loss relative to the reference point This is in contrast to economic theory that predicts that gains and losses of equal size are valued the same (c) Stowe Shoemaker, Ph.D

  43. Positive Value Value Function Station A ($2.30 – 0.10) 1.0 Gains Losses 1.6 Reference Point (state of well being) Station B: ($2.20 +.10) (c) Stowe Shoemaker, Ph.D Negative Value

  44. Examples • Which do you choose? A____ or B____ • A. Receive $50 • B. 55% chance of receiving $100; 45% chance of earning nothing • Which do you choose? C____ or D____ • C. Loose $20 • D. 20% chance of loosing $100; 80 chance of loosing nothing (c) Stowe Shoemaker, Ph.D

  45. Answer • If you chose A in Question 1, then you should choose C in Question 2 • If you chose B in Question 1, then you should choose D in Question 2 • How many had a reversal? (c) Stowe Shoemaker, Ph.D

  46. Rationale for Answers • Prospect theory states that people are risk adverse (e.g., conservative) when considering gains; in contrast, more naturally inclined to risk a loss than to pay even the expected value of avoiding it. (c) Stowe Shoemaker, Ph.D

  47. Positive Value Value Function Gains Losses Reference Point (state of well being) Negative Value (c) Stowe Shoemaker, Ph.D

  48. Economic Theory Gains and losses of equal size treated the same (e.g., £100 gain = to £100 loss) Prospect Theory loss judged more painful than a gain of equal value (e.g., loss of £100 more painful than a gain of £100) Economic Theory versus Prospect Theory (c) Stowe Shoemaker, Ph.D

  49. Economic Theory People are consistent in their decision making Prospect Theory If people perceive they are in the gain domain, they will act conservatively If people are in the loss domain, they will tend to take more risks Economic Theory versus Prospect Theory (c) Stowe Shoemaker, Ph.D

  50. Economic Expected utility of uncertain outcome is weighted by its probability Prospect Expected utility of uncertain outcome is multiplied by a decision weight (p) where : 1.      Impossible events are discarded (0)=0 2.      Low probabilities are over weighted while moderate and high probabilities are under weighted (e.g., odds of being involved in an airline crash versus car accident) Economic Theory versus Prospect Theory (c) Stowe Shoemaker, Ph.D

More Related