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Module 1: Marketing of Services

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Setting Prices and Implementing Revenue Management - Part 3

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MODULE OVERVIEW

Discussing the role of rate fences in effective revenue management.
Being familiar with the issues of ethics and consumer concerns related to service pricing.
Understanding how fairness can be designed into revenue management policies.
Discussing the six questions marketers need to answer to design an effective service pricing Strategy.

INTRODUCTION

Inherent in revenue management is the concept of price customization — that is, charging different customers different prices for what is actually the same product.
How can a firm make sure that customers who are willing to pay higher prices are unable to take advantage of lower-price buckets?

ROLE OF RATE FENCES

Properly designed rate fences allow customers to self-segment on the basis of service characteristics and willingness to pay.
Rate fences help companies to restrict lower prices to customers willing to accept certain restrictions on their purchase and consumption experiences.
Fences can be either physical or non-physical.
Physical fences refer to tangible product differences related to the different prices, such as

the seat location in a theatre,
the size and furnishing of a hotel room,
the product bundle (e.g., first class is better than the economy).


Non-physical fences refer to differences in consumption, transaction, or buyer characteristics, but the service is basically the
 

FAIRNESS AND ETHICAL CONCERNS IN SRVICE PRICING

Service users can’t always be sure in advance what they will receive in return for their money.
There’s an implicit assumption among many customers that a higher-priced service should offer more benefits and greater quality than a lower-priced one.
Although price can serve as an indication of quality, it is sometimes hard to be sure if the extra value is really there.

FACTORS CONTRIBUTING TO UNETHICAL PRICING BEHAVIOR

Service pricing is complex
Piling on fees

DESIGINING FAIRNESS INTO REVENUE MANAGEMENT

Design Price Schedules and fences that are clear, logical and fair
Use high published prices and frame fences as discounts
Communicate consumer benefits of revenue management
Hide discounts through bundling product design and targeting
Take care of loyal customers
Use recovery to compensate for overbooking

Questions marketers need to answer while designing an effective pricing strategy

How much should be charged for this service?
What should be basis of pricing?
Who should collect payment and where?
When payment should be made?
How payment should be made?
How should prices be communicated to the target market?

CONCLUSION

In this module, we discussed the role of rate fences in effective revenue management.
Also, we explored the issues of ethics and consumer concerns related to service pricing.
Next, we tried to understand how fairness can be designed into revenue management policies.
Finally we discussed the six questions marketers need to answer to design an effective service pricing strategy.