SETTING PRICES AND

REVENUE MANAGEMENT
 01. OBJECTIVE OF SERVICE PRICING
COMPONENTS OF THE
02.
Table Of
PRICING TRIPOD

REVENUE MANAGEMENT.
03.
Contents WHAT IT IS AND HOW IT WORKS ?

04. FAIRNESS & ETHICAL CONCERN IN

SERVICE MARKETING

05. PUTTING SERVICE PRICING

INTO PRACTICE
SETTING PRICING AND REVENUE MANAMENT 2024
BUSINESS MODEL

The mechanism whereby, through

effective pricing, sales are
transformed into revenues, costs
are covered, and value is created
Difficult to calculate the cost of
creating a service process or activity

How can companies define a “service unit”

and establish the basis for pricing?

Time factor WHY

Customers find service pricing
PRICING SERVICES
confusing, risky, and
sometimes unethical IS COMPLEX?
A
B
1. OBJECTIVE OF
SERVICE PRICING
 1. OBJECTIVE OF SERVICE PRICING

Revenue and
profit

Gain Profit Patronage and Strategic-Related

Cover costs User Base-Related
 1. OBJECTIVE OF SERVICE PRICING

Patronage and
User Base-Related

Build Demand
Revenue and Strategic-Related
Develop a User
profit
Base
 1. OBJECTIVE OF SERVICE PRICING

Strategic-Related

Support :
Positioning
Revenue and Patronage and
strategy
profit User Base-Related
Competitive
strategy
2. COMPONENTS OF THE
PRICING TRIPOD
The pricing tripod
 The pricing tripod

The costs a firm needs to recover ussually sets a

minimum price, or floor price.

For a specific service offering, and the customer’s

perceived value of the offering sets a maximum, or
ceiling price.

The price charged by competing services typically

determines where, within the floor-to-ceiling range, the
price can be set.
2.1 Cost-based pricing

2. COMPONENTS OF THE PRICING TRIPOD

 2.1 Cost-based pricing

Fixed costs 01

02 Variable costs

Semi-variable cost 03
 2.1 Cost-based pricing

Company office rental costs; Employee salary,...

Fixed costs

Costs that must be

incurred even when the
service / product is not sold
 2.1 Cost-based pricing
Variable costs
Costs that a business incurs that vary with the quantity
of goods produced or services provided.
2.1 Cost-based pricing

Semi-variable cost

Increase/ decrease correspondingly when

business output increases or decreases.

Semi-variable costs = fixed costs + variable costs

weekdays weekend

100$ 100$ + 40$

Semi-variable cost

2.1 Cost-based pricing

 CONTRIBUTION

2.1 Cost-based pricing

BREAK-EVEN ANALYSIS
 2.1 Cost-based pricing

The difference between the variable cost of selling

CONTRIBUTION an additional unit of a service and the sales the
company receives from buyers of that service.

Contribution = Revenue per Unit – Variable Cost per Unit

 2.1 Cost-based pricing

BREAK-EVEN How much sales volume is enough for the

ANALYSIS service to start making a profit

Fixed Costs
Revenue per Unit – Variable Cost per Unit
2.1 Cost-based pricing

ACTIVITY-
BASED
COSTING
A METHOD OF CALCULATING COSTS BASED
ON THEIR ACTUAL CONSUMPTION LEVEL,
THEREBY CALCULATING THE ALLOCATION
OF COSTS TO PRODUCT OR SERVICE.
Traditional Costing Activity-Based Costing

100$ 100$

60% 40%

50$ 50$ 60$ 40$

 2.1 Cost-based pricing

Activity-Based Costing

Advantages Disadvantages

More accurate way of Costs more money and

calculating costs time
Identify appropriate cost Some complex situations
factors may have too many cost
Make better decisions factors
 2.1 Cost-based pricing

Pricing Implication of Cost Analysis

To make a profit,
Revenue > the total costs
2.1 Cost-based pricing
Pricing Implication of
Cost Analysis
Some companies sell at a loss
to attract customers.

=> This requires companies to

clearly understand cost
structures and break-even
points to avoid bankruptcy.
Exercises
Information Provided:
Office rent: 10,000,000 VND/month
Manager salary: 15,000,000 VND/month

Cost of repair materials (average): 200,000 VND/computer

Technical staff salary cost : 100,000 VND/computer

Electricity costs (with a fixed part of 3,000,000 VND/month and a variable part of
50,000 VND/computer)

Request
a. Calculate total monthly fixed costs.
b. Calculate total variable costs when there are 4 computers repaired and extra
electricity costs for 4 computers.
c. Calculate total semi-variable costs of the electricity costs when there are 4
computers.
2.2 Value-Based Pricing

2. COMPONENTS OF THE PRICING TRIPOD

NET VALUES

Net value = Total perceived benefits - Total perceived costs

Positive Net value (>0)

=> Customer buy service

Negative Net value (<0)

=> Customer do not buy service
NET VALUES
Add conveniences and
improve additional services

Increase net worth

NET VALUES

Net value = Total perceived benefits - Total perceived costs

 2.2 Value-Based Pricing

RELATED MONETARY COSTS

Reducing Related
Monetary and
Non-monetary Costs
NON-MONETARY COSTS
2.2 Value-Based Related Monetary Costs
Pricing
Customers often incur significant financial costs in
searching for, purchasing, and using the service, above and
beyond the purchase price paid to the supplier.

+
Time costs 2.2 Value-Based Pricing

Physical costs

Psychological costs

NON-MONETARY
Sensory costs
COSTS
 2.2 Value-Based Pricing

Service users can incur costs during any of the three stages of the
service consumption
 EXERCISES
A patient experiences severe stomach pain and visits the hospital for
examination. The patient incurs an initial consultation fee (1) , testing and
diagnosis fees (2), and medication costs (3).

The patient also faces waiting time (4) for consultation and may
experience anxiety about their health condition (5). Upon diagnosis with
appendicitis, the patient undergoes surgery. The patient incurs surgery
fees (6), hospitalization fees (7), and home health care costs (8). The
patient also experiences pain and discomfort (9), as well as medication
side effects (10).

After the surgery, the patient requires recovery time (11) and may need to
make lifestyle changes (12). The patient may also experience anxiety about
the recurrence (13) of appendicitis.

Which costs is monetary - cost / non-mentary cost?

 2.2 Value-Based Pricing

Reducing Related Monetary and

Non-monetary Costs
To creat competitive advantages

Reduce the time required to complete service

Minimizing unwanted psychological costs
Eliminating / minimizing unwanted physical effort
Decreasing unpleasant sensory costs
Suggesting ways in reducing monetary costs
2.3. Competition-based Pricing

2. COMPONENTS OF THE PRICING TRIPOD

 2.3. Competition-based Pricing

Price leadership
When customers see little or no
difference between competing
offerings, they may choose the
cheapest.
The lowest cost per unit of service
enjoys an enviable market
advantage.
 2.3. Competition-based Pricing
Increasing number of competitors.

Increasing number of substituting offers

Wider distribution of competitor or

substitution offers
WHY PRICE
Increasing surplus capacity in the
COMPETITION
industry. INTENSIFIES
 2.3. Competition-based Pricing

Reduce price competition

Non Price-related costs of using competing

alternatives are high

Personal relationships matter

Switching costs are high

Time and location specificity reduce choice

 2.3. Competition-based Pricing
Non Price-related costs When customers prioritize saving time and effort as
of using competing much as or more than price when choosing a supplier,
alternatives are high price competition becomes less intense.
 2.3. Competition-based Pricing

Personal For services that are highly personalized and customized, relationships
with individual providers often are very important to customers, thus
relationships
discouraging them from responding to competitive offers.
 2.3. Competition-based Pricing

Switching When it takes time, money, and effort to switch providers,

costs are high customers are less likely to take advantage of competing offers.
 2.3. Competition-based Pricing
Time and location When people want to use a service at a specific location
specificity reduce or at a particular time (or perhaps both, simultaneously),
choice they usually find they have fewer options
3. REVENUE MANAGEMENT
WHAT IT IS
AND HOW IT WORKS?
Revenue management

It is the process of using analytical

information and predicting consumer
behavior to optimize products and
prices to maximize revenue.
3.1 What is revenue management
Businesses characterized

High fixed cost structure Variable and uncertain

and relatively fixed capacity customer demand.

Varying customer price

sensitivity.
3.2 How does revenue management work?

3.2.1 3.2.2 3.2.3

Reserving Capacity for How Can We Measure How Does Competitors’

High-yield Customers. the Effectiveness of Pricing Affect Revenue
a Firm’s Revenue Management?
Management?

3.2.4 3.2.5

Price Elasticity Designing Rate Fences

 3.2.1 Reserving Capacity for
High-yield Customers.

3. REVENUE MANAGEMENT, WHAT IT IS AND HOW IT WORKS

3.2.1 Reserving Capacity for
High-yield Customers.
Setting prices according to predicted
demand.

The least price sensitive segment is the first

to be provided capacity, paying the highest
price; other segments follow at increasingly
lower prices.
3.2.1 Reserving Capacity for
High-yield Customers.
Allocating capacity and
resources efficiently.
Higher-paying segments often
book closer to the time of actual
consumption.

=> Firms need to save capacity for

them instead of simply selling on
a first-come, first served basis.
 Setting prices according to predicted demand.

Figure 6.14 illustrates the distribution of capacity in the hotel sector - an industry whose demand
varies with different types of customers - each day of the week and each season of the year.
3.2.1 Reserving Capacity for
High-yield Customers.
Allocating capacity and resources efficiently

A well-designed revenue management

system can predict customer demand for a
service at different price levels at specific
times and allocate capacity accordingly.
3.2.2 How Can We Measure the
Effectiveness of
a Firm’s Revenue Management?

3. REVENUE MANAGEMENT, WHAT IT IS AND HOW IT WORKS

Occupancy Rate

Measure the percentage of available units

(like hotel rooms, airplane seats, ...) that
are occupied over a specific period.
 Occupancy Rate

E.g, If a hotel has 100 rooms and has booked

80 rooms

80
Occupancy Rate = x 100% = 80%
100
 Revenue per available
seat time (RevPAST)

Total Revenue
RevPAST =
Available Seat
Time
3.2.2 How Can We Measure the Effectiveness of
a Firm’s Revenue Management?

Revenue per available seat time (RevPAST)

Airlines seek to maximize revenue per available seat kilometer

(RevPASK)
Hotels try to maximize revenue per available room night
(RevPAR)
Restaurants aim to maximize revenue per available seat hour
(RevPASH)
3.2.2 How Can We Measure the Effectiveness of
a Firm’s Revenue Management?
Revenue per available seat time (RevPAST)

Hotels

Restaurants

Airlines
Exercises
3.2.2 How Can We Measure the Effectiveness of
a Firm’s Revenue Management?

Suppose
A restaurant has 50 seats, is open 8 hours a day and the monthly
revenue is 50 000 000 VND.
An airline has 100 seats on each plane and makes 10 flights per
day with a total flight distance of 10,000km. Passenger revenue
for the month was 500 000 000 VND.
A hotel has a total of 100 rooms. The total room revenue of the
hotel for one day is 80,000,000 VND. On that day, the hotel had
80 rooms occupied.
Calculate the following metrics RevPASK, RevPAR, RevPASH
 3.2.3 How Does Competitors’
Pricing Affect Revenue
Management?

3. REVENUE MANAGEMENT, WHAT IT IS AND HOW IT WORKS

3.2.3 How Does Competitors’ Pricing Affect
Revenue Management?

If an airline set prices too low, the cheaper

seats fill up quickly.

A higher share of late-booking, fare paying

customers not being able to get their seats.

=> They decide to fly on competing airlines.

3.2.3 How Does Competitors’ Pricing Affect
Revenue Management?

If the initial pricing is too high, there may be

too few early bookings.

To fill the remaining seats, the airline have to

offer deeply discounted “last-minute” tickets
 3.2.4 Price Elasticity

3. REVENUE MANAGEMENT, WHAT IT IS AND HOW IT WORKS

 Price Elasticity
Refers to how much the quantity demanded of a
good or service changes in response to a change
in its price.
 3.2.5 Price Elasticity

The round-trip airplane ticket price is 2 million VND.

If the price to 2.5 million VND, the demand for airplane
tickets may by 20%. This means that the airline's revenue
may decrease because they sell fewer tickets.
 3.2.5 Price Elasticity

A bookstore decides to reduce the price of a book from

200,000 VND to 150,000 VND. After the price reduction, the
quantity of books sold increases from 500 to 700.

Calculate the price elasticity of demand (PED) for this book.

 3.2.5 Price Elasticity

For price-sensitive customer segments.

For less price-sensitive segments

 3.2.5 Designing Rate Fences

3. REVENUE MANAGEMENT, WHAT IT IS AND HOW IT WORKS

 Designing Rate Fences
Businesses often create “rate fences" between
customer segments to create "barriers"
between customer groups.
Fences can be either physical or non-physical
PHYSICAL FENCES 3.2.5 Designing Rate Fences
NON-PHYSICAL FENCES 3.2.5 Designing Rate Fences
NON-PHYSICAL FENCES 3.2.5 Designing Rate Fences
NON-PHYSICAL FENCES 3.2.5 Designing Rate Fences
CONCLUSION 3.2.5 Designing Rate Fences

Businesses can design appropriate “rate fences" to

optimize revenue.
Price barriers also help service providers resolve conflicts
 4. FAIRNESS AND ETHICAL
CONCERNS IN SERVICE PRICING
4.1 Service Pricing Is Complex

4. FAIRNESS AND ETHICAL CONCERNS IN SERVICE PRICING

 Price comparisons between providers are difficult
SERVICE PRICING IS

Engagement in unethical practices for

businesses is easier by complexity
COMPLEX

Appearance of many confusing new fees on

invoices
Conclusions
A major problem, which can hinder healthy competition and
increase the risk of unethical practices.
There is a need for a simpler, more transparent and
comparable invoice system.
 4.2 Piling on the Fees

4. FAIRNESS AND ETHICAL CONCERNS IN SERVICE PRICING

4.2 Piling
on the Fees PROBLEM

Not all business There has also been a

models are based on trend to adding (or
generating income increasing) fines and
from sales. penalties
Increasing fees and penalties that are
too high compared to the actual
transaction value is a reprehensible
behavior
SOLUTIONS 4.2 Piling on the Fees

Bussiness Government

Need to focus on providing Stricter oversight and regulation is

quality and valuable services needed to prevent banks from
instead of putting financial misusing fees and penalties
pressure on customers.
5. SETTING SERVICE PRICE
INTO PRACTICE
 It’s not just about “How much do I charge?”

There are other important decisions to be made that have a

major impact on the behavior and value perceptions of
customers.
ISSUES TO CONSIDER WHEN DEVELOPING A SERVICE PRICING SCHEDULE

How much should be charged for this service?

What should be the basis of pricing?

Who should collect payment and where?

When should payment be made?

How should payment be made?

​How should prices be communicated to the

target market?
5.1. How much should be
charged for this service?

5. SETTING SERVICE PRICE INTO PRACTICE

The pricing tripod
5. 1 How much should be charged
for this service?
COSTS

All the relevant costs need to be recovered at different

sales volumes.
=> Set the floor price.

VALUE TO CUSTOMER

COMPETITION
5. 1 How much should be charged
for this service?

COSTS

VALUE TO CUSTOMER

Elasticity of demand for a service, viewed from both the

providers' and customers' angles, establishes a “Ceiling
price” in a market segment.

COMPETITION
5. 1 How much should be charged
for this service?

COSTS

VALUE TO CUSTOMER

COMPETITION

Firms need to analyze the intensity of price competition

among the providers, before they come to a final price.
Costs

Value to Specific number

customer
for the price

Competition
 5. 1 How much should be charged
for this service?

Rounded price Pricing does not Ethical concern

include taxes,
service fees
5. 1 How much should be charged
for this service?
Rounded price

Some businesses opt for rounded prices

while others do the “odd prices” in
some businesses.
5. 1 How much should be charged
for this service?
Pricing does not include taxes,
service fees

This presents a drawback that could make

customers feel deceived when they have to
pay more than the initial price.
5. 1 How much should be charged
for this service?

Ethical concern
Pricing must be transparent and fair,
avoiding misunderstandings for customers.
5.2. What should be the
basis of pricing?

5. SETTING SERVICE PRICE INTO PRACTICE

5.2. What should be the basis of pricing?
It’s not always easy to define a unit of service as the specified basis for pricing.
There may be many options.

Monetary
Completing a Admission to value
promised a service Time-based associated
service task performance with service
delivery
5.2. What should be the basis of pricing?

Completing a promised service task

A repair service center called dCare sets a fixed price
or charges based on the amount of work needed, such
as replacing a battery, with a provided price list.
5.2. What should be the basis of pricing?

Admission to a service performance

For example, participating in an educational program, a concert, or a sports event.
5.2. What should be the basis of pricing?

Time-based
For example, utilizing one hour of time to rent a
hotel room by the hour or for one night.
5.2. What should be the basis of pricing?

Monetary value associated with service delivery

For example, a real estate broker receives a commission as a percentage of
the selling price of a house.
5.2. What should be
the basis of pricing?
In restaurant industries

Some restaurants add a fixed cover

charge to the total cost of the
meal

While others set a minimum meal

charge per person (commonly seen
in buffet-style restaurant chains).
5.2. What should be
the basis of pricing?
In the transportation industry,

In the passenger transportation

sector such as Grab, companies
typically charge based on the
distance traveled from the pickup
point to the destination
5.2. What should be
the basis of pricing?
In goods transportation,
companies often use a combination
of the weight or volume of the
goods and the distance traveled to
determine the rate.
5.2. What should be
the basis of pricing?

Recent research has shown that

service pricing is divided into two
types of fees: access fees and
usage fees
5.2. What should be
the basis of pricing?

Consumers of entertainment
services (such as amusement
parks) tend to prefer purchasing
all-inclusive entrance tickets rather
than paying per service.
 The taximeter effect
The taximeter effect, as customers don’t
want to “hear” the price ticking upward — it
lowers their consumption enjoyment
5.2. What should be
the basis of pricing?

Creative Service Pricing: Focus

on Value, Not Time
 B2B market

Price = Basic Price + Value Delivered to

Customer

Traditional market

Price = Time Spent * Hourly Rate

Price = Basic Price + Value Delivered to Customer
Pricing Strategies
1 PRICE BUNDLING

2 DISCOUNTING

3 FREEMINUM

4 CUSTOMER-DETERMINED PRICING
BUNDLING vs
UNBUNDLING
PRICE PRICE
BUNDLING PRICE
Mobile network operators like Viettel and
Vinaphone offer flat-rate subscription
plans that include voice calls, text
messages, and mobile data.
UNBUNDLING PRICE
Initial cost

Actual total cost

 BUNDLING UNBUNDLING
vs
PRICE PRICE
The choice between bundled pricing and unbundled pricing
depends on customer characteristics and the company's strategy
Pricing Strategies
1 PRICE BUNDLING

2 DISCOUNTING

3 FREEMINUM

4 CUSTOMER-DETERMINED PRICING
 DISCOUNTING
Opportunities
1 12

Attract new customers Fill the capacity that would

otherwise go unused
 cautIous approach
A cautious approach is necessary unless used in
conjunction with controls such as effective rate fences.
DISCOUNTING
140

Consequence 120

100
Lead to a reduction in the average
price of a product or service 80
=> Decreasing profitability
60
Only attracting customers interested
in the lowest price 40

20

0
Item 1 Item 2 Item 3 Item 4 Item 5
DISCOUNTING

effectIve rate
fences
Effective rate fences' helps mitigate this
impact by setting specific conditions for
customers to receive discounts.
Pricing Strategies
1 PRICE BUNDLING

2 DISCOUNTING

3 FREEMINUM

4 CUSTOMER-DETERMINED PRICING
FREEMIUM
Spotify offers both free music streaming with ads
and premium service:

Additional income: Spotify earns from

premium subscriptions and ads.
Strong network effect: Clear difference
between free and premium services.
High-quality premium: Spotify Premium offers
a superior listening experience
Pricing Strategies
1 PRICE BUNDLING

2 DISCOUNTING

3 FREEMINUM

4 CUSTOMER-DETERMINED PRICING
CUSTOMER-DETERMINED

PRICING

The Metropolitan Museum of Art

(New York) allows people to pay
admission at their discretion (some
people only pay 1 cent).
CUSTOMER-DETERMINED

PRICING

Benefits

Effective market penetration

Creating value for customers
Achieving price differentiation
CUSTOMER-DETERMINED

PRICING

This strategy should be implemented

cautiously, with a clear understanding
of target customers, considering their
willingness to pay,fairness, and
generosity.
5.3. Who should collect
payment?

5. SETTING SERVICE PRICE INTO PRACTICE

5.3. Who Should
collect payment?

Additional services include:

Providing information
Accepting orders
Invoicing, and payment processing
5.3. Who Should
collect payment?

Customers highly value when

companies provide price information
and easy booking with:
Well-presented invoices
Convenient payment procedures.
 5.3. Who Should collect payment?

TP.HCM HUE
ISSUES TO CONSIDER WHEN DEVELOPING A SERVICE PRICING SCHEDULE

How much should be charged for this service?

What should be the basis of pricing?

Who should collect payment and where?

When should payment be made?

How should payment be made?

​How should prices be communicated to the

target market?
Thank
you!
Do you have any questions?