ADM 3322 Lecture 5: Chapter 5 - Exploring Business Models. Pricing and Revenue Management
9 Feb 2017
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Chapter 5 exploring business models: pricing and revenue management. Business model: the mechanism whereby, through effective pricing, sales are transformed into revenues, costs are covered, and value is created for the owners of the business. Build demand: in some instances, maximizing patronage, subject to achieving a certain minimum level of profits, may be more important than profit maximization. Build a user base: for new services in particular. The pricing tripod pricing strategy stands on 3 foundations: Costs: imposes a minimum price, or floor, for a specific service offering: traditional costing approach: Labour and infrastructure costs are considered fixed costs. Service firms have higher ratio of fixed to variable costs & thus cost reduction decisions often cut these costs which leads to reduced service levels: activity-based costing (abc): Sets of delivery activities and related costs. Firms can pinpoint profitability of different services, channels etc. Competition: determines where, within the floor-to-ceiling range, the price can be set.
