Book Ch 13: Smart Pricing

Question 1

What is the definition of revenue management?

Answer 1

Selling the right inventory unit to the right type of customer, at the right time, and for the right price

Question 2

What are common characteristics for the application of revenue management?

Answer 2

1. The existence of perishable products
2. Fluctuating demand
3. Fixed capacity
4. Segmentation of market
5. Products sold in advance

Question 3

What are the two key steps to revenue management in the airline industry?

Answer 3

1. Market segmentation

2. Booking control

Question 4

What is differential pricing?

Answer 4

The objective of differential pricing is to charge different customers different prices according to their price sensitivity

Question 5

What are six strategies for differential pricing?

Answer 5

1. Group pricing - base on demographic groups
2. Channel pricing - different price through different channels
3. Regional pricing - exploiting different price sensitivities
4. Time-based differentiation - Different prices to complete task such as delivery
5. Product versioning - slightly different products per price
6. Coupons and rebates

Question 6

What is dynamic pricing?

Answer 6

Changing pricing over time without distinguishing between different types of customers

Question 7

Under what conditions do relatively frequent sales (markdowns) maximize profits?

Answer 7

When customers place high value on the good’s availability, and buy it as soon as their budget constraints are met

Question 8

What are 4 conditions to evaluate when considering dynamic pricing for supplier?

Answer 8

1. Available capacity
2. Demand variability
3. Seasonality in demand pattern
4. Length of the planning horizon: the longer the horizon, the small the benefit

Question 9

What are 5 reasons the internet has made smart pricing more practical?

Answer 9

1. Menu cost: changing the posted price is cheaper online
2. Lower buyer search price: Cost that buyers incur when looking for product
3. Visibility: To the back end of the supply chain makes it possible to coordinate pricing, inventory and production
4. Customer segmentation: Using historical data is easy online
5. Testing capability: You can get pricing strategies in real time online

Question 10

What are two goals of revenue management?

Answer 10

1. Differentiated demand: so that customers who are willing to pay more, do so
2. Pricing to adjust aggregate demand: So that capacity and demand can be matched in a way that maximizes profit