Analysis Of Current Pricing Strategies Assessment Answer
1. Describe your analysis of current pricing strategies of the Singapore Flyer. Identify and explain the areas for improvement.
Answer. The current pricing strategy of Singapore Flyer is the skimming of prices. The skimming of charges means that the Singapore Flyer is charging a very high price in the initial phase so as to increase their reputation and to pioneer the market. When the demand is unknown and even inelastic at the new stage, the organization will divide its market into the different degree of elasticity of various customers. This can act as a short period for the pricing of service. The high price has helped to create a hype in the market and to draw the attention of the customers. Skimming of prices creates an added hype with is beneficial for the organization. (Salvendy, 2001) It can prove to be a beneficial strategy especially for the customers who are willing to pay more for the services provided by the organization and will keep the competitors and rivals at bay. The competitors would not hike their price suddenly, and their respective high price will be seen as a symbol of high quality. As the organization gains high profitability, in the beginning, there would only be a minute effect on their business if the prices are lowered later on in future.
But skimming of prices might impose problems to the organization. The organization should try to introduce the bundling of prices, this way the higher prices can be lowered down and the pricing can be made customer-based. Consequently, the customers can be given many discounts and benefits like extra rides for regular customers, free food joint passes, free drinks, discounts for a particular group of school kids, business trips, etc. The strategies must be directed towards attracting the customers. The high costs may have been driving away the customer who are price-sensitive. Thus, strategies like this will attract these people and increase in profitability of the organization.
2 (a.) Construct the price to benefit map of the Singapore Flyer versus similar viewing vantage locations such as MBS SkyPark, 1-Altitude, and Duxton. Explain your choice of the selected positions.
Answer. The price of the ticket is highest in Singapore Flyer with the cost of around $31 for an adult and $21 for a kid and offers the free ride to children below two years of age. Whereas, MBS charges $23 for adults, $17 for children who are aged between 2-12 years and $20 for senior citizens of age 65 years and above. 1- Altitude offers a free entry and charges only $20 for a premium drink and just $18 for a standard drink. Duxton is the cheapest of all and charges only $5 per person per entry. With lowest prices Duxton attracts a wide attention of tourists and local people with high-quality services and goods. The Singapore Flyer needs to lower down the expenses and their ticket costs to attract the tourists as it is receiving less attention due to high cost whereas the competitors are offering the same services at a lower cost. 1-Altitude offers moderate services along with moderate charges. The organization of Singapore Flyer needs to lower down the prices and try to introduce better services towards the tourists. There is a need to enhance their pricing strategies and improvise their policies
(B).You have been hired by the new owner of Straco Corporation to improve revenue for the Singapore Flyer. Describe your new pricing strategies to meet the expectations of your employer.
Answer. Straco Corporation has been using the skimming pricing strategy to enhance their revenue. But this has not been much beneficial for increasing the revenues productively. Hence, the organization must utilize the strategy of neutral pricing and set their prices at a level that is comparable to their competitors. For achieving that, first the benefits of the products and services provided by the organization along with the needs of the customer have to be customized. Further, the organization needs to cater extra support and services comparable to their rivals so as to increase their production value. Instead of getting into a price war, Straco Corporation will have to incorporate extra services and pricing strategies like heavy discounts for a particular lot, extra food services with an introduction to price bundling strategies. Straco has to improvise and provide the bundling of prices in such a way that customers are unlikely to get the same offers elsewhere. This way, the corporation can, therefore, retain their values and simultaneously will be able to deliver genuine value to their tourists and customers. Hence offering maximum features in limited price can be helpful for the revenue collection of the organization. (Nalebuff, 2004)
Secondly, the organization has to innovate for capturing of new markets and for meeting the demands of the customers. Straco Corporation can create new market places, food joints, and other attractions so as to meet the increasing demands. Thus providing multiple products to the customers will ensure that Straco Corporation remains in high demand amongst all the rivals. The main focus of the Corporation must be to provide value oriented product or service along with high productive results to achieve maximum profitability.
Finally, the Straco Organization should ensure itself to be differentiated and thus listing of all the products, services along with indulged activities can be a good idea. Further, their values associated to the customer has to be taken into the account.
3 (a.)Using an appropriate pricing model, determine the lower and upper boundaries of the range of possible ticket prices between Singapore and KL.
Answer. The High-Speed Rail Corporation (HSRC) should unbundle the metro fares and, therefore, push innovative pricing models for enticing the travelers with the separate price for each item or service under the menu that suit the needs of the travelers.
Due to growing customer demand for the value, ongoing competition from the competitors present in the market, there is a need for introducing a new pricing model and thereby introduce a new range of booking choices. Versioning of the metro fares can be a good idea where the tickets will be developed at the lowest-cost base price aiming to capture the attention of price sensitive travelers and ensuring the satisfactory margins to them. The company only has to offer better features of the metro rails at a bit higher but marginal cost for those who are less price, sensitive travelers. (Smith, 2012)
Since the organization will be offering different prices to the different range of travelers, the travelers might themselves select the category that fits them the most. Then, the organization must develop a pricing structure which will capture the lowest price i.e. $30 for price sensitive travelers and $50 for less price-sensitive travelers. This will help to enhance profitability as even the price sensitive traveler might want to upgrade their services and transfer themselves to less-sensitive travelers once they are satisfied with the services.
(b.)Discuss how you could use conjoint analysis to determine the price that travelers are willing to pay.
Answer. The conjoint analysis estimates the price customers are willing to pay that even when the service is broken down into its respective features. The analysis reports the price that is being reported for each and every feature. The conjoint analysis can help the organization to break down its critical features and weigh down these factors and the amount the customers will be willing to pay for these factors. The organization can divide the factors into metric and non-metric factors. The metric factors are the one directly related to the consumer satisfaction providing best of the services. Whereas the metric services allow those factors which are dependent on the secondary criteria. The metric and non-metric factors for this organization can be listed as follows:
Metric Factors: Direct metro availability, in-metro service, metro station service, type of metro, company name, and its image
Non-Metric Factors: Safety record, on-time record, Metro frequency, carrier age and its price.
Thus, the organization can easily make out the prices that the travelers are willing to pay. Further, the organization can make out which characteristics is best suited for increasing its profitability and which attribute should be sacrificed for productive results.
4 (a.)Formulate your proposed overall pricing strategies to HSRC when the rail link starts operation in 2020.
Answer. The HSRC might face critical competition when its rink rail starts operating in 2020 due to coming up of various new projects in line every day. Hence, HRSC should implement a strategy which will focus not only on attracting the customers but also on keeps the competition at bay.
1. The strategy of HRSC should be customer-based and should try to sustain the needs and wants of the customers. The pricing should be according to the needs of customers, and a proper comparison must be done with the perceived and the actual price. Major discrepancies in either direction can cause dissatisfaction among the employees and can severely impact the profitability of the organization. The customer-based pricing strategy should be implemented as it helps to give insights regarding the intentions of customers and help to predict the idea of customers and their price sensitivities, their willingness to pay. Proper research by the organization can be beneficial in estimating an ideal price as per the needs of customers.
2. The organization can implement the strategy of price skimming and can launch their brand new product by setting a high price compared to the existing competitors. This will help the organization to recover the cost that was associated with the research and development of the project. Further, if the organization means to cater the price and quality conscious consumers this strategy will be very beneficial for attracting those price sensitive consumers. Having recovered the costs and expenses incurred, the organization can lower down the costs and make their product available for the other class of the customers.
3. Price Segmentation: Characteristics of consumers can be used as a price-segmentation fence. Characteristics like the age, gender or group of students. The price can be differed using these characteristics. Introducing the strategies like less priced tickets for senior citizens, less priced tickets for 18 below students, free tickets for children less than the age of 3. Further, the businessman on trips can be granted a concession in prices. The young adults must be given some concessions when in the group or a couple tickets as the business should always target price-conscious lot.
(b.)A year later, profits of HSRC fall below plan, mainly due to lower than forecasted passenger volume. Examine what information you would use to develop new ticket prices to increase profitability.
Answer. First HSRC must take into account the contribution margin and check whether the company's fixed costs were covered or not. Along with that, the costs of the energy used in manufacturing process, royalties and licensing cost, commission, etc. variable must be kept in the account. The organization's decision for offering new ticket prices might involve spending of capital or some research and development or cross-check the fixed and variable costs factors.
Thus, the values or the cost changes in fixed costs, as well as the changes in the variable costs, must be checked by HRSC. These will provide the organization to have an idea about the changes required in the pricing strategies. The company has to implement a breakeven formula for altering their prices and considering every single cost factor. The breakeven formula has to be generalized for including the contribution of the effect of the estimated prices. (Cafferky & Wentworth, 2010)
The breakeven has to be achieved, and all the additional units have to be sold to ensure that there is no alteration in the gross profits. Thus, a breakeven analysis will provide the price-change-evaluation-process some critical and vital information and help to increase the sale of the tickets.
References
• Mishra, T. Managerial Economics (1st ed., p. 11). Bombay: IIT Bombay. Retrieved from http://nptel.ac.in/courses/110101005/downloads/Lecture%2039.pdf
• Salvendy, G. (2001). Handbook of industrial engineering (p. 675). New York: Wiley.
• Nalebuff, B. (2004). Bundling as an Entry Barrier. The Quarterly Journal Of Economics, 119(1), 159-187. http://dx.doi.org/10.1162/003355304772839551
• Smith, T. (2012). Pricing strategy. Mason, Oh: South-Western Cengage Learning.
• Cafferky, M., & Wentworth, J. (2010). Breakeven analysis. New York: Business Expert Press.
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