PRICING

What is Price

Rent Fare

Tuition Interest

Donation Fee

Monthly Payment
 The Importance of Price

- Price is a direct determinant of profits (or losses)

- Price indirectly affects costs (through quantity sold)
-Price determines the type of customer and
competition the organization will attract
- Price affects the image of the brand
- A pricing error can nullify all other marketing mix
activities
 Setting the Price
1. Selecting the pricing
objective

2. Determining demand

3. Estimating costs

4. Analyzing competitors’
costs, prices, and offers

5. Selecting a pricing
method

6. Selecting final price

Factors Affecting Price

Internal Factors

Pricing
Decisions

External Factors
 Internal Factors

• 1.Marketing Objectives
• Survival
• Current Profit Maximisation
• Market Share Leadership
• Product Quality Leadership

• 2.Marketing Mix Strategy

• 3.Cost
• Fixed Cost Variable Cost

• 4. Organisational Considerations
 External Factors

1.Market
Pure Competition
- many buyers/sellers trading in same commodities
Monopolistic Competition
- many buyers/sellers trading over range of price
Oligopolistic Competition
- few sellers who are highly sensitive to prices
Pure Monopoly
- only one seller

2.Demand 3. Competition

3.Other Factors
Economic Factors
Government Influence
Reseller / Distributor
Pricing Approaches
 Cost-Plus Pricing

Increased Minimise
Certainty Price
Competition
Key
Reasons for
Cost-Plus
Popularity

Perceived
Fairness
 Cost-Plus Pricing

Selling price is determined by adding a

fixed amount, usually a percentage, to
the (total) cost of the product

Most commonly used pricing method

(e.g., groceries and clothing)
 Cost-Plus Pricing

A toaster manufacturer had the following

costs and expected sales:

Variable Cost $ 10 Fixed Cost $ 3,00,000

Unit Sales 50000 Mark up 20%

Calculate Mark up Price , Break even

volume
Variable Cost $ 10 Fixed Cost $ 3,00,000 Unit Sales 50000
Mark up 20%
Break-even Analysis and Target
Profit Pricing
Break-even Volume and Profits at Different Prices

(1) (2) (3) (4) (5) (6)

Price
Unit Expected Total Total costs* Profit
Demand Unit Revenues (4) – (5)
Needed to Demand at (1) × (3)
Break Even Given Price

$14 75,000 71,000 $ 994,000 $ 1,010,000 –$ 16,000

16 50,000 67,000 1,072,000 970,000 102,000
18 37,500 60,000 1,080,000 900,000 180,000
20 30,000 42,000 840,000 720,000 120,000
22 25,000 23,000 506,000 530,000 –24,000
 Value-Based Pricing

Cost-Based Pricing Value-Based Pricing

Product START Customer

Cost Value

Price Price

Value Cost

Customers Product
Competition-Based Pricing

Costs

? ?
?? ? Bid / Tender
?

Contract
Pricing Strategies
 New Product Pricing Strategies

SKIMMING STRATEGY
Price initially set very high and reduced over time

When Appropriate
Demand is likely to be price inelastic
There are different price-market segments
The offering is unique enough to be protected from competition by patent,
copyright, or trade secret
Production or marketing costs are unknown
A capacity constraint in producing the product or providing the service
exists
An organization wants to generate funds quickly
There is a realistic perceived value in the product or service
 Penetration Pricing Strategy
Price is initially set low to gain a foothold in the market

When Appropriate :

-Demand is likely to be price elastic

-The offering is not unique or protected by patents, copyrights,
-Competitors are expected to enter market quickly
-There are no distinct and separate price-market segments
-There is a possibility of large savings in production and
marketing costs if a large sales volume can be generated
-The organization’s major objective is to obtain a large market
share
Product Mix Pricing Strategies

Product Line Pricing

Setting Price Steps Between Product Line Items

Captive-Product Pricing
Pricing Products That Must Be Used With The Main Product

Product-Bundle Pricing
Pricing Bundles Of Products Sold Together

Optional-Product Pricing
Pricing Optional Products Sold With The Main Product

By-Product Pricing
Pricing Low-Value By-Products To Get Rid of Them
Adjustment Strategies - I

Price
Price Adjustment
Adjustment Strategies
Strategies

Discount
Discount Segmented
Segmented

Psychological
Psychological

Cash
Cash Customer
Customer
Quantity
Quantity Product
Product Form
Form
Seasonal
Seasonal Location
Location
Functional
Functional Time
Time
Allowances
Allowances
Adjustment Strategies - II

Promotional
International

More

Value
Price
Adjustment
Strategies

Geographical
 Price Changes
Initiating Initiating
Price Cuts Price Increases

Issues in Price Change Strategies

Competitor
Buyer Reactions
Reactions
Assessment & Response to Competitor Pricing

No Hold current price

Has Competitor
Cut Price? monitor competitor
prices
Yes
Will lower price
negatively affect No
our share Reduce Price
and profits
Yes Raise Perceived
No
Can/should Quality
Effective action
be taken? Yes Improve Quality
& increase price

Launch low-price
‘fighting brand”
Responding to Competitor Price Changes- Example

Hold our price

Has competitor No at present level;
cut his price? continue to watch
competitor’s
No No price
Yes

Is the price Is it likely to be How much has

likely to a permanent his price been
significantly Yes Yes
hurt our sales? price cut? cut?

By less than 2% By 2-4% By more than 4%

Include a Drop price by Drop price to
cents-off coupon half of the competitor’s
for the next competitor’s price
purchase price cut
PRICING APPLICATION
A producer distributed its bicycles
through wholesalers & retailers. The
retail selling price was Rs 800 and the
manufacturing cost to company was Rs
312.

The retail mark-up was 35 % & wholesale

markup was 20%

a. What was the cost to the wholesaler &

to retailer ?

b. What percentage markup did the

producer take ?
Retail price Rs 800
X 0.65

W.Sale price Rs 520

X 0.80
Manufacturer’s
Selling price Rs 416

Mftr.Cost Rs 312 Gross Margin Rs 104

a. Rs 416 Rs 520

b. 104 X 100 = 25% on selling price

416
If total fixed costs is Rs 2 lacs & total variable
costs is Rs1 lac at the output of 20000 units,
what are probable total fixed costs & total
variable costs at an output of 10,000 units ?

What are the average fixed costs, average

variable costs & average costs at these 2
output levels ?

Explain what additional information you would

want to determine what price should be
charged.
 20,000 Units 10,000 Units
Total Fixed Costs 200,000 200,000
Total Variable Costs 100,000 50,000
Total Costs 300,000 250,000

Average Fixed Costs 10.00 20.00

Average Variable Costs 5.00 5.00
Average Costs 15.00 25.00

Estimates about quantity to be produced, expected target return,

demand etc.
 Assume you and your friend have decided to go into
business together manufacturing wrought iron
birdcages. You know that your fixed costs (rent on a
building, equipment, et cetera) will be Rs 60,000 a year.
You expect your variable costs to be Rs 12 per
birdcage.

a. If you plan on selling the birdcages to retail

stores for Rs 18 how many must you sell to break-
even; that is, what is your break-even quantity?

b. Assume that you and your partner feel that

you must set goal of achieving Rs 30,000 profit with
your business this year. How many units would you
have to sell to make that amount of profit?
a. Break-even point in units =
TFC divided by Contribution

Rs 60,000 / 6 (Rs 18 - Rs12)

BEP in units = 10,000 units.

b. BEP = total fixed cost + target profits
contribution per unit to fixed costs

BEP = 60,000 + 30,000 = 15,000 units

6
 XYZ Company’s fixed cost for the
year are estimated at Rs 2,00,000. Its
products sells for Rs 250. The
variable cost per unit is Rs 200.
Sales for the coming year are
expected to reach Rs 12,50,000.
What is the break even point ?
If sales are forecast at only Rs
8,75,000, should the company shut
down its operations ? Why ?
 200,000 200,000
BEP (in units) = = = 4,000 units
250 - 200 50

BEP (in Rs )
4,000 unit x Rs 250/unit = Rs10,00,000

Expected Sales 12,50,000

Fixed Costs 2,00,000
Variable Costs 10,00,000
(80% of 12,50,000)

Total Costs 12,00,000

Expected Profit 50,000
 If sales were forecast at
Rs 8,75,000
Total variable costs would be
Rs7,00,000 (.8 x 875,000).

Thus, although there would be

an accounting loss of Rs 25,000
the contribution to fixed costs of
Rs 1,75,000 is better than
nothing and the firm should
operate.
STOCK TURN RATE
Cost of Sales for 1 year Rs 10 lacs
Opening Inventory Rs 2.50 lacs
Closing Inventory Rs 1.50 lacs

Calculate Stock Turn rate

A measure of number of times the average
inventory is sold during a year

- it shows how rapidly the firm’s inventory is

moving.

3 Methods
Cost of Sales
Avg. Inventory at Cost

Net Sales
Avg. Inventory at selling price

Sales in Units
Avg. Inventory in Units
Average Inventory Rs 2 lacs

Cost of Sales / Average Inventory

10,00,000 / 2,00,000

Stock turn rate = 5

Return On Investment
Company has Investment of Rs 1.5 lacs
Sales Rs 3 lacs
Profits Rs 25,000

a. calculate ROI

b. sales has doubled while investments &

profits have stayed same.

c. by cutting cost - profits have doubled.

d. by decreasing investments
 Net Profit / Investment

ROI = NP x Sales
Sales Investment
a. 16.6 %
b. 16.6 %
c. 33.2 %
d. 33.2 %
Which major costing method to
use:

(1) Direct costing / Variable costing

or

(2) Absorption costing / Full costing

 To show how gross profit and
contribution margin appear in an
income statement, note the
following example
 Direct Absorption
costing costing

Sales revenue $770,000 $770,000

Variable manufacturing costs 550,000 550,000
Add: Fixed manufacturing costs - 100,000
Total costs of goods produced $550,000 $650,000
Less inventory at year’s end:
Variable cost - 100,000 -
Fixed and variable cost - - 115,000
Cost of goods sold $450,000 $535,000
CONTRIBUTION MARGIN $320,000 -
GROSS PROFIT - $235,000
Variable selling & Adm. exp. 60,000 60,000
FINAL CONTRIBUTION MARGIN $260,000 -
Fixed manufacturing costs $130,000 -
Capacity variance* - $ 40,000
Fixed selling & Adm. exp. $ 60,000 $ 60,000
Total $190,000 $160,000
Net income before taxes $ 70,000 $ 75,000
 How would these two techniques
be used in pricing?

Here is an example, with four

different prices sampled to see how
they fare in terms of either gross
profit or contribution margin.
 Possible
Prices
$4.00 $3.80 $3.60 $3.40
ABSORPTION COSTING
Estimated unit sales 10,000 12,000 16,000 20,000
Estimated dollar sales $40,000 $45,600 $57,600 $68,000
Mfg. cost @ $3. 40 unit

(includes fixed cost) $34,000 $40,800 $54,000 $68,000

Gross profit in dollars $ 6,000 $ 4,800 $ 3,200 0
Gross profit % 15.0% 10.6% 5.5% 0
DIRECT COSTING
Estimated unit sales 10,000 12,000 16,000 20,000
Estimated dollar sales $40,000 $45,600 $57,600 68,000
Variable costs @ $2.70 a unit (no $27,000 $32,400 $43,200 54,000
fixed costs)
Variable selling cost @2% sales 800 912 1,152 1,360
Total Direct Cost $27,800 33,312 44,352 55,360
Marginal contribution $ 12,200 12,288 13,448 12,640
Which Is Best for Marketing?

Analysts think that neither of these is better.

They both present different values.

There is a strong argument that direct costing is

best for market planning.
Here are some of the reasons for using direct costing:

It is easier than absorption costing to find the most

profitable price, especially when lowering the price will
increase sales.

Many times companies sell their products at different prices

in different territories. Each territory may have a different
contribution margin. The marketer, therefore, can
concentrate efforts in more profitable territories and
minimize efforts in others.

In absorption costing, the effects on profits of a change in

price that cause an increase in volume will be more difficult
to calculate.
 Problem
A manufacturing company produced a
product costed by the absorption method.
The data for the absorption method and the
pricing are shown below:
Absorption Costing

Cost of materials Rs 2,891

Labor costs 1,479

Estimated tool maintenance 430

Total cost Rs 4,800

Plus 10% markup 400

Target selling price Rs 5,200

 Armed with a Rs 5,200 selling price, the salesman
for this product went into the marketplace, only to
find that there was a great deal of protest about
the price. Almost everyone told the salesman that
the “going” price for this product on the market was
Rs 4,400, and that his product clearly was
overpriced.

In response, the marketer recalculated the costs

using the direct costing method and arrived at a
lower price as shown below.
 Direct Costing

Cost of materials Rs 2,891

Labor costs 725

Estimated tool maintenance 430

Total cost Rs 4,046

Competitive selling price 4,400

Potential contribution Rs 354

 The problem is this: What should
the salesman do about the
situation? Even with direct costing,
the company may not break even
on the product. Explain which
costing method he should use and
the rationale for doing so.
 Answer
The salesman should accept the order at the competitive
selling price of Rs 4,400, if the plant is not operating at full
capacity.
If the plant is operating at full capacity, then taking the
work may result in overtime and other extra costs that
could effect a loss for the company.
If the plant is not operating at full capacity, however, the
sale would contribute something, potentially Rs 354, to the
business.
Keeping the price at Rs 5,200 in order to recover all costs
probably means that the sale would be lost. After all,
customers can buy competing products at lower prices. To
lose the sale would mean no profit contribution.

On the other hand, if other work is competing for the use of

the same production facilities, then the work with the
highest contribution margin should be accepted.
YIELD MANAGEMENT
A Yield Management uses historic data and
mathematical models to predict demand at future
points in time.

- It then sets different prices at these different time

points according to the predicted demand varying
prices according to the actual demand.

- It aims to stimulate demand when demand is,

and to maximise profits when is high.

- Overall, the aim is to increase profitability rather

than simply increase utilisation.
Yield/Revenue Management

Integrated management of capacity and pricing

◆ Objective: maximize revenue (minimize lost

revenue / opportunity costs)

◆ “Science of squeezing every possible dollar from

customers”
 Yield Management Models
applicable when

supply side product or service is

characterised as:
capital intensive perishable.

and the demand side is characterised with:

variability of demand variability of
value
Airlines Make Money Only When
They Match Supply and Demand
Yield Management Objectives

Sell the right seat

To the right passenger

At the right price

 The Problem is Large and Dynamic
Major US domestic carriers:
Operate 5000 flights per day
Serve over 10,000 markets
Offer over 4,000,000 fares

Schedules change twice each week

On a typical day, a major carrier will change
100,000 fares

Airlines offer their products for sale more than one

year in advance

The total number of products requiring definition

and control is approximately 500,000,000

This number is increasing due to the proliferation

of distribution channels and customer-specific
controls
YM is Essential to Airline Profitability
• Annual benefit of Yield Management to a major
airlines is 3% – 6% of total revenue
• A major airlines’ revenue benefits from yield
management exceed $500,000,000 per year
• Applying this rate to the industry ($300 billion/year)
yields potential benefits of $15 billion per year
• The possibilities for even the most sophisticated
carriers go well beyond what is achieved today
 Effective Planning and Marketing is
a Continuous Process

Enterprise Planning Product Planning

Tactics and
Operations
 There Should be Continuity

Time • 18 Months + • 18 Months – • 3 months –

Horizon 1 Months Departure

Objective • Maximize NPV • Maximize NPV • Maximize NPV

of Future Profits of Future Profits of Future Profits

Decisions • Route Structure • Schedule • Price

• Fleet • Fleet Assignment • Restrictions
• Maintenance • Pricing Policies • Availability
Bases
• Crew Bases
• Facilities

Constraints • Financial • Route Structure • Schedule

Resources • Fleet • Pricing Policies
• Regulation • Maintenance
• Crew Bases
• Facilities
PROBLEM
Capital Costs Cost to build Rs10m
Cost per month over 10 years at 10% Rs 13,215
(includes risk factor)
Cost per session assuming 2 sessions per Rs 220
day
Cost per seat assuming 200 seats Rs 1.10

Revenue Costs Cost of local property taxes, heat and light

per session
Rs 20

Cost of wages for 4 staff including cleaners Rs 96

at Rs 8 per hour incl. overheads

Costs of marketing per session Rs 33

Cost per seat assuming 200 seats Rs 0.75

Total Cost Cost per seat per session - capital and

revenue
Rs 1.85

Cost per seat per session with a 50% Rs 3.70

average utilisation (100 seats)
Add in profit margin, say 7.5% before tax Rs 4.00

Overall total cost per session Rs 400

Overall total cost per week (14 sessions) Rs 5,600
Session: 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Day: Mon Tues Weds Thurs Fri Sat Sun Total / Utilis.

Sold at Re 1

Sold at Rs 2

Sold at Rs 3

Sold at Rs 4

Sold at Rs 5

Sold at Rs 6

Sold at Rs 7

Sold at Rs 8

Total seats sold

Total income Rs
Session: 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Day: Mon Tues Weds Thurs Fri Sat Sun Total / Utilis.

Sold at Re 1 10 10 5 10 5 15 10 15 10 10

Sold at Rs 2 10 15 10 20 15 25 5 10 15 20 40 20 15 10

Sold at Rs 3 5 10 10 15 5 10 10 30 25 25 35 50 20 20

Sold at Rs 4 5 8 10 5 14 55 25 20 35 10 40 35 30

Sold at Rs 5 1 2 5 16 10 35 10 50 20 30 25 25

Sold at Rs 6 5 10 25 2 20 15 20 40 35

Sold at Rs 7 3 25 15 30 25 30

Sold at Rs 8 1 5 10 10 15 10

Total seats sold 25 40 35 65 30 90 45 144 82 180 155 200 180 170 1,441 / 51%

Total income Rs 30 95 97 190 70 291 230 579 257 840 600 910 900 825 Rs 5,914
Revenue Management Example:
Airline

# of Seats

100

$1,000 Price
Revenue Management Example:
Airline
Revenue Management Example:
Airline
Revenue Management Example:
Airline
Revenue Management Example:
Airline
 Two Challenges:
• How do we make sure that the people who
are willing to pay $750 will not buy the
$250 ticket?
• How do we make sure that we have
enough seats for those willing to pay
$750?
 Two Answers:
◆ Create artificial hurdles:
• Advance purchase: 21 days, 14 days, 7days
• Use limitations: Saturday night stay, non-refundable tickets
◆ Restrict the number of seats sold at the low price
• This requires a forecast of future booking by higher-paying customers
and the discipline to forgo a “bird-in-hand.”
◆ Note 1: airlines do not change prices dynamically; they
actually change capacity (classes) dynamically
◆ Note 2: freight can also displace passengers when RM is
really optimized
 Why is This Important?
• American Airlines saved over $1.4B
between 1989-1992
• “I believe that yield management is the
single most important technical
development in transportation
management . . . “
• Robert Crandall, CEO AMR
 Markdowns
Markdowns are one of the main levers that retailers
have to influence results in-season. As such, it can
be a very powerful driver of performance.
Markdown Opportunity:
• Markdowns may represent more than 30% of
total sales
• Short-cycle product can represent up to 80%
of a retailer’s assortment
• In some segments, short-cyce products may
represent a smaller percentage of the assortment
but still have a significant impact on gross margin
(up to 40%)
• Goals / Trends:
• Movement to more Localized pricing
decisions
• Growing realization of the true cost of left-
over inventory
• Greater emphasis on inventory productivity
as store base growth slows
 Sales Rate-Based Discounting
• After initial sales rate
(r0= i0/t0)
• Required sales rate:
r1=i10-t1)
• %r required: (r1/ r0)-1
• Divide by ε
• Get the % price change
required
 Price Discrimination
• First degree: willingness to pay (rare)
 RR in late 1800-s, asking shippers for their income statement
so they could determine their ability to pay
 College financial aid
 Taxes
• Second degree: artificial hurdles but open
 Buying process (coupons, advance purchase…)
 Cost to serve (volume discounts, risk adjustments, "set up"
costs in travel industry…)
 Distribution channels (Internet, outlets, etc.)
 Markdowns (timing of purchase, product age, selection, etc.)
 Value of product (in many rail movements; regeltarifklassen)
 Commodity type (part of tariffs; in many rail movements)
 Use limitations (e.g., "final sale")
 Bundling ("menu" vs. "a-la-cart")
 Time of use (e.g., peak hour, congestion pricing)
 Price Discrimination
• First degree: willingness to pay (rare)
• Second degree: artificial hurdles but open
• Third degree: based on external factors
 Geography (neighborhood, state)
 Gender (women's clothing)
 Age (senior/student discounts)
 Profession/affiliation (small/large business business;
educational,medical…)
 3rd Degree Discrimination
• Online shopping: Dell Computer
 Specific Example
Dimension® 8200 Series, Pentium® 4 Processor at 1.7 GHz
128MB PC800 RDRAM
New Dell® Enhanced QuietKey Keyboard
Video Ready w/o Monitor
32MB NVIDIA GeForce2 MX 4X AGP Graphics Card with TV-Out
40GB Ultra ATA/100 Hard Drive
3.5 in Floppy Drive
MicrosoftR Windows® Millennium with WinXP Home Upgrade Coupon
MS IntelliMouse®
10/100 PCI Fast Ethernet NIC
56K Teephony Modem for Wndows-Sound Option
48X Max Variable CD-ROM
Integrated Audio with Soundblaster Pro/16 Compatibility
Harman Kardon HK-395 Speakers
Upgrade to Microsoft® Office Small Business w/EducateU
3 Year Ltd. Warranty, 3 Year At Home Service, Lifetime 24x7 Phone
Support
 Specific Example
User Base Price

Home $1,378

Small business $1,238

Large business $1,338

Student $1,327

University $1,427
 When Does YM Work?
• Economic conditions
 Demand (LT with signaling; Governme conference
 Segme
 No arbitrage

• Administration
 A
 A

• Product
 High fix
 Perishability
• Discipline !
 Marketing
• Most schemes are based on 2nd degree discrimination – seems
more fair (choice is available)
• Positioning the message: discounts are more acceptable than price
increases, even if the result is the same
• Avoid gauging
• "Profiteering" is not acceptable
• Use open communications
• Some forms of 3rd degree discrimination are illegal, but many are
acceptable:
 student/senior citizen discounts
 profession/use (Dell)
Carrier Portfolio of Pricing
Dynamic pricing with spot market shippers

Dynamic pricing with contracted shippers

Long-term fixed-rate contracts

LT fixed rate contracts with capacity

commitments
Rev. Management in TL Trucking

• Little opportunity during bid response

 No monopoly power
 Exceptions: good service history coupled with client
strategy geared towards service
 Value-added services
• Only opportunity in real-time (spot) market
 There are limited opportunities for local/temporary
monopolies:
• Responses to shipper "dialing for diesels”
• Requests along "power lanes"
Rev. Management in TL Trucking

• Remember the twin challenges:

 How do we make sure that the people who are
willing to pay $750 will not buy the $250 ticket?
 How do we make sure that we have enough seats
for those willing to pay $750?
• Comes down to one question:
Should we take this load?
 Should capacity be committed to a particular
load/shipper/contract?, or should we wait for a
better-paying load?
 Depends on the forecast…
Strategic Decisions Set the
Limits for Tactical Decisions
• Size of fleet
• Market focus – regions, industries, equipment
• Relationships with O/Os, 3PLs

• Percent of business under long-term contract

• Long-term contract rates
• Bid-response strategies
• Capacity commitments
• Seasonal Pricing

• Demand booking and solicitation

• Dynamic pricing
• Proactive empty repositioning
• Driver assignment
System Contribution of a Load

• Regional potential: the expected

contribution of a truck in a region.
• P(A) - Potential of region A
• D(A-B) - Direct cost for moving a truck
from A to B
• R(A-B) - Revenue for the move from A to
B
System Contribution of a Load
S(A-B) = R(A-B) -D(A-B) + P(B) -P(A)

Direct contribution System impact

P(B) -the value of one more truck at region B

P(A) -the value of one less truck at region A

Order acceptance:
- Take a load only if S(A-B) > 0
- Take the load with the highest S(A-B)
Analysis of Movements

Head haul:
S(A-B) = R(A-B) -D(A-B) + P(B) -P(A)

Back haul:
S(A-B) = R(A-B) -D(A-B) + P(B) -P(A)
 YM in Manufacturing
• Reserve capacity to the highest paying
customer
• Tie the pricing to the capacity commitment
• Use pricing to manage component supply
(in BTO)
 Final Observations
• RM involves the entire enterprise
 Customer service
 Sales
 Reservations
 Scheduling
• RM can be used to increase profits and serve customers better
 Bring in those who otherwise would not use the service
 Provide higher LOS to those who pay a lot by giving them
more frequent service, higher probability of service, etc.
 Increase utilization by smoothing demand patterns
• The essence of RM is the judicious management of capacity
and pricing simultaneously
 The trick: reserve capacity to the highest paying customers