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Pricing methods and strategies in the cruise line industry

A case study on Carnival Corporation’s premium and luxury brands

Written by R. Bengtsson

Paper category

Bachelor Thesis


Business Administration>Management




Thesis: Theory-Pricing Strategy and Revenue Management 3.1. Pricing Decisions and Strategies Phillips (2005) insists that pricing is a part of marketing science, which "handles quantitative analysis of marketing plans" (page 5). However, Phillips believes that there is a gap between the theory of marketing science and its application in actual pricing decisions, as Oxenfeldt (1973 p. 48) expressed when studying the “clear gap between pricing theory and practice”. Phillips commented that pricing decisions are becoming more and more tactical and operational, and companies must make pricing decisions as quickly as possible to remain competitive. Phillips identified the following trends as drivers for better pricing and revenue optimization (PRO) decision-making methods: • Revenue management breakthroughs in the aviation industry gave birth to more profitable real-time pricing technology • Due to ERP (Enterprise Resource Planning) And CRM (Customer Relationship Management) • The popularity of e-commerce makes pricing management faster • The success of supply chain software systems paved the way for complex quantitative analysis to solve complex corporate problems Phillips also wrote articles on operations and supported PRO activities To set and update market prices. The time difference between these PRO decisions may vary from application to application. Phillips said that the main role of supporting PRO is to provide key inputs for key operators. The following includes operation and support PRO activities: Operation PRO: • Analyze alternatives-the software system it recently used solves the potential optimization problem of price recommendations • Choose the best alternative-as the phrase implies, this stage allows one person To determine the best pricing alternatives, as well as optimization software available recently, the function of what-if scenarios is widely used to help price makers better understand the recommendations. • Execution pricing-this is the place where the calculated price is communicated to the market and the price transmission may also vary from industry to industry. • Monitor and evaluate performance-compare market results with expectations, and evaluate overall performance based on company goals. Support PRO: • Setting goals and business goals-The key initial step of PRO is to specify the overall goal of the process, where it should be clearly stated. • Market segmentation-in order to maximize the opportunity for profit. • Determine the price response-each market segment corresponds to a price response function. • Updating the price response-including updating the price model to integrate the knowledge they have learned. 3.3 Pricing method Avlonitis & Indounas (2005) explained that the pricing method is a clear step or procedure for a company to make a pricing decision. Pricing methods are further divided into three categories, namely cost-based, competition-based, and demand (value)-based (Avlonitis & Indounas; Liozu & Hinterhuber 2013). The following table lists the three categories of Avlonitis & Indounas and their corresponding sub-methods: The research results of Liozu & Hinterhuber (2013) show the direct impact of the above three pricing categories on company performance: all three pricing directions have positive pricing The significant impact of capacity, and the high impact of pricing power on relative company performance (except for the negative meaning of competition-based pricing), the final conclusion is that value-based pricing is a superior way to set prices. Figure 1 shows the results of the final research model generated by Liozu & Hinterhuber, which shows the direct causal relationship between the constructs. Liozu & Hinterhuber implies that value-based pricing "is to understand and improve customers' willingness to pay across market segments, and to convey customers Value (rather than product function), align price with the difference in value perception across market segments, understand and influence customer price elasticity, and determine ways to profitably resolve differences in customer willingness to pay" (page 607). According to Oxenfeldt (1973), pricing is not just to determine the price of a single product, but to consider that the company sells a variety of products in a wide range of markets from different regions, and the product provides customers with benefits of different importance He added that effective and successful pricing management requires a deep understanding of the possible consequences of price changes. .4 Price model equalizer as a tool for pricing decision-making competition among companies is intensifying, and companies are now beginning to compete through price and payment in new ways (Olve et al., 2013). They said that it has become more common for "core products" to be similar to each other, but their payment methods are different. According to Orff et al. (2013), pricing models must be formed so that they conform to the company's business model and help realize the company's business model. This means that the price must reflect the identity of the company. In order to do this, the price model should be configured so that it can provide the picture the company wants to show to the market. Orff et al. Develop a price model equalizer, which consists of five components, each of which consists of different aspects of the product to be priced. They intend to use the equalizer as a tool to strategically set prices for specific products. The figure below was developed by Olve et al. to further understand the equalizer and its five main components. Read Less