W13.1_Austin_Billing Strategy Analysis for Utilities in Nigeria

Version-2_Blog posting Problem solved!

 

1.    Problem recognition, definition and evaluation

The billing strategy analysis is often used by the Utilities (Electricity and Gas) Companies in Nigeria when determining its optimal billing and marketing strategy for units of consumption within its target market. To determine the best billing strategy and ascertain how the proposed billing tariff affect consumer demand for electricity and gas utilities.

2.    Development of the feasible alternatives

·         Target pricing (TP)

A billing strategy whereby the tariff for service provided is calculated to produce a particular rate of return on investment for a specific volume of services. The target billing method is used most often by public utilities, like electric and gas companies, and companies whose capital investment is high, like automobile manufacturers.

·         Cost-plus pricing (CP)

Cost-plus pricing is the simplest pricing strategy. The firm calculates the cost of providing services and adds on a percentage (profit) to that price to give the billing price.

 

·         Market-oriented pricing (MOP)

Setting a price based upon analysis and research compiled from the target market. This means that marketers will set prices depending on the results from the research.

·         Dynamic pricing (DP)

A flexible pricing mechanism made possible by advances in information technology, and employed mostly by Internet based companies.

 

·         Marginal-cost pricing

In this practice, the service providers set the price of a product to equal the extra cost of producing an extra unit of output or services.

 

·         Value-based pricing (VBP)

A Pricing strategy based on the value of services provided to the customer and not on its costs of production or any other factor. This pricing strategy is frequently used where the value to the customer is many times the cost of producing the item or service.

 

·         Odd pricing (OP)

In this type of billing strategy, the service provider tends to fix a price whose last digits are odd numbers. This is done so as to give the buyers/consumers no gap for bargaining as the prices seem to be less and yet in an actual sense are too high, and takes advantage of human psychology. A good example of this can be noticed in most supermarkets where instead of pricing at $10, it would be written as $9.99. This pricing strategy is common in economies using the free market policy.

3.    Development of the outcomes and cash flows for each Alternative

4. Selection of the acceptable criteria

 

5. Analysis and Comparison of the alternatives

The optimized market positioning or optimized return to the business is based on the potential Return on Investment (RoI) analysis resulting in the revenue curve as depicted below:

6.    Selection of the preferred alternative

A critical evaluation of the utilities billing strategy process and procedure against possible alternatives using the multi-attributes table above; proves that Target Pricing Strategy is the best billing strategy and ascertained how the proposed billing tariff would affect consumer demand for electricity and gas utilities.

7.    Performance Monitoring and Post Evaluation of Results

In this case study, the revenue includes both fixed and variable costs to estimate a profit curve. At the revenue maximization point, where a higher tariff causes a drop in willingness-to-pay and thus reduces revenue; at very high tariffs this may be negative. Hence, the dynamics of price change needs to be monitored against real sales and real customer behavior.

8.    References/Bibliography

1.    Sullivan, W. G. Wicks, E.M., & Koelling, C.P. (2012). Engineering Economy, (15th ed.)  [Chap. 13, PP544 – PP572]. Capital Asset Pricing Models.

2.    Dobney, D.C.(2000-2002) Market Resaerch Consultants

Pricing research model, that is to represent the decision making of the market under different scenarios, ... http://www.dobney.com/Research/price_research_models.htm

3.    Krishnan, T. V. (1999) Optimal Pricing Strategy for New Products - Management Science Optimal Pricing Strategy for New Products - Management Science ...