Before a company can implement an activity-based pricing system, it must have an activity-based costing system in place. This was the key ingredient for Owens and Minor, Inc. (OMI). Its activity-based costing system was the foundation of the new activity-based pricing system.
Consider Amazon.com, Inc. (AMZN). Customers with an Amazon Prime membership are offered free shipping on many products. They can pay extra to have their purchases shipped same-day; they pay more because same-day shipping is an expensive activity for Amazon.com. Interestingly, customers can also opt to have shipping delayed by several days. Amazon.com sometimes offers customers an incentive to choose this option. For example, Amazon.com often offers a one-dollar coupon redeemable on the purchase of digital items, such as movie rentals and Kindle books. Accountants at Amazon.com have determined, using Amazon’s activity-based costing system, that the lost revenue associated with the coupons is recouped via the savings from the delayed shipments.