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Chapter 16
PRICING OF SERVICES
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© 2000 The McGraw-Hill Companies
© 2000 The McGraw-Hill Companies
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Objectives for Chapter 16:
Pricing of Services
• Discuss three major ways that service prices differ
from goods prices for customers
• Demonstrate what value means to customers and
the role that price plays in value
• Articulate the key ways that pricing of services
differs from pricing of goods
• Delineate strategies that companies use to price
services
• Give examples of pricing strategy in action
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Figure 16-2
What Do Customers Know about
the Prices of Services?
Wedding
Advisor?
Nutritionist?
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Pet Sitter?
Braces?
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Figure 16-3
Customers Will Trade Money for
Other Service Costs
=
or
Time
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or
Effort
Psychic Costs
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Figure 16-4
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Three Basic Price Structures and
Difficulties Associated with Usage for
Services
PROBLEMS:
PROBLEMS:
1. Costs difficult to trace
2. Labor more difficult to
price than materials
3. Costs may not equal value
1. Small firms may charge too
little to be viable
2. Heterogeneity of services
limits comparability
3. Prices may not
reflect customer
value
PROBLEMS:
1. Monetary price must be adjusted to reflect
the value of non-monetary costs
2. Information on service costs less available to
customers, hence price may not be a central factor
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Figure 16-5
Four Customer Definitions of Value
“Value is Low Price”
“Value is Everything
I Want in a Service”
“Value is the
Quality I Get for
the Price I Pay”
“Value is All that
I Get for All
that I Give”
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Figure 16-6
Pricing Strategies When the
Customer Defines Value as Low Price
“Value is Low Price”
Discounting
 Odd Pricing
 Synchro-pricing
 Penetration Pricing

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Figure 16-7
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Pricing Strategies When the
Customer Defines Value as
Everything Wanted in a Service
“Value
is Everything
I Want in a Service”
Prestige Pricing
 Skimming Pricing

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Figure 16-8
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Pricing Strategies When the
Customer Defines Value as
Quality for the Price Paid
“Value
is the Quality
I Get for the Price I Pay”
 Value Pricing
 Market Segmentation
Pricing
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Figure 16-9
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Pricing Strategies
When the Customer Defines Value as
All that is Received for All that is Given
“Value is All that
I Get for All
that I Give”




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Price Framing
Price Bundling
Complementary Pricing
Results-based Pricing
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Figure 16-10
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Summary of Service Pricing Strategies
for Four Customer Definitions of Value
“Value is Low Price”




Discounting
Odd Pricing
Synchro-pricing
Penetration Pricing
“Value is the Quality
I Get for the Price I Pay”
 Value Pricing
 Market Segmentation
Pricing
“Value is Everything
I Want in a Service”
 Prestige Pricing
 Skimming Pricing
“Value is All that
I Get for All that I Give”
 Price Framing
 Price Bundling
 Complementary
Pricing
 Results-based Pricing
McGraw-Hill
© 2000 The McGraw-Hill Companies