Customer Knowledge of Service Prices
• Service
_________________ limits knowledge –
EX: life insurance (whole life vs. term), different deductibles, variations associated with customers
(age, health risk, smoking vs. non-smoking)
Difficult to determine best price

Customer Knowledge of Service Prices
• Providers are unwilling to estimate prices –
EX: provider may not know the price until after service is completed (ex:
)
• Individual customer needs vary – ex: price of hotel room varies by size of room, time of year, type of room availability, individual vs. group rate

Customer Knowledge of Service Prices
• Collection of Price information is overwhelming – need to visit or call to obtain price
• Prices are not visible –
Customers often do not know what they are paying for (ex: ________________ )

Part 5 Opener
CUSTOMER
COMPANY
Service
Delivery
GAP 4
External
Communications to Customers

The Role of ___________________ Costs
• _______
= Time, or Effort, or Psychological Costs
Customers will trade money for time, effort, or psychological costs

__________ : waiting time and service consumption;
Ex: waiting time for car repair is high; pay more where waiting time is less?
____________ : effort invested to identify and select among services you desire
Ex: customers make reservations for one hotel; cost of comparing prices is too high

___________________ : effort expended to receive service;
Ex: choose bank closest to home even though other banks charge lower fees
____________________ : fear of not understanding; fear of uncertainty;
Ex: Resistance of on-line payment, even though it saves time and money

Implications:
1. Service firm can increase monetary price by reducing time and other costs
2. Services that save time have monetary value for customers
Ex: lawn care; carpet cleaning; babysitting

___________________ pricing:
Price = Direct Costs + Overhead Costs + Profit Margin
Ex: Fee for service = cost of the time involved in providing the service; 200/day direct costs + 50/day (office expenses)
+ 15% of full costs;
_______________ more difficult to price than materials
_______________________ pricing:
Based on prices charged by firms in the same industry or market; conditions - services are standard among providers; few large service providers

Demand-based pricing:
Price is consistent with customer perceptions of value:
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

1. Value is ______________ : monetary price is the most important determinant of value value is price - which one is on sale; value is when airline tickets are discounted
Pricing strategy:
Discounting: price cuts communicate to price-sensitive buyers that they are receiving value

2. Value is ___________________________ : benefits and intrinsic attributes determine value
Pricing strategy:
Prestige pricing: high price is charged for customers who value prestige or status

3. Value is the ______________________________ :
Consumers see value as a tradeoff between the money they give up and the quality they receive
Pricing strategy:
Value pricing: “giving more for less”

4. Value is ______________________________ : consumers consider all the benefits they receive and all sacrifice components (money, time, effort) when describing value
Pricing strategy:
Results-based pricing:
Contingency pricing: lawyers do not receive fees or payment until the case is settled