PRICING OF SERVICES
CHAPTER 17
PRICING OF SERVICES
• What makes pricing of services more difficult than
pricing of goods?
• For example, why are some services priced higher
than other?
THREE KEY WAYS THAT SERVICE PRICES
ARE DIFFERENT FOR CONSUMERS
• Customer Knowledge of Service Prices
Service variability limits knowledge
Providers are unwilling to estimate prices
Individual customer needs vary
Collection of price information is overwhelming in
services
• Prices are not visible
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• The Role of Non-monetary Costs
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•
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Time costs
Search costs
Convenience costs
Psychological costs
• Price as an Indicator of Service Quality
VIDEO: TICKET TAKERS
APPROACHES TO PRICING SERVICES
• Cost-Based Pricing
• Price = Direct cost + Overhead costs + Profit margin
• Why may this be difficult for services?
• Competition-Based Pricing
• Examples include, banks and other financial institutions
• Demand-Based Pricing
• What customers will pay for the service
• Usually based on some criteria of value
THREE BASIC MARKETING PRICE STRUCTURES AND
CHALLENGES ASSOCIATED WITH THEIR USE FOR
SERVICES
Figure 17.1
Challenges:
Challenges:
1. Small firms may charge
too
little to be viable.
2. Heterogeneity of services
limits comparability.
3. Prices may not reflect
customer value.
Challenges:
1. Costs difficult to trace.
2. Labor is more difficult to
price than materials.
3. Costs may not equal the
value that customers
perceive the services are
worth.
1. Monetary price must be adjusted to reflect
the value of non-monetary costs.
2. Information on service costs is less available to
customers; hence, price may not be a central factor.
Figure 17.4
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.
Figure 17.5
PRICING STRATEGIES WHEN THE
CUSTOMER DEFINES VALUE AS LOW
PRICE
Value is low price.
• Discounting
• Odd pricing
• Synchro-pricing
• Penetration pricing
Figure 17.8
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
Figure 17.10
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
PRICING STRATEGIES WHEN THE CUSTOMER
DEFINES VALUE AS ALL THAT IS RECEIVED FOR
ALL THAT IS GIVEN
Figure 17.13
Value is all that I get
for all that I give.
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Price framing
Price bundling
Complementary pricing
Results-based pricing
Figure 17.14
SUMMARY OF SERVICE PRICING
STRATEGIES FOR FOUR CUSTOMER
DEFINITIONS OF VALUE
Value is everything
I want in a service.
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
• Prestige pricing
• Skimming pricing
Value is all that I get
for all that I give.
•
•
•
•
Price framing
Price bundling
Complementary pricing
Results-based pricing