Lesson 12- Pricing

8/2/2019 Lesson 12- Pricing

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LESSON 12- SERVICES PRICING


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THREE KEYS WAYS SERVICE PRICESARE DIFFERENT FOR CONSUMERS

CUSTOMER KNOWLEDGE OF SERVICE PRICE (Ref Price)

Service Heterogeneity Limits Knowledge

Provider Unwillingness To Estimate Prices

Individual Customer Needs Vary

Price Information Is Overwhelming In Services

Prices Are Not Visible

THE ROLE OF NON-MONETARY COSTS

Time Costs

Search Costs

Convenience Costs

Psychic Costs Non-monetary Cost Priorities

Reducing Non-monetary Costs

PRICE AS AN INDICATOR OF SERVICE QUALITY

An Attraction As Well As Repellent

Price Is Judged From Quality More In Services


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THE ROLE OF NON-MONETARY

COSTS Time Costs

Search Costs

Convenience Costs

Psychic Costs

Non-monetary Cost Priorities

Reducing Non-monetary Costs


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WHAT DO YOU KNOW ABOUT THE

PRICES OF SERVICES1. What do the following services cost in

your home town?

dental checkup

General medical checkup

Legal help with a DWI (driving whileintoxicated) charge

Dental braces

Rental of a videocassette for one night

One hour of housecleaning

Room at the Hilton

Haircut

Oil change and blue


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2. which of the fol would you select if you needed afilling replaced in a tooth?

a. Dentist ACost is $25, located 15 miles from your home,

wait is three week for appointment and 0.5 hour inwaiting room

b. Dentist BCost is $35, located 15 miles from your home,wait is one week for appointment and 0.5 hour in waitingroom

c. Dentist CCost is $75 , located 3miles from your job,wait is one week for appointment and no time in waitingroom

d. Dentist DCost is $75, located 3 miles from your job,wait is one week for appointment and no time in waitingroom; nitrous oxide used so no pain is involved


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PRICE AS AN INDICATOR OFSERVICE QUALITY

An Attraction As Well As Repellent

Customers use of as an indicator of qualitydepends on many factors, brands andother cues

Risk associated in credence services, moredependence to link price to quality

Price Is Judged From Quality More In

Services Too low price may indicate an inferior

service


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Review of Marketing Principles of Pricing

Factors to be considered while setting the pricing policy;including: objs, determining demands, estimating costs,analyzing competitors prices, selecting a pricing methodand selecting the final price.

Companies do not always seek to max profits thoughpricing. Other objs include survival, sale growth, marketshare etc.

Marketers need to understand how responsive demandwould be to a change in price.

Various types of costs including direct, indirect, fixedand variable etc.

Competitors prices will affect the desirability of acompanys offerings and must be considered inestablishing prices.

A variety of pricing methods exist After setting a price structure, companies adapt prices

using geographic pricing, discounts and allowances,promotional pricing, discriminating pricing etc.


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OBJECTIVES OF PRICING

Rate Of Return

Market Stabilization

Demand-led Pricing

Competition-led Pricing

Pricing To Reflect Product Differentiation

Market Skimming

Market Penetration

Early Cash Recovery


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PRICE SENSITIVITY


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3CsMODE

LFOR

PRICESETTING


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APPROACHES TO PRICING SERVICES

Cost-based Pricing Price= Direct Costs +OHC+ profit Margin

Problems

Costs Are Difficult To Trace

Labor Is More Difficult To Price Than Material

Costs May Not Equal Value Competition Based Pricing

Problems

Small Firms May Change Too Little To Be Viable

Heterogeneity Of Services Limits Comparability

Prices May Not Reflect Customer Value

Demand Based Pricing Monetary Price Must Be Adjusted To Reflect The Value Of Non-monetary

Costs

Info On Services Costs Is Less Available to Customers, hence Price May NotBe A Central Factor.


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APPROCHES TO PRICING SERVICES

COMPETITION BASED PRICING Does not imply charging the identical rate rather using other prices as an

anchor. Two situations:-

When services are standard across providers Few but large service provider firms.

COST-BASED PRICING Cost are difficult to trace particularly when the firm is in multiple services

e.g. teller time accurately across its checking, savings and money marketsaccounts

Major component is Labor time rather than materials. Fee of service used by professional Record keeping is a big problem

DEMAND BASED PRICING ( Customer Approach) Setting price consistent with customer perception of value Monetary price must be adjusted to reflect the value of non monetary costs. Information on service costs is less available to customers, hence price may

not be a central factor. Every customer will perceive value differently because of idiosyncratic taste,

knowledge, buying power and ability to pay


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EFFECTIVENESS OF SERVICE

What market perceives to be worth of servicein terms of its value. To do following steps tobe followed:- Elicit customer definitions of value in their own

words and terms, allowing for the full range of

components. Help customer articulate their expression of value

by identifying their value definition. Capture requirements information at the concrete

level linking with the key benefits they indicate so

that definition becomes actionable Quantify the monetary and non-monetary value to

customers. Establish a price based on the value of the service

to customers.


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VALUE IS THE QUALITY IGET FROM THE PRICE I PAY

VALUE PRICINGMARKET SEGMENTATION

PRICING

VALUE IS LOW PRICE

DISCOUNTINGODD PRICING

SYNCHRO-PRICING

PENETRATION PRICING

VALUE IS EVERYTHING THATI WANT IN A SERVICE

PRESTIGE PRICINGSKIMMING PRICING

VALUE IS ALL THAT I GETFOR ALL THAT I GIVE

PRICE FRAMINGPRICE BUNDLING

COMPLEMENTARY PRICING

RESULTS-BASED PRICING

PRICING STRATEGIES THAT LINK TOTHE FOUR VALUE DEFINITIONS


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FOUR MEANINGS OF PERCIEVED VALUE

3-VALUE IS THE QUALITY I GETFOR THE PRICE I PAY

Hotel for vacation: Value is price & QualityBusiness Travel- lowest price with Brand

1-VALUE IS LOW PRICE

Dry cleanersCarpet steam cleaning

Airline discounted ticket

2-VALUE IS EVERYTHING IWANT IN A SERVICE

A social club: Makes me look goodA music concert: Value is performance

MBA Degree: Best education I get

4-VALUE IS ALL THAT I GETFOR ALL THAT I GIVE

For housekeeping service: Nos of roomsFor hair stylist: cost & Time & look

An Educationist: a good experience in

Short time

Four components expression of value is one overall definition

consistent with the concept of utility in Economics: Perceived value is

the customers overall assessment of the utility of a service based on

perceptions of what is received and what is given


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FOUR MEANINGS OF PERCIEVED VALUE

VALUE IS THE QUALITY I GETFOR THE PRICE I PAY

FOR HOTEL FOR VACATIONSFOR HOTEL FOR BUISNESS

TRAVEL

VALUE IS LOW PRICE

FOR DRY CLEANERSFOR CARPET STEAM

CLEANING

VALUE IS EVERYTHING IWANT IN A SERVICE

FOR A SOCIAL CLUBFOR A ROCK OR A COUNTRY

MUSIC CONCERT

VALUE IS ALL THAT I GETFOR ALL THAT I GIVE

FOR HOUSEKEEPING SERVICEFOR HAIR STYLE

Lesson 12- Pricing

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