Pricing in Services

8/7/2019 Pricing in Services

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Pricing in servicesPricing in services


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CharacteristicsCharacteristics

It is intangibleIt is intangible

It doesnt result in ownershipIt doesnt result in ownership

It may or may not be attached to physicalIt may or may not be attached to physical

product.product.

It is an activity or processIt is an activity or process

It may not be keep in stockIt may not be keep in stock


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Pricing in servicesPricing in services

Price of a product or service may be seen as aPrice of a product or service may be seen as afinancial expression of value of that product orfinancial expression of value of that product or

service,for a customer price is the monetaryservice,for a customer price is the monetaryexpression of the value to be enjoyed benefitsexpression of the value to be enjoyed benefitsof a product or service as compared with otherof a product or service as compared with otheravailable items.available items.

Higher price is associated with better quality .InHigher price is associated with better quality .Inservice fixed cost is high and variable cost isservice fixed cost is high and variable cost islow. Price of same service can be changedlow. Price of same service can be changedaccording to demand.according to demand.


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Basic price structure andBasic price structure and

difficulties associated withdifficulties associated with

usage of services.usage of services.

ost basedCost based

Demand basedDemand based

Competition basedCompetition based


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The method determines the price of a product or serviceThe method determines the price of a product or service

that uses direct costs, indirect costs, and fixed coststhat uses direct costs, indirect costs, and fixed costswhether related to the production and sale of the productwhether related to the production and sale of the product

or service or not. These costs are converted to per unitor service or not. These costs are converted to per unit

costs for the product and then a predeterminedcosts for the product and then a predetermined

percentage of these costs is added to provide a profitpercentage of these costs is added to provide a profit

margin.margin.

Cost based pricingCost based pricing


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Demand basedDemand basedIt involves setting prices consistent with customer

perception of value .prices are based on whatcustomers will pay for the service.

Competition basedCompetition basedFocus is on the price charged by other firms in the same

industry or market.

Does not imply charging the identical rate but use it as ananchor for the firms price.

E.g.- In oligopolies with a few large service providers likeairlines ,rental car industry .


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Difficulties associated withDifficulties associated with

pricingpricing

Small firms may change too little to beSmall firms may change too little to be

viable.viable.

Heterogeneity of services limitsHeterogeneity of services limits

comparability.comparability.

Prices may not reflect customer value.Prices may not reflect customer value.


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Pricing tripodPricing tripod

The pricing tripod explains the foundation under lyingThe pricing tripod explains the foundation under lying

the price strategies.the price strategies.

It consist of cost ,competition ,value to customerIt consist of cost ,competition ,value to customer The cost that firm needs to recover usually imposeThe cost that firm needs to recover usually impose

minimum price for a specific service offering.minimum price for a specific service offering.

Customers perceived value of offerings sets a ceilingCustomers perceived value of offerings sets a ceiling

on price.on price.

The price charged by competitors determines whereThe price charged by competitors determines where

with in the floor to ceiling range the price can be set.with in the floor to ceiling range the price can be set.

Price=direct cost +overhead cost+ profit marginPrice=direct cost +overhead cost+ profit margin


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Price as an indicator of service qualityPrice as an indicator of service quality

Customer prefer cues like company reputation, level ofCustomer prefer cues like company reputation, level ofadvertising to access the quality.advertising to access the quality.

In other situation when quality is hard to detect on priceIn other situation when quality is hard to detect on price

varies in great deal with in a class of servicesvaries in great deal with in a class of servicesconsumer may believe that price is best indicator ofconsumer may believe that price is best indicator ofquality.quality.

In case of high rate services like medical treatmentIn case of high rate services like medical treatmentcustomer look price as a surrogate for quality.customer look price as a surrogate for quality.

Thus in addition to cover the cost and matchThus in addition to cover the cost and matchcompetitors prices, price must be set with care tocompetitors prices, price must be set with care toconvey the appropriate service quality.convey the appropriate service quality.


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Pricing strategies when thePricing strategies when the

customer defines value ascustomer defines value as

low price.low price. DiscountingDiscounting

Odd pricingOdd pricing

Penetration pricingPenetration pricingIn these case the price is set at a low level inorder toIn these case the price is set at a low level inorder to

attract high volume sales thus penetrating the market andattract high volume sales thus penetrating the market and

gaining substantial sharegaining substantial share

Mixed pricingMixed pricingThisThis pricingpricing contains both penitration and skimmingcontains both penitration and skimming

price policies then reduce the price as competitorsprice policies then reduce the price as competitors

enter the market to defend the organisations positionsenter the market to defend the organisations positions

and attract new customersand attract new customers


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Pricing strategies whenPricing strategies when

value is every thingvalue is every thing Prestige pricePrestige price

Skimming priceSkimming priceHere the supplier skims the creamof the marketHere the supplier skims the creamof the market

by offering a product or a service at a high price on lowby offering a product or a service at a high price on low

volume basis.volume basis.

Value priceValue price

Cost plus pricingCost plus pricingHere the cost is based on the cost of producing goodsHere the cost is based on the cost of producing goods

or providing serviceor providing service


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Competitor pricingCompetitor pricingThis is competition oriented pricing. Organisation needThis is competition oriented pricing. Organisation need

information about competitor prices in order to make pricinginformation about competitor prices in order to make pricing

decisionsdecisions

Promotion pricingPromotion pricingsales promotion techniques often use tactical pricingsales promotion techniques often use tactical pricing

reduction as a means of increasing sales over a short periodreduction as a means of increasing sales over a short periodEg: discounts , special offer,vouchers etc....Eg: discounts , special offer,vouchers etc....

Diferential pricingDiferential pricingThis is a form of pricing where different price are charged forThis is a form of pricing where different price are charged for

the same service at different timesthe same service at different times

Variable priceVariable priceThis is particularly relevent in industrial and business toThis is particularly relevent in industrial and business to

business marketbusiness market


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Why pricing of service isWhy pricing of service is

criticalcritical Customer knowledge of service priceCustomer knowledge of service price--price is a price point inprice is a price point in

memory for goods or a service.memory for goods or a service.

High degree of variability often exists across providers of servicesHigh degree of variability often exists across providers of services--not every physicians define a check up the same way.not every physicians define a check up the same way.

Providers are willing to estimate prices in advance ,serviceProviders are willing to estimate prices in advance ,serviceproviders ,fundamental reason being they do not know themproviders ,fundamental reason being they do not know themselves what the service will involve until the process of serviceselves what the service will involve until the process of servicedelivery unfolds.delivery unfolds.

Individual customer needs varyIndividual customer needs vary

Comparison of price become difficult unlike goods.Comparison of price become difficult unlike goods.

(where the product range is displayed for comparison like to(where the product range is displayed for comparison like tocompare)compare)

Price invisibilityPrice invisibility-- particularly in financial services most customersparticularly in financial services most customersknow only about the rate of return and not the costs they pay inknow only about the rate of return and not the costs they pay inform of fund and service fee.form of fund and service fee.


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Pricing strategies to reduce uncertainityPricing strategies to reduce uncertainity

Service guaranteeService guarantee

Benefit drivenBenefit driven-- pricing that aspect of servicepricing that aspect of service

that creates value.that creates value. Flat rateFlat rate Quoting a fixed price in advance.Quoting a fixed price in advance.


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Too low priceToo low price in accurate influencein accurate influence

Too high priceToo high price difficult to meet servicedifficult to meet service

delivery.delivery.


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The main factors affecting price-setting methods are:

(1) provider payment systems;

(2) information available on actual costs, servicevolumes and outcomes; and

(3) characteristics of providers and purchasers.

Main factors affecting pricing........Main factors affecting pricing........


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Till 1980 every one was dependent on the post office for mail

transfer .but then came private player to relive from the total

dependence on the post office with a promise to deliver the

documents faster and safer .

The courier business is beginning to come to age in India . The

business has really grown in last five years .currently the market

stands at R s 300 crores and is growing at around 40%per annum

.Bulk of it is with the organized sector. The leading players in the

business are blue dart, d h l, elbee ,skypak ,speed post.

The international segment constitute 65% of the market by value

,though by volume the domestic business is far greater.

Pricing in courier servicesPricing in courier services

speed postspeed post


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Speed post service which was launched in the year1986,completed its six years of existence on 1st august 1992.it has

shown phenomenal growth during all these years and has

established itself as a market leader in domestic sectr.

It has very humble beginning ,covering 7 domestic and 3

international destinations .Today the service is available for 82

cities ,61 countries and more than 664 point to point destinations

.it has more than 550 booking offices with many round clock

counters. It has a unique money transfer (SPMO) facility ,bookyour own article scheme ,book now pay later facility and

contractual service to any point in the country.

Lower price and wider network is its strength.

Speed postSpeed post


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Book now pay later facility

Book your own article scheme

Contractual service for any place in the country

Money transfer facility

Money back guarantee

Round the clock booking counters

Special featuresSpecial features


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In the year 1986 when speed post was introduced , a detailed study ofthe competitors products and their pricing was done .It was found thatthe minimum rate for an article to be couriered by a competitor was

between RS 35 to RS 45.keeping this in view it was thought that itcould really price the service the cost between RS 20 to RS 30 per

article for different destinations .The price include the cost of normalpostage ,registration charges and air surcharge.

It was estimated that after taking in to consideration the expendituremade on special arrangements for speed post booking ,transmissions

and delivery ,speed post would be able to make profit also. The speedpost tariff could be fixed lower to that of its competitors because of theinbuilt facilities and existing infrastructure.

Pricing in speed post....Pricing in speed post....


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conclusionconclusion

Pricing is yet another variable for marketing mix.Pricing is yet another variable for marketing mix.

A particular product or service is acceptable toA particular product or service is acceptable to

the customer at a particular price and if the pricethe customer at a particular price and if the priceis increased ,its likely that the same product oris increased ,its likely that the same product or

service mighservice might loose its demand and viceversa.loose its demand and viceversa.

In services, the pricing strategy should beIn services, the pricing strategy should be

suchthat demand fluctuation are sucessfullysuchthat demand fluctuation are sucessfully

handled.handled.

Pricing in Services

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