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Pricing in Service Industry. By. Vandana Sachdeva and Prabhleen Sarna . PRICE-A value that will purchase a definite quantity , weight , or other measure of a good or service

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Pricing in service industry
Pricing in Service Industry

By

Vandana Sachdeva andPrabhleen Sarna


PRICE-A value that will purchase a definitequantity, weight, or other measure of a good or service

PRICING is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition, market condition, and quality of product.


“A price is not merely a function of costs

and margins…”

Costs + Margins = PRICE

…it is an expression ofVALUE


Minimize OptimizeMaximize

Costs + Margins = PRICE

VALUE

  • Product performance

    Usefulness & Quality

  • Image / Aspirations

    Brand Equity

  • Availability

    Distribution Strategy

  • Service

    Before/During & After sales

  • Production costs

  • Indirect costs

  • Advertisingcosts

  • Distribution costs

  • Manufacturer’s margin

  • Distributor’smargin

  • Seller’s margin



When should a firm set price for the first time
When should a firm set price for the first time?

When. . .

  • It develops a new product

  • It introduces its regular product into a new distribution channel or geographical area

  • It enters bids on new contract work (as in Industrial Sale)


Significance of pricing
SIGNIFICANCE OF PRICING

  • This is the only element in the marketing mix that brings in the revenues. All the rest are costs.

    PROFIT=(PRICE X QUANTITY SOLD) – TOTAL COST

  • Price communicates the value positioning of the product.

  • Price has a psychological impact on consumers and hence marketers can use it symbolically.


Objectives of pricing
OBJECTIVES OF PRICING

  • Profit maximization in the short term

  • Profit optimization in the long run

  • Price Stabilization

  • Facing competitive situation

  • Maintenance of market share

  • Capturing the Market

  • Entry into new markets

  • Ability to pay


Factors affecting pricing decisions
FACTORS AFFECTING PRICING DECISIONS

Internal Factors

External Factors


INTERNAL FACTORS

  • Marketing Objectives

    • Positioning

    • Target Group

  • Marketing Mix Strategy

    • 4 P’s

  • Costs

    • Fixed & Variable

  • Management Approach

    • Responsibility

    • Perspective


External factors

Market

Pure Competition

Monopolistic Competition

Oligopolistic Competition

Pure Monopoly

Demand

Elastic / Inelastic

Competition

Competitors’ offers

Competitiors’ reactions

Economy

Buying power

Government Influence

Laws & Regulations

EXTERNAL FACTORS


How service prices differ from goods prices customers perspective
HOW SERVICE PRICES DIFFER FROM GOODS PRICES (Customers Perspective)

  • 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

    • Prices are not visible

  • Role of non-monetary costs:

    • Time costs

    • Search costs

    • Convenience costs

    • Psychological costs

  • Price as an indicator of service quality


What do customers know about the prices of services
What Do Customers Know about the Prices of Services?

Banking?

Wedding

Advisor?

Hospital?

Nutritionist?


Customers Will Trade Money for Other Service Costs

=

or

or

Time

Psychic Costs

Effort


Cost-Based Pricing

  • Cost-Plus PricingProduct Cost + Standard Mark-Up = Price

  • BE Analysis & Target Profit Pricing

    A necessary survival tool


Buyer-Based Pricing

  • Perceived ValueConsider buyers’ perceptions of value NOT the cost



Three basic price structures and difficulties associated with usage for services
Three Basic Price Structures and Difficulties Associated with Usage for Services

PROBLEMS:

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. Costs difficult to trace

2. Labor more difficult to

price than materials

3. Costs may not equal value

Cost-Based

Competition-Based

Demand-Based

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


Setting right price is a crucial decision to the profitability of services and of all the decisions of marketing mix, pricing decisions are hardest to make. It is the most challenging decision the business must take. The marketer may decide to follow any strategy that suits best for their services and earn revenues.

Revenues

PRICE

Generates


Price change
Price Change

  • Reaction of Customers:Choose a substitute / Forgo the purchase

  • Reaction of Competitors/responding to competitor’s price change:

    • Maintain price

    • Maintain price and add value

    • Reduce price

    • Increase price and quality

    • Launch a low price fighter


Customer s perceived value
Customer’s Perceived Value

Value = Quality ÷ Price

  • Value is low Price.

  • Value is what they want in a service.

  • Value is the quality they get for the price.

  • Value is all that I get for all that I give







Loss leader
Loss Leader













Discounts and allowances
Discounts and Allowances

  • Cash Discount

  • Trade Discount

  • Early payment

  • Seasonal Discount

  • Bulk purchase (Quantity Discount)

  • Commission

  • Other Allowances



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