Pricing of Services

1. Pricing of Services Chapter 17

2. Pricing of Services • What makes pricing of services more difficult than pricing of goods? • For example, why are some services priced higher than other?

3. 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 • The Role of Non-monetary Costs • Time costs • Search costs • Convenience costs • Psychological costs • Price as an Indicator of Service Quality

4. Video: Ticket Takers

5. 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

6. Three Basic Marketing Price Structures and Challenges Associated with Their Use for Services Figure 17.1 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. Challenges: 1. Small firms may charge too little to be viable. 2. Heterogeneity of services limits comparability. 3. Prices may not reflect customer value. Cost-based Competition- based Demand-based Challenges: 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.

7. Four Customer Definitions of Value Figure 17.4 Value is everything I want in a service. Value is low price. Value is the quality I get for the price I pay. Value is all that I get for all that I give.

8. Pricing Strategies When the Customer Defines Value as Low Price Figure 17.5 Value is low price. • Discounting • Odd pricing • Synchro-pricing • Penetration pricing

9. Pricing Strategies When the Customer Defines Value as Everything Wanted in a Service Figure 17.8 Value is everything I want in a service. • Prestige pricing • Skimming pricing

10. Pricing Strategies When the Customer Defines Value as Quality for the Price Paid Figure 17.10 Value is the quality I get for the price I pay. • Value pricing • Market segmentation pricing

11. 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. • Price framing • Price bundling • Complementary pricing • Results-based pricing

12. Summary of Service Pricing Strategies for Four Customer Definitions of Value Figure 17.14 Value is everything I want in a service. Value is low price. • Discounting • Odd pricing • Synchro-pricing • Penetration pricing • Prestige pricing • Skimming pricing Value is the quality I get for the price I pay. Value is all that I get for all that I give. • Value pricing • Market segmentation pricing • Price framing • Price bundling • Complementary pricing • Results-based pricing