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  1. S M Chapter 16 PRICING OF SERVICES © 2000 The McGraw-Hill Companies McGraw-Hill

  2. Objectives for Chapter 16:Pricing of Services • Discuss three major ways that service prices differ from goods prices for customers • Demonstrate what value means to customers and the role that price plays in value • Articulate the key ways that pricing of services differs from pricing of goods • Delineate strategies that companies use to price services • Give examples of pricing strategy in action

  3. Figure 16-2What Do Customers Know about the Prices of Services? Pet Sitter? Wedding Advisor? Nutritionist? Braces?

  4. Figure 16-3Customers Will Trade Money for Other Service Costs = or or Psychic Costs Time Effort

  5. Figure 16-4Three Basic Price Structures and Difficulties Associated with Usage for Services PROBLEMS: 1. Costs difficult to trace 2. Labor more difficult to price than materials 3. Costs may not equal value PROBLEMS: 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 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

  6. Figure 16-5 Four Customer Definitions of Value “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”

  7. “Value is Low Price” • Discounting • Odd Pricing • Synchro-pricing • Penetration Pricing Figure 16-6 Pricing Strategies When the Customer Defines Value as Low Price

  8. Figure 16-7 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

  9. “Value is the Quality I Get for the Price I Pay” • Value Pricing • Market Segmentation • Pricing Figure 16-8 Pricing Strategies When the Customer Defines Value as Quality for the Price Paid

  10. Figure 16-9 Pricing Strategies When the Customer Defines Value as All that is Received for All that is Given “Value is All that I Get for All that I Give” • Price Framing • Price Bundling • Complementary Pricing • Results-based Pricing

  11. Figure 16-10 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 • Prestige Pricing • Skimming Pricing “Value is All that I Get for All that I Give” “Value is the Quality I Get for the Price I Pay” • Price Framing • Price Bundling • Complementary Pricing • Results-based Pricing • Value Pricing • Market Segmentation • Pricing