1

SM
Chapter 16

PRICING OF SERVICES

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McGraw-Hill © 2000 The McGraw-Hill Companies
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Objectives for Chapter 16:
SM 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

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Figure 16-2

SM What Do Customers Know about

the Prices of Services?

Wedding Pet Sitter?

Advisor?

Nutritionist?
Braces?

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Figure 16-3
SM Customers Will Trade Money for
Other Service Costs

= or or

Time Effort Psychic Costs

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 Figure 16-4 5
Three Basic Price Structures and
SM Difficulties Associated with Usage for
Services
PROBLEMS:
PROBLEMS: 1. Costs difficult to trace
1. Small firms may charge too

Co
2. Labor more difficult to

d n-
little to be viable price than materials

st
se itio
2. Heterogeneity of services 3. Costs may not equal value

-B
limits comparability

as
3. Prices may not Ba p e t

ed
m
reflect customer
Co

value

sed
-B a
d
man
De
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
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SM Figure 16-5
Four Customer Definitions of Value

“Value is Low Price” “Value is Everything

I Want in a Service”

“Value is the “Value is All that

Quality I Get for I Get for All
the Price I Pay” that I Give”

McGraw-Hill © 2000 The McGraw-Hill Companies

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Figure 16-6
SM Pricing Strategies When the
Customer Defines Value as Low Price

“Value is Low Price”

 Discounting
 Odd Pricing
 Synchro-pricing
 Penetration Pricing

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 Figure 16-7 8
Pricing Strategies When the
SM Customer Defines Value as
Everything Wanted in a Service

“Value is Everything
I Want in a Service”

 Prestige Pricing
 Skimming Pricing

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 Figure 16-8 9
Pricing Strategies When the
SM Customer Defines Value as
Quality for the Price Paid

“Value is the Quality

I Get for the Price I Pay”

 Value Pricing
 Market Segmentation
Pricing

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Figure 16-9
Pricing Strategies
SM 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

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Figure 16-10

SM Summary of Service Pricing Strategies

for Four Customer Definitions of Value

“Value is Low Price” “Value is

Everything
 Discounting I Want in a Service”
Prestige Pricing
 Odd Pricing  Skimming Pricing
 Synchro-pricing
 Penetration Pricing

“Value is the Quality “Value is All that

I Get for the Price I Pay” I Get for All that I Give”

 Value Pricing  Price Framing

 Market Segmentation  Price Bundling
Pricing  Complementary
Pricing
 Results-based Pricing
McGraw-Hill © 2000 The McGraw-Hill Companies