PRICING A SERVICES

Learning Objectives:

Describe the concept of price and value in services

State the objectives of pricing

Discuss various pricing approaches

Identify various pricing strategies

TEACH A COURSE 2
First Lesson
We will cover these skills:
 cognitive
 affective
 psychomotor

TEACH A COURSE 3
Price = quantity of money received by service
of service received by the
provider/quantity
buyer

Price is a component of
value. Most of us refer to
price as value but they
are not the same.

TEACH A COURSE 4
VALUE

Value is the ratio of perceived benefits of the

service to be purchased to price and other added
costs. Travelling time, hassles, energy costs, and
psychic costs are some examples of added costs.

TEACH A COURSE 5
BENEFITS OF VALUE:
1. Product Value: The worth assigned to the product by the customer.
Service Value: The worth assigned to the service by the customer.
Personnel Value: The worth assigned to the service-providing personnel by the customer.
Image Value: The worth assigned to the image of the service or the service provider by the
customer.
Monetary Price: The actual rupee price paid by the consumer for a product;
Time Costs: The time the customer has to spend to acquire the service
Energy Costs: The physical energy spent by the customer to acquire the service
Psychic Costs: The mental energy spent by the customer to acquire the service,

TEACH A COURSE 6
 Uses and Objectives

of Pricing

The importance of pricing to the

development of marketing strategy is
reflected in the diverse range of strategic
uses to which it is put:
 At the beginning of the life of a new
service, price is often used to gain entry
to a new market.
 Price is used as a means of maintaining
the market share of a service during its
life and is used tactically to defend its
position against competitors.
 Ultimately, for organization's working to
financial objectives, prices must be set
at a level that allows them to meet their
financial objectives.

TEACH A COURSE 7
 Pricing
Approaches
There are four important bases for
price determination:

1. What it costs to produce a service.

2. The amount that consumers are
willing to pay for it.

3. The price that competitors are

charging.

4. The constraints on pricing that

are imposed by government and/or
regulatory bodies.

TEACH A COURSE 8
 Here is what we learned

TEACH A COURSE 9
TEACH A COURSE 10
Cost as a Basis for Pricing
Simply put, in this method of pricing, the service marketer adds
up all his costs, adds his profit margin and the result is the price.
The skill required of the service marketer is the ability to identify
and measure the different types of costs: direct, indirect, fixed
and variable, etc. If the marketer makes any error in
identification or measurement of a particular type of cost input,
then it is going to affect his profitability - and he may not even
know about it. Worse, he may not know which service
component is contributing to profits and which is not.

TEACH A COURSE 11
Full Cost or Mark-up Pricing
Marginal Cost Pricing
Here prices are based on total or full cost plus the desired profit.
Retailers would call this desired profit as mark-up. The
breakeven analysis is a variation of this method. As elaborated
before, it does not take into account different types of costs.
These costs, in addition, are affected by changes in the volume
of output or the type of output. Full cost pricing ignores
consumer demand.
A special kind of cost-based pricing occurs when service firms
choose not to include their fixed costs.

TEACH A COURSE 12
Competitor
-based Pricing

This pricing is based on what the

competitor is offering

TEACH A COURSE 13
Competitor
-based Pricing

Going Rate Pricing: This is used in those services where cost levels are difficult to establish, and a going
rate is preferred.
Sealed-bid pricing: This is the system of tenders and quotations where bids are received from service
providers.
Pricing below the Competition Here, the new entrant service provider will price his offers below the
competition, with the full intention of increasing his market share at the time of consideration.
Pricing above the Competition This kind of pricing works only for premium or very distinctive services.

TEACH A COURSE 14
Demand-based Pricing

This is based on what the customers are prepared to pay.

Different customers have different upper-ceilings on the price
that they are willing to pay for a service. The skill required for a
service marketer is a fine knowledge of consumer demand and
the consumer ability to pay (correct identification of the early
adopters, middle-majority and laggards in a market) Price
discrimination logically takes place here.

TEACH A COURSE 15
 Pricing Strategies
New Service Pricing Strategy

Price Skimming Strategy

Service Portfolio Pricing

Tactical Pricing

Pricing Strategies for Public Sector Services

Internal Market Pricing

TEACH A COURSE 16
 COLLABORATIVE
LEARNING
GROUP
DISCUSSION:

“Pricing is one of the tactical tools least

understood by the marketer”. Discuss.
Explain how pricing can be an effective tool
while entering a market and trying to expand
market share.
Suppose you are the marketing head of a
travel and tour company. What factors will
you keep in mind while deciding prices for
your tour packages?
Is price equal to pricing? Substantiate your
answers with examples.

TEACH A COURSE 17
“Price is only a component of value”. Substantiate

TEACH A COURSE 18
 TAKE-AWAY

TEACH A COURSE 19
Thank You!
By: Ms. Marjorie Jalbuena
Instructor