TARGETING IN SERVICES

MARKETING
Targeting in Segments are selected because their needs
Services : and other characteristics fit well with a
specific firm’s goals and capabilities.
Definition
Common Pricing
Strategies
 market
skimming

contribution
value pricing
pricing

penetration
loss leader
pricing
Pricing
Strategies

cost-plus psychological
pricing pricing

predatory competitor
pricing pricing
PENETRATION PRICING
market
skimming

contribution
value pricing
pricing

penetration loss leader

pricing Pricing
Strategies

cost-plus psychological
pricing pricing

predatory competitor
pricing pricing
 Prices set to ‘penetrate the market’

‘Low’ price to secure high volumes

Penetration Typical in mass market products – chocolate

bars, food stuffs, household goods, etc.
Pricing
Suitable for products with long anticipated
life cycles

May be useful if launching into a new

market
MARKET SKIMMING
market
skimming
contribution
value pricing
pricing

penetration
loss leader
pricing
Pricing
Strategies

cost-plus psychological
pricing pricing

predatory competitor
pricing pricing
 High price, Low volumes

Skim the profit from the market

Market
Skimming Suitable for products that have short life cycles
or which will face competition at some point in
the future (e.g. after a patent runs out)

Examples include: Playstation, jewellery, digital

technology, new DVDs, innovations and First to
Market products etc.
VALUE PRICING
market
skimming
value
contribution
pricing pricing –
based on
perceived value

penetration
loss leader
pricing
Pricing
Strategies

cost-plus psychological
pricing pricing

predatory competitor
pricing pricing
VALUE PRICING

Price set in accordance with

customer perceptions about the
value of the product/service

Examples include status

products/exclusive products /art
Companies may be able to set prices according to
pieces perceived value.

Copyright: iStock.com
LOSS LEADER
market
skimming

contribution
value pricing
pricing

loss
penetration
pricing
leader –
Pricing sold at cost or
below to attract
Strategies buyers

cost-plus psychological
pricing pricing

predatory competitor
pricing pricing
LOSS LEADER

Goods/services deliberately sold below cost to encourage sales elsewhere

Typical in supermarkets, e.g. at Eid Celebration, selling bottles of carbonated drinks at

MYR 0.50 in the hope that people will be attracted to the store and buy other things

Purchases of other items more than covers ‘loss’ on item sold

e.g. ‘Free’ mobile phone when taking on contract package

PSYCHOLOGICAL PRICING
market
skimming

contribution
value pricing
pricing

penetration
loss leader
pricing
Pricing
Strategies

cost-plus psychological
pricing
pricing eg RM19.99

predatory competitor
pricing pricing
 Used to play on consumer
perceptions

Psychological Classic example - RM9.99 instead of

RM10.99!
Pricing
Links with value pricing – high value
goods priced according to what
consumers THINK should be the price
COMPETITOR PRICING(GOING RATE)
market
skimming

contribution
value pricing
pricing

penetration
loss leader
pricing
Pricing
Strategies

cost-plus psychological
pricing pricing

predatory competitor
pricing
pricing
 In case of a price leader, rivals have difficulty in
competing on price – too high and they lose
market share, too low and the price leader would
Competitor match price and force smaller rival out of market

Pricing In this strategy, we are compelled to follow

pricing leads of rivals especially where those
(Going rivals have a clear dominance of market share

Rate) Where competition is limited, ‘going rate’ pricing

may be applicable – banks, petrol, supermarkets,
electrical goods – find very similar prices in all
outlets
PREDATORY PRICING
market
skimming

contribution
value pricing
pricing

penetration
loss leader
pricing
Pricing
Strategies

cost-plus psychological
pricing pricing

predatory competitor
pricing
pricing
 Deliberate price cutting or offer of ‘free
gifts/products’ to force rivals (normally
smaller and weaker) out of business or
prevent new entrants

Destroyer/Predatory Flooding the market with cheap (often

Pricing imported) goods

Anti-competitive and illegal if it can be

proved
Contribution Pricing
market
skimming

contribution value pricing

pricing

penetration
loss leader
pricing
Pricing
Strategies

cost-plus psychological
pricing pricing

predatory competitor
pricing pricing
 Contribution = Selling Price – Variable (direct costs)

Prices set to ensure coverage of variable costs and a

‘contribution’ to the fixed costs/overheads

Contribution Similar in principle to cost-plus pricing

Pricing
Every product sold gives back a contribution
towards covering the running costs of the business

Break-even analysis might be useful in such

circumstances
Cost-Plus Pricing
market
skimming

contribution
value pricing
pricing

penetration
loss leader
pricing
Pricing
Strategies

cost-plus psychological
pricing
pricing

predatory competitor
pricing pricing
 The cost of the product + mark-up = selling price.

You can do this by using a fixed percentage (150%, 200%) or a

Cost-Plus fixed markup (RM10, RM50, RM500)

Pricing The advantage of this method is that you are able to calculate
your expected profit level very easily.

The disadvantage is that it may be less, or more, than customers

are willing to pay and, most importantly, some hidden costs may
be forgotten and so the actual profit is less than you think (or
even a loss)
COMPETITIVE
ADVANTAGE
USING FOCUS
COMPETITIVE
ADVANTAGE
USING FOCUS
FULLY FOCUSED.
A fully focused organization
provides a limited range of
services (perhaps just a single
core product). For example,
private jet charter services may
focus on high-net-worth
individuals or corporations
(Figure 3.6).
COMPETITIVE ADVANTAGE USING FOCUS

In a market-focused strategy,
a company offers a wide range
MARKET FOCUSED
of services to a narrowly
defined target segment.
COMPETITIVE ADVANTAGE
USING FOCUS
• SERVICE FOCUSED

• Service-focused firms offer a narrow range of services

to a fairly broad market (Figure 3.7). Lasik eye surgery
clinics and Starbucks coffee shops follow this strategy,
serving a broad customer base with a largely
standardized product. However, as new segments are
added, the firm needs to develop the necessary expertise
in serving each segment. Furthermore, this strategy is
likely to require a broader sales effort and greater
investment in marketing communication—particularly in
B2B markets.
COMPETITIVE
ADVANTAGE
USING FOCUS
• UNFOCUSED

Many service providers fall into

the unfocused category because
they try to serve broad markets
and provide a wide range of
services. Unfocused firms are
often “jacks of all trades and
masters of none.” In general,
that’s not a good idea, although
public utilities and government
agencies may be obliged to do
so.
COMPETITIVE
ADVANTAGE USING
FOCUS
• A service-focused strategy can
work best if the firm has a unique
set of capabilities and resources to
deliver a particular service
exceptionally well or cost-
effectively. The firm may then want
to use its advantage to deliver the
service to a broad market (i.e.,
many customer segments at the
same time).
COMPETITIVE
ADVANTAGE USING
FOCUS
• A fully focused strategy can
deliver superb quality at low costs
if a particular
• The segment has very specific
needs and requires a unique design
of the service environment, service
processes, and interaction with the
firm’s front-line employees.