Pricing of Services

Factors influencing Pricing

Type of organization Structure of market Life cycle stage of the service Price charged by competitors

Price in Services
Intangibility and price Price and quality Lack of stock and price Merchandise services and price Service customization and price Non-monetary aspects and price Control and service price

Unique Differences Associated With Service Prices

Demand consideration 1. Demand of services is more inelastic 2. Cross-price elasticity considerations need to be examined 3. Price discrimination is a viable practice to manage demand and supply challenges

 Cost consideration 1. Consumers may not know the actual price they will pay for a service until after the service is completed 2. Cost-oriented pricing is more difficult 3. Services are characterized by a high fixed and variable cost ratio 4. Service economies of scale tend to be limited

 Customer Consideration 1. Price is an important cue available to consumers during pre-purchase 2. Price is an important cue available to consumers for quality 3. Service consumers tend to be less certain about reservation prices

 Competitive considerations 1. Comparing prices of competitors is difficult 2. Self-service is a viable competitive alternative

 Profit considerations 1. Price bundling make the determination of individual prices in the bundle of services more complicated 2. Price bundling is more effective in service context

 Product consideration 1. Different names for price in the service sector 2. Consumers are less able to stockpile services by taking advantage of discount prices 3. Product-line pricing tends to be more complicated

 Legal considerations 1. Opportunity for illegal pricing practices to go undetected is greater for services

Pricing Techniques
Penetration pricing Price skimming Mixed pricing Cost-plus pricing Competitor pricing Promotional pricing Differential pricing

 1. 2.

Break even pricing Variable pricing Marginal pricing Satisfaction based pricing Benefit-driven pricing Flat-rate pricing

 1. 2.

Relationship pricing Price bundling Mixed bundling Efficiency pricing

Features of Good Pricing Policies

Price should be easy for customers to understand Price should represent value to the customer. Price should encourage customer retention and facilitate customers relationship Price should reinforce customer trust Price should reduce customer uncertainty