Professional Documents
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Pricing of Services
Pricing of Services
Challenges:
Costs are difficult to trace as cost based pricing involves
defining the units in which a service is purchased
Thus services are sold in terms of input units (like hours) rather
units of measured output
Labor is more difficult to price than material
Used in industries in which cost can be estimated in advance
like, advertising, construction
Competition-Based Pricing
Challenges:
Small firms may charge too and not make margins high enough
to remain in business
Heterogeneity of services across and within providers makes it
difficult to compare
Demand-Based Pricing
Challenges:
Monetary price must be adjusted to reflected the value of
non-monetary costs
Information on service costs may be less available to
customers, making monetary price not as salient indicator
to quality
Value has 4 meanings:
1. Value is low price – equate value with low price like, a
carpet on sale
3. Value is the quality I get for the price I pay – trade off
between the money they give up and the quality they
receive like, for a business travel, lowest price for a
quality brand
4. Value is all that I get for all that I give – consider all
benefits and sacrifice components (money, time, effort)