PRICING OF SERVICES

PRESENTED BY:
ABHISHEK PANDEY
SMRITI RAJAWAT
 Why Pricing of Services is different?
 Customer knowledge of service price – a reference price is a price
point in memory for a good or a service.

 High degree of variability often exists across providers of services –

not every physician defines a checkup the same way.

 Providers are unwilling to estimate prices in advance – legal service

providers; fundamental reason being they do not know themselves
what the service will involve until the process of service delivery
unfolds
Individual customer needs vary – your haircut
from the same stylist may cost you differently.

Price invisibility – particularly in financial

services, most customers know about only the
rate of return and not the costs they pay in
form of fund and insurance fees
Role of Non-monetary Cost

 Demand is not just a function of monetary price but is influenced

by other costs as well. Like:
 Time cost since most services require direct participation of the
consumer and thus their real time
 Search costs - the effort invested to identify and select among
services you desire since prices for services are rarely displayed in
shelves an each service establishment offers only one brand of
service (except brokers & agents)
 Convenience costs – like customers have to travel to the service, if
service hours do not coincide with customer’s available time
 Psychological costs – fear of not understanding (education), fear of
rejection (bank loan), fear of results (surgery)
Price as an Indicator of Service Quality
 Customers prefer cues like company reputation, level of advertising
to access the quality
 In other situations when quality is hard to detect or price varies a
great deal within a class of services, consumers may believe that
price is the best indicator of quality
 In case of high risk services like medical treatment, customer looks
price as a surrogate for quality
 Thus in addition to cover the cost and match competitors price,
prices must be set with care to convey the appropriate service
quality
 APPROACHES TO PRICING SERVICES

THE PRICING TRIPOD

COST BASED PRICING

COMPETITION BASED PRICING

DEMAND BASED PRICING

Cost -Based Pricing
Price = Direct costs + Overhead costs + Profit Margin
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
 Monitor competitors’ pricing strategy (especially if service lacks
differentiation like dry cleaning and its an oligopoly like airline)
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
 Relate price to value perceived by customer i.e. prices are based
on what customers will pay for the services provided

 Challenges:

1. Monetary price must be adjusted to reflected the value of non-

monetary costs .

2. Information on service costs may be less available to customers,

making monetary price not as salient indicator to quality.
• Product-form Pricing: Different prices charged for different
variants of the same product.
E.g., The price of the same type of a car may vary because of
different color and add-on features.

• Location Pricing: The companies charge different prices for the

same product on the basis of different locations where it is offered.
E.g., In movie theaters the customer pays different amounts for the
different locations from where they can watch movies.
• Time pricing: The price of a product varies with the time, such as
the price charged is less in the off-season as compared to the season
time. Also, the movie tickets for the matinee show is less as
compared to other show timings.
Value is low price. Value is everything I want in
• Discounting service.
• Odd pricing • Prestige pricing
• Synchro-pricing •Skimming pricing
• Penetration pricing

Value is all that I get for all

Value is the quality I get for the
that I give.
price I pay.
• price framing
• Value pricing
•Price bundling
• Market segmentation pricing
•Complementary pricing
•Results based pricing