LESSON 12- SERVICES PRICING

THREE KEYS WAYS SERVICE PRICES ARE DIFFERENT FOR CONSUMERS

CUSTOMER KNOWLEDGE OF SERVICE PRICE (Ref Price)
Service Heterogeneity Limits Knowledge Provider Unwillingness To Estimate Prices Individual Customer Needs Vary Price Information Is Overwhelming In Services Prices Are Not Visible
Time Costs Search Costs Convenience Costs Psychic Costs Non-monetary Cost Priorities Reducing Non-monetary Costs

THE ROLE OF NON-MONETARY COSTS

PRICE AS AN INDICATOR OF SERVICE QUALITY

An Attraction As Well As Repellent Price Is Judged From Quality More In Services

THE ROLE OF NON-MONETARY COSTS

Time Costs Search Costs Convenience Costs Psychic Costs Non-monetary Cost Priorities Reducing Non-monetary Costs

 WHAT DO YOU KNOW ABOUT THE PRICES OF SERVICES 1. What do the following services cost in your home town? dental checkup General medical checkup Legal help with a DWI (driving while intoxicated) charge Dental braces Rental of a videocassette for one night One hour of housecleaning Room at the Hilton Haircut Oil change and blue

2. which of the fol would you select if you needed a filling replaced in a tooth?
a. Dentist A Cost is $25, located 15 miles from your home, wait is three week for appointment and 0.5 hour in waiting room b. Dentist BCost is $35, located 15 miles from your home, wait is one week for appointment and 0.5 hour in waiting room

c. Dentist CCost is $75 , located 3miles from your job, wait is one week for appointment and no time in waiting room
d. Dentist DCost is $75, located 3 miles from your job, wait is one week for appointment and no time in waiting room; nitrous oxide used so no pain is involved

PRICE AS AN INDICATOR OF SERVICE QUALITY

An Attraction As Well As Repellent Customers use of as an indicator of quality depends on many factors, brands and other cues Risk associated in credence services, more dependence to link price to quality Price Is Judged From Quality More In Services Too low price may indicate an inferior service

Review of Marketing Principles of Pricing

Factors to be considered while setting the pricing policy; including: objs, determining demands, estimating costs, analyzing competitors prices, selecting a pricing method and selecting the final price. Companies do not always seek to max profits though pricing. Other objs include survival, sale growth, market share etc. Marketers need to understand how responsive demand would be to a change in price. Various types of costs including direct, indirect, fixed and variable etc. Competitors prices will affect the desirability of a companys offerings and must be considered in establishing prices. A variety of pricing methods exist After setting a price structure, companies adapt prices using geographic pricing, discounts and allowances, promotional pricing, discriminating pricing etc.

OBJECTIVES OF PRICING
Rate Of Return Market Stabilization Demand-led Pricing Competition-led Pricing Pricing To Reflect Product Differentiation Market Skimming Market Penetration Early Cash Recovery

PRICE SENSITIVITY

3Cs MODEL FOR PRICE SETTING

APPROACHES TO PRICING SERVICES

Cost-based Pricing
Price= Direct Costs +OHC+ profit Margin Problems Costs Are Difficult To Trace Labor Is More Difficult To Price Than Material Costs May Not Equal Value

Competition Based Pricing

Problems Small Firms May Change Too Little To Be Viable Heterogeneity Of Services Limits Comparability Prices May Not Reflect Customer Value

Demand Based Pricing

Monetary Price Must Be Adjusted To Reflect The Value Of Non-monetary Costs Info On Services Costs Is Less Available to Customers, hence Price May Not Be A Central Factor.

APPROCHES TO PRICING SERVICES

COMPETITION BASED PRICING
Does not imply charging the identical rate rather using other prices as an anchor. Two situations: When services are standard across providers Few but large service provider firms.

COST-BASED PRICING

DEMAND BASED PRICING ( Customer Approach)

Cost are difficult to trace particularly when the firm is in multiple services e.g. teller time accurately across its checking, savings and money markets accounts Major component is Labor time rather than materials. Fee of service used by professional Record keeping is a big problem Setting price consistent with customer perception of value Monetary price must be adjusted to reflect the value of non monetary costs. Information on service costs is less available to customers, hence price may not be a central factor. Every customer will perceive value differently because of idiosyncratic taste, knowledge, buying power and ability to pay

EFFECTIVENESS OF SERVICE
What market perceives to be worth of service in terms of its value. To do following steps to be followed:-

Elicit customer definitions of value in their own words and terms, allowing for the full range of components. Help customer articulate their expression of value by identifying their value definition. Capture requirements information at the concrete level linking with the key benefits they indicate so that definition becomes actionable Quantify the monetary and non-monetary value to customers. Establish a price based on the value of the service to customers.

PRICING STRATEGIES THAT LINK TO THE FOUR VALUE DEFINITIONS

VALUE IS LOW PRICE
DISCOUNTING ODD PRICING SYNCHRO-PRICING PENETRATION PRICING VALUE IS EVERYTHING THAT I WANT IN A SERVICE PRESTIGE PRICING SKIMMING PRICING

VALUE IS THE QUALITY I GET FROM THE PRICE I PAY VALUE PRICING MARKET SEGMENTATION PRICING

VALUE IS ALL THAT I GET FOR ALL THAT I GIVE PRICE FRAMING PRICE BUNDLING COMPLEMENTARY PRICING RESULTS-BASED PRICING

FOUR MEANINGS OF PERCIEVED VALUE

1-VALUE IS LOW PRICE 2-VALUE IS EVERYTHING I WANT IN A SERVICE

Dry cleaners Carpet steam cleaning Airline discounted ticket

A social club: Makes me look good A music concert: Value is performance MBA Degree: Best education I get

Four components expression of value is one overall definition consistent with the concept of utility in Economics: Perceived value is the customers overall assessment of the utility of a service based on perceptions of what is received and what is given
3-VALUE IS THE QUALITY I GET FOR THE PRICE I PAY Hotel for vacation: Value is price & Quality Business Travel- lowest price with Brand

4-VALUE IS ALL THAT I GET FOR ALL THAT I GIVE

For housekeeping service: Nos of rooms For hair stylist: cost & Time & look An Educationist: a good experience in Short time

FOUR MEANINGS OF PERCIEVED VALUE

VALUE IS LOW PRICE FOR DRY CLEANERS FOR CARPET STEAM CLEANING

VALUE IS EVERYTHING I WANT IN A SERVICE

FOR A SOCIAL CLUB FOR A ROCK OR A COUNTRY MUSIC CONCERT

VALUE IS THE QUALITY I GET FOR THE PRICE I PAY FOR HOTEL FOR VACATIONS FOR HOTEL FOR BUISNESS TRAVEL

VALUE IS ALL THAT I GET FOR ALL THAT I GIVE

FOR HOUSEKEEPING SERVICE FOR HAIR STYLE