McGraw-Hill© 2000 The McGraw-Hill Companies 1 S M S M McGraw-Hill © 2000 The McGraw-Hill Companies Chapter 16 PRICING OF SERVICES

McGraw-Hill© 2000 The McGraw-Hill Companies 2 S M Objectives for Chapter 16: Pricing of Services Discuss three major ways that service prices differ from goods prices for customers Demonstrate what value means to customers and the role that price plays in value Articulate the key ways that pricing of services differs from pricing of goods Delineate strategies that companies use to price services Give examples of pricing strategy in action

McGraw-Hill© 2000 The McGraw-Hill Companies 3 S M Figure 16-2 What Do Customers Know about the Prices of Services? Pet Sitter? Nutritionist? Wedding Advisor? Braces?

McGraw-Hill© 2000 The McGraw-Hill Companies 4 S M Figure 16-3 Customers Will Trade Money for Other Service Costs Effort = Time or Psychic Costs

McGraw-Hill© 2000 The McGraw-Hill Companies 5 S M Figure 16-4 Three Basic Price Structures and Difficulties Associated with Usage for Services Demand-Based Cost-Based Competition- Based PROBLEMS: 1. Costs difficult to trace 2. Labor more difficult to price than materials 3. Costs may not equal value PROBLEMS: 1. Small firms may charge too little to be viable 2. Heterogeneity of services limits comparability 3. Prices may not reflect customer value PROBLEMS: 1. Monetary price must be adjusted to reflect the value of non-monetary costs 2. Information on service costs less available to customers, hence price may not be a central factor

McGraw-Hill© 2000 The McGraw-Hill Companies 6 S M Figure 16-5 Four Customer Definitions of Value Value is Low Price Value is Everything I Want in a Service Value is the Quality I Get for the Price I Pay Value is All that I Get for All that I Give

McGraw-Hill© 2000 The McGraw-Hill Companies 7 S M Figure 16-6 Pricing Strategies When the Pricing Strategies When the Customer Defines Value as Low Price Value is Low Price n Discounting n Odd Pricing n Synchro-pricing n Penetration Pricing

McGraw-Hill© 2000 The McGraw-Hill Companies 8 S M Figure 16-7 Pricing Strategies When the Pricing Strategies When the Customer Defines Value as Everything Wanted in a Service Value is Everything I Want in a Service n Prestige Pricing n Skimming Pricing

McGraw-Hill© 2000 The McGraw-Hill Companies 9 S M Figure 16-8 Pricing Strategies When the Pricing Strategies When the Customer Defines Value as Customer Defines Value as Quality for the Price Paid Value is the Quality I Get for the Price I Pay n Value Pricing n Market Segmentation Pricing

McGraw-Hill© 2000 The McGraw-Hill Companies 10 S M Figure 16-9 Pricing Strategies Pricing Strategies When the Customer Defines Value as When the Customer Defines Value as All that is Received for All that is Given Value is All that I Get for All that I Give n Price Framing n Price Bundling n Complementary Pricing n Results-based Pricing

McGraw-Hill© 2000 The McGraw-Hill Companies 11 S M Figure Summary of Service Pricing Strategies Summary of Service Pricing Strategies for Four Customer Definitions of Value Value is Low Price Value is Everything I Want in a Service Value is the Quality I Get for the Price I Pay Value is All that I Get for All that I Give n Discounting n Odd Pricing n Synchro-pricing n Penetration Pricing n Prestige Pricing n Skimming Pricing n Value Pricing n Market Segmentation Pricing n Price Framing n Price Bundling n Complementary Pricing n Results-based Pricing