Pricing of Services Chapter 17

Pricing of Services What makes pricing of services more difficult than pricing of goods? For example, why are some services priced higher than other?

Three Key Ways that Service Prices are Different for Consumers Customer Knowledge of Service Prices Service variability limits knowledge Providers are unwilling to estimate prices Individual customer needs vary Collection of price information is overwhelming in services Prices are not visible The Role of Non-monetary Costs Time costs Search costs Convenience costs Psychological costs Price as an Indicator of Service Quality

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Approaches To Pricing Services Cost-Based Pricing Price = Direct cost + Overhead costs + Profit margin Why may this be difficult for services? Competition-Based Pricing Examples include, banks and other financial institutions Demand-Based Pricing What customers will pay for the service Usually based on some criteria of value

Three Basic Marketing Price Structures and Challenges Associated with Their Use for Services Figure 17.1 Challenges: 1. Costs difficult to trace. 2. Labor is more difficult to price than materials. 3. Costs may not equal the value that customers perceive the services are worth. Challenges: 1. Small firms may charge too little to be viable. 2. Heterogeneity of services limits comparability. 3. Prices may not reflect customer value. Cost-based Competition- based Demand-based Challenges: 1. Monetary price must be adjusted to reflect the value of non-monetary costs. 2. Information on service costs is less available to customers; hence, price may not be a central factor.

Four Customer Definitions of Value Figure 17.4 Four Customer Definitions of Value Value is everything I want in a service. Value is low price. Value is the quality I get for the price I pay. Value is all that I get for all that I give.

Pricing Strategies When the Customer Defines Value as Low Price Figure 17.5 Value is low price. Discounting Odd pricing Synchro-pricing Penetration pricing

Pricing Strategies When the Customer Defines Value as Everything Wanted in a Service Figure 17.8 Value is everything I want in a service. Prestige pricing Skimming pricing

Value is the quality I get for the price I pay. Pricing Strategies When the Customer Defines Value as Quality for the Price Paid Figure 17.10 Value is the quality I get for the price I pay. Value pricing Market segmentation pricing

Value is all that I get for all that I give. Pricing Strategies When the Customer Defines Value as All That Is Received for All That Is Given Figure 17.13 Value is all that I get for all that I give. Price framing Price bundling Complementary pricing Results-based pricing

Summary of Service Pricing Strategies for Four Customer Definitions of Value Figure 17.14 Value is everything I want in a service. Value is low price. Discounting Odd pricing Synchro-pricing Penetration pricing Prestige pricing Skimming pricing Value is the quality I get for the price I pay. Value is all that I get for all that I give. Value pricing Market segmentation pricing Price framing Price bundling Complementary pricing Results-based pricing