1. Donna J. Hill, Ph.D. Services Marketing Fall 2000
Pricing
Donna J. Hill, Ph.D.
Services Marketing
Fall 2000

2. 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

3. Role of Pricing in Services
Forming expectations.
Making purchase decisions.
Evaluating service quality.
Controlling demand.

4. Figure 16-2 What Do Customers Know about the Prices of Services?
Pet Sitter?
Wedding
Advisor?
Nutritionist?
Braces?

5. Reasons Why --- Customers Lack Accurate Reference Price
Service Heterogeneity Limits Knowledge
Provider Unwillingness to Estimate Prices
Individual Customer Needs Vary
Price Information is Overwhelming in Services
Prices Are Not Visible

6. = or or Psychic Costs Time Effort
Figure 16-3 Customers Will Trade Money for Other Service Costs --- The Role of Non-monetary Costs = or or
Psychic Costs
Time
Effort

7. Cost Based Pricing Price = direct costs+ overhead costs+profit margin
direct = materials and labor
overhead = share of fixed costs
profit margin = percent of full costs

8. Examples and Problems Cost-Plus Pricing Fee for service PROBLEMS:
1. Costs difficult to trace
2. Labor more difficult to
price than materials
3. Costs may not equal value

9. Cost Analysis Serve as a pricing floor Variable and fixed (examples)
Labor costs

10. Competition Based Pricing
Focus on what others charge
Situations
Standard
Oligopolies

11. Problems and Examples PROBLEMS: Examples Price signaling Going Rate
1. Small firms may charge too
little to be viable
2. Heterogeneity of services
limits comparability
3. Prices may not
reflect customer
value
Examples
Price signaling
Going Rate

12. Demand Based Pricing
Set Prices Consistent with Customer Perceptions of Value
Value is low price
Value is Whatever I Want in a Product or Service
Value is the Quality I Get for the Price I Pay
Value is What I Get for What I Pay

13. Examples of Demand Pricing--- Value is Low Price
Four Types
discounting
odd pricing
synchro-pricing
place
time
quantity
incentives
penetration pricing
volume sensitive to price
exonomies in unit costs
strong potentional competiton
no class of buyers willing to pay higher

14. Examples of Demand Pricing--- Value is Everything I Want
Prestige Pricing
Skimming Price
major improvements

15. Quality for the Price Paid
Examples of Demand Pricing---
Value as
Quality for the Price Paid
“Value is the Quality
I Get for the Price I Pay”
Value Pricing
• giving more for less
Market Segmentation
Pricing
• client category
• service version

16. Conditions for Market Segmentation Pricing
Segments must value service differently.
Segments must be identifiable and profitable.
Lower-paying segments cannot sell to higher-paying segments.
Cost of implementation must not be higher than incremental revenue.
Must not be confusing to current and future customers.
Time of usage.
Time of reservation.
Time of purchase.
Location of consumption
Target Market

17. All that is Received for All that is Given
Examples of Demand Pricing--- Value as
All that is Received for All that is Given
“Value is All that
I Get for All
that I Give”
Price Framing
Price Bundling
Complementary Pricing
Results-based Pricing
Multiple Use Discounts

18. Price Framing
Organize price information

19. Price Bundling Pure bundling Mixed bundling Mixed leader bundling
Mixed joint bundling

20. Complementary Pricing
Captive Pricing
Two Part Pricing
Loss Leadership

21. Results-based Pricing
Contingency Pricing
Sealed Bid Contingency Pricing
Money-Back Guarantees
Commission

22. Multiple-Use Discounts

23. Meeting Objectives with Multiple-Use Discounts
Limited Usage Unlimited Usage
Fixed Unlimited Fixed Unlimited
Objectives Duration Duration
Gain new customers………. Poor Fair Poor Good
Shift demand……...….... Excellent Poor Good Poor
Stimulate demand……… Excellent Poor Good Poor
Increase repeat
purchase behavior…… O.K. Excellent O.K Good

24. Problems with Demand Pricing
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

25. Price Increases 1. Wait for someone else to increase prices.
2. Communicate to customers why a price
increase is necessary.
3. Make no acknowledgment of price increase.
4. Make price increase in small increments.
5. Modify service to justify price increase.