1. McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved Chapter 16 Pricing of Services Three Key Ways Service Prices are Different for Consumers Approaches to Pricing Services Pricing Strategies That Link to the Four Value Definitions

2. McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved 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. McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved Effort = Time or Psychic Costs Figure 16.1 Customers Will Trade Money for Other Service Costs

4. McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved Figure 16.2 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

5. McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved 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. Figure 16.3 Four Customer Definitions of Value

6. McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved Value is low price. Discounting Odd pricing Synchro-pricing Penetration Pricing Figure 16.4 Pricing Strategies When the Customer Defines Value as Low Price

7. McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved Value is everything I want in a service. Prestige pricing Skimming pricing Figure 16.5 Pricing Strategies When the Customer Defines Value as Everything Wanted in a Service

8. McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved Value is the quality I get for the price I pay. Value pricing Market segmentation pricing Figure 16.6 Pricing Strategies When the Customer Defines Value as Quality for the Price Paid

9. McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved Value is all that I get for all that I give. Price framing Price bundling Complementary pricing Results-based pricing Figure 16.7 Pricing Strategies When the Customer Defines Value as All That Is Received for All That Is Given

10. McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved 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. Discounting Odd pricing Synchro-pricing Penetration Pricing Prestige pricing Skimming pricing Value pricing Market segmentation pricing Price framing Price bundling Complementary pricing Results-based pricing Figure 16.8 Summary of Service Pricing Strategies for Four Customer Definitions of Value