1. Pricing of Services
Chapter 17

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

3. 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

4. Video: Ticket Takers

5. 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

6. 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.

7. 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.

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

9. 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

10. 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

11. 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

12. 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