Ch-6 Pricing

7/28/2019 Ch-6 Pricing

1/17

Pricing


2/17

Price a medium of exchange

Termed differently at different services Fees

Commission

Interest

Service charge

Fare Toll

Subscription


3/17

Pricing of Services

Factors that make pricing different from

that of goods

No ownership of services thus needs toprice it before it is consumed

Variability of inputs and outputs

Price value relations-- Many services hardto evaluate ( LIC agents, Railway clerk)

Often customers use the reference prices like lastpaid, most frequently paid

This proves them wrong as needs vary


4/17

Conti..

Influence of non-monetary costs like timecosts, search costs, psychic cost.

Price-quality relations- people oftenpursue price as indicator of quality.

If too low indicates low quality

If charged too high leads to high expectations


5/17

Pricing objective

First step in the pricing process is to decide theobjective of pricing

Its subjective as Vision

Mission Corporate objectives

Business situation

Objectives

Revenue oriented Operation oriented - seek to fill the vacancy

(Hotels, transportation, entertainment)

Patronage oriented: Based on loyalty

(Doctors- Rs 100 to Rs 40)


6/17

Approaches to pricing

The Pricing Tripod

Pricing Strategy

CostsCompetition

Value to customer


7/17

Cost- based pricing

Expenditure + Profit marginPossible when demand is stable

Very difficult to trace the per unit cost in services

Employees is more difficult to price than materials

Competition-based pricing

Pricing under two conditions: when providers havemore or less same services

Under oligopoly situation: follow live and let otherslive.


8/17

Value based pricing

Value differs from each customers

Value is low price

Value their needs

Value quality

Value the total benefit against the cost.


9/17

Value is low price

Those customer who value price the most

Pricing Strategy:

Discounting

Odd-pricing:

Synchro-pricing:

charge more when demand is more & decrease price

when supply is more

Penetration pricing:

charge low in initial stage to attract price sensitive


10/17

Value is Everything I want in a

service

Type of people who value only their needs

and no other attribute

Pricing Strategy: Prestige Pricing: High price reflects the status of

the user so as to attract the premium segment

Skimming price: charge high in the initial stage First to cover the premium segment and then down-line

the segment of the market


11/17

Value is Quality I get for the price I

pay

Type of people who compare quality with

that of the price they pay

Highly rational decision makers

Pricing strategy:

Value Pricing: TCV TCC = CDV

Segment Pricing: offering separate package

pricing


12/17

Value is all that I get for all that I

give

Type of people who overall compare the benefitwith that of total cost

Pricing strategy:

Price framing: Providing total information of various

packages and showing them the price lists

Price bundling: pricing and bundling varied service

in a group

Complementary pricing:

Captive pricing

Two-part pricing

Loss-leader pricing


13/17

Captive pricing:

First basic charge + continuous supply charge(T.V. Channel operators)

Two-part Pricing:Initial fixed + Variable

(Telephone charges)

Loss-leader pricing:

Give supplementary services free so as to attractmore people

Manage the loss with the increased bulk ofcustomers


14/17

Customer delivered valueCustomer Value Variables

Core service value

Supportive service value

Personal Value (Physical,

Lifestyle)

Image Value

Customer cost Value

Monetary priceSearch cost

Time cost

Energy cost

Psychic cost

TCV

TCC

CDV


15/17

Putting the service pricing in to

practice

How much should be charged for this

service

What is the companys cost in rendering such

service

How sensitive are the customers What is competitors price

What discount should be offered on the basic price


16/17

On what basis should be the basic pricing

be charged Execution of specific task

Units of time taken

Percentage of commission on the value of

transaction

Physical resources consumed

Geographical distance covered

Single pricing or bundled pricing Should support services be showed separately


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Who should collect the payment Organization that provides the service

Intermediary Where should the payment be made

Service delivered

Convenient retail outlet

Purchasers home

When should the payment be made Before or after the service

How should it be paid

CashToken

EFT

Third party payment.

Ch-6 Pricing

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