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Strategy must be supposed by product quality, production costs,

and competitors' difficulty in entering market

Market Penetration Pricing

Low price to gain maximum market share

Market must be price sensitive, costs must fall with rising

volume, and price must discourage competition

Product Mix Pricing Strategies

Product Line

Pricing levels to deliver value to different segments

Optional Products

Separate options available for the main product

Product Bundles

Combinations of products

Captive Products

Needed to make main product usable

Byproducts

Created from the manufacture of the main product

Price-Adjustment Strategies

Discount and allowance pricing

Segmented pricing

Psychological pricing

Promotional pricing

Geographical pricing

International pricing

Initiating Price ChangesPrice Cuts

Excess capacity

Falling market share

Dominate market through lower costs

Price Increase

Cost inflation

Over demand; cannot supply all customers' needs

Pricing EthicsCompetitors

Price-fixing

Predatory pricing

Manufacturer and Retailer

Retail price maintenance

Discriminatory pricing

Manufacturer/Retailer and Consumer

Deceptive pricing

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The Pricing Tripod

Cost-Based Pricing: Traditional vs. Activity-Based Costing

Traditional Costing Approach

Labour and infrastructure costs are considered fixed costs

Service firms have higher ratio of fixed to variable costs found in

manufacturing

Cost reduction decisions often cut these costs which leads to

reduced service levels and unhappy customers

Activity-Based Costing (ABC)

Sets of delivery activities and related costs

Firms can pinpoint profitability of different services, channels,

etc.

Competition-Based Pricing

When customers don't see a difference between competitive

offerings, they choose the cheapestPrice competition is reduced when...

Non-price related costs of using competing alternatives are high

Personal relationships matter

Switching costs are high

Time and location specificity reduce choice

Value-Based Pricing - Understanding Net Value

Value exchange will not take place unless customer sees positive

net value in transactionNet Value = Perceived Benefits to Customer (Gross Value) - All

Perceived Outlays (Money, Time, Effort)

Monetary price is not only perceived outlay in purchasing, using a

service

When looking at competing services, customers are mainly

comparing relative net values

Reduce Related Monetary and Non-Monetary Costs

Incremental Financial Outlays

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Includes the price of purchasing service and other expenses

Expenses associated with search, purchase activity, usage

E.g. Two theatre tickets also requires the cost of parking,

babysitters, etc.

Non-Monetary Costs

Time

Physical

Psychological (mental)

Sensory (unpleasant sights, sounds, feels, tastes, smells)

The Flower of Service

There are two kinds of supplementary services

Facilitating Supplementary Service - either needed for service

deliver, or help in the use of the core product

Enhancing Supplementary Service - Add extra value for the

customer

In a well-designed and well-managed service organization, the

petals and core are fresh and well-formed

Market positioning strategy helps to determine which

supplementary services should be included

Supplementary Services

Facilitating

Information - customers often require information about how to

obtain and use a product or service

Order-Taking- Customers need to know what is available and

may want to secure commitment to delivery; the process shouldbe fast and smooth

Billing- Bills should be clear, accurate, and intelligible

Payment- Customers may pay faster and more cheerfully if you

make transactions simple and convenient for them

Enhancing

Consultation- Value can be added to goods and services by

offering advice and consultation tailored to each customer's

needs and situation

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Hospitality - Customers who invest time and effort in visiting a

business and using its services deserve to be treated as

welcomed guests

Safekeeping- Customers prefer not to worry about looking after

the personal possessions that they bring with them to a service

site

Exceptions - Customers appreciate some flexibility when they

make special requests and expect responsiveness when things

don't go according to plan