Pricing Donna J. Hill, Ph.D. Services Marketing Fall 2000.
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Transcript of Pricing Donna J. Hill, Ph.D. Services Marketing Fall 2000.
Objectives for Chapter 16:Objectives for Chapter 16:Pricing of ServicesPricing 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
Role of Pricing in Services
Forming expectations. Making purchase
decisions. Evaluating service
quality. Controlling demand.
Figure 16-2Figure 16-2
What Do Customers Know about What Do Customers Know about the Prices of Services?the Prices of Services?
Pet Sitter?
Nutritionist?
WeddingAdvisor?
Braces?
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
Figure 16-3Figure 16-3
Customers Will Trade Money for Customers Will Trade Money for Other Service Costs --- The Role of Other Service Costs --- The Role of
Non-monetary CostsNon-monetary Costs
Effort
=Time
or or
Psychic Costs
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
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
Problems and Examples
PROBLEMS: 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
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
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
Examples of Demand Pricing--- Value is Everything I Want
Prestige Pricing Skimming Price
– major improvements
Examples of Demand Pricing--- Value as Value as
Quality for the Price PaidQuality 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
Conditions forMarket 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 consumptionTarget Market
Examples of Demand Pricing--- Value as Value as All that is Received for All that is GivenAll that is Received for All that is Given
“Value is All thatI Get for All that I Give”
Price Framing Price Bundling Complementary Pricing Results-based Pricing Multiple Use Discounts
Results-based Pricing
Contingency Pricing Sealed Bid Contingency Pricing Money-Back Guarantees Commission
Multiple-Use Discounts Duration Usage Example
Limited Limited “Ten sessions in November for$20.00”
Limited Unlimited “$30.00 for April, no limit tonumber of sessions.”
Unlimited Limited “Ten sessions for $20.00”
Unlimited Unlimited “10% discount to seniorcitizens.”
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
Problems with Demand Pricing
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