Chapter 17 - Pricing of Services

1. Chapter 17 - Pricing of Services Customer Knowledge of Service Prices • Service _________________ limits knowledge – EX: life insurance (whole life vs. term), different deductibles, variations associated with customers (age, health risk, smoking vs. non-smoking) Difficult to determine best price

2. Customer Knowledge of Service Prices • Providers are unwilling to estimate prices – EX: provider may not know the price until after service is completed (ex: ) • Individual customer needs vary – ex: price of hotel room varies by size of room, time of year, type of room availability, individual vs. group rate

3. Customer Knowledge of Service Prices • Collection of Price information is overwhelming – need to visit or call to obtain price • Prices are not visible – Customers often do not know what they are paying for (ex: ________________)

4. Provider GAP 4 CUSTOMER Service Delivery External Communications to Customers COMPANY GAP 4 Part 5 Opener

5. Pricing of Services The Role of ___________________ Costs • _______ = Time, or Effort, or Psychological Costs Customers will trade money for time, effort, or psychological costs

6. The Role of Nonmonetary Costs __________: waiting time and service consumption; Ex: waiting time for car repair is high; pay more where waiting time is less? ____________: effort invested to identify and select among services you desire Ex: customers make reservations for one hotel; cost of comparing prices is too high

7. The Role of Nonmonetary Costs ___________________: effort expended to receive service; Ex: choose bank closest to home even though other banks charge lower fees ____________________: fear of not understanding; fear of uncertainty; Ex: Resistance of on-line payment, even though it saves time and money

8. The Role of Nonmonetary Costs Implications: 1. Service firm can increase monetary price by reducing time and other costs 2. Services that save time have monetary value for customers Ex: lawn care; carpet cleaning; babysitting

9. Approaches to Pricing Services ___________________ pricing: Price = Direct Costs + Overhead Costs + Profit Margin Ex: Fee for service = cost of the time involved in providing the service _______________________ pricing: Based on prices charged by firms in the same industry or market; conditions - services are standard among providers; few large service providers

10. Approaches to Pricing Services Demand-based pricing: Price is consistent with customer perceptions of value: Four customer definitions of value 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

11. Customer Definition of Value 1. Value is ______________: monetary price is the most important determinant of value value is price - which one is on sale; value is when airline tickets are discounted Pricing strategy: Discounting: price cuts communicate to price-sensitive buyers that they are receiving value

12. Customer Definition of Value 2. Value is ___________________________: benefits and intrinsic attributes determine value Pricing strategy: Prestige pricing: high price is charged for customers who value prestige or status

13. Customer Definition of Value 3. Value is the ______________________________: Consumers see value as a tradeoff between the money they give up and the quality they receive Pricing strategy: Value pricing: “giving more for less”

14. Customer Definition of Value 4. Value is ______________________________: consumers consider all the benefits they receive and all sacrifice components (money, time, effort) when describing value Pricing strategy: Results-based pricing: