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Pricing

Pricing. Donna J. Hill, Ph.D. Services Marketing Fall 2000. Objectives for Chapter 16: Pricing 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

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Pricing

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  1. Pricing Donna J. Hill, Ph.D. Services Marketing Fall 2000

  2. Objectives for Chapter 16:Pricing 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

  3. Role of Pricing in Services • Forming expectations. • Making purchase decisions. • Evaluating service quality. • Controlling demand.

  4. Figure 16-2What Do Customers Know about the Prices of Services? Pet Sitter? Wedding Advisor? Nutritionist? Braces?

  5. 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

  6. Figure 16-3Customers Will Trade Money for Other Service Costs --- The Role of Non-monetary Costs = or or Psychic Costs Time Effort

  7. 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

  8. 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

  9. Cost Analysis • Serve as a pricing floor • Variable and fixed (examples) • Labor costs

  10. Competition Based Pricing • Focus on what others charge • Situations • Standard • Oligopolies

  11. 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

  12. 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

  13. 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

  14. Examples of Demand Pricing--- Value is Everything I Want • Prestige Pricing • Skimming Price • major improvements

  15. “Value is the Quality I Get for the Price I Pay” • Value Pricing • giving more for less • Market Segmentation • Pricing • • client category • • service version Examples of Demand Pricing--- Value as Quality for the Price Paid

  16. 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 consumption Target Market

  17. Examples of Demand Pricing--- Value as All that is Received for All that is Given “Value is All that I Get for All that I Give” • Price Framing • Price Bundling • Complementary Pricing • Results-based Pricing • Multiple Use Discounts

  18. Price Framing • Organize price information

  19. Price Bundling • Pure bundling • Mixed bundling • Mixed leader bundling • Mixed joint bundling

  20. Complementary Pricing • Captive Pricing • Two Part Pricing • Loss Leadership

  21. Results-based Pricing • Contingency Pricing • Sealed Bid Contingency Pricing • Money-Back Guarantees • Commission

  22. Multiple-Use Discounts

  23. 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

  24. 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

  25. Price Increases 1. Wait for someone else to increase prices. 2. Communicate to customers why a price increase is necessary. 3. Make no acknowledgment of price increase. 4. Make price increase in small increments. 5. Modify service to justify price increase.

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