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PRICING in Service Marketing Module 5

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Pricing is customer‘s perception of the value of the product. …

Pricing is customer‘s perception of the value of the product.

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  • 1. Marketing of Infrastructure Services and Utilities Module 5 Module ~ 5 1
  • 2. Module 5 Marketing of Infrastructure Services and Utilities PRICING 2
  • 3. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS At the end of this module the learning outcomes are 1. What is the concept of pricing? 2. What steps need to be followed in fixing prices? 3. What are the various types of pricing methods? 3
  • 4. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS Suggested Readings 1. Marketing Management by Philip Kotler, Millenium edition, Chapter – 15 2. Service Marketing by Pearson: 7th edition chapter 6 4
  • 5. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS What is pricing? Pricing is customer‘s perception of the value of the product. 5
  • 6. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS PRICE – One of the element of Marketing Mix – Produces revenue – Other elements result in costs – Very flexible - Changed quickly – Other elements relatively more difficult to change Needs to be handled well? 6
  • 7. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS Pricing policy – six step procedure 1. Selecting the pricing objective 2. Determining demand 3. Estimating costs 4. Analyzing competitor‘s cost, prices and offers 5. Selecting a price method 6. Selecting final price 7
  • 8. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS Setting the price objective Can be many - Survival - Maximum current profit - Maximum market share - Maximum market skimming 8
  • 9. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS Example-Intel Market Skimming strategy: – New chip (Pentium 4) launched – Artificially high priced 1000 $ – High margin – Who pays 1000 $ – People who can‘t wait – Gradually reduce price – Increases volume – Prices drop down to 50% after 2 yrs. – Pentium 5 will be ready – Pentium 4 will be phased out Intel skims the market. 9
  • 10. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS ExampleMarket – Penetration Strategy • Launch at a lower market price • Gain market share AKAI Color TV - Priced very low - How? - Chinese kits- Cheap. - Old for new. - Offered exchange schemes Prices lowered further Customer pays the difference By 1998, was the no. 3 player in the market success story. 10
  • 11. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS 2. Determining demand – – – – Price is related to demand How sensitive is demand to price Price elasticity of demand critical Suppose price is increased by Rs.1 lac of two cars • Maruti 800 • Mercedes. – Where will be more affect on demand – Maruti – 800 Price is highly elastic to demand in Maruti – 800 11
  • 12. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS Price is highly inelastic to demand in case of Mercedes – Estimating price elasticity of demand is critical. – This depends on 1. No of substitutes 2. Habits of consumers 3. Quality difference 4. Do buyers really notice the change in price? 12
  • 13. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS 3. Estimating costs. – Price = costs + profit – Costs are of two types • Fixed cost • Variable cost Fixed cost - Do not change with volume sales Examples – Salaries of sales personnel – Cost of building – Cost of trucks. 13
  • 14. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS Variable costs • Vary with sales volume. • Cost of raw material Maruti – 800 - Cost of wheel - Cost of engine - Cost of carburetor Pricing has to be such that it recovers all costs in the long run 14
  • 15. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS 4. Analyzing competitor’s costs prices and offers Pricing has to consider – Competitor‘s costs and prices – Image of competitors products – In a price war- • Winner is the one who has the lowest cost – Do not try to fight on prices if your costs are higher then your competitors 15
  • 16. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS 5. Selecting a pricing method. Earlier we understood: 1. Customer‘ s demand. 2. Costs 3. Competitors prices / cost Six methods of pricing 1. Mark up pricing 2. Target – return pricing 3. Perceived- value pricing 4. Value- pricing 5. Going- rate pricing 6. Sealed- bid pricing 16
  • 17. Marketing of Infrastructure Services and Utilities PRICING METHODS 1. Mark – up pricing – Estimate costs – Add profit margin – Arrive at prices Cost + Profit Margin = PRICE – Profit Margin • Depend on many factors • High on seasonal items • Fixed by government – Life saving drugs – Fertilizers – Electricity Module 5
  • 18. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS 2. TARGET – RETURN PRICING - You investment in a business - You expect a return - Return varies from individual to individual EXAMPLE - Suppose you invest 10 Lac Rs to make mixers - You want 20% return on investment = 0.2 x 10 Lacs = 2 Lacs - Your costs are Rs 16/ mixer No .of mixers to be sold = 50,000 Target – return price = Unit Cost + (desired return x invested capital) Unit Sales 18
  • 19. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS = Rs 16 + 0.20 x 1000000 50,000 = Rs 20 If you sell 50000 mixers at a price of Rs 20, you well earn a return on investment of 20% 19
  • 20. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS 3. Perceived-value pricing – Base price on perceived value – Buyer‘s perception of value and not seller‘s cost, as the key to pricing . Example HP – Printers – HP – Leader in printers – How to increase sales? – Reduces prices of low end printers – Affordable – Volume has increased – Increased prices of consumables • Ribbons, cartridges • High margins 20
  • 21. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS 4. Value pricing – Low value pricing for a high offering Compaq – Computers – Strong brand – Lowering prices – Competition from local assemblers – Making customers shift from assemblers to branded manufacturers 21
  • 22. Marketing of Infrastructure Services and Utilities Module 5 5. Going rate pricing – Basis of price largely on competitor prices – Prices almost identical – Typically in oligopolistic markets Example Airtel, Essar, Reliance – Delhi – Earlier Airtel, Essar – Prices almost identical – When one changes prices – Other follows – Launch of Dolphin – MTNL – Lower monthly charges – Lower airtime changes – Essar, Airtel, Reliance also lower 22
  • 23. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS 6. Sealed – bid prices – Common as ―Tenders‖ – Each company bids a price which is confidential – Company quoting lower prices likely to get business – If you bid very low price, your profit is less – High bid, less chances of getting order – You have to assess what your competitor will bid? 23
  • 24. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS Sealed bid – Example DTC – – – – – – – – – – – Runs buses Requires tyres Invites bids Tyre manufacturer bid CEAT, MRF, Goodyear, Apollo Each has to put the ―Right Price‖ To be the lowest Not very low Sometimes MRF Wins Sometimes Goodyear wins Understanding each other‘s strategy in the past situation critical 24
  • 25. Marketing of Infrastructure Services and Utilities Module 5 Setting the Price The Three Cs Model for Price Setting 25
  • 26. Marketing of Infrastructure Services and Utilities Module 5 PRICING METHODS 7. Selecting the Final Price – – – Discussed various pricing methods Which one will suit the company Other factors a. Psychological Pricing Bata – Example - Shoe price Rs. 999.95 paise - Three – Figure pricing b. Influence of other Marketing – Mix elements - Product quality - Positioning Can Lifebuoy be priced at Rs. 35/Can Mercedes be priced at Rs. 10 Lacs. 26
  • 27. Marketing of Infrastructure Services and Utilities DISTRIBUTION OF SERVICES Module 5
  • 28. Marketing of Infrastructure Services and Utilities Module 5 Delivering Service Through Intermediaries and Electronic Channels  Service Distribution  Direct or Company-Owned Channels  Franchising  Agents and Brokers  Electronic Channels  Common Issues Involving Intermediaries  Strategies for Effective Service Delivery Through Intermediaries
  • 29. Marketing of Infrastructure Services and Utilities Module 5 Delivering Service Through Intermediaries • Identify the primary channels through which services are delivered to end customers. • Provide examples of each of the key service intermediaries. • View delivery of service from two perspectives—the service provider and the service deliverer. • Discuss the benefits and challenges of each method of service delivery. • Outline the strategies that are used to manage service delivery through intermediaries.
  • 30. Marketing of Infrastructure Services and Utilities Module 5 Service Provider Participants • service principal (originator) – creates the service concept (like a manufacturer) • service deliverer (intermediary) – entity that interacts with the customer in the execution of the service (like a distributor/wholesaler)
  • 31. Marketing of Infrastructure Services and Utilities Module 5 Services Intermediaries • Franchisees – service outlets licensed by a principal to deliver a unique service concept it has created • e.g., Jiffy Lube, Blockbuster, McDonald‘s • Agents and Brokers – representatives who distribute and sell the services of one or more service suppliers • e.g., travel agents, independent insurance agents • Electronic Channels – all forms of service provision through electronic means • e.g., ATMs, university video courses, TaxCut software
  • 32. Module 5 Marketing of Infrastructure Services and Utilities Benefits and Challenges for Franchisers of Service • Benefits: – Leveraged business format for greater expansion and revenues – Consistency in outlets – Knowledge of local markets – Shared financial risk and more working capital • Challenges: – Difficulty in maintaining and motivating franchisees – Highly publicized disputes and conflict – Inconsistent quality – Control of customer relationship by intermediary
  • 33. Module 5 Marketing of Infrastructure Services and Utilities Benefits and Challenges for Franchisees of Service • Benefits: – An established business format – National or regional brand marketing – Minimized risk of starting a business • Challenges: – Encroachment – Disappointing profits and revenues – Lack of perceived control over operations – High fees
  • 34. Module 5 Marketing of Infrastructure Services and Utilities Benefits and Challenges in Distributing Services through Agents and Brokers • Benefits: – Reduced selling and distribution costs – Intermediary‘s possession of special skills and knowledge – Wide representation – Knowledge of local markets – Customer choice • Challenges: – Loss of control over pricing – Representation of multiple service principals
  • 35. Marketing of Infrastructure Services and Utilities Module 5 Benefits and Challenges in Electronic Distribution of Services • Benefits: – Consistent delivery for standardized services – Low cost – Customer convenience – Wide distribution – Customer choice and ability to customize – Quick customer feedback • Challenges: – Price competition – Inability to customize with highly standardized services – Lack of consistency due to customer involvement – Changes in consumer behavior – Security concerns – Competition from widening geographies
  • 36. Marketing of Infrastructure Services and Utilities Module 5 Common Issues Involving Intermediaries • conflict over objectives and performance • difficulty controlling quality and consistency across outlets • tension between empowerment and control • channel ambiguity
  • 37. Module 5 Marketing of Infrastructure Services and Utilities Strategies for Effective Service Delivery Through Intermediaries • Control Strategies: – Measurement – Review • Partnering Strategies: – Alignment of goals – Consultation and cooperation • Empowerment Strategies: – Help the intermediary develop customeroriented service processes – Provide needed support systems – Develop intermediaries to deliver service quality – Change to a cooperative management structure
  • 38. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES 38
  • 39. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES At the end of this module the learning outcomes are • What is the purpose of physical evidence? • Various types of physical evidence • Role of physical evidence • Various types of physical evidence strategies. 39
  • 40. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Suggested readings • Services Marketing by Zeithmal and Bitner, Chapter 10, 2nd edition 40
  • 41. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES What is physical evidence • Services are intangible • Customers rely on tangible cues or physical evidence for evaluation of services • Before purchase 41
  • 42. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Elements of Physical Evidence Facility exterior • Exterior design • Signage • Parking • Landscape • Surrounding environment 42
  • 43. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Facility interior • Interior design • Equipment • Signage • Layout • Air quality/temperature 43
  • 44. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Other Tangibles • Business cards • Stationary • Billing Statements • Reports • Employee dress • Uniforms • Brochure • Internet / web pages 44
  • 45. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Services Communication through physical evidence • Heavy Hospitals Resorts Childcare • Limited Insurance Courier service 45
  • 46. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Types of physical evidence • Self–service (customer only) • Interpersonal services (Both customer and employee ) • Remote service (employee only) 46
  • 47. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Self-Service – – Customer performs most of the activities Very few employees involved ATMs – – – – – – Various locations Mostly self service How should the facilities be Physical evidence Pleasing Easy to use for customers 47
  • 48. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES REMOTE SERVICES • • • • • • • Other extreme Virtually no customer involvement Customer rarely visits facilities It may be another country How physical evidence is designed Employee interests and preferences Motivate employees 48
  • 49. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES GE call centre in India • Harrod‘s • Customer care • Done by GE in India • Facilities design in India • Indian flavour • Local culture Facilities design according to employee taste and preferences 49
  • 50. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Interpersonal services – – – – Between two extremes Both Customer Employee are present Examples Hotels Hospitals Banks How should the physical evidence be ? 50
  • 51. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Interpersonal services Hospital • Physical evidence design • Take care of customer interest • Take care of employee interest • Affects the quality of interaction 51
  • 52. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES ROLES OF THE SERVICESCAPE – Package – Facilitator – Socializer – Differentiator 52
  • 53. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Package • • • • • • • • Would you buy an ‗Arrow‘ shirt From a grocery shop Unlikely to buy Why ? Poor packaging and physical surroundings In services, similar concept conveys an image ‗Dress for success‘ Potray a particular image 53
  • 54. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES PVR Multiplex • • • • Movie content is same Why people prefer PVR multiplex The way it is packaged Well designed facilities Booking counter Lobby Chair Seats • Huge success Packaging a key success factor 54
  • 55. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Facilitator • • • • • • • • How it improves your efficiency Better facilities Improves performance Singapore Airlines Reclining seats in 60s Seats become like beds in 90s Headphones Video on seats Facility to work on computers Improves the customer efficiency 55
  • 56. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Socializer • • • • • • • • • • • Employees and customers interact Most offices Seating place for employees Customer meeting place Closed room also provided Privacy and confidential matters Employees seating plan At lower levels Open space No cabins Conductive for socialization 56
  • 57. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Socializer • Barista • Coffee parlor • Not just to sip coffee • Interaction • Read magazines • Play guitar • People sit for longer hours Ambience conducive for socialization 57
  • 58. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Differentiator • Physical design • Differentiates from competitors • Unusual/exotic experience In Hotels • Different designs • Unique experiences 58
  • 59. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Differentiator Shakti restaurant – Hyderabad – Created on tree – Rooms are on different branches of tree – Has three floors – Unique experience 59
  • 60. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Physical evidence strategies • • • • • • Recognise the strategic impact of physical evidence Map the physical evidence of service Clarify roles of the servicescape Assess and identify physical evidence opportunities Be prepared to update and moderate the evidence Work cross–functionally 60
  • 61. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Recognize the strategic Impact of physical evidence • Role of physical evidence must be defined • Before designing and executing service strategy • Clarify the overall role of physical evidence • Decisions on physical evidence are • Costly • Permanent 61
  • 62. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Changing external design of a hotel • Can you change the external design of a hotel • Unlikely as changing the design is difficult • Why ? • Need to break and rebuilt is a costly decision 62
  • 63. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Map the physical evidence of service • Before deciding physical evidence • Take every employee into confidence • Show even customers • Get feedback • Finalise after consultation 63
  • 64. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Clarify role of the servicescape • Identity roles of Customers Employees McDonald’s • Customers role • Created playing space for children • Keeping children busy • Informal and place to enjoy 64
  • 65. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Assess and identify physical evidence opportunities • • • • Current Physical evidence Is it enough May be outdated Physical evidence upgradation AirIndia • • • • 1986 Interiors design changed Customers feedback Airlines lacked modern image 65
  • 66. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES Be prepared to update and modernise the evidence. • Everything has an element called ‗fashion‘. • Design, colours and styles change. British Airways. • Earlier government company. • Privatised in 80‘s. • Changed • • • • logo, colour aircraft, dress. 66
  • 67. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES . Work cross-functionality. • What dress should employees wear when employees service customers. • Different views. • Operations dept. • Comfort of employees. • Marketing department. • Appealing to customers. • Conflict. Something which is comfortable may not be appealing and vice versa. 67
  • 68. Marketing of Infrastructure Services and Utilities Module 5 PHYSICAL EVIDENCE IN SERVICES How to ensure success • All have to work together. • Have a team which has members from all departments. • Marketing • Operations • Finance • Teamwork matters. 68