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  • 1. McGraw-Hill © 2000 The McGraw-Hill Companies1SMSMUnit-2PRICING OF SERVICES
  • 2. McGraw-Hill © 2000 The McGraw-Hill Companies2SMThree Key Ways That ServiceThree Key Ways That ServicePrices Are Different ForPrices Are Different ForConsumersConsumers1. Customer Knowledge of Service PricesReference Price: A price point in memoryfor a good or a service-Reasons for difference betweenreference and actual price:a) Service variability limits knowledge-Life Insurance-Medical Checkup
  • 3. McGraw-Hill © 2000 The McGraw-Hill Companies3SMThree Key Ways That ServiceThree Key Ways That ServicePrices Are Different ForPrices Are Different ForConsumersConsumersb) Providers are unwilling to estimate prices-Legal and medical service providersc) Individual customer needs vary-Hairstylist’s service and hotel roomd) Collection of price information is overwhelmingin services-Display in productse) Prices are not visible-Financial services
  • 4. McGraw-Hill © 2000 The McGraw-Hill Companies4SMThree Key Ways That ServiceThree Key Ways That ServicePrices Are Different ForPrices Are Different ForConsumersConsumers2. Role of Nonmonetary Costa) Time cost-Waiting-Interactiona) Search costb) Convenience costc) Psychological cost-Fear of not understanding-Fear of rejection-Fear of outcome
  • 5. McGraw-Hill © 2000 The McGraw-Hill Companies5SMThree Key Ways That ServiceThree Key Ways That ServicePrices Are Different ForPrices Are Different ForConsumersConsumers3. Price as an indicator of service quality
  • 6. McGraw-Hill © 2000 The McGraw-Hill Companies6SM Pricing ObjectivesPricing Objectives• Revenue oriented objectives• Operation oriented objectives• Patronage oriented objectives
  • 7. McGraw-Hill © 2000 The McGraw-Hill Companies7SMThree Basic Price Structures/PricingThree Basic Price Structures/PricingApproaches andApproaches andDifficulties Associated with Usage forDifficulties Associated with Usage forServicesServicesDemand-BasedCost-BasedCompetition-BasedPROBLEMS:1. Costs difficult to trace2. Labor more difficult toprice than materials3. Costs may not equal valuePROBLEMS:1. Small firms may charge toolittle to be viable2. Heterogeneity of serviceslimits comparability3. Prices may notreflect customervaluePROBLEMS:1. Monetary price must be adjusted to reflectthe value of non-monetary costs2. Information on service costs less available tocustomers, hence price may not be a central factor
  • 8. McGraw-Hill © 2000 The McGraw-Hill Companies8SMFour Meanings of Perceived ValueFour Meanings of Perceived Value“Value is Low Price” “Value is EverythingI Want in a Service”“Value is theQuality I Get forthe Price I Pay”“Value is All thatI Get for Allthat I Give”
  • 9. McGraw-Hill © 2000 The McGraw-Hill Companies9SMFour Meanings ofFour Meanings ofPerceived ValuePerceived Value1. Value is low price-For dry cleaning: “Value means thelowest price”- For airline travel: “Value is when airlinetickets are discounted”
  • 10. McGraw-Hill © 2000 The McGraw-Hill Companies10SMFour Meanings ofFour Meanings ofPerceived ValuePerceived Value2. Value is whatever I want in a product orservice-For an MBA degree:“Value is the verybest education I can get”- For medical services:“Value is highquality”
  • 11. McGraw-Hill © 2000 The McGraw-Hill Companies11SMFour Meanings ofFour Meanings ofPerceived ValuePerceived Value3. Value is the Quality I get for the Price Ipay-For a hotel for vacation:“Value is pricefirst and quality second”- For a hotel for business travel:“Value isthe lowest price for a quality brand”
  • 12. McGraw-Hill © 2000 The McGraw-Hill Companies12SMFour Meanings ofFour Meanings ofPerceived ValuePerceived Value4. Value is what I get for what I give-For a housekeeping service: “Value ishow many rooms I can get cleaned forwhat the price is”- For a hairstylist:“Value is what I pay incost and time for look I get”
  • 13. McGraw-Hill © 2000 The McGraw-Hill Companies13SMPricing Strategies When thePricing Strategies When theCustomer Defines Value as Low PriceCustomer Defines Value as Low Price“Value is Low Price”DiscountingOdd PricingSynchro-pricingPenetration Pricing
  • 14. McGraw-Hill © 2000 The McGraw-Hill Companies14SMPricing Strategies When thePricing Strategies When theCustomer Defines Value asCustomer Defines Value asEverything Wanted in a ServiceEverything Wanted in a Service“Value is EverythingI Want in a Service”Prestige PricingSkimming Pricing
  • 15. McGraw-Hill © 2000 The McGraw-Hill Companies15SMPricing Strategies When thePricing Strategies When theCustomer Defines Value asCustomer Defines Value asQuality for the Price PaidQuality for the Price Paid“Value is the QualityI Get for the Price I Pay”Value PricingMarket SegmentationPricing
  • 16. McGraw-Hill © 2000 The McGraw-Hill Companies16SMPricing StrategiesPricing StrategiesWhen the Customer Defines Value asWhen the Customer Defines Value asAll that is Received for All that is GivenAll that is Received for All that is Given“Value is All thatI Get for Allthat I Give”Price FramingPrice BundlingComplementaryPricingResults-based Pricing
  • 17. McGraw-Hill © 2000 The McGraw-Hill Companies17SMSummary of Service Pricing StrategiesSummary of Service Pricing Strategiesfor Four Customer Definitions of Valuefor Four Customer Definitions of Value“Value is Low Price” “Value isEverythingI Want in a Service”“Value is the QualityI Get for the Price I Pay”“Value is All thatI Get for All that I Give”DiscountingOdd PricingSynchro-pricingPenetration PricingPrestige PricingSkimming PricingValue PricingMarket SegmentationPricingPrice FramingPrice BundlingComplementaryPricingResults-based Pricing