The document discusses several key aspects of service pricing strategies: 1) Service pricing is more difficult than goods pricing because services are intangible, have variable inputs and outputs, and are hard for customers to evaluate. 2) Pricing strategies aim to maximize revenue and profits or build patronage and user base. They consider costs, competition and customer value. 3) Main pricing approaches are cost-based, competition-based, and value-based. Enhancing value involves reducing uncertainty, relationship pricing, and convincing customers high price doesn't mean high quality.

1. Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E
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Price modification
• Differential Pricing. Eg. Theatre tickets
• Yield Management. Eg. Airlines
• Price Bundling. Eg. McDonalds, Big Bazaar
• Multiple-use pricing discounts. Eg. Shoppers Stop

2. Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E
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What Makes Service Pricing Strategy Different
(and Difficult)?
● No ownership of services--hard for firms to calculate
financial costs of creating an intangible performance
● Variability of inputs and outputs--how can firms define a
“unit of service” and establish basis for pricing?
● Many services hard for customers to evaluate--what
are they getting in return for their money?
● Importance of time factor--same service may have more
value to customers when delivered faster
● Delivery through physical or electronic channels--may
create differences in perceived value

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Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E
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Objectives of Pricing Strategies
● Revenue and profit objectives
➢ Seek profit
➢ Cover costs
● Patronage and user base-related objectives
➢ Build demand. Eg. Colgate
➢ Build a user base. Eg. Meswak

4. Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E
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The Pricing Tripod (Fig. 6.1)
Pricing Strategy
Cost
s
Competitio
n Value to customer

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Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E
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Three Main Approaches to Pricing
● Cost-Based Pricing
➢ Set prices relative to financial costs
(problem: defining costs)
● Competition-Based Pricing
➢ Monitor competitors’ pricing strategy
(especially if service lacks differentiation)
➢ Who is the price leader? (one firm sets the pace)
● Value-Based
➢ Relate price to value perceived by customer

6. Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E
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Enhancing Gross Value
● Pricing Strategies to Reduce Uncertainty
➢ service guarantees
➢ benefit-driven (pricing that aspect of service that creates value)
➢ flat rate (quoting a fixed price in advance)
● Relationship Pricing
➢ non-price incentives
➢ discounts for volume purchases
➢ discounts for purchasing multiple services
● Low-cost Leadership
➢ Convince customers not to equate price with quality
➢ Must keep economic costs low to ensure profitability at low price

7. Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E
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Paying for Service:
The Customer’s Perspective
Customer “expenditures” on service comprise both
financial and non-financial outlays
● Financial costs:
➢ price of purchasing service
➢ expenses associated with search, purchase activity, usage
● Time expenditures
● Physical effort (e.g., fatigue, discomfort)
● Psychological burdens (mental effort, negative feelings)
● Negative sensory burdens (unpleasant sensations affecting any
of the five senses)

8. Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E
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Determining the Total Costs of a Service
to the Consumer (Fig. 6.4)
Price
Related Monetary
Costs
Time Costs
Physical Costs
Psychological
Costs
Sensory Costs
Necessary
follow-up
Problem
solving
Operating Costs
Incidental
Expenses
Purchase and
Use Costs
Search Costs
After Costs