This document discusses pricing strategies for services. It begins by explaining the differences between monetary price and customers' total perceived value of services, which includes additional costs like time and energy. Customers' price sensitivity is influenced by factors like substitute options and quality perceptions. Effective pricing requires understanding costs and competitors as well as market segmentation. Strategies discussed include price leadership, yield management, bundling, and implementing a differentiation premium model where higher prices signal exclusivity and quality. The goal is to set prices that maximize returns through segmentation and consideration of customer value perceptions.

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SERVICES
MARKETING
CHAPTER 5
THE PRICING OF SERVICES

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HIGHLIGHTS
 Perceptions on price
 Segmentation
 Differentiation premium model

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OUTCOME
 Understand the difference between goods and services pricing
 How to create services segmentation
 Setting the right price

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WHAT IS PRICE?
 Monetary price: actual dollar price paid by customers
With additions
1. Time costs
2. Energy costs
3. Psychic costs
4. Service value
5. Personnel value
6. Image value

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PERCEPTION OF VALUE:
CUSTOMERS’ PERPECTIVE ON
PRICE
 Total customer value that extends beyond monetary value
 Price sensitivity

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CUSTOMERS’ PRICE
SENSITIVITY
 Perceived substitute effect
 Unique value effect
 Switching costs effect
 Difficult comparison effect
 Price quality effect
 Expenditure effect
 End-benefit effect
 Shared-cost effect
 Fairness effect
 Inventory effect (delaying cost)

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PRICING: SERVICE PROVIDERS’
PERSPECTIVE
1. Perfect price knowledge
2. Competition
3. Product/offering comparison

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SETTING THE RIGHT PRICE
Step 1: know costs
Step 2: know competitors’ costs
Step 3: Identifying fundamental pricing factors
Step 4: Identify market forces
Step 5: Pricing strategy
Step 6: Pricing decision

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PRICE SEGMENTATION
 The use of different price brackets where different segments
are prepared to pay different prices

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EFFECTIVE PRICE
SEGMENTATION
1. Identifiable
2. Possible to price differently
3. Respond differently to different groupings
4. Customers should not be confused
5. Cost effective

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EMERGING PRICING
STRATEGIES
1. Price leadership
 Skimming (not so common)
 Penetration (very common)
2. Fixed Vs. Variable pricing
 Yield management (mainstay)
 Variable pricing (to obtain max return)
 Overbooking policy (not common in Malaysia)

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EMERGING PRICING
STRATEGIES
3. Differentiation through price
 Brand value: intangible amount that an organization places on
its brand name
 Price bundling: several service offerings are combined &
offered at one price, often discounted
 Cross-selling: trying to sell a second or ancillary product once
the first purchase has been made
 Special event pricing: limited to the time span of a special event

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4. THE DIFFERENTIATION PREMIUM
MODEL
 Ability to differentiate itself from competitors
 “Pay more, you get more”
 Usually, high price indicates a degree of “exclusivity”
 Raising the general level of clientele
 High levels of service quality
 High level of tangible physical surrounding
 ‘snob’ value

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THANK YOU
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