Price Mix and Service Marketing :

Pricing or Price is the key element in the traditional marketing mix (the 4Ps) and in the

enhanced marketing mix (the 7 Ps). This is the element, which earns revenue. This is highly

critical because this is the strategy, which can make or destroy the business. The price fixed

must get profits for the firm, & give value to its customers.

Meaning :

For goods, the price has a single name "Price", but for services, it has several names like,tariff,

fees, commission, brokerage, consideration, service charge, rent, fare, rate, toll, premium,

contribution, interest, coupon rate, tuition, honorarium, salary, bribe, cut, tip, package,

allowance, subscription, assessment, remuneration, wags, retainer (fee),taxes, etc. Pricing for

goods is easy & straight forward, while for services it is complicated, may be controlled by

several authorities, varies with time, place, people etc.

Definitions:

Features :

The following are the different perceptions in the minds or customers regarding the price of a

service:

1) Price is a Measure of Quality in Services :

The price has a direct relationship with the quality. It is most prominent where the levels of

the same types of service are differentiated by price like, air tickets, rail tickets. It is the least

prominent between two service providers offering the same types of services in different

times, at different places, for different people, with different contents. Thus, overall, the

customers take the pricing as a thumb rule or yardstick for quality & content of services.

Price is an attraction and a repellent simultaneously. Because in the absence of anything

visible or tangible, the price is the only indicator. So pricing must be done critically.

2) Nonmonetary Costs & Prices :

More often, the customers incur several non-monetary costs while consuming a service.

Thus demand is function of not only monetary price but also non-monetary prices. These

can be the following :

a) Time Costs :

Most services requires direct involvement of the consumers, which consumes real time, and

this includes the waiting time too. Today virtually all services require spending of time to

consume services. Assuming two services having same monetary price, but having say

different wafting periods are different in total / overall pricing.

b) Search Costs :

It is the cost involved in finding out which service to go for. For goods it is easy, just

compare the benefits/features with the price tags. But for services, one needs to experience

to know the details & generally no price tags of services are available. Another area of cost

increase if the search for brand in services.

c) Convenience Costs :

lf the customer is inconvenienced to avail or consume any services, like travelling, putting an

effort, rescheduling other activities, sacrificing some other activities or time, etc., then this is

known as the convenience cost (or perhaps more accurately the cost of inconvenience).

d) Psychological Costs :

This is perhaps the most painful and frustrating experience or non-monetary costs, like fear

of not understanding (insurance schemes), rejection (bank loans), uncertainty (high cost,

servicing), etc. Some customers are not comfortable going through certain hassles of the

service consumption process, like dropping cheques in drop boxes, paying through internet

by giving credit card numbers.

Pricing Objectives :

The pricing policy must be based on the firm’s objectives, policies, concerning revenues, profit,

patronage, market share, market penetration, etc.

1) Survival :

When the firm is not doing well in terms of capacity, competition, change in consumers’

requirements, this is the only objective. The firm covers whole of variable cost and a part

of fixed cost. This is short-term objective. In the long- run, the firm must learn to add

value to its services, or else, face extinction.

2) Present Profit Maximisation :

The firm sets a price that will maximise its current profit without changing the service

attributes. They determine the market demand for alternative prices and choose the

price where the return, cash flow or current profit is the maximum. This is a medium to

short-term measure. In the long- run the firm may not do well.

3) Present Revenue Maximisation :

Some companies want to maximise their profit by increasing the market share by

reducing the price or setting a low price. They believe that this will lead to a higher sales

volume, lower unit cost of production and a long term profit. The conditions favouring this

situations are

a) The market is highly price sensitive and a low price stimulates market growth

b) Production and distribution cost fall with accumulated production experience,

c) Low price discourages actual and potential competition.

4) Prestige :

Some companies like putting their services in the premium category by charging a high

price, which they think creates an image of class/prestige in the customers' view.

Example. Hotel Oberoi, Sheraton Hotels.

5) Product Quality Leadership :

Some firms like to maintain their position as a quality leader by having a higher price tag.

The quality of service involves higher cost, which justifies the price.