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8/9/2019 Service Pricing and the Financial and Economic effect of Service
1/25
Dominic Laffy
MKT6B2 – Services Marketing
Service Pricing and the
Financial and Economic effect of Service
Dominic Laffy
Week 11week commencing 19/11/12
8/9/2019 Service Pricing and the Financial and Economic effect of Service
2/25
Dominic Laffy
MKT6B2 – Services Marketing
Learning Outcomes
e a!e to artic"!ate key ways t#at $ricing ofservices %iffers from $ricing of goo%s from ot# acom$any an% c"stomer $ers$ective&
e a!e to %emonstrate w#at va!"e means to
c"stomers an% t#e ro!e $rice $!ays in va!"e& e a!e to critica!!y %isc"ss t#e key service %rivers
of overa!! service '"a!ity( c"stomer retention an%$rofitai!ity
e a!e to %escrie t#e ro!e of strategy ma$s inim$!ementing t#e a!ance% $erformancescorecar%&
8/9/2019 Service Pricing and the Financial and Economic effect of Service
3/25
Dominic Laffy
MKT6B2 – Services Marketing
Differences between customer evaluation
of pricing for services and goods
1& )"stomers often #ave inacc"rate or !imite%reference $rices for services
2& *rice is a key signa! of '"a!ity in services
+& Monetary $rice is not t#e on!y $rice re!evant toservice c"stomers
So"rce, a%a$te% from -Services Marketing. eit#am! 0&& et a! t# 3%ition $12
8/9/2019 Service Pricing and the Financial and Economic effect of Service
4/25
Dominic Laffy
MKT6B2 – Services Marketing
How much do the following cost in London?
1& Denta! c#eck4"$ 5555 2& enera! me%ica! c#eck4"$ 5555
+& Lega! #e!$ wit# a Dr"nk Drive c#arge 5555
7& Denta! races 5555 & 8enta! of a D0D for one nig#t 5555
6& ne #o"r of #o"se c!eaning 5555
:& %o"!e room at t#e ;i!ton & #airc"t 5555
9& i! an% fi!ter c#ange on car 5555
So"rce, a%a$te% from -Services Marketing. eit#am! 0&& et a! t# 3%ition $1+ 3?#iit 1:&1
8/9/2019 Service Pricing and the Financial and Economic effect of Service
5/25
Dominic Laffy
MKT6B2 – Services Marketing
Customer nowledge of Service prices
Service variai!ity !imits know!e%ge@ T#e $otentia! com$!e?ity of o$tions com$!icates $ricing
*rovi%ers are "nwi!!ing/"na!e to estimate $rices@ 3&g& %octor cannot say #ow m"c# "nti! f"!! %iagnosis
An%ivi%"a! c"stomer nee%s vary )o!!ection of *rice Anformation is overw#e!ming
@ ee% to get $rices from a!! $otentia! $rovi%ers w#ic#can e a ig task& 8eference $rices can e of !imite%
"se% *rices are not visi!e
@ Cor instance in se!!ing financia! services( c"stomersknow rate of ret"rn "t not fees
So"rce, a%a$te% from -Services Marketing. eit#am! 0&& et a! t# 3%ition Ta!e $12416
8/9/2019 Service Pricing and the Financial and Economic effect of Service
6/25
Dominic Laffy
MKT6B2 – Services Marketing
!he role on non"monetar# costs
Time costs@ 3&g& waiting time( interaction time
Searc# costs
@ T#e effort to i%entify an% se!ect among services often
#ig#er t#an for $#ysica! goo%s
)onvenience costs
*syc#o!ogica! costs
@ 3&g& fear on not "n%erstan%ing
8/9/2019 Service Pricing and the Financial and Economic effect of Service
7/25
Dominic Laffy
MKT6B2 – Services Marketing
$educing non"monetar# costs
com$any may e a!e to increase monetary $ricey re%"cing time an% ot#er non4monetary costs
)"stomers/segments may e wi!!ing to $ay more to
avoi% t#e ot#er costs
Af time or ot#er costs are $ivota! for a given service(
t#e com$anyEs a%vertising can em$#asise t#ese
savings rat#er t#an monetary ones
8/9/2019 Service Pricing and the Financial and Economic effect of Service
8/25
Dominic Laffy
MKT6B2 – Services Marketing
!hree %asic &areting Price Structures and
Challenges 'ssociated with !heir (se for Services
D e m a
n d - b a s e d
C o s t - b a s e
d
C o m p e
t i t i o n -
b a s e
d
)#a!!enges, 1& )osts %iffic"!t to trace&
2& Lao"r is more %iffic"!t
to $rice t#an materia!s&
+& )osts may not e'"a!
t#e va!"e t#at c"stomers
$erceive t#e services arewort#&
)#a!!enges, 1& Sma!! firms may c#arge
too !itt!e to e via!e&
2& ;eterogeneity of services
!imits com$arai!ity&
+& *rices may not ref!ect
c"stomer va!"e&
)#a!!enges, 1& Monetary $rice m"st e a%"ste% to ref!ect
t#e va!"e of non4monetary costs&
2& Anformation on service costs is !ess avai!a!e to
c"stomersF #ence( $rice may not e a centra! factor&
So"rce, a%a$te% from -Services Marketing. eit#am! 0&& et a! t# 3%ition $ 19 Cig1:&1
8/9/2019 Service Pricing and the Financial and Economic effect of Service
9/25
Dominic Laffy
MKT6B2 – Services Marketing
Value is low price.Value is everything
I want in a service.
Value is thequality I get for
the price I pay.
Value is all that I get for all
that I give.
Four Customer Definitions of )alue
So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ 2 Cig1:&2
8/9/2019 Service Pricing and the Financial and Economic effect of Service
10/25
Dominic Laffy
MKT6B2 – Services Marketing
Value is low price.
@ Discounting@ Odd pricing@ Synchro-pricing@ Penetration pricing
Pricing Strategies *hen the Customer
Defines )alue as Low Price
So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ 29 Cig1:&+
8/9/2019 Service Pricing and the Financial and Economic effect of Service
11/25
Dominic Laffy
MKT6B2 – Services Marketing
Value is everything
I want in a service.
@ Prestige pricing@ Skimming pricing
Pricing Strategies *hen the Customer Defines
)alue as Ever#thing *anted in a Service
So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ +2 Cig1:&7
8/9/2019 Service Pricing and the Financial and Economic effect of Service
12/25
Dominic Laffy
MKT6B2 – Services Marketing
Value is the quality I
get for the price I
pay.
@ Value pricing@ Market
segmentation
pricing
Pricing Strategies *hen the Customer
Defines )alue as +ualit# for the Price Paid
So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ ++ Cig1:&
8/9/2019 Service Pricing and the Financial and Economic effect of Service
13/25
Dominic Laffy
MKT6B2 – Services Marketing
Value is all that I getfor all that I give.
@ Price framing
@ Price bundling@ Complementary pricing@ Results-based pricing
Pricing Strategies *hen the Customer Defines
)alue as 'll !hat ,s $eceived for 'll !hat ,s -iven
So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ +7 Cig1:&6
8/9/2019 Service Pricing and the Financial and Economic effect of Service
14/25
Dominic Laffy
MKT6B2 – Services Marketing
Value is low price. Value is everything
I want in a service.
Value is the quality
I get for the price I pay.
Value is all that I get
for all that I give.
@ Discounting@ Odd pricing@ Synchro-pricing
@ Penetration pricing
@ Prestige pricing@ Skimming pricing
@ Value pricing@ Market segmentation
pricing
@ Price framing@ Price bundling@ Complementary pricing@ Results-based pricing
Summar# of Service Pricing Strategies for
Four Customer Definitions of )alue
So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ +: Cig1:&:
8/9/2019 Service Pricing and the Financial and Economic effect of Service
15/25
Dominic Laffy
MKT6B2 – Services Marketing
!he Direct $elationship between
Service and Profits
Profits?Serice
So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ 7 Cig1>&1
8/9/2019 Service Pricing and the Financial and Economic effect of Service
16/25
Dominic Laffy
MKT6B2 – Services Marketing
E.ercises
1& W#ic# a$$roac# to $ricing
8/9/2019 Service Pricing and the Financial and Economic effect of Service
17/25
Dominic Laffy
MKT6B2 – Services Marketing
E.ercises
List services for w#ic# yo" #ave no reference$rice& Amagine yo" are t#e service $rovi%er for 2of t#ese( an% %eve!o$ a$$ro$riate $ricingstrategies for t#em
@ W#ic# va!"e %efinitions %o yo" e!ieve c"stomers wi!!#ave( an% w#at ty$e of strategies wo"!% e a$$ro$riategiven t#ose %efinitions
Cin% + $rice !ists for services
8/9/2019 Service Pricing and the Financial and Economic effect of Service
18/25
Dominic Laffy
MKT6B2 – Services Marketing
Offensive &areting Effects of
Service on Profits
Profits
Marketshare
Reputation Sales
Pricepremium
Serice
So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ 7> Cig1>&2
8/9/2019 Service Pricing and the Financial and Economic effect of Service
19/25
Dominic Laffy
MKT6B2 – Services Marketing
Defensive &areting Effects of
Service on Profit
Margins
Profits
Customer retention
Lo!er costs
Pricepremium
"ord of mouth
Volume of purchases
Serice
So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ 79 Cig1>&+
8/9/2019 Service Pricing and the Financial and Economic effect of Service
20/25
Dominic Laffy
MKT6B2 – Services Marketing
Perceptions of Service/
%ehavioral ,ntentions/ and Profits
Customer Retention
Lo!er costs
Pricepremium
"ord of
mouth
Margins
Profits
Volume of purchases
#ehaioral$ntentions
Sales
Serice
So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ 7 Cig1>&
8/9/2019 Service Pricing and the Financial and Economic effect of Service
21/25
Dominic Laffy
MKT6B2 – Services Marketing
!he 0e# Drivers of Service +ualit#/
Customer $etention/ and Profits
Serice
%ttributes
Serice
encounter
Serice
encounter
Serice
encounter
Customer Retention
#ehaioral$ntentions
Serice
encounter
Serice
&ncounters
Serice'uality Profits
So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ > Cig1>&6
8/9/2019 Service Pricing and the Financial and Economic effect of Service
22/25
Dominic Laffy
MKT6B2 – Services Marketing
Customer Retention
Lo!er costs
Price
premium
"ord of mouth
Margins
Profits
DefensieMarketing
Volume of purchases
Marketshare
Reputation
Sales
Price
premium
OffensieMarketing
Service +ualit# Spells Profits
Serice
So"rce, -Services Marketing. eit#am! 0&& et a! 7t# 3%ition $ 9 Cig1>&:
8/9/2019 Service Pricing and the Financial and Economic effect of Service
23/25
Dominic Laffy
MKT6B2 – Services Marketing
$nnoation andLearning Perspectie
Customer Perspectie
Serice perceptions
Serice e(pectations
Perceied alue
#ehaioral intentions)
Operational Perspectie
Right first time *+ hits,
Right on time *+ hits,
Responsieness *+ on time,
ransaction time *hours. days,
hroughput timeReduction in !aste
Process /uality
0inancial Measures
Price Premium
Volume increases
Value of customer
referrals
Value of cross sales
Long-term alue of
customer
+ Loyalty + $ntent to S!itch 1 Customer Referrals 1 Cross Sales 1 of Defections
2umber of ne! products
Return on innoation
&mployee skills
ime to market
ime spent talking to
customers
Sample &easurements for the
%alanced Scorecard
Source, %a$te% from, 8&S& Ka$!an an% D&*& orton( -T#e Ba!ance% Scorecar%HMeas"res T#at Drive *erformance(. Harvard Business Review ( Ian"ary4Cer"ary
1992&
8eferre% to in -Services Marketing. eit#am! 0&& et a! t# 3%ition $ 9 Cig1>&:
8/9/2019 Service Pricing and the Financial and Economic effect of Service
24/25
Dominic Laffy
MKT6B2 – Services Marketing
Strateg# &ap " !horntons
So"rce , -Strategy Ma$s. Ka$!an( 8&S& J orton( D&*( ;arvar% B"siness Sc#oo! *ress( $11
8/9/2019 Service Pricing and the Financial and Economic effect of Service
25/25
Dominic Laffy
Creating a flow of logic 1 fast food e.ample
ew #ires
3%"cation
Work e?$erience
Selection 3
Staffing
Selection 3
Staffing
S"$ervision
S"$$ortCairness
&mployee
Satisfaction
&mployee
Satisfaction
3m$owerment
cco"ntai!ity &mployee-%dded Value
&mployee-
%dded Value
"a!ity
S#o$$ing 3?$erienceTime!iness
Customer Satisfaction
Customer
Satisfaction
Cre'"ency
8etention
8eferra!
#uying
#ehaiour
#uying
#ehaiour
rowt#
3arnings
Cree )as# C!ow
Shareholder
Value
Shareholder
Value
3ac# "t!et
ver Time
Better t#an
)om$etition
Sustained
Profitability
Sustained
Profitability
So"rce , a%a$te% from -)oming $ S#ort on nonfinancia! $erformance meas"rement.
Attner )&D& J Larcker( D&C& – ;arvar% B"siness 8eview( ov 2+( $9+