Services Session 5 - Copy

7/30/2019 Services Session 5 - Copy

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Value

Majid Aleem Services MKT Session 6


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Perception of Value



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Monetary cost

The actual dollar price paid by

the consumer for a product.

Energy costs

The physical energy spent

by the customer to acquire the

service.

Time costs

The time the customer has to

spend to acquire the service.

Psychic costs

The mental energy spent by

the customer to acquire the

service.

Product value

The worth assigned to the

product by the customer.Service value The

worth assigned to the service

by the customer.

Personnel valueThe worth assigned to the

service-providing personnel

by the customer.

Image valueThe worth assigned to the

image of the service or service

provider by the customer.

Perception of Value


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Competition makes organizations Blink or they

Become Paralyzed in terms of pricing.

Firm obsessed with setting prices as opposed to

engaging in strategic pricing activities.

The difference between price setting and

strategic pricing is the difference between

reacting to market conditions and proactivelymanaging them.


Considerations of Service Pricing


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Considerations of Service Pricing


Cost Considerations Demand Considerations

Customer Considerations Competitive Considerations

Profit Considerations Product Considerations

Legal Considerations


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Cost Considerations Service pricing is often not finalized until after provision.

Consequently, the consumer experiences greater price

uncertainty.

patient may know what a doctors office visit costs,

But may not know what she charges for lab work, x-rays,

No cost of goods sold cost-based pricing is more difficult for

services.

Intangible

Labor needs are challenging to forecast

workforce turnover is typically high in many service industries

Service industries are often characterized by a high fixed cost to

variable cost ratio.

Fixed Costs Vs. Variable Costs



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Demand Considerations

Service Economies of Scale Tend

to Be Limited

Due to inseparability and

perishability, the consumption

of services is not separated by

time and physical space

Limited Physical space

Demand for services tend to be

more inelastic

Willing to pay higher if perceived risk

is low



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Cross-Price Elasticity

Considerations Need to

Be Examined

Cross-price elasticity ofdemand measures the

responsiveness of demand for

a service relative to a change

in price for another service.


If the price of Product A

increases, the demand for

Product B decreases, then

the two services are said to

be complementary.

If the price of Product A

increases, the demand for

Product B increases - twoservices may besubstitutes


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Price Discrimination Is

a Viable Practice to

Manage Demand and

Supply Challenges

involves charging

customers different prices

for essentially the same

service.

Effective price

segmentation benefits

consumers and providers


Demand Smoothing:

Creating new demand in

off-peak, low-capacity

utilization periods.

Flattening peaks by moving

existing customers from

peaks to less busy times.


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Demand Considerations Six Criteria for Price discrimination

Different groups of consumers must have different responses

to price.

The different segments must be identifiable, and a mechanism

must exist to price them differently.

No opportunity should exist for individuals in one segment who

have paid a low price to sell their tickets to those in other

segments.

The segment should be large enough to make the exercise

worthwhile.

The cost of running the price segmentation strategy should not

exceed the incremental revenues obtained.

The customers should not be confused by the use of different

prices.Majid Aleem Services MKT Session 6


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Customer Considerations Price tends to be one of the few cues available to

consumers during pre-purchase. Intangible nature of services, services are characterized by

few search attributes

informational value of price decreases as the number of

other informational cues increases signpost items that customers frequently purchase and are

very well aware of typical prices.

Service consumers are more likely to use price as a cue

to quality. when price is the primary differential information available;

when alternatives are heterogeneous; and

when comparative price differences are relatively large.



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Customer Considerations Service consumers tend to be less certain about

reservation prices.

reservation price is the maximum amount that the

consumer is willing to pay for a product.

If the reservation price exceeds the price charged for the

service, the consumer is more inclined to purchase thatparticular service.

if the reservation price is lower than the actual price

charged, then the consumer is precluded from purchasing

that particular service offering



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Competitive Considerations

Comparing prices of competitors is more difficult forservice consumers.

Actual price information for services tends to be more

difficult for consumers to acquire than for goods

Difficult to make meaningful comparisons betweenservices

Self-service is a viable competitive alternative

Inseparability of production and consumption for services

is the possibility of the customer actively participating inthe service delivery process



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Profit Considerations

Price bundling makes the determination of individual

prices in the bundle of services more complicated

Price bundling involves pricing a group of services at a

price that is below their cost if bought complicates the alternative evaluation process for

consumers.

Price bundling is more effective in a services context.

perceived as a better value for the customer and typicallygenerate additional revenues for the selling firm.



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Product Considerations Compared to the goods sector, there tend to be

many different names for price in the service sector.

service charges, points and commissions bus fares,

apartment dwellers pay rent, hotel occupants are charged

a room rate.

Consumers are less able to stockpile services bytaking advantage of discount prices.

forward buying When retailers purchase enough product

on deal to carry over until the product is being sold on deal

again. (Not possible in Services) Product-line pricing tends to be more complicated.

product-line pricing The practice of pricing multiple

versions of the same product or grouping similar products

together.Majid Aleem Services MKT Session 6


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Product Considerations

Product-line pricing tends to be more complicated.

product-line pricing The practice of pricing multiple

versions of the same product or grouping similar products

together.

Pricing of services more often than not generates

customer confusion and alienation



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Legal Considerations

The opportunity for illegal pricing practices to go

undetected is greater for services than goods.

Is it legal for a physician to charge excessive prices for

vaccinations during an influenza epidemic Service consumers are more vulnerable to illegal pricing

practices

Consumers feeling particularly vulnerable are willing to pay

higher prices for a service if it lowers their perceived risk vulnerable consumers through excessive prices may

benefit in the short-term



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Emerging Service Pricing Strategies



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Satisfaction Based Pricing

Service Guarantees

The guarantee assures customers that if they are less than

satisfied with their purchase, they can invoke the

guarantee and obtain a partial or full refund to offset their

dissatisfaction with the service firm.

Benefit-driven pricing

A pricing strategy that charges customers for services

actually used as opposed to overall membership fees.

Flat-rate pricing A pricing strategy in which the customer pays a fixed price and

the provider assumes the risk of price increases and cost

overruns.



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Relationship Pricing

Relationship pricing strategies that encourage the

customer to expand his or her dealings with the

service provider.

Long-term contracts offer prospective customers

price and non-price incentives for dealing with thesame provider over a number of years

mixed bundling Price bundling technique that allows

consumers to either buy Service A and Service B

together or purchase one service separately.



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Efficiency Pricing

Pricing strategies that appeal to economically

minded consumers by delivering the best and most

cost-effective service for the price


Documents

Services Session 5 - Copy