Pricing

Price a medium of exchange Termed differently at different services

Fees Commission Interest Service charge Fare Toll Subscription

Pricing of Services
Factors that make pricing different from that of goods
No ownership of services thus needs to price it before it is consumed Variability of inputs and outputs
Price value relations-- Many services hard to evaluate ( LIC agents, Railway clerk)
Often customers use the reference prices like last paid, most frequently paid This proves them wrong as needs vary

Conti..
Influence of non-monetary costs like time costs, search costs, psychic cost. Price-quality relations- people often pursue price as indicator of quality.
If too low indicates low quality If charged too high leads to high expectations

Pricing objective
First step in the pricing process is to decide the objective of pricing Its subjective as
Vision Mission Corporate objectives Business situation

Objectives
Revenue oriented Operation oriented - seek to fill the vacancy (Hotels, transportation, entertainment) Patronage oriented: Based on loyalty (Doctors- Rs 100 to Rs 40)

Approaches to pricing The Pricing Tripod

Pricing Strategy

Competition

Costs

Value to customer

 Cost- based pricing

Expenditure + Profit margin Possible when demand is stable Very difficult to trace the per unit cost in services Employees is more difficult to price than materials Competition-based pricing Pricing under two conditions: when providers have more or less same services

Under oligopoly situation: follow live and let others live.

 Value based pricing

Value differs from each customers

Value is low price Value their needs Value quality Value the total benefit against the cost.

Value is low price

Those customer who value price the most Pricing Strategy:
Discounting Odd-pricing: Synchro-pricing:
charge more when demand is more & decrease price when supply is more

Penetration pricing:
charge low in initial stage to attract price sensitive

Value is Everything I want in a service

Type of people who value only their needs and no other attribute Pricing Strategy:
Prestige Pricing: High price reflects the status of the user so as to attract the premium segment Skimming price: charge high in the initial stage
First to cover the premium segment and then down-line the segment of the market

Value is Quality I get for the price I pay

Type of people who compare quality with that of the price they pay Highly rational decision makers

Pricing strategy:
Value Pricing: TCV TCC = CDV Segment Pricing: offering separate package pricing

Value is all that I get for all that I give

Type of people who overall compare the benefit with that of total cost Pricing strategy:
Price framing: Providing total information of various packages and showing them the price lists Price bundling: pricing and bundling varied service in a group

Complementary pricing:
Captive pricing Two-part pricing Loss-leader pricing

 Captive pricing:
First basic charge + continuous supply charge (T.V. Channel operators)

Two-part Pricing:
Initial fixed + Variable (Telephone charges)

Loss-leader pricing:
Give supplementary services free so as to attract more people Manage the loss with the increased bulk of customers

Customer delivered value

Customer Value Variables Core service value Supportive service value Personal Value (Physical, Lifestyle) Image Value

TCV

CDV

Customer cost Value Monetary price Search cost Time cost Energy cost Psychic cost

TCC

Putting the service pricing in to practice

How much should be charged for this service
What is the companys cost in rendering such service How sensitive are the customers What is competitors price What discount should be offered on the basic price

 On what basis should be the basic pricing be charged

Execution of specific task Units of time taken Percentage of commission on the value of transaction Physical resources consumed Geographical distance covered Single pricing or bundled pricing Should support services be showed separately

 Who should collect the payment

Organization that provides the service Intermediary

Where should the payment be made

Service delivered Convenient retail outlet Purchasers home

When should the payment be made

Before or after the service

How should it be paid

Cash Token EFT Third party payment.