MANAGING SERVICE PROMISES

Provider Gap 4
CUSTOMER

COMPANY

Service Delivery

The Communication Gap

External Communications to Customers

Part 6 Opener

Pricing and services

Lecture 11

Pricing of Services

Discuss

three major ways that service prices are perceived differently from goods prices by customers the key ways that pricing of services differs from pricing of goods from a companys perspective

Articulate

Overview (cont.)

Demonstrate what value means to customers and the role that price plays in value Describe strategies that companies use to price services

3 key differences

Customer knowledge of service prices:

Service variability limits knowledge Providers are unwilling to estimate prices Individual customer needs vary Collection of price information is overwhelming Prices are not visible Time costs Search costs Convenience costs Psychological costs

Role of non-monetary costs:

Price as an indicator of service quality

Three Basic Marketing Price Structures and Challenges Associated with Their Use for Services
P= DC+OC+Profit Challenges: Challenges:
mp ba eti se tio d n1. Small firms may charge too little to be viable. 2. Heterogeneity of services limits comparability. 3. Prices may not reflect customer value.

Co st

-b as ed

1. Costs difficult to trace. 2. Labor is more difficult to price than materials. 3. Costs may not equal the value that customers perceive the services are worth.

Co

ed d-bas n Dema

Challenges:
1. Monetary price must be adjusted to reflect the value of non-monetary costs. 2. Information on service costs is less available to customers; hence, price may not be a central factor.

Four Customer Definitions of Value

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.

Pricing Strategies When the Customer Defines Value as Low Price

Value is low price.
Discounting

Odd pricing Synchro-pricing Penetration pricing

Pricing Strategies When the Customer Defines Value as Everything Wanted in a Service
Value is everything I want in a service.
Prestige pricing Skimming pricing

Pricing Strategies When the Customer Defines Value as Quality for the Price Paid

Value is the quality I get for the price I pay.

Value pricing Market segmentation pricing

Pricing Strategies When the Customer Defines Value as All That Is Received for All That Is Given

Value is all that I get for all that I give.

Price framing Price bundling Complementary pricing Results-based pricing

Summary of Service Pricing Strategies for Four Customer Definitions of Value

Value is low price.
Discounting Odd pricing Synchro-pricing Penetration pricing

Value is everything I want in a service.

Prestige pricing Skimming pricing

Value is the quality I get for the price I pay.

Value pricing Market segmentation pricing

Value is all that I get for all that I give.

Price framing Price bundling Complementary pricing Results-based pricing

Integrated marketing communications

Integrated Services Marketing Communications

Service

communication challenges. Integrated service marketing communications Present four ways to integrate marketing communications in service organizations Present specific strategies for managing promises, managing customer expectations, educating customers, and managing internal communications.

Communications and the Services Marketing Triangle

Company
Vertical communications Horizontal communications

Internal Marketing

External Marketing Communication

Advertising Sales promotion Public relations Direct marketing

Employees

Interactive Marketing
Personal selling Customer service center Service encounters Servicescapes

Customers

Source: Kotler, Philip, Marketing Management: Analysis, Planning, Implementation, and Control, 9th Edition, 1997.

Approaches for Integrating Services Marketing Communication

Manage customer expectations

Manage service promises

Goal: Delivery is greater than or equal to promises

Improve customer education

Manage internal marketing communication

Approaches for Managing Service Promises

MANAGING SERVICE PROMISES
Create effective services communications Coordinate external communication Make realistic promises Offer service guarantees Goal: Delivery is greater than or equal to promises

Services Advertising Strategies Matched with Properties of Intangibility

Source: Adapted from B. Mittal, The Advertising of Services: Meeting the Challenge of Intangibility, Journal of Service Research, 2, no. 1, August 1999, pp. 98116.

Approaches for Managing Customer Expectations

Offer choices Create tiered-value offerings Communicate criteria for service effectiveness
Negotiate unrealistic expectations
Goal: Delivery is greater than or equal to promises

Approaches for Improving Customer Education

Goal: Delivery is greater than or equal to promises

Prepare customers for the service process

Confirm performance to standards

Clarify expectations after the sale

Teach customers to avoid peak demand periods and seek slow periods

Approaches for Managing Internal Marketing Communications

Goal: Delivery is greater than or equal to promises Create effective vertical communications Create effective horizontal communications Align back-office personnel with external customers Create cross-functional teams