PRICING OF SERVICES

What Do You Know about the Prices of

following Services?

Wedding Pet Sitter?

Advisor?

Nutritionist?
Counselor?
 Pricing Quiz
Which dentist would you choose for a filling in your
tooth?
Dentist Cost for Distance Wait Period Time in Anesthesia
Filling to Dentist for an Waiting
Appointment Room
A $50 15 miles 3 Weeks 1.5 hour None

B $75 15 miles 1 Week 0.5 hour Novocain

C $125 3 miles 1 Week 1 hour Novocain

D $200 3 miles 1 Week No wait Nitrous Oxide

& Novocain
Three key ways that service prices are
different for customers-

❑ Customer Often lack knowledge of Service Prices.

❑ The Role of Non-monetary Price.
❑ Price is a key signal of quality in services.
Customer Often Lack of Knowledge of Service Prices

❑ Customers often lack reference prices for service.

❑ Service variability limits knowledge.
❑ Providers are unwilling to estimate prices.
❑ Individual customer needs vary.
❑ Collection of price information by customers is
difficult .
❑ Prices are not visible.
 The Role of Non-monetary Price
• Time costs
• Search costs Do you trade time for money?

• Convenience costs
• Psychological costs
Customers Will Trade Money for
Other Service Costs

= or or

Time Effort Psychic Costs

Price as an Indicator of Service Quality

Can price attract some

customers?
Price as an Indicator of Service Quality

Infers High Quality Service

Infers Low Quality Service

Role of Pricing in Services
❑ Forming expectations.
❑ Making purchase decisions.
❑ Evaluating service quality.
❑ Controlling demand.
Approaches to pricing Services
❖ COST-BASED PRICING
❖ COMPETITION-BASED PRICING
❖ DEMAND-BASED PRICING
 Three Basic Price Structures and
Difficulties Associated with Usage for Services
PROBLEMS:
PROBLEMS: 1. Costs difficult to trace

Co
1. Small firms may charge too 2. Labor more difficult to

d n-
little to be viable

st
price than materials

se itio
2. Heterogeneity of services

-B
3. Costs may not equal value
limits comparability

as
3. Prices may not Ba pet

ed
m
reflect customer
Co

value

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-Bas
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ema
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PROBLEMS:
1. Monetary price must be adjusted to reflect
the value of non-monetary costs
2. Information on service costs less available to
customers, hence price may not be a central factor
 COST-BASED PRICING
In cost-based pricing, a company determines expenses
from raw material & labor, adds amounts or
percentages for overhead & profit ,and thereby arrives
at the price.
Price = Direct costs+ overhead costs+ Profit margin
❑ Direct Costs = materials and labor
❑ Overhead = share of fixed costs
❑ Profit margin = percentage of full costs
PROBLEMS:
❑ Costs are difficult to trace.
❑ Labor is more difficult to price than materials.
❑ Costs may not equal value.
 COMPETITION-BASED PRICING
This approach focuses on the prices charged by other
firms in the same industry or market.
Competition-based pricing does not always imply
charging the identical rate others charge but rather
using others prices as an anchor for the firms price.
Predominately used in two situations-
✔ When services are standard across service providers (dry
cleaning)
✔ In oligopolies where there are few providers (airlines)
PROBLEMS:
❑ Small firms may charge too little to be
viable.
❑ Heterogeneity of services limits
comparability.
❑ Prices may not reflect customer value.
Examples
❑Price signaling(Airlines)
❑Going Rate
 DEMAND-BASED PRICING

Set Prices Consistent with Customer

perceptions of value: prices are based on what
customers will pay for the services provided.
PROBLEMS:

❑ Monetary price must be adjusted to reflect

the value of non-monetary costs.
❑ Information on service costs may be 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 “Value is All that

Quality I Get for I Get for All
the Price I Pay” that I Give”
“Perceived value is the consumer’s
overall assessment of the utility of a
service based on perception of what
is received and what is given”
PRICING STRATEGIES THAT LINK TO
THE FOUR VALUE DEFINITION
 Pricing Strategies When the
Customer Defines “Value as Low Price”

“Value is Low Price”

n Discounting
n Odd Pricing(Rs 2999)
n Synchro-pricing(Sensitivity to pricing)
n Penetration Pricing
 Pricing Strategies When the Customer
Defines
“Value is Everything I Wanted in a Service”

“Value is Everything
I Want in a Service”

n Prestige Pricing
n 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”

n Value Pricing(giving more

for less)
n 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”
n Price Framing
n Price Bundling
n Complementary Pricing(two- part pricing)
n Results-based Pricing
 Summary of Service Pricing Strategies
for Four Customer Definitions of Value

“Value is Low Price” “Value is Everything

I Want in a Service”
n Discounting
n Prestige Pricing
n Odd Pricing
n Skimming Pricing
n Synchro-pricing
n Penetration Pricing

“Value is the Quality “Value is All that

I Get for the Price I Pay” I Get for All that I Give”

n Value Pricing n Price Framing

n Market Segmentation n Price Bundling
Pricing n Complementary
Pricing
n Results-based Pricing
http://www.dndflyway.com/static.p
hp?pageId=3
https://hbr.org/2017/01/how-customers-perceive-a-price-is-as-i
mportant-as-the-price-itself