CHAPTER 4

SERVICES MARKETING PROGRAMME

 CHAPTER OUTLINE
COST AND PRICING STRATEGIES.

Communication Mix for

services
Distribution services
 COSTS AND
PRICING STRATEGIES
TYPES OF COST

Non-
Monetary
costs

Key cost that

customers incur in
using a service
 NONFINANCIAL OUTLAYS/
NON MONEYTARY COST/
KEY COST
Customers may incur a variety of nonfinancial
outlays, representing the time, effort, and
discomfort associated with searching for
purchasing, and using a service. We can
group non financial outlays into 4 distinct
categories: time cost, physical effort,
psychological burdens and sensory burdens.
Non Monetary cost

Time cost
Physical Effort
Psychological costs
Sensory costs
 TIME COST
• Time Expenditures: are inherent in the service
delivery process. Time may also be wasted
simply waiting for service.
• There’s an opportunity cost involved because
customers could spend that Time in other
ways
Time spent

Opportunity cost High perceived cost

 PHYSICAL EFFORT
• Including fatigue, discomfort, and occasionally
Even injury) may be incurred during visits to the
service factory or while using a company’s self
service equipment.
Physical Effort

Fatigue Discomfort
 Psychological burdens
• Like mental effort, feeling of inadequacy, or
fear may accompany the tasks of evaluating
service alternatives, making a selection, and
then using the chosen service. Services that
are high in experience and credence attributes
may create psychological burdens like anxiety
since service outcomes are more difficult to
evaluate.
Psychological Costs
Mental effort
Perceived risk
Cognitive dissonance
Fear
Feelings of inadequacy
fear
fear
Cognitive dissonance

• The feeling of discomfort

that results from holding
two conflicting beliefs
 SENSORY BURDENS
• Relate to unpleasant sensations affecting any
of the five senses. They may include putting
up with noise, unpleasant smells, drafts,
excessive heat or cold, uncomfortable seating
or lighting, visually unappealing environments,
and even unpleasant tastes.
Sensory Costs

Noise
Excessive heat/cold
Unpleasant tastes, smells
Uncomfortable seating
Visually unappealing environment
Value based pricing strategy
• The practice of setting prices with
reference to what customers are willing
to pay for the value they believe they will
receive.
• Pricing based on how customers
perceived the benefits obtained from
the service against the perceived
costs
 Value based pricing strategy

-Three strategies:
i- Uncertainty Reduction.
ii- Relationship Enhancement.
iii- Cost Leadership
 Value based pricing- Reduce
uncertainty
Uncertainty Reduction(p.178)
Benefit-driven pricing: the aspects of price that creates benefits for customer.
• To communicate service benefits clearly(relationship between costs and
value)
• Ex: Medical Check-up (Blood Test)

Flat-rate pricing: the fixed price for service in advance.

• Transfer risk from customer to supplier(higher service production cost)
• Service price are unpredictable and supplier poor at controlling their cost.
• Ex: Telco Communication (Mobile Internet Service/BIS)
 Value based pricing- Reduce
uncertainty
Relationship Enhancement: p. 178)
• Offering discount when customer buy more
service together creates relationship-building
strategy.
• No matter how large or frequent the
purchasing to be, the closer relationship is
likely to be.
• Both parties will know each other well, more
inconvenient for customer to take their
business to elsewhere.
• Value-Based Pricing: Cost Leadership(p.178)
• The pricing strategy on achieving the lowest
cost in its industry.
• To approach a customer who are on a tight
financial budget.
• To pursue customer to buy in larger volume.
• To convince customers that they shouldn’t
equate price and quality.
• To ensure that economic cost are low.

• Ex: Airasia (Daily Flight Promo)

PERCEIVED
BENEFITS
KLIA Transit
KLIA Transit
KLIA LEFT
LUGGAGE
Cost based pricing strategie
oFixed costs
oVariable costs
oSemi variable costs
• - costs that fall between fixed and
variable costs: expenses that rise
or fall in a stepwise fashion as the
volume of business increases or
decreases respectively
 Price/ Sub-
Tax total
Estimated sub-total 966.00
Fuel Variable cost 15 % 144.90
Handling charge 15% 144.90
Sub-total 1255.80
Estimated grand total
Cost-Based Pricing
-Setting prices relative to financial costs.
-The practice of relating the price to be changed
to the costs associated with producing,
delivering, and marketing a product/service
itself.
-Pricing decisions are based on costs, and not
market conditions, perceived value or any
other conditions, it is possible for a company
to price a product too low.
Cost-Based Pricing
i-Regulatory Pressures(p. 176)
-not all service firms are free to charge
whatever price they choose.

Example: Telco companies or cable TV station

cannot change their price because it has been
regulated (fixed) by Government.

Case study: Telco firms cannot charge the

prepaid user a Gov. Tax.
Cost-Based Pricing
ii- Activity-Based Costing (ABC): (p. 176)
-Provides a structured way of thinking about
activities and the resources that they consume.
- To costing based on identifying the activities
being performed and then determining the
sources that each consumes.
-Example: Business class more expensive than
Economy class because of the secondary
service (Supporting Service) instead of core
service.
 Competition based
Competition-Based Pricing
• Pricing: the practice of setting prices relative to
those charged competitors.
• The firm with the lowest cost per unit of
service enjoys a enviable marketing
advantages.
• They have the option of competing on price
with the higher-cost competitors cannot afford
to match
Competition based
• Monitor competitors’ prices and price
in relation to competitors’ prices
• Undifferentiated services
• customers see little or no
differences between competing
offerings, customers choose
services with the lowest price.
Competition intensifies…

Increase in the number of

competitors
Increase in the number of
substituting offers
Wider distribution of competitors
and/or substitution offers
Increasing surplus capacity in
industry
MAS: KLIA TO DUBAI, UAE
RM21,090.00
Competition-Based Pricing
i- Price Leadership: (p. 177)
-A firm that takes the initiative on price changes
in its market area and is copied by others.
-Pricing: the most easiest/fastest marketing
variable to change.

-Example: Several gas station compete with

short distance of one another, or on opposite
corner of a crossroads. If one of them lower the
price, other will follow.
Competition-Based Pricing
ii- Price Bids and Negotiation: (p. 177)
Bidding: The offering of particular prices for
something. The bids are opened
in full view of all who may wish
to witness the bid opening.

-Negotiation: contracting through the use of

either competitive or other than competitive
proposals and discussions.