Marketing of Services Unit VII

PRICING DECISION IN SERVICES

Instructor

Ankur Bhatnagar
www.managementstudies.tk
ANKUR BHATNAGAR www.managementstudies.tk

PRICE
Price is the medium for exchange of value between a buyer and a seller.
‡ It is an influencing factor in consumer-decision making, related to a purchase. ‡ Whatever be the product, whether it is a good or a service, whether high priced or low priced, whether the customer has a high ability to purchase or belongs to middle or low income group, the influence of price in a purchase decision cannot be overemphasized.
ANKUR BHATNAGAR www.managementstudies.tk

tk . rent to landlords. For instance Educational institutionsProfessional organizationsBanksTransportersBridges & highwaysLibraries & clubsHotelsInsuranceTuition fees Fees Interest & service charge Fare Toll Subscriptions Tariffs Premium ‡ It is commission to brokers.‡ Several services use different terminology to denote price. ANKUR BHATNAGAR www.managementstudies.

managementstudies. service firms should take the right decision relating to the pricing of services.Pricing Decision ‡ In service marketing mix. ANKUR BHATNAGAR www. ‡ Traditional approaches of pricing have some problem when applied to services.tk . price is the only µP¶ that generates inflow to the company. ‡ Taking in to consideration the service characteristics & consumer perceptions. ‡ The revenue of the company will be greatly influenced by the pricing decision.

tk .managementstudies.Factors in Pricing of Services ANKUR BHATNAGAR www.

ANKUR BHATNAGAR www. ‡ The absence of ownership transfer compel the customer to assess the value of the service before its production & consumption.managementstudies.tk . No Ownership of services ‡ It is more difficult to calculate the costs involved in creating an intangible service than in producing a physical good. ‡ In the case of goods consumers can leisurely verify & compare with substitutes & can take a purchase decision after production.1.

ANKUR BHATNAGAR www.managementstudies.tk .

managementstudies. price significantly.2.tk . and so on makes the output of the service variable. tools & equipment used. customer. output relations very ANKUR BHATNAGAR www. time taken. ‡ Therefore. Input & Output Variability ‡ Changes in the combination of service provider.

He has to refer to the price list of the Indian Railways.managementstudies. the price most frequently paid or the average of all prices paid for similar service offerings. A railway clerk cannot immediately tell you the cargo tariffs for various goods. ANKUR BHATNAGAR www. Price Value Relations ‡ Often customers use personal reference prices.3. ‡ Example: An LIC agent cannot quickly tell you the premiums of various policies without referring to the price table. ‡ A large number of varieties.tk . Personal reference prices consist of the price last paid. combinations & versions lead to complex price structures.

which may sometime become more important for the customers than monetary costs.managementstudies. Influence of Non Monetary Costs Non monetary costs are the sources of sacrifices perceived by customers. ² Time costs. ² Search costs ² Psychic costs.tk .4. ANKUR BHATNAGAR www.

waiting time.‡ Time costs refer to the spending of time by the service customer on travel to reach the service outlet. ‡ Psychic costs refer to the psychological pressure the service customer undergoes in selecting a service provider.managementstudies. ANKUR BHATNAGAR www. ‡ Search costs refer to the effort the service customers puts in collecting information relating to the service & the service provider takes for making a correct decision.tk . service process time and so on.

managementstudies. ‡ As price is viewed as an indicator of quality of the services. ANKUR BHATNAGAR www. ‡ In credence services such as medical treatment or management consultancy.5. price providers clues with regard to the quality of the services. Price Quality Relations ‡ Buyers are likely to use price as an indicator of both service cost & service quality in the absence of complete information on the service. price is surrogate for quality. service provider should be careful in fixing prices.tk .

there is danger of indicating low quality of the service. it may raise consumer expectations on quality.tk .managementstudies.‡ If the prices are set too low. if price is set high. it then becomes difficult to match service delivery with service expectations. ‡ On the other hand. ANKUR BHATNAGAR www.

tk .managementstudies. Revenue oriented objectives 2. Patronage oriented objectives ANKUR BHATNAGAR www. Operation oriented objectives 3.Pricing Objectives 1.

managementstudies. ANKUR BHATNAGAR www.Oriented Objectives ‡ Profit making is one of the goals of the business concerns. ‡ Companies are responsible for satisfying the stake of stock holders and also for expanding the business as per the expectation of the stock holders.1.tk . Revenue .

tk .2. ANKUR BHATNAGAR www. transport vehicles & other such services seek to fill vacancies because the unfilled position becomes an unproductive asset. Operation .managementstudies.Oriented Objectives Hotels.

managementstudies. Patronage .tk . ANKUR BHATNAGAR www.3. ‡ Companies can grow multiple benefits through relationship building.Oriented Objectives ‡ Price may be used effectively to develop loyalty & relationship with customers.

tk . Demand ± based pricing ANKUR BHATNAGAR www. Cost ± based pricing 2. Competition ± based pricing 3.managementstudies. The three recognized pricing approaches are: 1.Approaches to Pricing of Services The approaches for services pricing are more or less the same as that of pricing of goods.

tk . ‡ When the demand for service does not fluctuate and when there is supply ² demand balance at optimum capacity of the firm.managementstudies.1. ‡ The service firms that face fluctuating demand trends cannot use this method as the fixed ² cost component will be very high in proportion to ANKUR BHATNAGAR the total cost. Cost ± Based Pricing ‡ Cost based pricing is a traditional approach & simple method. this approach of pricing is convenient to the producer. ‡ The company determines the expenditure incurred. www. either direct or indirect. on production and adds a desired profit margin top arrive at a price.

legal services. ‡ The other problem is that labour is more difficult to price than materials. The value of an employee·s time.Problems in Cost ± Based Pricing ‡ The major problem is that it is very difficult to trace the cost of each unit of a service. education services & so on are sold in terms of time in many markets. is not easy to calculate. ANKUR BHATNAGAR www. ‡ Consultancy services. particularly non professional time.managementstudies.tk .

Competition ± Based Pricing There are two situation in which Competition ± based pricing is most applicable. ² Heterogeneity of services does not allow customers to compare a service of a firm to that of another firm. ² However. ANKUR BHATNAGAR www.2.managementstudies. some small firms may charge too little to be viable & create problems to the competitors.tk . ² When oligopoly competitive situation is present in the market wherein a few large service providers have control over the market. ² That is when all service providers offer services more or less of the same standard such as in the dry cleaning sector.

¶value pricing·.tk . ‡ But neither of the two is customer oriented. that is. Demand ² based pricing is customer oriented pricing. ANKUR BHATNAGAR www. Demand ± Based Pricing ‡ Cost² based pricing is oriented to ensure adequate return to the services provider & competition ² based pricing is to attack Competition or to defend the company from competitive attacks.3.managementstudies. ‡ Demand ² based pricing promotes the most important pricing concept for services.

tk . a) Value is low price In a market some customers may see value when services are available at low price. the service customer perceive. generally.According to Zeithaml & Bitner The value perceptions of a service vary among different groups of customers. Zeithaml & Bitner have identified four important value perceptions which. Money is the most important limitation for them in purchasing services.managementstudies. ANKUR BHATNAGAR www.

b) Value is everything I want in a service ‡ Some customers may consider the benefits that they receive from the service as the most important component in assessing value of the service.managementstudies. c) Value is the quality I get for the price I pay This group of customers will see a trade off between the money they pay and the quality of a service they receive. ‡ These customers give value to the suitability or the quality or the features of service to their needs. They try to optimize their benefits from every transactions.tk . ANKUR BHATNAGAR www.

d) Value is what I get for what I give ‡ This group of customers consider the total benefit they receive & the total sacrifices they make including money.managementstudies. time and effort when assessing value of services. ANKUR BHATNAGAR www.tk . ‡ This group of customers are critical assessors and less loyal. ‡ They prefer such services providers who can give more customer delivered values.

managementstudies.Components of Customer Delivered Value (CDV) Next Figure illustrates the components of customer values and customer costs.tk . Services firms can use them as a guide to understand the customer assessment process and to develop a right policy for service providing. CDV = TCV + TCC CDV = Customer Delivered Value TCV = Total Customer Value TCC = Total Customer Cost ANKUR BHATNAGAR www.

managementstudies.tk .Components of Customer Delivered Value Customer Value Variable ‡ Core service value ‡ Supportive service value ‡ Image value ‡ Other values TCV Total Customer Value CDV Customer Cost Variable ‡ Monetary price ‡ Search cost ‡ Time cost ‡ Energy cost ‡ Psychic cost ‡ Other cost Customer Delivered Value TCC Total Customer Cost ANKUR BHATNAGAR www.

References ‡ Lovelock .Service Marketing ‡ K. Rama Mohana Rao.managementstudies.tk .Services Marketing ‡ Journal of Marketing Management ‡ 4Ps of Business & Economy ANKUR BHATNAGAR www.

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