Key focuses:
Differences between pricing of services and goods
Strategies for pricing services
Challenges associated with pricing services
Definition of price in services marketing context
Flexibility in service configuration leading to difficulties in standard pricing
Inability of service providers to estimate prices beforehand
Variation of service prices based on customer needs
Information overload for customers due to multiple service options
Lack of visibility of prices until post-service delivery, with exceptions for urgent services
Overview of monetary and non-monetary costs in service pricing
Key non-monetary costs:
Time Costs: Time used for service selection
Search Costs: Costs incurred searching for services (e.g., travel)
Convenience Costs: Sacrifices made when purchasing services
Psychological Costs: Mental effort and stress involved
Formula: Price = Direct Costs + Overhead Costs + Profit Margin
Components of costs:
Direct costs (materials and labor)
Overhead costs (fixed costs share)
Profit margin (% of total costs)
Challenges of this strategy:
Difficulty in tracing costs
Complexity in pricing labor compared to materials
Discrepancy between costs and perceived customer value
Pricing determined by competitor pricing in the same market
Applicable when:
Services are standardized
Operating in oligopolies with few providers
Example: UK supermarket industry
Challenges:
Small firms potentially pricing too low
Heterogeneity of services complicates price comparisons
Prices may fail to reflect perceived customer value
Focuses on perceived customer value rather than company costs
Takes into account non-monetary costs affecting customer perception
Challenges:
Varied customer perceptions of value based on individual factors
International pricing variability
Pricing strategy to manage demand based on customer sensitivity
Example: Airlines adjusting fares leading up to departure
Challenges: Requirement for detailed demand pattern data by segment
Strategies:
Offering discounts to highlight value (e.g., discounted airline tickets)
Odd pricing for perceived savings (e.g., pricing at £19.50 instead of £20)
Penetration pricing to stimulate trial of new services (e.g., online streaming)
Prestige pricing involves charging higher prices for luxury services (e.g., upscale restaurants)
Skimming pricing introduces new services at high prices with major promotions (e.g., celebrity chef restaurants)
Service marketers organize price information for better customer understanding
Strategies:
Price Framing: Presenting prices in a way that helps customers view them positively
Price Bundling: Grouping services together for a lower combined price than individual purchase
Considerations for pricing:
Determining charge amount
Basis of pricing
Payment collection and timing
Payment methods and communication strategies
Importance of accurate reference prices for customers
Non-monetary factors are integral to customer pricing considerations
Diverse pricing strategies should address various customer segments.