Summary Lecture 10 Notes

Page 3: Lecture Overview

• Key focuses:

  • Differences between pricing of services and goods

  • Strategies for pricing services

  • Challenges associated with pricing services

Page 4: Understanding Price

• Definition of price in services marketing context

Page 5: Challenges in Pricing Services

• 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

Page 6: Costs Involved

• Overview of monetary and non-monetary costs in service pricing

Page 7: Role of Non-Monetary Costs

• 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

Page 8: Cost-Based Pricing Strategy

• 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

Page 9: Competition-Based Pricing Strategy

• 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

Page 10: Value-Based Pricing Strategy

• 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

Page 11: Dynamic Pricing

• 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

Page 12: Adapting Pricing for Bargain Hunters

• 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)

Page 13: Adapting Pricing for Status Seekers

• 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)

Page 14: Adapting Pricing for Convenience Seekers

• 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

Page 15: Designing a Service Pricing Schedule

• Considerations for pricing:

  • Determining charge amount

  • Basis of pricing

  • Payment collection and timing

  • Payment methods and communication strategies

Page 16: Summary

• Importance of accurate reference prices for customers

• Non-monetary factors are integral to customer pricing considerations

• Diverse pricing strategies should address various customer segments.