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.

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