200915 Lecture Notes - Lecture 8: European Cooperation In Science And Technology, Avail, Price Discrimination
Week 8 :PRICING OF SERVICES
Pricing of services-less vaguer than products LNP
Non-monetary costs
Price indicator of service quality when prices varying,don’t know service (higher price,higher
quality)
3 price strategies-CDC
1)competition based-small firms might not have enough money and resources to beat
competition,heterognity,might not reflect customer value
2)demand based- prices adjust value of non-monetary costs
3)cost based- little know
Cost not equal to what customer percieve service worth
Info on service costs less available
Service value-sacrifice what to pay
non/monetary sacrifice
Values different for different people
Value for low price: discounting,synchopricing,penetration pricing
Value for everything want in service: skimming pricing,prestige pricing
Quality i get for price i get:airline-economy,
All that i get for all that i give:complementary pricing,bundling pricing,result based
Pricing issues:
How much charged for services? Relevant floor price,look at elasticity of demand + customer
perception
How much charging?
Basis for pricing?
Complete specific task
Admission to service performance
Time based-hotel for night,tv service for month
Tied to value-premium reflects coverage
Price bundling-give customers basis price to pay
Unbundled pricing-freedom what to buy,which price
Discounting-attract customer,fill capacity
How payment made?
Cash,credit card
Prepayment -value on magnetic strip
Simplicity,speed or card
35 Consumers tend to spend more when the method of payment is less tangible or immediate.
Consumers are more careful with cash and spend less, followed by credit cards, prepayment cards,
Who collect payments?after
Where payment made?
When payment?
Pay in advance or bill when service delivery completed
How prices communicated to target market?
Ethical considerations-e.g)when credit card payment more than airline
Is complex-insurance,mortgage info
Don’t exploit customer ignorance-customer don’t know what they are getting from the service
supplier, are not present when the work is being performed and lack the technical skills to know if
a good job has been done, they are vulnerable to paying for work that has not been done,
Fairness into revenue management-
Design price schedules and fences that are clear, logical and fair. Firms should proactively spell out
all fees and expenses (e.g. no-show or cancellation charges) clearly in advance so that there are no
surprises
Use high published prices and frame fences as discounts.
Discounts fairer than customer losses
High published price increases reference price and quality perception
Communicate consumer benefits of revenue management.
Use bundling to ‘hide’ discounts. Bundling a service into a package effectively obscures the
discounted price
Take care of loyal customers. Firms should build in strategies for retaining valued customers, even
to the extent of not charging the maximum feasible amount on a given transaction
Loyalty programs
Use service recovery to compensate for overbooking.
Retaining reservation or compensation
Give advanced notice Alternative arrangements-
Chapter 10: Understanding Costs and Developing Pricing Strategy, Services Marketing, Sixth Edition,
Lovelock,
Chapter 6
CHAPTER 10-COSTS AND DEVELOPING PRICE STRATEGY
6.1 Describe the foundations of pricing strategy
6.2 Formulate pricing objectives
6.3 Formulate pricing strategies and policies
6.4 Define and distinguish different types of costs
6.5 Describe the significance of revenue management for service firms
6.6 Understand how to communicate and implement service pricing strategies
6.1-A business model is the mechanism whereby, through effective pricing, sales are transformed
into revenues, costs are covered and value is created for the owners of the business.
Costs of creating + delivering service,margin of profits
Effective pricing +Revenue management strategy,value proposition
What they get for what they give
6.2-Price objectives-
1)revenue -orientated (profit seeking)
2)user-orientated (patronage)
3)non monetary
1)revenue-price set to maximise revenue
Revenue targets-broken by division,geo unit,customer segments
Price set on costs,competition and price elasticity of market segments
GREATER DIFF BW COST AND PRICE-GREATER PROFIT
Financial success :optimal productive capacity
Profit margin inc. by
a) cost cutting (productivity gains,eliminating waste)
b)customers +competition allow price rises
2)Patronage-
Build demand: max demand-min revenue
Full capacity utilisation-high capacity add customer value
Build user base:encourage trial and adoption of service
By price discounts + promotional activties-giveways
Other strategic purposes:
Position,differiate services
Document Summary
Price indicator of service quality when prices varying,don"t know service (higher price,higher quality) 1)competition based-small f irms might not have enough money and resources to beat competition ,heterognity,might not reflect customer value. 2)demand based- prices adjust value of non-monetary costs. Cost not equal to what customer percieve service worth. Value fo r everything want in service: skimming pricing,prestige pricing. All that i get for all that i give :complementary pricing,bundling pricing,result based. Relevant floor price,look at elasticity of demand + customer perception. 35 consumers tend to spend more when the method of payment is less tangible or immediate. Consumers are more careful with cash and spend less, followed by credit cards, prepayment cards, Pay in advance or bill when service delivery completed. Ethical considerations -e. g)when credit card payment more than airline. Design price schedules and fences that are clear, logical and fair.
