MARK270 Lecture Notes - Lecture 11: Hotels.Com, Dynamic Pricing, Congestion Pricing
Customer often lack of knowledge of service prices:
Customers lack reference prices for services
• Service variability limits knowledge (only expert customers)
• Providers are unwilling to estimate prices (e.g. hospitals or lawyers)
• Individual customer needs vary (similar to above but customer requirements vary)
• Collection of price information by customers is difficult (information search for goods
compared to services)
• Prices are not visible (e.g. commissions on financial services, credit card fees) Sometimes you
don’t kno the prie until after the serie has een reeied.
For the customer:
Internal reference prices - a price point in memory for a good or service.
Sometimes advertising the price of a service (price visibility) assists a potential customer.
BUT: Take care with promotional pricing of services
The role of non-monetary costs:
It is not just about the dollars!
• Time costs (e.g. waiting times)
• Search costs (although brokers and sites such as Hotels.com can assist)
• (In) Convenience costs (opportunity cost)
• Psychological costs (e.g. stress/fear)
Also 'buying time': if a service provider can reduce non-monetary costs to the customer they may be
prepared to pay more. Remember the concept of value
find more resources at oneclass.com
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Approaches to Pricing:
1. Cost-based
Price = direct costs + overhead costs + profit margin
But for services sometimes difficult to cost.
Some services are charged on inputs rather than outputs.
Fees for service - e.g. accountant, lawyer. But what about productivity per hour?
2. Competition-based
Often when:
• Services are standardised
• Oligopoly
Price signalling e.g. airlines
Going rate pricing
3. Demand-based - what customers will pay
(e.g. grand final tickets and services that reduce non-monetary costs)
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Customer often lack of knowledge of service prices: Service variability limits knowledge (only expert customers: providers are unwilling to estimate prices (e. g. hospitals or lawyers, collection of price information by customers is difficult (information search for goods. Internal reference prices - a price point in memory for a good or service. Sometimes advertising the price of a service (price visibility) assists a potential customer. But: take care with promotional pricing of services. It is not just about the dollars: time costs (e. g. waiting times, psychological costs (e. g. stress/fear) Search costs (although brokers and sites such as hotels. com can assist) (in) convenience costs (opportunity cost) Also "buying time": if a service provider can reduce non-monetary costs to the customer they may be prepared to pay more. Price = direct costs + overhead costs + profit margin. Some services are charged on inputs rather than outputs. But what about productivity per hour: competition-based.
