Pricing of Services by uCfOSq


									Pricing of Services
   Difference between Services &
• Limited or inaccurate reference point of

• Monetary price is only one of the prices
  (Time cost, Search cost, Convenience

• Price is a good indicator of quality of
        Pricing Strategy :

       It is a strategic tool that
  organizations use to differentiate
their products from competitors and
 thereby gain the competitive edge
        to capture the market.
         STEPS in designing the

•   Develop marketing strategy - perform
    marketing analysis, segmentation, targeting,
    and positioning.

•   Make marketing mix decisions - define the
    service, distribution, and promotional tactics.

•   Estimate the demand curve - understand
    how quantity demanded varies with price.
          STEPS in designing the
• Calculate cost - fixed and variable costs associated
  with the service

• Understand environmental factors - evaluate likely
  competitor actions, understand legal constraints, etc

• Set pricing objectives - for example, profit
  maximization, revenue maximization, or price
  stabilization (status quo)

• Determine pricing - using information collected in the
  above steps, select a pricing method, develop the
  pricing structure, and define discounts
           Price ~ Quality
• In the absence of other forms of
  communication from the company, price
  becomes the sole decisive factor in
  selection of a service
• High risk services customers associate
  price with service assurance eg. ?
Pricing Structures
Cost Based Pricing
          Cost Based Pricing
• Price = Direct Cost + Overhead Cost + Margin

• Direct Cost = Material + labour used to
  produce the service

• Overhead costs are apart from the fixed cost

      Used in Services like Advertising ,
              Contracting , etc.
Establishing the Cost of Service
• In complex product lines – like retail
  banking products, Activity Based
  Costing is used to determine the

• Cost is not related to value, which is
  determined by the market and
  customer acceptance.
         Fee for Service
• Cost of the time involved in
  providing the service.

• Eg. Professional services where
  charges are per hour like
  consultants, lawyers
  psychologists etc.
Competition Based pricing
    Competition Based pricing
• This approach is based on using the
  competitors’ price as the point of reference
 Eg: Fitness clubs, Driving classes, Computer classes etc.
• When services are standard across providers.
• In oligopolies where there are few large
  service providers : Airlines
• Price signaling
• Going-rate Pricing
            Price Signaling
•   Found in markets where there are a
    number of competitors. If any one
    company offers a lower cost advantage
    others immediately match the price. Eg.
•   In this type of pricing strategy the
    charges offered are the ones that are
    prevalent in the market for the same type
    of service. Eg.Tourist bus services, Car
    hires etc.
Demand based pricing
       Demand Based pricing
• Unlike in cost based and competition based
  pricing, demand based pricing is customer
  focused and not company or market focused.
• This type of pricing is fixed keeping in mind what
  the customers are likely to pay for the perceived
  value offered by the service.
• For the determination of demand based pricing
  non monetary costs also have to be considered,
  as these contribute to the perception of value.
          Perceived Value
a. Value is low Price. Eg.?
b. Value is what I want in a service.
   Eg. ?
c. Value is the quality I get for that
   price. Eg.?
d. Value is all that I get for all that I
Pricing Strategies for each of
     the Perceived Value
      a) Value is low price
• Discounting eg?

• Odd pricing eg?

• Synchro-pricing : Place, time, qty

• Penetration pricing eg?
   b) Value is what I want in a
• Prestige pricing

• Skimming pricing
 c) Value is the quality I get for that
• Value pricing eg?
 This approach is used where external
  factors such as recession or increased
  competition force companies to provide
  'value' products and services to retain

• Market segmentation pricing
   d) Value is what I get for what I
• Price bundling eg.
• Complementary pricing: a) captive
  pricing b) two part pricing c) loss
  leadership pricing.
• Result based pricing
• Contingency pricing: a form of result
  based pricing
    Pricing Strategies - Exercise

Place pricing strategies onto the
   correct section of the matrix :
• Wall-Mart launch a new range
   of own-label soups.
• A cable TV provider moves into
   a new area and needs to
   achieve a market share.
• Holiday Inns try to fill hotels
   during winter weekends.
• Kingfisher launching funliners
• Burger King introduces new
   range of value meals.
• CunardCruise launched two
   new crew ships
Pricing Strategies - Exercise

               Price Wars
Price wars are frequent in industries

• Cost differentiation opportunities exists
• Capital is intensive and products are

Project Presentation – Gp 1& 2
• All team members to participate

• 45 min per group incl Q& A with minimum
  5 min for Q & A

• 30:70 or 70:30 ?
Thank you

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