MKT 5207Service Marketing

Afjal HossainAssistant ProfessorDepartment of Marketing

Chapter 17Pricing of Services

Pricing Quiz

• Which dentist would you choose for a filling in your tooth?

Dentist Cost for Filling

Distance to Dentist

Wait Period for an

Appointment

Time in Waiting Room

Anesthesia

A $50 15 miles 3 Weeks 1.5 hour None

B $75 15 miles 1 Week .5 hour Novocain

C $125 3 miles 1 Week 1 hour Novocain

D $200 3 miles 1 Week No wait Nitrous Oxide

& Novocain

Customer Often Lack of Knowledge of Service Prices

• Customers often lack reference prices for service

• Service variability limits knowledge• Providers are unwilling to estimate prices• Individual customer needs vary• Collection of price information by customers is

difficult • Prices are not visible

The Role of Non-monetary Price

• Time costs• Search costs• Convenience costs• Psychological costs Do you trade time for money?

Price as an Indicator of Service Quality

Can price attract somecustomers?

Price as an Indicator of Service Quality

Infers Low Quality Service

Infers High Quality Service

Three Basic Marketing Price Structures and Challenges for Services

Demand-based

Cost-based

Co

mp

etit

ion

-b

ased

Challenges: 1. Costs difficult to trace. 2. Labor is more difficult to price than materials. 3. Costs may not equal the

value that customers perceive the services are worth.

Challenges: 1. Small firms may charge too little to be viable. 2. Heterogeneity of services limits comparability. 3. Prices may not reflect

customer value.

Challenges: 1. Monetary price must be adjusted to reflect the value of non-monetary costs. 2. Information on service costs is less available to customers; hence, price may not be a central factor.

Figure 17.1

A Customer-Focused Approach to The Pricing Process

Value is low price.

Value is thequality I get for the price I pay.

Value is everythingI want in a service.

Value is all thatI get for all that I give.

Four Customer Definitions of Value

Figure 17.2

Value is low price• Discounting• Odd pricing• Synchro-pricing• Penetration pricing

Pricing Strategies When the Customer Defines Value as Low Price

Figure 17.3

Value is everythingI want in a service• Prestige pricing• Skimming pricing

Pricing Strategies When the Customer Defines Value as Everything Wanted in a Service

Figure 17.4

Value is the quality I get for the price I pay•Value pricing•Market segmentation pricing

Pricing Strategies When the Customer Defines Value as Quality for the Price Paid

Figure 17.5

Value is all that I get for all that I give• Price framing• Price bundling• Complementary pricing• Results-based pricing

Pricing Strategies When the Customer Defines Value as All

that Is Received for All that Is Given

Figure 17.6

Value is low price•Discounting•Odd pricing•Synchro-pricing•Penetration pricing

Value is the quality I get for the price I pay•Value pricing•Market segmentation pricing

Value is everythingI want in a service•Prestige pricing•Skimming pricing

Value is all that I getfor all that I give•Price framing•Price bundling•Complementary pricing •Results-based pricing

Summary of Service Pricing Strategies forFour Customer Definitions of Value

Figure 17.7