Pricing in Service Industry Vandana Sachdeva and Prabhleen Sarna By.
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Transcript of Pricing in Service Industry Vandana Sachdeva and Prabhleen Sarna By.
Pricing in Service IndustryVandana Sachdeva
andPrabhleen Sarna
By
PRICE-A value that will purchase a definite quantity, weight, or other measure of a good or service
PRICING is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition, market condition, and quality of product.
“A price is not merely a function of costs
and margins…”
Costs + Margins = PRICE
…it is an expression of VALUE
► Production costs► Indirect costs► Advertising costs► Distribution costs► Manufacturer’s
margin► Distributor’s margin► Seller’s margin
► Product performanceUsefulness & Quality
► Image / AspirationsBrand Equity
► AvailabilityDistribution Strategy
► Service Before/During & After
sales
Minimize Optimize Maximize
Costs + Margins = PRICE
VALUE
PRICE - One of the 4 P’s of Marketing Mix
When should a firm set price for the first time?
When. . . It develops a new product It introduces its regular product
into a new distribution channel or geographical area
It enters bids on new contract work (as in Industrial Sale)
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SIGNIFICANCE OF PRICING◊ This is the only element in the
marketing mix that brings in the revenues. All the rest are costs.
PROFIT=(PRICE X QUANTITY SOLD) – TOTAL COST
◊ Price communicates the value positioning of the product.
◊ Price has a psychological impact on consumers and hence marketers can use it symbolically.
OBJECTIVES OF PRICING Profit maximization in the short term Profit optimization in the long run Price Stabilization Facing competitive situation Maintenance of market share Capturing the Market Entry into new markets Ability to pay
FACTORS AFFECTING PRICING DECISIONS
Internal Factors
External Factors
INTERNAL FACTORS
Marketing Objectives Positioning Target Group
Marketing Mix Strategy 4 P’s
Costs Fixed & Variable
Management Approach Responsibility Perspective
EXTERNAL FACTORS Market
•Pure Competition•Monopolistic Competition•Oligopolistic Competition•Pure Monopoly
Demand•Elastic / Inelastic
Competition•Competitors’ offers•Competitiors’ reactions
Economy•Buying power
Government Influence•Laws & Regulations
HOW SERVICE PRICES DIFFER FROM GOODS PRICES
(Customers Perspective) Customer knowledge of service prices:
Service variability limits knowledge Providers are unwilling to estimate prices Individual customer needs vary Collection of price information is overwhelming Prices are not visible
Role of non-monetary costs: Time costs Search costs Convenience costs Psychological costs
Price as an indicator of service quality
What Do Customers Know about the Prices of Services?
Banking?
Nutritionist?
WeddingAdvisor?
Hospital?
Customers Will Trade Money for
Other Service Costs
Effort
=Time
or or
Psychic Costs
PRICING POLICIES
COST-BASED
BUYER-BASED
COMPETITION-BASED
Cost-Plus Pricing
Product Cost + Standard Mark-Up = Price
BE Analysis & Target Profit Pricing
A necessary survival tool
Cost-Based Pricing
• Perceived Value
Consider buyers’ perceptions of value NOT the cost
Buyer-Based Pricing
Competition-Based Pricing
Basing prices on competitors’ prices
• Premium Pricing
• Going-Rate Pricing
• Discount Pricing
Demand-BasedCost-Based
Com
petit
ion-
Bas
ed
PROBLEMS: 1. Costs difficult to trace 2. Labor more difficult to price than materials 3. Costs may not equal value
PROBLEMS: 1. Small firms may charge too little to be viable 2. Heterogeneity of services limits comparability 3. Prices may not reflect customer value
PROBLEMS: 1. Monetary price must be adjusted to reflect the value of non-monetary costs 2. Information on service costs less available to customers, hence price may not be a central factor
Three Basic Price Structures and Difficulties Associated with Usage
for Services
The Pricing ChallengeSetting right price is a crucial decision to the
profitability of services and of all the decisions of marketing mix, pricing decisions are
hardest to make. It is the most challenging decision the business must take. The marketer
may decide to follow any strategy that suits best for their services and earn revenues.
PRICEGenerates Reven
ues
Price Change
• Reaction of Customers:Choose a substitute / Forgo the
purchase• Reaction of Competitors/responding to competitor’s price change:
• Maintain price• Maintain price and add value• Reduce price• Increase price and quality• Launch a low price fighter
Customer’s Perceived Value
Value is low Price. Value is what they want in a service. Value is the quality they get for the price. Value is all that I get for all that I give
Value = Quality ÷ Price
Price Quality Strategies
Super value High value Premium
Good value Medium value Overcharging
Economy False economy Rip off
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Price
Qu
ality
Pricing Strategies
Penetration Pricing
Market Skimming
Value Pricing
Loss Leader
Psychological Pricing
Going Rate (Price Leadership)
Tender Pricing
Price Discrimination
Destroyer Pricing/Predatory Pricing
Absorption/Full Cost Pricing
Marginal Cost Pricing
Contribution Pricing
Target Pricing
Cost-Plus Pricing
Influence of Elasticity
Discounts and Allowances
Cash Discount Trade Discount Early payment Seasonal Discount Bulk purchase (Quantity Discount) Commission Other Allowances
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Thank you all for your co-operation!