Pricing of Services. Difference between Services & Goods` Limited or inaccurate reference point of...
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![Page 1: Pricing of Services. Difference between Services & Goods` Limited or inaccurate reference point of service Monetary price is only one of the prices (Time.](https://reader037.fdocuments.in/reader037/viewer/2022110321/56649f585503460f94c7e016/html5/thumbnails/1.jpg)
Pricing of Services
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Difference between Services & Goods`
• Limited or inaccurate reference point of service
• Monetary price is only one of the prices (Time cost, Search cost, Convenience
cost)
• Price is a good indicator of quality of Service
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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.
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STEPS in designing the PRICING STRATEGY
• 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.
![Page 5: Pricing of Services. Difference between Services & Goods` Limited or inaccurate reference point of service Monetary price is only one of the prices (Time.](https://reader037.fdocuments.in/reader037/viewer/2022110321/56649f585503460f94c7e016/html5/thumbnails/5.jpg)
• 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
STEPS in designing the PRICING STRATEGY
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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. ?
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Pricing Structures
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Cost Based Pricing
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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.
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Establishing the Cost of Service
• In complex product lines – like retail banking products, Activity Based Costing is used to determine the price.
• Cost is not related to value, which is determined by the market and customer acceptance.
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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.
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Competition Based pricing
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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
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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. Airlines.
• 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.
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Demand based pricing
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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.
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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 give
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Pricing Strategies for each of the Perceived Value
definitions
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a) Value is low price
• Discounting eg?
• Odd pricing eg?
• Synchro-pricing : Place, time, qty
• Penetration pricing eg?
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b) Value is what I want in a service
• Prestige pricing
• Skimming pricing
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c) Value is the quality I get for that price
• 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 sales.
• Market segmentation pricing
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d) Value is what I get for what I give
• 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
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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
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Pricing Strategies - Exercise
Kingfisher
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Price Wars
Price wars are frequent in industries where…
• Cost differentiation opportunities exists
• Capital is intensive and products are homogeneous
egs.?
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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 ?
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Thank you