PRICING OF SERVICES

Differences between customer evaluation of pricing between services and goods: 1.Customers have limited or inaccurate reference price for services.

2. Monetary price is only one of the prices relevant to service customers. 3. Price is a key indicator of quality in services; i.e higher the price better is the service.

NON MONETARY COSTS : Time costs, search costs, convenience costs and psychological costs are the non monetary costs in a service and play an equally important role like that of monetary cost.

PRICE AS AN INDICATOR OF SERVICE QUALITY: In the absence of other forms of communication from the company, price becomes the sole decisive factor in selection of a service. Customers look for cues like information through advertising, brand image etc.

In certain services which are perceived as high risk like consultancy services and medical treatment the customers associate pricing with quality assurance. Too low a pricing can act as a repellant. It could send negative signals. Too high a price can set very high expectations.

PRICING STUCTURES USED TO DETERMINE PRICES a.Cost based. b.Competition based. c.Demand based.

A Cost based Pricing: Used in services like advertising, contracting etc. Price = Direct Cost + Overhead Cost + Profit Margin

Direct Cost = Materials & Labour used to Produce the service. Overhead Cost = Apart of Fixed costs Profit Margin = Direct Cost + Overhead expressed as percentage.

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.

COST PLUS PRICING: Component costs + extra. -Here costs are estimated in advance Eg. Advertising.

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.

B 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.

a.When services are standard across providers. b.In oligopolies where there are few large service providers : Airlines c. Price signaling d.Going-rate Pricing

C DEMAND BASED PRICING Based on establishing prices consistent with customer perception of value i.e. pricing depends on what customers are likely to pay for the services provided.

PERCEIVED VALUE 1. Value is low Price. 2.Value is what I want in a service. 3.Value is the quality I get for that price. 4.Value is what I get for what I give

STRATEGIES FOR EACH PERCEIVED VALUE a.Value is low price: - Discounting - Odd pricing - Synchro pricing - Penetration pricing

b. Value is what I want in a service: - Prestige pricing - Skimming pricing

c. Value is the quality I get for that price: - Value Pricing - Market Segmentation pricing

d. Value is what I get for what I give: - Price framing - Price bundling - Complimentary pricing - Result based pricing

Competition based pricing Price signalling 1.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. 2. 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… Unlike in cost based and competition based pricing, demand based pricing is customer focused and not company or market focused.

Demand based pricing… 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.

Value is low price: Though quality and other attributes are important, MONETARY PRICE becomes the major determinant of value to a customer. PRICING SRTATEGIES FOR THE PERCIEVED VALUES

DISCOUNTING: Price sensitive customers often perceive discounted or reduced prices as value. ODD PRICING: When a service is priced just below the rupee to give a feel of a lower price

SYNCHRO-PRICING: This pricing is used to manage the fluctuations in demand. Time,place quantity and incentive differentials are used to attract the price sensitive customers. Time differentials: Price variations are offered depending on the time when the service is utilised, so as to gain optimum advantage.

PLACE DIFFERENTIALS: Here location sensitive customers are willing to pay a higher price for the service. QUANTITY DIFFERENTIALS: In this strategy higher the purchase in terms of volume,lower is the price.

PENETRATION PRICING New services are introduced at very low prices to attract customers. It is useful when sales volume are price sensitive Economies of scale are achieved by selling large volumes Threat of strong potential competitor No one is willing to pay a higher price for the service

INCENTIVE DIFFERENTIALS: Low or discounted prices are offered to loyal customers to retain them or to new customers to entice them.

VALUEIS EVERYTHING I WANT IN A SERVICE Here the customer is willing to pay any price for the quality that he expects, the perception being that higher the price better the quality. PRESTIGE PRICING: a)Pricing for exclusive services which have a status value.

b) This strategy is deployed when services are being launched at very high prices or improvised services are launched for which a category of customers is willing to pay the highest prices.

VALUE IS WHAT I GET GOR THE PRICE I PAY Here the price and quality are matched depending on the targeted segment. VALUE PRICING: An assortment of services are priced in such a way that buying the services individually would be more expensive.

MARKET SEGMENTATION PRICING: Customers are charged based upon client category or service version: both used to segment the customers.

VALUE IS ALL THAT I GET FOR ALL THAT I GIVE Price bundling Complimentary pricing: a) captive pricing b) two part pricing c) loss leadership pricing. Result based pricing Contingency pricing:a form of result based pricing