Chapter 17 - Pricing of Services Customer Knowledge of Service Prices Service _________________ limits knowledge – EX: life insurance (whole life vs. term), different deductibles, variations associated with customers (age, health risk, smoking vs. non-smoking) Difficult to determine best price

Customer Knowledge of Service Prices Providers are unwilling to estimate prices – EX: provider may not know the price until after service is completed (ex: ) Individual customer needs vary – ex: price of hotel room varies by size of room, time of year, type of room availability, individual vs. group rate

Customer Knowledge of Service Prices Collection of Price information is overwhelming – need to visit or call to obtain price Prices are not visible – Customers often do not know what they are paying for (ex: ________________)

External Communications to Customers Provider GAP 4 CUSTOMER Service Delivery External Communications to Customers COMPANY GAP 4 Part 5 Opener

Pricing of Services The Role of ___________________ Costs _______ = Time, or Effort, or Psychological Costs Customers will trade money for time, effort, or psychological costs

The Role of Nonmonetary Costs __________: waiting time and service consumption; Ex: waiting time for car repair is high; pay more where waiting time is less? ____________: effort invested to identify and select among services you desire Ex: customers make reservations for one hotel; cost of comparing prices is too high

The Role of Nonmonetary Costs ___________________: effort expended to receive service; Ex: choose bank closest to home even though other banks charge lower fees ____________________: fear of not understanding; fear of uncertainty; Ex: Resistance of on-line payment, even though it saves time and money

The Role of Nonmonetary Costs Implications: 1. Service firm can increase monetary price by reducing time and other costs 2. Services that save time have monetary value for customers Ex: lawn care; carpet cleaning; babysitting

Approaches to Pricing Services Price = Direct Costs + Overhead Costs + Profit Margin Ex: Fee for service = cost of the time involved in providing the service; 200/day direct costs + 50/day (office expenses) + 15% of full costs; _______________ more difficult to price than materials _______________________ pricing: Based on prices charged by firms in the same industry or market; conditions - services are standard among providers; few large service providers

Approaches to Pricing Services Demand-based pricing: Price is consistent with customer perceptions of value: Four customer definitions of value Value is low price Value is everything I want in a service Value is the quality I get for the price I pay Value is all that I get for all that I give

Customer Definition of Value 1. Value is ______________: monetary price is the most important determinant of value value is price - which one is on sale; value is when airline tickets are discounted Pricing strategy: Discounting: price cuts communicate to price-sensitive buyers that they are receiving value

Customer Definition of Value 2. Value is ___________________________: benefits and intrinsic attributes determine value Pricing strategy: Prestige pricing: high price is charged for customers who value prestige or status

Customer Definition of Value 3. Value is the ______________________________: Consumers see value as a tradeoff between the money they give up and the quality they receive Pricing strategy: Value pricing: “giving more for less”

Customer Definition of Value 4. Value is ______________________________: consumers consider all the benefits they receive and all sacrifice components (money, time, effort) when describing value Pricing strategy: Results-based pricing: Contingency pricing: lawyers do not receive fees or payment until the case is settled