1. Pricing, distribution and promotion
Week 4

2. Learning objectives
To discuss the main approaches to pricing in the service industry
To examine the challenges firms encounter in in communicating their services
To identify the various options and strategies for service delivery

3. Pricing Services

4. Goods and services pricing compared
Inseparability can make price segmentation more effective
Unlike goods, the service offering cannot be transferred from where it is cheapest to produce to where it is most valued, hence service providers can charge higher prices at premium sites (price discrimination)
Intangibility of services makes price on its own an important indicator of quality
Most products are a combination of goods and services, and added services can give goods a price premium

5. Classification of pricing objectives in the service sector
Objectives related to content:
Quantitative objective:
- Profit (Schlissel, 1977), sales, market share, cost coverage (Meidan & Chin, 1995)
Qualitative objective:
-Retain existing customers and attract new customers (Avlonitis & Indounas,2005)
- Maintain relationship with competitors and distributors survival, social goals
Objectives related to desired level of attainment
Profit/sales maximisation vs. Customer satisfaction
Objectives related to time horizon
Short-term (Morris & Fuller 1989) and long-term objectives
Question :Which pricing objective is mostly adopted by service organisations?

6. Factors influencing pricing decisions
What does it cost us to produce the service?
What do our competitors charge?
What is the maximum that customers will be prepared to pay?
What will a regulator allow us to charge?

7. Question: Which pricing methods are most popular in services? Why?
Cost-based methods
Cost-plus method*
A profit margin is added on the service’s average cost
Target return pricing
The price is determined at the point that yields the firm’s target rate of ROI
Break-even analysis (BEA)
The price is determined at the point where total revenues are equal to total costs
Contribution analysis
A deviation from the BEA, where only the direct costs of a product/service are taken into consideration
Marginal pricing
The price is set below total and variable costs to cover only marginal costs
Competition-based pricing
For standardised services: Me too/ going rate pricing*
B2B: Sealed-bid pricing
Demand-based pricing
Perceived-value pricing (Lovelock 1996), pricing according to customers’ needs (Bonnici, 1991)
Question: Which pricing methods are most popular in services? Why?

8. Cost-based pricing Cost-plus pricing widely used Example, road haulage
Work out unit costs
Each job calculated on basis of units required, plus profit margin
Problem of attributing costs
Example, road haulage
Source: Palmer, A. (2011) Principles of Services Marketing, 6th Edition, McGraw-Hill.

9. Competition-based Pricing
Source: Lovelock, C. and Wirtz, J. (2011) Services Marketing: People, Technology, Strategy,7th Edition, Upper Saddle River, New Jersey: Prentice Hall.

10. Key categories of rate fences
Physical (Product-Related) Fences
Basic product, amenities, service level
Non Physical Fences
Transaction Characteristics- time of booking or reservation, location of booking or reservation, flexibility of ticket usage
Consumption Characteristics- time or duration of use, location of consumption
Buyer Characteristics- frequency or volume of consumption, group membership, size of customer group

11. Relating price buckets and fences to demand curve

12. “UK RAIL FARES MOVE TO MARKET BASED PRISING”
To be discussed during seminar

13. Promoting Services

14. Key differences between goods and services communications
Promotion of a service offer cannot generally be isolated from promotion of the service provider
Visible production processes become an important element of the promotion effort
Intangibility can increase buyers’ perception of risk, which promotion must seek to overcome
More likely than goods to have “production” crises which immediately and directly affect consumers – effective communication can be critical

15. The extended promotion mix for services
Source: Palmer, A. (2011) Principles of Services Marketing, 6th Edition, McGraw-Hill.

16. Communicating the service – Aim to reduce perceived risk and intangibility
Source: Kasper, H., van Helsdingen, P. and Gabbott, M. (2006) Services Marketing Management: A strategic perspective, 2nd Edition, J.Wiley & Sons.

17. Advertising strategies for overcoming intangibility

18. Distributing Services

19. Six options for service delivery
Source: Lovelock, C. and Wirtz, J. (2011) Services Marketing: People, Technology, Strategy,7th Edition, Upper Saddle River, New Jersey: Prentice Hall.

20. Distribution strategy: The right ‘hybrid’
Adding too much to
the product line
Diffused
image
Adding too many
services in different
sites
Source: Kasper, H., van Helsdingen, P. and Gabbott, M. (2006) Services Marketing Management: A strategic perspective, 2nd Edition, J.Wiley & Sons.

21. Place decisions of service delivery
Cost, productivity, and access to labour are key determinants to locating a service facility
Location constraints
Operational requirement (e.g. airports)
Geographic factor (e.g. ski resorts)
Need for economies of scale (e.g. hospitals)

22. Place decisions of service delivery
Ministores
Creating many small service factories to maximise geographic coverage
Separating front and back stages of operation
Purchasing space from another provider in complementary field
Locating in Multipurpose Facilities
Proximity to where customers live or work
Service Stations

23. Time of service delivery
Traditionally, schedules were restricted
Service availability limited to daytime, hours a week
Today
For flexible, responsive service operations: 24/7 service, 24 hours a day, 7 days a week, all around the world

24. Distribution in a Services Context
In a services context, we often don’t move physical products
Experiences, performances, and solutions are not being physically shipped and stored
More and more informational transactions are conducted through electronic and not physical channels (To be discussed next week)

25. Summary The influence of Price Distribution Promotion
In delivering the service experience