1. 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

2. 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

3. 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: ________________)

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

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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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”

14. 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