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

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.

STEPS in designing the PRICING STRATEGY

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

Price ~ QualityIn 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. ?

Pricing Structures

Cost Based PricingPrice = 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.

Establishing the Cost of ServiceIn 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.

Fee for ServiceCost of the time involved in providing the service.

Eg. Professional services where charges are per hour like consultants, lawyers psychologists etc.

Competition Based pricingThis 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 : AirlinesPrice signalingGoing-rate Pricing

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.

Demand Based pricingUnlike 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.

Perceived Valuea. 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

a) Value is low priceDiscounting eg?

Odd pricing eg?

Synchro-pricing : Place, time, qty

Penetration pricing eg?

b) Value is what I want in a servicePrestige pricing

Skimming pricing

c) Value is the quality I get for that priceValue 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

d) Value is what I get for what I givePrice bundling eg.Complementary pricing: a) captive pricing b) two part pricing c) loss leadership pricing.Result based pricingContingency pricing: a form of result based

pricing

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 funlinersBurger King introduces new

range of value meals.CunardCruise launched two

new crew ships

Pricing Strategies - ExerciseKingfisher

Price WarsPrice wars are frequent in industries where…

Cost differentiation opportunities existsCapital is intensive and products are

homogeneous

egs.?

Project Presentation – Gp 1& 2All team members to participate

45 min per group incl Q& A with minimum 5 min for Q & A

30:70 or 70:30 ?