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22 Cards in this Set
- Front
- Back
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Challenges in Service Price Setting |
-Harder to calculate financial costs of creating a service process or perf vs. manufactured goods -Inputs and Outputs are highly variable in services – difficult to define a “unit of service” and establish a basis for pricing -Time Element: Faster Service = More Expensive? |
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Several factors to consider in Service Price Setting |
Cost – price is sometimes unknown until after the service is rendered Demand – tends to be more inelastic (less sensitive to price changes) Customer – customers equate price to quality Competition – comparing prices among different alternatives is more difficult Profit – ‘bundling’ of services is often employed to determine prices Product – customers must pay prevailing price since they cannot stockpile service Legal – tendency for illegal pricing is more likely in services than in goods |
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Fundamental Pricing Principles |
ü Be easy to Understand ü Represent Value placed by the Customer on the Service ü Encourage Customer Retention & Facilitate Relationship between the Service & Firm ü Reinforce Customer Trust ü Reduce Customer Uncertainty / Risk |
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The Pricing Tripod: Three Approaches to Pricing Service |
COST BASED PRICING - costs to the provider (minimum price) COMPETITION BASED PRICING - competitors’ price offerings (price range) VALUE BASED PRICING - value perceived by Customer (ceiling price) |
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The Pricing Tripod: COST BASED PRICING (how) |
• Set prices relative to financial costs • Activity Based Costing (ABC) • Pricing Implications of Cost Analysis |
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The Pricing Tripod: COMPETITION BASED PRICING (how) |
• Monitor Competitors’ Pricing Strategy • Dependent on the Price Leader |
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The Pricing Tripod: VALUE BASED PRICING (how) |
• Relate Price to Value perceived by Customer |
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Basic Pricing Strategies |
SATISFACTION-BASED PRICING RELATIONSHIP PRICING EFFICIENCY PRICING |
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Basic Pricing Strategies Recognizing and reducing customers’ perceptions of uncertainty or risk, which the intangible nature of service magnifies |
SATISFACTION-BASED PRICING • Service Guarantees • Benefit-Driven Pricing • Flat-Rate Pricing |
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Basic Pricing Strategies Encouraging long-term relationships with the target customers |
RELATIONSHIP PRICING • Long-Term Contracts • Price Bundling |
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Basic Pricing Strategies Based on cost control, waste reduction, productivity improvements and increases in efficiencies and then transfer these benefits to consumers |
EFFICIENCY PRICING • Cost Leader Pricing |
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Revenue Management Principles Price Customization |
Charge different value segments different prices for same product |
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Rate Fences |
Deter customers willing to pay more from trading down to lower prices (minimize consumer surplus) Capture sufficient customers to fill all or most of firm’s perishable capacity w/out excessive price discounting that creates customer surplus for consumers willing to pay more |
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What Revenue Management determines RM uses mathematical models to examine historical data and real time information |
1. What prices to charge w/in each price “bucket” 2. How many service units to allocate to each “bucket” |
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Key Questions to Formulating Price Strategies |
1. HOW much to change? 2. WHAT’s the basis for Pricing? 3. WHO should collect Payment? 4. WHERE should payment be made? 5. WHEN should payment be made? 6. HOW should payment be made? 7. HOW to communicate Prices? |
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Key Questions to Formulating Price Strategies 1. HOW much to change? |
• Pricing Tripod provides a useful starting point • A specific figure must be set for the price • Need to consider pro and cons + legal / ethical issues |
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Key Questions to Formulating Price Strategies 2. WHAT’s the basis for Pricing? |
• Completing a Task • Admission to a Service Performance • Time Based (Matinee vs. Gala Perf / Showing) • Monetary Value of Service Delivered (e.g., Commission) • Consumption of Physical Resources (e.g., Food & Beverage) |
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Key Questions to Formulating Price Strategies 3. WHO should collect Payment? |
• Service Provider or Specialist Intermediaries • Direct or Non-Direct Channels |
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Key Questions to Formulating Price Strategies 4. WHERE should payment be made? |
• Conveniently located Intermediaries (e.g., Bayad Center) • Bank Transfers, PayPal, Western Union, etc |
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Key Questions to Formulating Price Strategies
5. WHEN should payment be made? |
• Advance Payments / Pre-Payments • Once Service Delivery has been completed |
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Key Questions to Formulating Price Strategies 6. HOW should payment be made? |
• Cash, Token, Stored Value Card, Electronic Funds, Transfer, Charge Card (Debit / Credit), Vouchers |
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Key Questions to Formulating Price Strategies 7. HOW to communicate Prices? |
• Relate the price to that of competing products • Ensure price is accurate and intelligible |
