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Chapter 13- Services: The Intangible Product

Difference between Services & Goods

Service- Any intangible offering that involves a deed, performance, or


effort that cannot be physically possessed.
Customer Service- Human or mechanical activities firms undertake to
help satisfy their customers needs and want
Intangible- Characteristic of a service; cannot be touched tasted or
seen.
Inseparable- A characteristic of a service: it is produced and consumed
at the same time; that is service and consumption are inseparable.
Heterogeneous- Refers to the differences between the marketing of
products and services, the delivery of services is more variable.
Perishable- A characteristic is a service: It cannot be stored for use in
the future.
Service Gabs
Service Gap- Results when a service fails to meet the expectations that
customers have about how it showed be delivered.
Knowledge Gap- Reflects the difference between customers
expectations and the firms perception of those customer expectations.
Standards Gap- Pertains to the difference between the firms
perception of customers expectations and the service standards it
sets.
Delivery Gap- Is the difference between the firms service stands and
the actual service it provides to the customer.
Communication Gap- Refers to the difference between the actual
services provided to customers and the service that the firms
promotion promises.

Evaluation by Customers of Service Quality

Reliability- The ability to perform the service dependably and


accurately.
Responsiveness- The willingness to help customers and provide prompt
service.
Assurance- The knowledge of and courtesy by employees and their
ability to convey trust and confidence.
Empathy- The caring, individualized attention provided to customers.
Tangibles- The appearance of physical facilities, equipment, personnel,
and communication materials.

Service Quality- Customers perceptions of how well a service should be


meet.

Methods to Reduce Delivery Gaps

Empowerment- Means allowing employees to make decisions about


how service is provided to customers.
Emotional Support- Concern for others well-being and support of their
decisions in a job setting.
Instrumental support- Providing the equipment or systems needed to
perform a task in a job setting.

Service Recovery Produce

Listening to the customers and involving them in the service recovery


Providing a fair solution
Resolving the problem quickly
Distributive fairness- Pertains to a customers perception of the
benefits he or she has received.
Procedural Fairness- Refers to the customers perception of the fairness
of the process used to resolve complaints about service.

Chapter 14 Pricing Concepts for Establishing Value


5 Cs of Pricing

Customers, Costs, Competition, Channel Members, Company Objectives.

Company Pricing Objectives


Profit- Orientation: Objective that can be implemented by focusing on target profit
pricing, maximizing profits, or target return pricing.

Target Profit Pricing- When they have a particular profit goal as their
overriding concern; Uses price to stimulate a certain level of sales at a
certain profit per unit.
Maximizing Profits- Relies on economic theory. If a firm can accurately
specify a mathematical model that captures all factors required to explain
and predict sales and profits, it should be able to identify the price at
which its profits are maximized.
Target Return Pricing- Firms less concerned with the absolute level of
profits and more interested in the rate at which their profits are generated
relative to their investments; designed to produce a specific return on
investment, usually expressed as a percentage of sales.
Premium Pricing- Pricing method by which prices a product above the
prices set for competing products to capture the consumers who always
shop for the best or form whom price does not matter.

Competitor Orientation: A company objective based on the premise that the firm
should measure itself primarily against its competition.

Competitive Parity- Setting prices similar to those of their major competitors.


Status quo Pricing- Firm changes pricing only to meet those of competition.

Customer Orientation: Firm sets its pricing strategy based on how it can add value
to its products or services.

Demand Curve- Shows how many units of a product or service consumers will
demand during a specific period of time at different prices.
Prestige Products or Services- Those that consumer purchase for status rather
than functionality.

Elastic vs. Inelastic Demand

Price Elasticity of Demand- Measures how changes in a price affect the


quantity of the product demanded.
Elastic- The market for a product or service is price sensitive, when price
elasticity is less than -1, that is, when 1 percent decrease in price produces
more than a 1 percent decrease in the quantity sold. (If price goes down,
sales will increase)

Inelastic- The market for a product generally viewed as price insensitive;


when its price elasticity is greater than -1, that is, when a 1 percent decrease
in price results in less than a 1 percent increase in quantity sold. (small
changes in price wont generate large changes in demand)

Factors Influencing Price Elasticity of Demand

Income Effect- Refers to the change in the quantity of a product


demanded by consumers due to a change in their income.
Substitution Effect- Refers to consumers ability to sub product for lower
priced one.
Cross-price elasticity- The percentage change in the quantity of product A
demanded compared with the percentage change in price in product B
Complementary Products- Products that go together, rise and fall
together(Blu-ray Discs/CD)
Substitute Products- Products for which changes in demand are negatively
related; A percentage increase in the quantity demanded for product A
results in a percentage decrease in quantity demanded for product B.
Variable Costs- Those costs, primarily labor and materials, that vary with
production volume.
Fixed Costs- Costs that remain essentially at the same level, regardless.
Total Cost- Sum of variable and fixed Costs.

Breakeven Analysis & Decision Making

Break-even Analysis- Technique that enables managers to examine the


relationships among cost, price, revenue and profit over levels on production.
Break-even Point- Point at which the number of units generates just enough
revenue to equal the total costs.
Contribution per unit- Equals the price less the variable cost per unit.

Competition

Monopoly- One firm provides the product or service in particular industry, less
competition.
Oligopolistic Competition- Few firms dominate a market.
Price war- Occurs when 2 or more firms compete primarily by lowering their
prices.
Predatory Pricing- When a firm sets a very low price for one or more of its
products with the intent to drive its competition out of business.
Monopolistic Competition- Many firms competing for customers in a given
market but their products are differentiated.
Pure Competition- Large number of sellers of standardized products or
commodities that consumers perceive as substitutable. (Grains, gold, meat,
spices, or minerals)
Gray Market- Employs irregular but not necessarily illegal methods; It legally
circumvents authorized channels of distribution to sell goods at prices lower
than those intended by manufacturer.

Pricing Strategies

Everyday Low Pricing (EDLP) - Continuity low prices.


High/Low Pricing- Which relies on the promotion of sales, during which prices
are temporarily reduced to encourage purchases.

New Product Pricing

Market Penetration Strategy- Set initial price low for introduction of the new
product or service.
Experience Curve Effect- As sales increase, the products price will lower.
Price skimming- Strategy of selling a new product or service at a high price
that innovators and early adopters are willing to pay in order to obtain it;
after the high-price market segment becomes saturated and sales begin to
slow down, the firm generally lowers the price to capture the next most price
sensitive segment.

Deceptive Pricing

Loss leader Pricing- Lower price below stores cost.


Bait-and-switch: Luring customers into the store with a very low priced
advertisement, to only aggressively pressure them into purchasing a higherpriced model, by disparaging the low priced item, comparing it unfavorably
with the higher priced item.
Price Discrimination- Selling the same product to different resellers or
consumer at different prices, some forms at illegal.
Price Fixing- Colluding with other firms to control pricing.
Horizontal Price Fixing- When competitors that produce and sell competing
products or services collude, work together, to control prices, effectively
taking price out of the decision process for consumers.
Vertical Price fixing- When parties at different levels of the same marketing
channel agree to control the prices passed on to consumers.
MSRP- Manufacturers specific price.

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