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Pricing Of a Service : Educational service (Lancaster University MBA) Consumers use price as an evaluative criterion of the product (Yoo et al, 200).

Prices influence both income and spending behaviour and for a company price is the only mix (marketing strategy variable also called marketing mix) that generates costs and all the other mixes incur costs (Monroe, 2005).Deciding a price and managing prices is very vital for any goods or services. Moreover, deciding and managing the cost of a service can be very difficult because it is not possible to produce the service at known cost levels in the current period and to store it for consumption in some futu re period and since cost information is often adjusted by an inflation factor where service delivery is to be made some time in future, but it can be quite difficult to decide what is the most appropriate inflation factor should be used for a specific input (Palmer, 2011). In my essay i will try to understand how an educational service is priced and how pricing helps in creating a valuable marketing strategy to these services. In my essay I am going to explore how prices are set for the MBA program in Lancaster university management school (LUMS), connecting it to the various pricing theory. In recent times higher education is very globalized also the higher education market is well established as a global phenomenon, especially in the major English speaking countries like Canada, USA, Australian and the US (Brown and Oplataka, 2006). There is an increasing competition for home-based and international students that the higher education institutions now identify that they need to market themselves in the environment of international competition (Brown and Oplataka, 2006). Much of the application of

economics principles to university behaviour has focused on cost measurements and allocation issue, but, there has been little attention given to the question concerning the

marketplace context of universities: how they compete for faculty (inputs), how they position themselves in the marketplace, how they decide on prices (tuition, room and board charges for resident students, internet, facilities etc), how they decide on production levels (the number of students to admit per year), when to enter new markets (e.g. offering new programs or degrees, adding more to the existing program, professional schools) and so on (Rothschild and White,1993) establishing new

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The MBA at LUMS ranks as UK s top 10 and World s top 50.The price for the full time MBA is 23,500 according to Mr Saunders who is the director of the full time MBA. The MBA in Lancaster in a 12 month intensive program. It empahsises on leadership and international business and also provides opportunities for consulting experience in a company in the UK to its students. (http://www.lums.lancs.ac.uk/mba/)

Service Marketing and its pricing:

Service industries and companies are those whose core product is a service (Zeithaml et al, 2007).In our case the service is an educational service which has various inputs. Input here are how universities choose their faculty (Rothschild & White, 1993) and what kind of various amenities they have, like full time internet access, lounge, computer rooms etc. Factors influencing pricing decision in the service industry: Before a cost of a service is decided it is useful and important to analyze the underlying factors that influence price decision (Palmer, 2011).Four important bases for determining price can be identified below ( Palmer, 2011) : 1. The cost to produce a service In our case, the cost of setting up an institution,

selection of professors, amenities, advertising and promotional costs etc. 2. The amount that consumers are prepared to pay for it willing to pay 23,500 (Appendix1) for a one year MBA degree. 3. The price that competitors are charging Here, Lancaster University MBA s Here, the students are

competitors are Cranfield University MBA and Warwick University MBA (Appendix1) which are priced at 33,000 (Appendix2) and 26,000 (Appendix3 ). 4. The constraints on pricing that are imposed by regulatory bodies In our case there

is no regulatory body/bodies that control the pricing of an MBA. Even the government has no role to play in pricing this course (Appen dix1). The cost of producing a service represents the minimum price that a commercial organization would be prepared to accept over the long term for providing the service and

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also all this would be influenced by the level of competition available to custo mers to satisfy their needs somewhere else (Palmer, 2011). I shall explain further Different pricing approaches of services: y Competition-Based Pricing: Competition based pricing is the kind of pricing approach that focuses on the prices charged by other firms in the same industry or market (Zeithaml et al, 2007).In the case of universities, whether they compete, and the consequences of the competition for university production and pricing is important f or understanding costs (Rothschild & White, 1993) . Competition based pricing does not mean copying the exact prices that the competitors charge, but it is just using the price as a reference to set own prices (Zeithaml et al, 2007). In our case, the LUMS MBA was priced at 18,000 previously, which made it look cheaper than it s competitors according to Mr Saunders. Then the price was increased to 23,500, which was not exact a copy of the competitor s prices but almost close to theirs. But more than competition pricing, perceived value pricing most fits the way in which the LUMS MBA s prices are set. y Demand Based Pricing - Perceived Value pricing: A price of a service and the upper limit of it is generally determined by what the customer is willing to pay (Palmer, 2011). Customers pay for a service on their perceptions of product quality and the value for their money (Monroe, 2005).Demand based pricing involves setting prices consistent with customer s perception of value (Zeithaml et al, 2007). According to Zeithaml (1988) customers think that Value is the quality I get for the price I pay . Here, in the higher education market, students are the customers (Brown and Oplatka, 2006). So, the students think that when they pay a huge sum of money like 23,500 as their fee to study for an MBA from LUMS they get the value they paid. They feel they would have good faculties (inputs), good amenities etc.

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Customers do not use price solely as a measure of cost, like said above they use price as an indicator of product quality (Monroe, 2003). We tried to adopt Monroe s Price perceived Value model to our example (Appendix4). In the model we tried to see what the perceived qualities of the LUMS MBA were. The MBA Ranking places a vital role in shaping up the perception in this case. The price increase also suggests that the organization wanted to be perceived as a high institution to study. The model shows intrinsic cues like brand name, perceived country etc. This suggests that the consumers become familiar with the service they are more likely to use with intrinsic cues along with prices (Monroe, 2003). It also shows that some countries are perceived to have a good quality product or service (Monroe, 2003), in our case a MBA from United Kingdom is perceived as a excellent quality and hence students perceived an university ranking top 10 in UK as a good institution to do pursue their MBA from. Consumer s perception of a service is so important because its relationship with the price would determine their purchase decision (Monroe, 2003)

Conclusion and R ecommendation: According to the interview with Mr Saunders and our careful analysis, we can say that Lancaster University MBA is priced according to competition pricing and perceived value pricing. Costing of the course can be done in various un-know forms but according to personal experience the cost also includes student insurance and according to Mr Saunders it also covers the charges of student international study trip. This can not be called as bundling because these elements of the final costs are not told to the student. Most of the educational institutions now recognise that they need to market themselves in a climate of competition that for universities is a global one (Brown and Oplatka, 2006) and Lancaster University attracts a lot on international applicants, so it would be a good option for them to advertise and set up public relations events once a year all around the world. Since LUMS uses competitive pricing, it would be a good option to know what the competitors are doing as their advertising strategy. Mr Saunders is well aware that the competing universities use their big city tag to attract students, Lancaster being a small city but a big university can also attract students with the social life around campus and also the

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other facilities that Lancaster university has like the upcoming sports centre to attract students. Entry and exit play important role in the standard competitive structure (Rothschild and White, 2006), this hold very true for the intake in a universities. It is known that, the higher retention rates that are reported by prestigious institutions have been attributed to a more rigorous student selection process (Fevons, 2006). Although, the MBA in LUMS attracts the brilliant students to increase its standards it can increase its tab to students with more scores than they already do and also include an in house assessment test like its competitor does(Appendix5) Very well known ways to diminish uncertainty are guarantee s (Kasper et al, 1999), this is the main motto of satisfaction based pricing. Since LUMS has a reputation to deliver high standards, it can focus on advertising its alumni s satisfaction. All in all, LUMS prices its MBA well. We had interviewed Mr Saunders in April,2011, but recently while looking at the price of an MBA it has been increase from 23,500 to 25,000 (Appendix6), showing that it is very tandem with the price increases of its competitors.

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References: Brown.H.J. and Oplatka.I., 2006, Universities in Competitive Global Maketplace: A System Review of the Literature on Higher Education Marketing, International Journal of Public Sector. Vol. 19, No 4, pp. 316 -338. Fevons.C., 2006, Universities: A Prime Example of Branding Going Wrong. Journal of Product and Brand Management, 15/7, 466 -467. Kasper.H.,Diegen.P and Vries Jr.W., 1999, Pricing, Service Marketing Management: An International perspective, John Wiley & Sons Ltd. Monroe.B.K., 2003, Price and Customer s Perceptions of Value, Pricing: Making Profitable Decisions, McGraw-Hill Irwin, 3 rd Edition. Palmer.A, 2011, The pricing of services, Principles of Service Marketing, McGraw -Hill Education, 6th edition. Rothschild.M and White.L.J., 1993, The University in the Marketplace: Some Insights and Some Puzzles, National Bureau of Economic Research, Unive rsity of Chicago Press. Zeithaml.A.V., 1988, Consumer Perceptions of Price, Quality, and Value: A Means -End Model ad Synthesis of Evidence, The Journal of Marketing. Vol. 52, No 3, pp. 2 -22. Zeithaml.V., Bitner.M. and Gremler.D., Pricing of services, Service Marketing: Integrating Customer Focus Across the Firm, McGraw-Hill International Edition, 4 th Edition. Bibliography: Kotler.P., Armstrong.G., Saunder.J. and Wong.V., Marketing Services, Principles Of Marketing, Prentice Hall Europe, 2 nd European Edition.

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Appendices: Appendix1:
Interview Transcript Date: February 25, 2011 Interviwee: Christopher Saunders (Lancaster University Full-time MBA Director) Group members: Shayatri Viswanath, Irem Darici

Shayatri: Hello Chris. Thank you for your time. Basically we want to know what factors are involved in setting of prices for the full time MBA in Lancaster University? C.D: The things that we look at, we compare against our pay group of competitor business schools. We are a one year programme, full time. The MBA market has different varieties of MBAs in it. The London Business School MBA is a 2 year programme. Most of the US MBAs are 2 years programmes. Manchester is a 18 month programme, we are 1 year. So we compare against 1 year programmes of equilavent standing to start with. And we compare against pay groups. And our pay group decided that we use positioning in order to decide pricing. So we are looking at rankings tables; Financial Times, Economist, Business Week and various others around the world ranks MBA programmes. We can get an idea of where we are ranked by our students effectively against other business schools. And we also look at the power of our brand, brand of management school against the brand of others. So our nearest competitors I would say are probably Cranfield University MBA and Warwick University MBA. Both are full time programmes. I would say these two are main competitors. Manchester is a competitor but not direct, because it is a longer programme, 18 months. So people deciding to go there are more in a mindset that they will be taking 2 years out of work rather than 1 year. So I would not necessarily say that Manchester is a direct competitor. So we look at those schools, we look at brand and how they price themselves and we set our price against that. Now the other factor we take into account is what is actually taught, basically what we want to do on the programme. So there is, cost accounting, if you like. So we look at what builds up the price and we are also looking at the market price at the same time and we are trying to set the price in between these 2 things. So for example, for this years programme, the current students are paying 23,500 previous year the students were paying 18,500. So we had a big pricing increase from 18,500 to 23,500. Now, that was largely driven by positioning ourselves in the sector. So consistently, we ve achieved very well on the rankings. And within the rankings tables we were looking a little bit cheap against our competitors. So part of the reason putting that price was to re -position ourselves in

Managing Prices and Profits in Marketing 8 MKTG 407 terms of price. The other part was the fact that we wanted to introduce an international module on the programme. So most of the MBA students are going to China and some of them are going to India for a week. We wanted to price that into the programme. So all the flights, hotels are within the fee. That was about 2,500 per person. So part of the price increase was driven by the need to deliver something extra and that was part of the re-positioning of ourselves. Shayatri: Ok, when we were searching we could not find any information but does government has any role in setting of your prices? C.D: Government plays no role. We get no money from government at all and they have no say or control over the price we set. Shayatri: Let s talk about executive MBA. While we I was applying for masters as such, and my friends applying for MBA, we were looking at these certain universities like Bath, Varwick, Lancaster, Manchester, Leeds. Most of my friends went to Manchester and Leeds just for the location, nothing else. So we researched only on those unviersities, but when we were checking executive MBA, the one in Lancaster University looked cheaper than others and Global MBA as well. C.D: Global MBA is has a different pricing system in different locations around the world. We are running Global MBA in Signapore and Jordan. We are looking to start in Malaysia and India but it is unconfirmed yet. and And price is different in Jordan and Signapore, it is negotiated with local agents. In Jordan it is a university and in Signapore it is a company. The price vary because of the local conditions. Pricing of Executive MBA, there actually is two prices. There is the price with the international module and without the international module, that might have been confused you. But is is really interesting what you ve said about cities. Because typically a full time MBA programme in a business school that is in a city benefits from the brand of the city itself. So Manchester Business School s MBA benefits from Manchester, because Manchester is very well known around the world, because the brand is much more bigger. CASS for example, if you look at their advertising they advertise London. They use the brand of London because the brand of CASS is not that big. This is what I mean by use of city as a brand. Shayatri: Thank you very much for you time.

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Appendix2:

Appendix3:

Appendix4:

Managing Prices and Profits in Marketing 10 MKTG 407 Appendix5:

Appendix6: