P ri ci ng i n S ervi ce I nd ustry Vandana Sachdeva

By

and Prabhleen Sarna

PRICE-A value that will purchase a definite quantity, weight, or other measure of a good or service PRICING is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition, market condition, and quality of product.

A price is not merely a function of costs and margins Costs + Margins = PRICE it is an expression of VALUE

Minimize Maximize

Optimize

Costs + Margins = PRICE

Production costs Indirect costs Advertising costs Distribution costs Manufacturers margin Distributors margin Sellers margin

VALUE Product performance

Usefulness & Quality

Image / Aspirations
Brand Equity

Availability
Distribution Strategy

Service
Before/During & After sales

PRI CE -O ne oft he 4 P s of M ar ket i ng M i x

When should a firm set price for the first time?

When. . .
It develops a new product It introduces its regular product

into a new distribution channel or geographical area

It enters bids on new contract

work (as in Industrial Sale)

SI GNI FI CA N CE O F PR I CI NG This is the only element in the

marketing mix that brings in the revenues. All the rest are costs.
PROFIT=(PRICE X QUANTITY SOLD) TOTAL COST

Price communicates the value

positioning of the product.

Price has a psychological impact on

consumers and hence marketers can use it symbolically.

O BJ EC TI V ES O F P R I CI NG
Profit maximization in the short term Profit optimization in the long run Price Stabilization Facing competitive situation Maintenance of market share Capturing the Market Entry into new markets Ability to pay

FACTORS AFFECTING PRICING DECISIONS

Internal Factors

External Factors

INTERNAL FACTORS
Marketing Objectives
Positioning Target Group

Marketing Mix Strategy

4 Ps

Costs
Fixed & Variable

Management Approach
Responsibility Perspective

EXTERNAL FACTORS
Market
Pure Competition Monopolistic Competition Oligopolistic Competition Pure Monopoly

Demand
Elastic / Inelastic

Competition
Competitors offers Competitiors reactions

Economy
Buying power

Government Influence
Laws & Regulations

H O W SER V I CE PR I C ES D I FFER FR O M G O O D S P R I C ES (C ustom ers P erspecti ve)

Customer knowledge of service prices:
Service variability limits knowledge Providers are unwilling to estimate prices Individual customer needs vary Collection of price information is overwhelming Prices are not visible

Role of non-monetary costs:

Time costs Search costs Convenience costs Psychological costs

Price as an indicator of service quality

What Do Customers Know about the Prices of Services?

Wedding Advisor? Banking?

Nutritionist?

Hospital?

Customers Will Trade Money for Other Service Costs

=
Time

or Effort

or Psychic Costs

PRICING POLICIES

COSTBASED

BUYERBASED

COMPETITIO N-BASED

Cost-Based Pricing
Cost-Plus Pricing
Product Cost + Standard Mark-Up = Price

BE Analysis & Target Profit

Pricing

A necessary survival tool

Buyer-Based Pricing
Perceived Value Consider buyers perceptions of value NOT the cost

Competition-Based Pricing
Basing prices on competitors prices Premium Pricing Going-Rate Pricing Discount Pricing

Three B asi c P ri ce Structures and Di ffi cul ti es A ssoci ated w i th U sage for Servi ces
PROBLEMS: 1. Small firms may charge too little to be viable 2. Heterogeneity of services limits comparability 3. Prices may not reflect customer value

Co Ba mpe se tit ion d

PROBLEMS: 1. Costs difficult to trace 2. Labor more difficult to price than materials 3. Costs may not equal value

nd a m De

PROBLEMS: 1. Monetary price must be adjusted to reflect the value of non-monetary costs 2. Information on service costs less available to customers, hence price may not be a central factor

ed as -B st Co

d se a B

profitability of services and of all the decisions of marketing mix, pricing decisions are hardest to make. It is the most challenging decision the business must take. The marketer may decide to follow any strategy that suits best for their services and earn revenues.

The Pricing Setting rightChallenge price is a crucial decision to the

PRICE

Generate s

Reven ues

P ri ce C hange
Reaction of Customers:
Choose a substitute / Forgo the purchase

Reaction of Competitors/responding to competitors price change:

Maintain price Maintain price and add value Reduce price Increase price and quality Launch a low price fighter

C ustom er s P ercei ved Val ue Value = Quality Price

Value is low Price. Value is what they want in a service. Value is the quality they get for the price. Value is all that I get for all that I give

P ri ce Q ual i ty Strategi es
Quality

Super value

High value

Premium

Good value

Medium value

Overcharging

Economy

False economy
Price

Rip off

P ri ci ng Strategi es

P enetrati on P ri ci ng

M arket Ski m m i ng

Val ue P ri ci ng

Loss Leader

Psychol ogi cal P ri ci ng

G oi ng R ate (P ri ce Leadershi p)

Tender P ri ci ng

P ri ce D i scri m i nati on

D estroyer P ri ci ng/ P redatory P ri ci ng

A bsorpti on/ Ful l C ost P ri ci ng

M argi nal C ost P ri ci ng

C ontri buti on P ri ci ng

Target P ri ci ng

C ostPl us P ri ci ng

I nfl uence of El asti ci ty

 Cash Discount

Di scounts and Al l ow ances

Trade Discount Early payment Seasonal Discount Bulk purchase (Quantity Discount) Commission Other Allowances

Thank you al l for your cooperati on!