PRICING OF SERVICES

WHAT DO THE FOLLOWING SERVICES COST IN YOUR HOMETOWN Dental checkup .. General medical checkup .. Legal help . Dental braces Rental of a DVD for one night Haircut .. Oil change in your 2- Wheeler

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(a) A REFERENCE PRICE is a price in memory for a service and can consist of the price last paid, the price most frequently paid or the average of all price the customer has paid for similar offerings Reference price for services not as accurate as those for goods

PRICING OF SERVICES
There are several reasons for this Service variability limits knowledge
e.g.- life insurance

Providers unwilling to estimate prices

e.g.- medical services

Individual customers needs vary

e.g.- hairstylists

Collection of price information is difficult e.g.- service retailing is rare.

PRICING OF SERVICES
WHICH OF THE FOLLOWING WOULD YOU SELECT IF YOU NEEDED DENTAL CARE Dentist A costs Rs 50 located 15 Kms away wait for 3weeks for appointment and 1.5 hrs in waiting room Dentist B costs Rs 75 located 15 Kms away wait for 1 week for appointment and .5 hrs. in waiting room. Dentist C costs Rs 125 located 3 Kms away wait for 1 week for appointment and no waiting time in room.

Dentist D costs Rs 175 located 3 Kms away wait for 1 week for appointment no wait in room, nitrous oxide used so no0 pain involved.

PRICING OF SERVICES
(b) Nonmonetary costs are other sources of sacrifice perceived by customersTime Costs
e.g. services of a doctor

Search costs
e.g. efforts required to gather information

Convenience costs
e.g. blood tests, car servicing

Psychological costs
e.g. fear of rejection /success etc.

PRICING OF SERVICES
(c) Buyers are likely to use service price as an indicator of both service costs and service quality Too low a price may lead to inaccurate inferences about the quality Too high a price can set expectations that may be difficult to match

PRICING OF SERVICES
THREE KEY DIFFERENCES BETWEEN PRICING OF SERVICES & GOODS (a) Customers Knowledge of service prices (b) The role of Nonmonetary costs (c) Price as an indicator of service quality

PRICING OF SERVICES
APPROACHES TO PRICING SERVICES (A) Cost Based Pricing
Price = Direct costs +Overhead costs+Profit margin Major difficulty- defining units in which a service is purchased Inputs units rather than outputs units e.g. professional services like CAs, Advocates etc.

(B) Competition based Pricing

e.g. when services are standard across providers, oligopolies with a few large service providers

(C) Demand-based Pricing

Setting prices consistent with customers perception of value

PRICING OF SERVICES
CUSTOMERS DEFINITION OF VALUE (A) Value is low price- value is equated to low price (B) Value is whatever I want in a service is the benefits received from a service
value

(C) Value is the quality I get for the price I payvalue is a trade off between money &quality

(D) Value is what I get for what I give- all benefits

received and all sacrifice components

PRICING OF SERVICES
PRICING STRATEGIES THAT LINK TO THE FOUR VALUE DEFINITIONS (A) Value is low price
(i) Discounting price cuts to communicate to price sensitive buyers that they
are receiving value

(ii) Odd pricing- pricing just below the exact rupee to make buyers
perceive that they are getting lower prices

(iii) Synchro pricing synchronizing demand and supply

Place differentials e.g. front rows in a concert, sea side rooms in a hotel Time differentials e.g. telephone service after 11p.m.,film shows on weekends Quantity differentials e.g. corporate discounts for airlines, car rentals

(iv) Penetration pricing low price when a service is introduced to stimulate

trial & widespread use

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(B) Value is whatever I want in a service
(i) Prestige pricing -e.g. luxury end hotels (ii) Skimming Pricing e.g. new services are introduced at a high
price e.g. mobile services at the time of introduction

(C) Value is the quality I get for the price I pay

(i) Value Pricing e.g. get more for less, bundle of services priced less
than what they would cost alone e.g. medical checkup (ii) Market Segmentation Pricing- different price for different segments for different levels of service e.g. ATM Cards

PRICING OF SERVICES
(D) Value is what I get for what I give
(i) Price Framing- provide reference prices/price anchors
(ii) Price Bundling- bundling services with products with which they
are more effectively consumed not essentially lower price. e.g. extended warranties on automobiles

(iii) Complementary Pricing often called two-part pricing where

the service is broken up into 2 parts- one charging fixed fee and the other charging variable usage fee e.g. telephone fixed line services

(iv) Result based pricing - where outcome is important but

uncertainty is high e.g. lawyers fees paid when result is out