Natfm Pricing
Natfm Pricing
Natfm Pricing
Three Basic Price Structures and Difficulties Associated with Usage for Services
PROBLEMS:
1. Small firms may charge too little to be viable 2. Heterogeneity of services limits comparability 3. Prices may not reflect customer value
PROBLEMS:
1. Costs difficult to trace 2. Labor more difficult to price than materials 3. Costs may not equal value
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
Individual customer needs vary your haircut fro the same stylist may cost you differently
Comparison of prices becomes difficult unlike goods where the product range is displayed for comparison like to compare dry cleaning prices, customer must drive to or call individual outlets
Price invisibility particularly in financial services, most customers know about only the rate of return and not the costs they pay in form of fund and insurance fees
Search costs - the effort invested to identify and select among services you desire since prices for services are rarely displayed in shelves an each service establishment offers only one brand of service (except brokers & agents)
Convenience costs like customers have to travel to the service, if service hours do not coincide with customers available time Psychological costs fear of not understanding (education), fear of rejection (bank loan), fear of results (surgery)
Competition
Costs
Value to customer
The price charged by competitors determines where, within the floor-to-ceiling range, the price can be set
Competition-Based Pricing
Monitor competitors pricing strategy (especially if service lacks differentiation like dry cleaning and its an oligopoly like airline)
Challenges:
Small firms may charge too and not make margins high enough to remain in business Heterogeneity of services across and within providers makes it difficult to compare
Relate price to value perceived by customer i.e. prices are based on what customers will pay for the services provided Challenges:
Monetary price must be adjusted to reflected the value of nonmonetary costs Information on service costs may be less available to customers, making monetary price not as salient indicator to quality
1.
Value has 4 meanings: Value is low price equate value with low price like, a carpet on sale
Value is everything I want in a service emphasize the benefits rather price like, best education for a MBA
2.
3.
Value is the quality I get for the price I pay trade off between the money they give up and the quality they receive like, for a business travel, lowest price for a quality brand
Value is all that I get for all that I give consider all benefits and sacrifice components (money, time, effort)
4.
Market skimming
Skimming strategy
Understand factors that affect price sensitivity Estimate demand curves Understand price elasticity of demand
Elasticity Inelasticty
Marketing Strategies
Conditions Under Which Consumers are Less Price Sensitive:
Product is more distinctive Buyers are less aware of substitutes Buyers cannot easily compare quality of substitutes The expenditure is a lower part of buyers total income The expenditure is small compared to the total cost Part of the cost is borne by another party The product is used with assets previously bought The product is assumed to have more quality, prestige, or exclusiveness Buyers cannot store the product
Marketing Strategies
Conditions Under Which Demand is Less Elastic:
There are few or no substitutes Buyers do not readily notice the higher price Buyers are slow to change their buying habits and search for lower prices Buyers think higher prices are justified
Types of costs and levels of production must be considered Accumulated production leads to cost reduction via the experience curve Differentiated marketing offers create different cost levels
Customer segment Channel pricing pricing Location pricing Product-form Time pricing pricing Image pricing
Product-line pricing Two-part pricing Optional-feature By-product pricing pricing Product-bundle Captive-product pricing pricing
Firms must monitor both customer and competitor reactions Competitor reactions are common when:
Few firms offer the product The product is homogeneous Buyers are highly informed
The degree of product homogeneity affects how firms respond to price cuts initiated by the competition Market leaders can respond to aggressive price cutting by smaller competitors in several ways
Reduce price
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