THREE KEY WAYS THAT SERVICE PRICES ARE DIFFERENT FOR
CUSTOMERS Pricing Quiz Customer Often Lack of Knowledge of Service Prices - Service variability limits knowledge. - Providers are unwilling to estimate prices. - Individual customer needs vary. - The collection of price information by customers is difficult. - Prices are not visible. The Role of Nonmonetary Costs Time costs: - Most services require customers’ direct participation and thus consume real time: time waiting as well as time when the customer interacts with the service provider. - Because service providers cannot completely control the number of customers or the length of time it will take for each customer to be served, customers are likely to expend time waiting to receive the service. - Customers often wait for an available appointment from a service provider. Search costs: - The effort invested to identify and select from among services. - Are often higher for services than for physical goods. + Prices for services are rarely displayed => prices are often known only when a customer has decided to experience the service. + Each service establishment typically offers only one “brand” of a service => increase search costs. + The added fees make searching for the final costs and comparison are difficult. Convenience costs - Travel is difficult => greater costs, especially elderly persons. - Service provider’s hours do not coincide with customers’ available time => they must arrange their schedules. - And if consumers have to expend effort and time to prepare to receive a service => they make additional sacrifices. Psychological costs: - Often the most painful nonmonetary costs are the psychological costs incurred in receiving some services. + Fear of not understanding (insurance). + Fear of rejection (bank loans). + Fear of outcomes (medical treatment or surgery). Price as an Indicator of Service Quality
Three Basic Marketing Price Structures and Challenges for Services
How Does Price Relate to Service Value?
- Mental tradeoff of perceived quality and perceptions of sacrifice. - Can include both monetary and non-monetary sources of sacrifice. - But it may mean different things to different people
PRICING STRATEGIES THAT LINK TO THE FOUR VALUE
DEFINITIONS Four customers definition of value Summary of Service Pricing Strategies for Four Customer Definitions of Value
- Value Is Low Price
Discounting: Service providers offer discounts to communicate to price-sensitive buyers
that they are receiving value.
Odd Pricing: the practice of pricing services just below the exact dollar amount to make buyers perceive that they are getting a lower price.
Synchro-Pricing: is the use of price to manage demand for a service by capitalizing on
customer sensitivity to prices (Place, Time, Quantity, Incentives, etc.).
Penetration Pricing: is a strategy in which new services are introduced at low prices to stimulate trial and widespread use.
- Value Is Everything I Want in a Service
Prestige Pricing: is a special form of demand-based pricing by service marketers who offer high-quality or status services.
Skimming Pricing: a strategy in which new services are introduced at high prices, is an effective approach when services are major improvements over past services.
- Value Is the Quality I Get for the Price I Pay
Value Pricing: The widely used term value pricing has come to mean “giving more for less.” In current usage, it involves assembling a bundle of services desirable to a wide group of customers and then pricing them lower than they would cost alone. Market segmentation pricing: a service marketer charges different prices to groups of customers for what are perceived to be different quality levels of service, even though there may not be corresponding differences in the costs of providing the service to each of these groups. + Service marketers often price by client category, based on the recognition that some groups find it difficult to pay a recommended price. + Companies also use market segmentation by service version, recognizing that not all segments want the basic level of service at the lowest price. - Value Is All That I Get for All That I Give Price Framing: + Because many customers do not possess accurate reference prices for services, service marketers are more likely than goods marketers to organize price information for customers so they know how to view it. + Customers naturally look for price anchors as well as familiar services against which to judge focal services. Price Bundling + Some services are consumed more effectively in conjunction with other services; other services accompany the products they support (such as extended service warranties, training, and expedited delivery). + When customers find value in a package of interrelated services, price bundling is an appropriate strategy. Complementary Pricing + Services that are highly interrelated can be leveraged by using complementary pricing. + This pricing includes three related strategies—captive pricing, two-part pricing, and loss leadership. + In captive pricing, the firm offers a base service or product and then provides the supplies or peripheral services needed to continue using the service. + Loss leadership is the term typically used in retail stores when providers place a familiar service on special largely to draw the customer to the store and then reveal other levels of service available at higher prices. Results-Based Pricing + In service industries in which outcome is very important but uncertainty is high, the most relevant aspect of value is the result of the service.
