CHAPTER 5 :

PRICING STRATEGIES
FOR SERVICES
Presented by Group 3
 TOPICS
*Pricing Challenges Unique to Services
*Value-Based Pricing and Perceived Value
in Services

*Revenue Management Techniques for Service

Businesses
*Dynamic Pricing and Personalized Pricing Models
Pricing Challenges
Unique to
Services
 1.Intangibility
Unlike physical goods,services are intangible and
cannot be evaluated before purchase. This makes
it difficult to set prices based on tangible
attributes. The challenge lies in pricing services in
a way that reflects their value and aligns wiva
customer expectations despite their intangible
nature.
 2.Variability
Services often vary in quality depending on the
provider, time,and circumstances.This variability can
make it challenging to set a consistent price.
Ensthatprices prices reflect the quality of service while
accounting for these variations requires careful
management and clear communication.
 3.Perceived Value
Determining the perceived value of a service is
complex because it depends on subjective customer
judgments. Pricing must align with customers'
perceptions of value,which can be influenced by
factors such as service quality, brand reputation, and
customer experience. Misalignment between price
and perceived value can lead to customer
dissatisfaction.
4.Demand Fluctuations
Demand for services can be highly variable,
influenced by factors such as
seasonality,economic conditions,and customer
behavior. Managing prices to
optimize revenue while accommodating fluctuating
demand can be challenging
requiring dynamic pricing strategies and careful
forecasting.
5.Cost Uncertainty
Accurately calculating the cost of delivering a
service can be difficult, especially for services
involving significant customization or variability.
Hidden costs and unpredictable expenses can
impact profitability if not accounted for properly in
the pricing strategy
 6.Competition
In competitive markets,pricing must balance
attractiveness to customers with the need to remain
profitable.Competing on price alone can erode
margins,while differentiating based on value
requires a clear understanding of market positioning
and customer needs.
7.Legal and Ethical Considerations

Pricing strategies must comply with legal and ethical

standards, avoiding practices such as price fixing,
price gouging,or discriminatory pricing. Ensuring fair
and transparent pricing is essential for maintaining
customer trust and avoiding legal issues.
 8.Communication of Value

Effectively communicating the value of a service to

justify its price can be challenging. Service providers
need to clearly articulate the benefits and differentiate
their offering from competitors, often through
marketing and customer interactions, to ensure that
customers understand and accept the pricing
Value-Based Pricing and
Perceived Value
in Services
 What is value based pricing?

Value-based pricing is a strategy of setting prices primarily

based on a consumer ’s perceived value of a product or
service. Value-based pricing is customer focused, meaning
companies base their pricing on how much the customer
believes a product/service is worth.
 Types of Value Based-Pricing

Perceived Value Pricing Performance-Based Tiered Pricing

Pricing
Pricing based on how Offering different levels
much the customer The price is tied to the or packages of service at
believes the se¡ice is performance or results varying price points,
wo h. It depends heavily of the service. The depending on the value
on customer perception, customer pays based on each tier provides.
brand reputation, and the outcomes delivered
the expected benefits.
 Types of Value Based-Pricing

Differential Pricing Bundling Pricing

Charging different prices Offering multiple services

to different customer together at a bundled
segments based on their price, which creates
perceived value of the added value and
service enhances the customer’s
perception of getting
more for their money.
 The Bottom Line
Value-based pricing is a powerful pricing tool that
incorporates information about the value that customers
perceive to come from a product, its various features, and
related services. While value-based pricing is resource-
intensive because it requires gathering and analyzing
customer data, it can lead to advantages in sales, elevated
price points and customer loyalty, and other benefits. On
the other hand, value-based pricing is not a guarantee of
sales success.
What is Perceived Value in Services?

Perceived value in services refers to the

customer’s assessment of the benefits they
receive compared to the cost they pay. This is
subjective and influenced by various factors
 Types of Perceived Value in
Services
Functional Value Emotional Value Social Value
The practical, The emotional The perceived value
utilitarian benefits the satisfaction or from social benefits,
service provides. It's feelings the service such as status,
about how well the service provides, such as recognition, or
fulfills its intended
comfort , joy, or belonging to a group.
purpose.
security. Ex. A high end
Ex: A tax
Ex. A spa service that gym membership that
preparation service that
accurately and efficiently makes customers feel conveys prestige and
files taxes. relaxed and pampered. exclusivity.
 Types of Value Based-Pricing

Experiential Value Economic Value

The sensory or The financial savings
experiential or economic benefit
enjoyment derived perceived in relation
from using the service. to the cost of the
Ex: A well
service.
designed, immersive
Ex: A budget
theme park
airline service that
experience.
offers low-cost flights.
Revenue Management
Techniques for Service
Businesses
 What is Revenue Management?
Revenue management is the practice of applying data and
analytics to predict demand and adjust pricing and, in some cases,
other terms of sale to maximize revenue from the business’s underlying
inventory/supply. Revenue management has been called the art and
science of “ selling the right product to the right customer at the right
price ”. Some definitions include additional qualifiers such as “at the
right time ” or “through the right channels” but the core premise is the
same: varying how you sell a product or service to meet the constantly
changing needs of the market’s buyers
 STEPS

1. Gathering information (data collection)

Gather information on your offerings, customers, market, and
historical data. This includes understanding what you sell, who
your customers are, market conditions, and past trends.

2. Segmentation
Break down collected data into meaningful categories, such as customer types,
timeframes, and behaviors. This helps tailor offerings and strategies for different
segments, like last minute buyers or weekday vs. weekend customers
 STEPS

3. Forecasting
Use collected and segmented data to predict future demand.
Forecasts can range from simple trend-based predictions to complex
models. The accuracy of forecasts depends on the quality of the data used.

4. Planning and Execution

Based on forecasts, optimize pricing and strategies. Mathematical models can
guide pricing, but human judgment is crucial in adjusting for factors not captured
in data, such as unexpected events or brand protection.
 STEPS

5. Dynamic Reevaluation
Continuously review and adjust strategies based on results. This iterative
process helps businesses stay responsive to market changes and customer
behavior.
Dynamic Pricing and
Personalized Pricing
Models
 Dynamic Pricing

Dynamic pricing involves changing prices in real

time based on market demand, customer behavior,
or other variables. It’s commonly used in industries
where prices fluctuate due to external conditions,
such as airlines, hotels, and ride-sharing services
 Key Features of Dynamic Pricing

Demand-Based Pricing: Time-Sensitive Pricing:

Prices increase when demand is high and Prices can vary based on time of day,
decrease during low demand periods. day of the week, or season. This is often
For example, airline ticket prices rise as seen in retail and hospitality, where peak
the departure date approaches or when hours or seasons see higher prices.
flights are nearly full
 Key Features of Dynamic Pricing

Competitor-Based Pricing Inventory/Capacity-Based

Businesses adjust prices in response to Pricing:
competitors’ pricing strategies. This For industries with limited capacity (e.g.,
allows for staying competitive in real concert venues, hotels), prices rise as
time market conditions. available space or stock decreases.
 Personalized Pricing

Personalized pricing is made possible through

data analytics and customer profiling. However,
it raises ethical concerns around transparency
and fairness, as customers may be unaware of
price variations or feel they are being unfairly
charged.
 Features of Personalized Pricing

Customer Segmentation: Behavioral Pricing

Prices vary based on customer Based on browsing habits, prior
demographics, purchase history, loyalty, purchases, and engagement levels,
and willingness to pay businesses can adjust prices. E-
commerce platforms often use this
model by offering customized discounts
to customers who abandon
their carts or show hesitance in
purchasing
 Features of Personalized Pricing

Geolocation Pricing Device-Based Pricing:

Prices can vary based on a customer’s Prices may differ based on the device
location. For example, customers in high used, as customers using premium
income regions may see different pricing devices (like an iPhone) might be willing
than those in lower income areas. to pay more than those using a budget
smartphone or PC.
 Key Differences

Dynamic Pricing Personalized Pricing

more reactive to market conditions, customer-specific, with prices tailored to
adjusting prices for all customers individual characteristics, behavior, or
based on external factors like demand preferences.
and supply.
Thank
You