17-1

Pricing of Services
 17-2

Pricing Quiz
 Which dentist would you choose for a filling
in your tooth?
Dentist Cost for Distance Wait Period Time in Anesthesia
Filling to Dentist for an Waiting
Appointment Room
A $50 15 miles 3 Weeks 1.5 hour None

B $75 15 miles 1 Week .5 hour Novocain

C $125 3 miles 1 Week 1 hour Novocain

D $200 3 miles 1 Week No wait Nitrous Oxide

& Novocain
 17-3

Pricing Strategy :

It is a strategic tool that

organizations use to differentiate
their products from competitors and
thereby gain the competitive edge
to capture the market.
 17-4

The Role of Non-monetary Price

 Time costs Do you trade time for money?

 Search costs
 Convenience costs
 Psychological costs
 17-5

Price as an Indicator of Service Quality

Infers High Quality

Service

Infers Low Quality Service

Three Basic Price Structures and 17-6

Difficulties Associated with Usage for Services

PROBLEMS:
PROBLEMS: 1. Costs difficult to trace

Co
1. Small firms may charge too 2. Labor more difficult to

d n-
little to be viable

st
price than materials

se i tio
2. Heterogeneity of services 3. Costs may not equal value

-B
limits comparability
Ba p et

as
3. Prices may not
reflect customer
m

ed
Co

value

s ed
d -B a
m an
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
 17-7

Cost-Based Pricing
 17-8

Cost Based Pricing

 Price = Direct Cost + Overhead Cost + Margin

 Direct Cost = Material + labour used to produce

the service

 Overhead costs are apart from the fixed cost

Used in Services like Advertising ,

Contracting , etc.
 17-9

Competition-Based pricing
 17-10

Competition-Based pricing

 This approach is based on using the competitors’

price as the point of reference
Eg: Fitness clubs, Driving classes, Computer classes etc.
 When services are standard across providers.
 In oligopolies where there are few large
service providers : Airlines
 Price signaling
 Going-rate Pricing
 17-11

Price Signaling

 Found in markets where there are a

number of competitors. If any one
company offers a lower cost advantage
others immediately match the price. Eg.
Airlines.
 In this type of pricing strategy the charges
offered are the ones that are prevalent in
the market for the same type of service.
Eg.Tourist bus services, Car hires etc.
 17-12

Demand-based pricing
 17-13

Demand Based pricing

 Unlike in cost based and competition based

pricing, demand based pricing is customer focused
and not company or market focused.
 This type of pricing is fixed keeping in mind what
the customers are likely to pay for the perceived
value offered by the service.
 For the determination of demand based pricing
non monetary costs also have to be considered, as
these contribute to the perception of value.
 17-14

A Customer-Focused Approach to
The Pricing Process
 17-15
Service Pricing Strategies
for Four Customer Definitions of Value

“Value is Low Price” “Value is

Everything
 Discounting I
Want in a Service”
 Odd Pricing Prestige Pricing
 Skimming Pricing
 Synchro-pricing
 Penetration Pricing

“Value is the Quality “Value is All that

I Get for the Price I Pay” I Get for All that I Give”

 Value Pricing  Price Framing

 Market Segmentation  Price Bundling
Pricing  Complementary
Pricing
 Results-based Pricing