Marketing Services and the Customer Experience
aman_2910
Lecture_Pricing.pptxPricing Marketing Services and the Customer Experience Study unit 10
Services vs goods: customer issues
Customers may not know final price until service provision is complete
Customers use price as a proxy for quality
More difficult to compare prices across competitors
Services vs goods: provider issues
Intangibility means cost-based pricing is difficult
Generally, higher fixed costs
Limited economies of scale
Consumers under-estimate price of complex services
(Hoffman et al., 2002)
Pricing objectives
| Price to… |
| Maximise profit |
| Build market share |
| Cover costs |
| Encourage trial |
| Fully utilise capacity |
| Establish positioning |
(Avonlitis et al., 2005)
Provider costs
Fixed costs
costs that a supplier would incur even if no services were sold
Variable costs
the costs associated with serving an additional customer
Generic pricing approaches
Cost-based
Competition-based
Value-based
(Shipley and Jobber, 2001)
Cost-based pricing
Most common method is ‘full cost’ or ‘cost-plus’
Made up of variable costs per unit sold, plus contribution to fixed costs, plus mark-up
Appealing because it ensures all costs are covered and allows for a profit
BUT
Ignores demand
Ignores customer-perceived value
Ignores competition
Competition-based pricing
Use competition as an anchor for your price
Typical in industries where customers perceive little difference between competitors
BUT
Ignores customer-perceived value
Not viable for smaller firms to match larger firms
Value-based pricing
Price according to customer-perceived value (benefits minus costs)
BUT
Value is subjective
Not all customers have expertise to assess value
Customer costs are more than just monetary
Pricing strategies
Marginal pricing
Differential pricing
Discriminatory pricing
Marginal pricing
Use where fixed costs are high and variable costs low
Uses up spare capacity
BUT
Danger that fixed costs will never be covered
Devalues perception of service
Lowers price expectation
Differential pricing
Offer a differentiated service to different user groups and price accordingly:
Business class versus standard class
Premium versus standard hotel room
Seat location in theatre
Discriminatory pricing
Different price for same or similar service. Discriminate by…
User group
Location of consumption
Time of consumption/demand
Time/channel of booking
Pricing tactics
Real time (dynamic) pricing: algorithms calculate and adjust based on demand
Promotional pricing: short term discounts
Relational pricing
Bundling and unbundling
(Kienzler and Kowalkowski, 2017)
Pricing in expert/credence services
Referred to as discretionary services because the time allocated to producing the service is at the discretion of the service provider (difficult to say when the job is complete).
Techniques include:
Commission
Flat fee
Hourly rate
Performance-based
Reverse (e-)auction
(Tong and Rajagopalan, 2013)
References
Avlonitis, G., Indounas, K. and Gounaris, S. (2005) Pricing objectives over the service life cycle: Some empirical evidence. European Journal of Marketing, 39 (5/6), 696-714.
Hoffman, D., Turley, L., and Kelley, S. (2002) Pricing retail services. Journal of Business Research. 55 (12), 1015-1023.
Kienzler, M. and Kowalkowski, C. (2017) Pricing strategy: A review of 22 years of marketing research. Journal of Business Research, 78, 101-110.
Shipley, D. and Jobber, D. (2001) Integrative pricing via the pricing wheel. Industrial Marketing Management. 30 (3), 301-314.
Tong, C. and Rajagopalan, S. (2013) Pricing and operational performance in discretionary services. Production and Operations Management. 23 (4) 689-703.
