Services Marketing

Chapter 11 : Pricing Services

Key Characteristics of Pricing in Services
Pricing Objectives

Approaches to Pricing services

Cost-based Pricing
Market Oriented Pricing or Demand-based Pricing
Competition-based Pricing

Incorporating Perceived Value into Service Pricing

Value Strategies in Pricing of Services

Satisfaction based Pricing; Relationship Pricing
Efficiency Pricing

Issues in Pricing of Services

Chapter Summary

Pricing is an important element of the marketing mix that brings in revenues and profits. The success of a service depends on the pricing strategy developed or adopted by the company. However, it is easier for customers to evaluate the value derived from goods, when compared to services. There are four ways in which prices of services are perceived to be different from those of goods.

Service customers perceive the price as an indicator of the quality offered and they include non-monetary costs like time costs, search costs, convenience costs, and psychological costs involved in consuming the services, while estimating their value. There is difficulty in comparing the prices of services due to their specific characteristics such as intangibility. Finally, prices vary with fluctuations in demand.

A company's pricing structure should reflect its long-term and short-term objectives. A company might price its services to survive in the market, to maximize the current profit, to maximize the current revenues or to obtain a prestigious position or a product quality leadership. In order to achieve these objectives, a company might choose cost-based pricing, demand-based pricing or competition-based pricing.

Further, a service company should analyze how far the customers perceive that the value derived from the consumption of its services is worth the price paid. Further, service companies should understand the various ways in which customers attach value to the services for the price paid. Service companies can offer service guarantees, and adopt benefit driven pricing, or flat rate pricing to satisfy their customers.

They can also enter into long term contracts or opt for price bundling in order to develop their relations with their customers. A company can also adopt efficiency based pricing to offer the maximum value to their customers. Finally, the factors that influence the prices of services should be studied carefully.

The costs of production and break even analysis, demand fluctuations, competitor pricing, the other elements of the marketing mix, namely product, place, promotion, people, process and physical evidence, regulatory factors, and positioning are some of the issues that should be considered when developing a pricing strategy.

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