Flashcards in Chapter 15 - Pricing of Services Deck (28):
What are the three key differences between customer evaluation of pricing services and goods?
1. Customers often have inaccurate or limited reference prices for services
2. Monetary price is not only price relevant to service customers
3. Price is key signal of quality in services
What are the three common pricing structures?
1. Cost based
2. Competition based
3. Demand-based pricing
If you are able to answer how much a service price is from memory, what do you have?
You have internal reference prices for the service.
What are three key ways that service prices are different for customers?
1. Customer knowledge of service price
(Are your reference prices accurate?)
2. The Role of Nonmonetary Costs
(Factoring time costs, search costs, and psychological casts explain why it took me so long to make dentist appt)
3. Price as Indicator for service quality
What are the 5 ways customer's knowledge of service prices are influenced?
1. Service Variability Limits Knowledge
(Services can be so different, so ya just don't know)
2. Providers are unwilling to estimate prices
(I ain't gonna tell you how much your digital strategy will cost till I know your needs)
3. Individual Customer Needs Vary
(I cut my own hair for free, Nathan goes to fancy salon)
4. Collection of Price Information is Overwhelming
(Exhausting to get quotes from all Digital Strategists in Halifax)
5. Prices are not Visible
(Sometimes you just don't know until service is done, and even then you may not know what your money was used for in say a campaign.)
What are the 4 Nonmonetary Costs of services that influence perceived price?
1. Time Costs
(I gotta actually go and sit while I get my haircut)
2. Search Costs
(To find the service I need, takes longer than to find an Chevy)
3. Convenience Costs
(I gotta take time out of my day to go to dentist)
4. Psychological Costs
(Fear of not understanding insurance, fear of bank loan rejection, fear of outcome in surgery etc)
How can you reduce nonmonetary costs?
1. Reduce perception of time
2. Pay to avoid some of those costs such as having things delivered at home to reduce convenience costs
3. If service saves time than there you go, it reduced that cost
What are 3 challenges with Competition-based price setting strategy with services?
1. Small firms may charge to little to be viable
2. Heterogeneity of services limits comparability
3. Prices may not reflect customer value
What are 3 challenges with cost-based price setting strategy with services?
1. Costs are difficult to trace
2. Labor is more difficult to price than materials
3. Costs may not equal value that customers perceive the services are worth
What are 2 challenges with demand-based price setting strategy with services?
1. Monetary price must be adjusted to reflect the value of non monetary costs
2. Information on service costs is less available to customers; hence, price may not be a central factor
What is cost-based pricing?
Price = direct costs + overhead costs + profit Margin
When is competition based pricing usually used?
1. When services are standard across providers such as dry cleaning
2. In oligopolies such as Telus and Rogers and Bell
What is going-rate pricing?
Chargin most prevalent procaine the market
What are four customer definitions of value that need to be asked when looking at setting price based on demand?
1. Value is low price
(the lower the price the better the value)
2. Value is everything I want in a service
(The better the service quality, the better the value)
3. Value is the quality I get for the price I pay
(You get what you pay for)
4. Value is all that I get for all that I give
(Basically all your paying for you get in service, so for a hairstylist vale is what I pay in cost and time to look good)
The four consumer expressions of value can be captured in what overall definition consistent with concept of utility in economics?
Perceived value is the consumer's overall assessment of the utility of a service based on perceptions of what is received and what is given
What are 4 pricing strategies when the customer defines value as low price?
2. Odd pricing
4. Penetration Pricing
Synchro pricing uses price the manage demand for service by capitalizing on customer sensitivity to prices. What are the 4 ways to differentiate price?
1. Place Differentials
(hood vs ritz)
2. Time Differentials
(rush hour or dead time)
3. Quantity Differential
(you buy thousand hours of service, or 1)
4. Differentials as incentives
(lower prices for new or existing clients in hope of encouraging them to be regular users or more frequent users)
What are 4 factors when penetration pricing is appropriate?
1. sales volume of service is sensitive to price
2. possible to achieve economies in unit cost by operating at large volumes
3. service faces threats of strong potential competition very soon after intro
4. There is no class of buyers willing to pay a higher price to obtain the service
What are 2 pricing strategies when the customer defines value as everything they want in service?
1. Prestige Pricing
(So if I set Pielot at 80/h, to give a sense of high quality)
2. Skimming pricing
(high pricing, to get the ones that are serious, then next layer, then next etc until you've made as much money possible. iPad is classic example)
What are 2 pricing strategies when the customer defines value as the quality they get for the price they pay?
1. Value Pricing
2. Market Segmentation pricing
What are 4 pricing strategies when the customer defines value as all that they can get for that they give?
1. Price framing
(put in relationship with other prices)
2. Price bundling
(like cable, phone together)
3. complementary pricing
4. results-based pricing
What is prestige pricing?
If you want luxury membership to say gym, you pay for it
what is value pricing?
giving more for less, assembling bundle of services and pricing them lower like stack social does
What is market segmentation pricing?
Change price for different perceived levels of service
What is price framing?
Set up price anchors like Groupon does, so you know actual values of offer and then what you pay
What is price bundling?
Offering services as bundle for one price
What are three forms of complementary pricing?
1. Captive pricing
(offer base such as web dev, then periphery services such as social)
2. two part pricing
(So cheap cable box, expensive installation)
3. loss leadership
(So put something cheap for sale, then lead them to your expensive things)