Chapter Pricing of Services 17 Three Key Ways

Chapter Pricing of Services 17 § Three Key Ways that Service Prices Are Different for Consumers § Approaches to Pricing Services § Pricing Strategies that Link to the Four Value Definitions Mc. Graw-Hill/Irwin 17 -1 Copyright © 2009 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Objectives for Chapter 17: Pricing of Services § Discuss three major ways that service prices are perceived differently from goods prices by customers. § Articulate the key ways that pricing of services differs from pricing of goods from a company’s perspective. § Demonstrate what value means to customers and the role that price plays in value. § Describe strategies that companies use to price services. § Give examples of pricing strategy in action. 17 -2

Pricing Quiz § Which dentist would you choose for a filling in your tooth? Dentist Cost for Filling Distance to Dentist Wait Period for an Appointment Time in Waiting Room Anesthesia 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

Customer Often Lack of Knowledge of Service Prices § Customers often lack reference prices for service § Service variability limits knowledge § Providers are unwilling to estimate prices § Individual customer needs vary § Collection of price information by customers is difficult § Prices are not visible 17 -4

The Role of Non-monetary Price § § Time costs Search costs Convenience costs Psychological costs Do you trade time for money? 17 -5

Price as an Indicator of Service Quality Can price attract some customers? 17 -6

Price as an Indicator of Service Quality Infers High Quality Service Infers Low Quality Service 17 -7

Three Basic Marketing Price Structures and Challenges for Services 17 -8

A Customer-Focused Approach to The Pricing Process Understand Customer Value Determine Demand based on Competition and Offering Estimate Cost, Revenues and LTV Establish a Pricing Structure and Level Set Final Price 17 -9

Four Customer Definitions of Value 17 -10

Pricing Strategies When the Customer Defines Value as Low Price 17 -11

Pricing Strategies When the Customer Defines Value as Everything Wanted in a Service 17 -12

Pricing Strategies When the Customer Defines Value as Quality for the Price Paid 17 -13

Pricing Strategies When the Customer Defines Value as All that Is Received for All that Is Given 17 -14

Summary of Service Pricing Strategies for Four Customer Definitions of Value 17 -15