Pricing Services

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Pricing Services
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Creative Date Design

• Designing a date Cincinnati Reds game Red
  wine Red clothes Red rose Red car Red Lobster
• On what should the price be based?
• Whats the value to the customer?
• What would you pay?
• What are the costs?

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Customer Perceptions of Value

• Trade-off between perceived benefits and
  perceived sacrifice
• What are the benefits of our creative date design
  service?
• What are the sacrifices?

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Components of Value to Consumers

• Product value
• Worth assigned to the product (Sony TV)
• Service value
• Worth assigned to service (warranty)
• Personnel value
• Worth assigned to opinion of provider (expertise)
• Image value
• Worth assigned to reputation of provider (trust)

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Costs to Consumers

• Monetary price
• Dollar price paid
• Time costs
• Time spent to acquire service
• Energy costs
• Physical energy spent to acquire service
• Psychic costs
• Mental energy spent to acquire service

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Product Value
Service Value
Total Customer Value
Personnel Value
Buyers Perception of Value
Image Value
Monetary Costs
Time Costs
Total Customer Costs
Energy Costs
Psychic Costs
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Special Issues for Pricing Services

• Demand
• Costs
• Customers
• Competition
• Profits
• Products
• Legal

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Demand Considerations

• Demand is more inelastic
• Cross price elasticity
• Price discrimination unique to services

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Cost Considerations

• Sometimes price is unknown until after services
  rendered
• Cost oriented pricing more difficult
• Usually higher fixed costs than variable costs
• Economies of scale limited

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Customer Considerations

• Price is one of very few cues during pre purchase
  search
• Use of price as a quality cue
• Less certainty about reservation prices

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Competitive Considerations

• Comparing competitor prices difficult for
  customers
• Self service as a viable competitive alternative

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Profit Considerations

• Price bundling makes individual pricing
  complicated
• Effectiveness of price bundling in services

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Product Considerations

• Many names/labels for price
• Stockpiling not available for customers
• Product line pricing is complicated

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Legal Considerations

• More opportunity for illegal pricing practices

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Pricing Strategies

• Satisfaction based pricing
• Reduce the amount of perceived risk
• Benefit driven pricing
• Flat rate pricing
• Relationship pricing
• Enhance the firms relationship with current
  customers
• Price bundling
• Mixed bundling
• Efficiency pricing
• Appeal to economically minded consumers looking
  for the best price