Chapter 17 - Pricing of ServicesCustomer Knowledge of Service PricesSlide 3Provider GAP 4Pricing of ServicesThe Role of Nonmonetary CostsSlide 7Slide 8Approaches to Pricing ServicesSlide 10Customer Definition of ValueSlide 12Slide 13Slide 14Chapter 17 - Pricing of ServicesCustomer Knowledge of Service Prices•Service _________________ limits knowledge – EX: life insurance (whole life vs. term), different deductibles, variations associated with customers (age, health risk, smoking vs. non-smoking)Difficult to determine best priceCustomer Knowledge of Service Prices•Providers are unwilling to estimate prices – EX: provider may not know the price until after service is completed (ex: )•Individual customer needs vary –ex: price of hotel room varies by size of room, time of year, type of room availability, individual vs. group rateCustomer Knowledge of Service Prices•Collection of Price information is overwhelming – need to visit or call to obtain price•Prices are not visible – Customers often do not know what they are paying for (ex: ________________)CUSTOMERCOMPANYExternal Communications to CustomersGAP 4Provider GAP 4Part 5 OpenerService DeliveryPricing of ServicesThe Role of ___________________ Costs•_______ = Time, or Effort, or Psychological CostsCustomers will trade money for time, effort, or psychological costsThe Role of Nonmonetary Costs__________: waiting time and service consumption; Ex: waiting time for car repair is high; pay more where waiting time is less?____________: effort invested to identify and select among services you desireEx: customers make reservations for one hotel; cost of comparing prices is too highThe Role of Nonmonetary Costs___________________: effort expended to receive service; Ex: choose bank closest to home even though other banks charge lower fees____________________: fear of not understanding; fear of uncertainty; Ex: Resistance of on-line payment, even though it saves time and moneyThe Role of Nonmonetary CostsImplications:1. Service firm can increase monetary price by reducing time and other costs2. Services that save time have monetary value for customersEx: lawn care; carpet cleaning; babysittingApproaches to Pricing Services___________________ pricing: Price = Direct Costs + Overhead Costs + Profit MarginEx: Fee for service = cost of the time involved in providing the service; 200/day direct costs + 50/day (office expenses) + 15% of full costs; _______________ more difficult to price than materials_______________________ pricing:Based on prices charged by firms in the same industry or market; conditions - services are standard among providers; few large service providersApproaches to Pricing ServicesDemand-based pricing: Price is consistent with customer perceptions of value:Four customer definitions of valueValue is low priceValue is everything I want in a serviceValue is the quality I get for the price I payValue is all that I get for all that I giveCustomer Definition of Value1. Value is ______________: monetary price is the most important determinant of valuevalue is price - which one is on sale; value is when airline tickets are discountedPricing strategy:Discounting: price cuts communicate to price-sensitive buyers that they are receiving valueCustomer Definition of Value2. Value is ___________________________: benefits and intrinsic attributes determine valuePricing strategy:Prestige pricing: high price is charged for customers who value prestige or statusCustomer Definition of Value3. Value is the ______________________________:Consumers see value as a tradeoff between the money they give up and the quality they receivePricing strategy:Value pricing: “giving more for less”Customer Definition of Value4. Value is ______________________________:consumers consider all the benefits they receive and all sacrifice components (money, time, effort) when describing valuePricing strategy:Results-based pricing:Contingency pricing: lawyers do not receive fees or payment until the case is