Service Pricing Strategies: Value, Costs, and Competitive Advantage

Service Pricing: Strategies and Value

Pricing Strategies: How Service Pricing Differs from Product Pricing

Service pricing presents unique challenges due to the variability of prices, the intangibility of services, and the difficulty in recognizing backstage costs. Unlike products, services often have a wide range of prices and quality within the same class. Service organizations use different terms to describe prices (e.g., offers, charges), which can confuse customers. Price can also be an indicator of quality, with higher prices sometimes evoking a perception of higher quality. However, pricing too low may raise questions about quality. Many services, such as restaurants, have higher total costs, including costs beyond paying suppliers.

Related Monetary and Non-Monetary Costs

Related Monetary Costs: Customers incur costs in searching for, purchasing, and using services, in addition to the purchase price paid to the supplier.

Non-Monetary Costs: These reflect the time, effort, and discomfort of searching for, purchasing, and using a service. They include time costs, physical costs, psychological costs, and sensory costs.

Pricing Objectives

Pricing Objectives:

• Revenue & Profit Objectives: To gain profit and cover costs.
• Patronage & User Base Objectives: To build demand and develop a user base.
• Strategic Objectives: To support positioning and competitive strategies.

Understanding Net Value

Understanding Net Value: “Net value of a service is the sum of all perceived benefits less the sum of all perceived costs.” It's about what customers get in return for what they give.

Increasing Net Value

Increasing Net Value: Net value can be increased by raising customer perceptions of benefits, lowering perceptions of costs, or both.

Possible Cost Reductions

Possible Cost Reductions Include:

• Cutting the amount of time involved in service purchase, delivery, and consumption.
• Minimizing unwanted psychological costs.
• Eliminating physical effort on the customer's part.
• Minimizing unpleasant or unwanted experiences.
• Devising ways for customers to reduce monetary costs.

Non-monetary costs play a significant role in detracting from the perceived value of a service. Customers evaluate competing services by comparing their net values.

The 7 Ps of Service Marketing

The 7 Ps of Service Marketing:

Brand: (Trustworthy, high-level service; the main differentiator between competitors is quality.)

Price: (Higher competition, more facilities. Higher quality = higher price.)

Place: (Move to a contemporary office designed by a San Francisco architect.)

People: (The doctor believes employees are motivated.)

Promotion: (Videos show the process and highlight quality.)

Physical Evidence: (Ensure customer comfort with an attractive office, classical music, relaxing colors, coffee, and magazines.)

Process: (Offer a special first visit, provide facilities during the process, and examine employees to ensure improved knowledge.)