Pricing of Services

Customers Will Trade Money for Other Service Costs

Rs =
Time

or Effort

or Psychic Costs

Basic Price Structures & Difficulties Associated with Usage for Services
PROBLEMS:
1. Small firms may charge too

little to be viable 2. Heterogeneity of services limits comparability 3. Prices may not reflect customer value

Co m Ba peti se tio d n-

Co

PROBLEMS:
st -B
1. Costs difficult to trace

as ed

2. Labor more difficult to price than materials 3. Costs may not equal value

ed d-Bas n Dema

PROBLEMS:
1. Monetary price must be adjusted to reflect

the value of non-monetary costs 2. Information on service costs less available to customers, hence price may not be a central factor

Customer Definitions of Value

Value is low price.

Value is everything I want in a service.

Value is the quality I get for the price I pay.

Value is all that I get for all that I give.

Figure 16.8

Summary of Service Pricing Strategies for Four Customer Definitions of Value

Value is low price. Discounting

Odd pricing Synchro-pricing Penetration Pricing

Value is everything I want in a service. Prestige pricing

Skimming pricing

Value is the quality I get for the price I pay.

Value pricing Market segmentation pricing

Value is all that I get for all that I give.

Price framing Price bundling Complementary pricing Results-based pricing

THE FINANCIAL AND ECONOMIC IMPACT OF SERVICE QUALITY

The Direct Relationship between Service and Profits

Service Quality

Profits

Offensive Marketing Effects of Service on Profits

Service Quality
Market Share
Reputation

Profits
Sales

Price Premium

Defensive Marketing Effects of Service on Profit

Costs

Service Quality

Customer Retention

Volume of Purchases Price Premium

Margins

Word of Mouth

Profits

Perceptions of Service, Behavioral Intentions and Profits

Costs
Volume of Purchases Price Premium

Margins

Customer Retention

Service

Behavioral Intentions

Word of Mouth

Profits
Sales

Service Quality Spells Profits

Costs

Defensive Marketing

Volume of Purchases Price Premium

Margins

Service Quality

Customer Retention

Word of Mouth

Profits
Sales

Market Share

Offensive Marketing

Reputation Price Premium

The 80/20 Customer Pyramid

Most Profitable Customers
What segment spends more with us over time, costs less to maintain, spreads positive word of mouth?

Best Customers

Other Customers
Least Profitable Customers

What segment costs us in time, effort and money yet does not provide the return we want? What segment is difficult to do business with?

The Expanded Customer Pyramid

Most Profitable Customers

Platinum Gold Iron Lead

What segment spends more with us over time, costs less to maintain, spreads positive word of mouth?

Least Profitable Customers

What segment costs us in time, effort and money yet does not provide the return we want? What segment is difficult to do business with?

Sample Measurements for the Balanced Scorecard

Financial Measures
Price Premium Volume Increases Value of Customer Referrals Value of Cross Sales Long-term Value of Customer

Customer Perspective
Service Perceptions Service Expectations Perceived Value Behavioral Intentions:

Operational Perspective:
Right first time (% hits) Right on time (% hits) Responsiveness (% on time) Transaction time (hours, days) Throughput time Reduction in waste Process quality

% Loyalty % Intent to Switch # Customer Referrals # Cross Sales # of Defections

Innovation and Learning Perspective Number of new products Return on innovation Employee skills Time to market Time spent talking to customers