pricing, distribution and promotion week 4. learning objectives to discuss the main approaches to...
TRANSCRIPT
Learning objectives
• To discuss the main approaches to pricing in the service industry
• To examine the challenges firms encounter in in communicating their services
• To identify the various options and strategies for service delivery
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Goods and services pricing compared
• Inseparability can make price segmentation more effective
– Unlike goods, the service offering cannot be transferred from where it is cheapest to produce to where it is most valued, hence service providers can charge higher prices at premium sites (price discrimination)
• Intangibility of services makes price on its own an important indicator of quality
• Most products are a combination of goods and services, and added services can give goods a price premium
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Classification of pricing objectives in the service sector
• Objectives related to content: – Quantitative objective: - Profit (Schlissel, 1977), sales, market share, cost coverage (Meidan & Chin, 1995)– Qualitative objective: -Retain existing customers and attract new customers (Avlonitis & Indounas,2005) - Maintain relationship with competitors and distributors survival, social goals
• Objectives related to desired level of attainment– Profit/sales maximisation vs. Customer satisfaction
• Objectives related to time horizon– Short-term (Morris & Fuller 1989) and long-term objectives
Question :Which pricing objective is mostly adopted by service organisations?
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Factors influencing pricing decisions
• What does it cost us to produce the service?
• What do our competitors charge?
• What is the maximum that customers will be prepared to pay?
• What will a regulator allow us to charge?
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Pricing methods
Cost-based methods
Cost-plus method* A profit margin is added on the service’s average cost
Target return pricing
The price is determined at the point that yields the firm’s target rate of ROI
Break-even analysis (BEA)
The price is determined at the point where total revenues are equal to total costs
Contribution analysis
A deviation from the BEA, where only the direct costs of a product/service are taken into consideration
Marginal pricing The price is set below total and variable costs to cover only marginal costs
Competition-based pricing
For standardised services: Me too/ going rate pricing*B2B: Sealed-bid pricing
Demand-based pricing
Perceived-value pricing (Lovelock 1996), pricing according to customers’ needs (Bonnici, 1991)
Question: Which pricing methods are most popular in services? Why?
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Cost-based pricing
• Cost-plus pricing widely used
• Work out unit costs
• Each job calculated on basis of units required, plus profit margin
• Problem of attributing costs
Example, road haulage
Source: Palmer, A. (2011) Principles of Services Marketing, 6th Edition, McGraw-Hill.
Competition-based Pricing
Source: Lovelock, C. and Wirtz, J. (2011) Services Marketing: People, Technology, Strategy,7th Edition, Upper Saddle River, New Jersey: Prentice Hall.
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Key categories of rate fences
Physical (Product-Related) Fences• Basic product, amenities, service level
Non Physical Fences• Transaction Characteristics- time of booking or reservation, location
of booking or reservation, flexibility of ticket usage • Consumption Characteristics- time or duration of use, location of
consumption • Buyer Characteristics- frequency or volume of consumption, group
membership, size of customer group
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Key differences between goods and services communications
• Promotion of a service offer cannot generally be isolated from promotion of the service provider
• Visible production processes become an important element of the promotion effort
• Intangibility can increase buyers’ perception of risk, which promotion must seek to overcome
• More likely than goods to have “production” crises which immediately and directly affect consumers – effective communication can be critical
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The extended promotion mix for services
Source: Palmer, A. (2011) Principles of Services Marketing, 6th Edition, McGraw-Hill.
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Communicating the service – Aim to reduce perceived risk and intangibility
Source: Kasper, H., van Helsdingen, P. and Gabbott, M. (2006) Services Marketing Management: A strategic perspective, 2nd Edition, J.Wiley & Sons.
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Six options for service delivery
Source: Lovelock, C. and Wirtz, J. (2011) Services Marketing: People, Technology, Strategy,7th Edition, Upper Saddle River, New Jersey: Prentice Hall.
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Distribution strategy: The right ‘hybrid’
Diffused image
Adding too much to the product line
Adding too manyservices in differentsites
Source: Kasper, H., van Helsdingen, P. and Gabbott, M. (2006) Services Marketing Management: A strategic perspective, 2nd Edition, J.Wiley & Sons.
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Place decisions of service delivery
• Cost, productivity, and access to labour are key determinants to locating a service facility
• Location constraints– Operational requirement (e.g. airports)– Geographic factor (e.g. ski resorts)– Need for economies of scale (e.g. hospitals)
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Place decisions of service delivery
• Ministores
– Creating many small service factories to maximise geographic coverage
– Separating front and back stages of operation
– Purchasing space from another provider in complementary field
• Locating in Multipurpose Facilities
– Proximity to where customers live or work- Service Stations
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Time of service delivery
Traditionally, schedules were restricted
Service availability limited to daytime, 40-50 hours a week
Today
For flexible, responsive service operations: 24/7 service, 24 hours a day, 7 days a week, all around the world
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Distribution in a Services Context
•In a services context, we often don’t move physical products
•Experiences, performances, and solutions are not being physically shipped and stored
•More and more informational transactions are conducted through electronic and not physical channels (To be discussed next week)
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