service pricing and the financial and economic effect of service

8/9/2019 Service Pricing and the Financial and Economic effect of Service

1/25

Dominic Laffy

MKT6B2 – Services Marketing

Service Pricing and the

Financial and Economic effect of Service

Dominic Laffy

Week 11week commencing 19/11/12


2/25

Dominic Laffy


Learning Outcomes

e a!e to artic"!ate key ways t#at $ricing ofservices %iffers from $ricing of goo%s from ot# acom$any an% c"stomer $ers$ective&

e a!e to %emonstrate w#at va!"e means to

c"stomers an% t#e ro!e $rice $!ays in va!"e& e a!e to critica!!y %isc"ss t#e key service %rivers

of overa!! service '"a!ity( c"stomer retention an%$rofitai!ity

e a!e to %escrie t#e ro!e of strategy ma$s inim$!ementing t#e a!ance% $erformancescorecar%&


3/25

Dominic Laffy


Differences between customer evaluation

of pricing for services and goods

1& )"stomers often #ave inacc"rate or !imite%reference $rices for services

2& *rice is a key signa! of '"a!ity in services

+& Monetary $rice is not t#e on!y $rice re!evant toservice c"stomers

So"rce, a%a$te% from -Services Marketing. eit#am! 0&& et a! t# 3%ition $12


4/25

Dominic Laffy


How much do the following cost in London?

1& Denta! c#eck4"$ 5555 2& enera! me%ica! c#eck4"$ 5555

+& Lega! #e!$ wit# a Dr"nk Drive c#arge 5555

7& Denta! races 5555 & 8enta! of a D0D for one nig#t 5555

6& ne #o"r of #o"se c!eaning 5555

:& %o"!e room at t#e ;i!ton & #airc"t 5555

9& i! an% fi!ter c#ange on car 5555

So"rce, a%a$te% from -Services Marketing. eit#am! 0&& et a! t# 3%ition $1+ 3?#iit 1:&1


5/25

Dominic Laffy


Customer nowledge of Service prices

Service variai!ity !imits know!e%ge@ T#e $otentia! com$!e?ity of o$tions com$!icates $ricing

*rovi%ers are "nwi!!ing/"na!e to estimate $rices@ 3&g& %octor cannot say #ow m"c# "nti! f"!! %iagnosis

An%ivi%"a! c"stomer nee%s vary )o!!ection of *rice Anformation is overw#e!ming

@ ee% to get $rices from a!! $otentia! $rovi%ers w#ic#can e a ig task& 8eference $rices can e of !imite%

"se% *rices are not visi!e

@ Cor instance in se!!ing financia! services( c"stomersknow rate of ret"rn "t not fees

So"rce, a%a$te% from -Services Marketing. eit#am! 0&& et a! t# 3%ition Ta!e $12416


6/25

Dominic Laffy


!he role on non"monetar# costs

Time costs@ 3&g& waiting time( interaction time

Searc# costs

@ T#e effort to i%entify an% se!ect among services often

#ig#er t#an for $#ysica! goo%s

)onvenience costs

*syc#o!ogica! costs

@ 3&g& fear on not "n%erstan%ing


7/25

Dominic Laffy


$educing non"monetar# costs

com$any may e a!e to increase monetary $ricey re%"cing time an% ot#er non4monetary costs

)"stomers/segments may e wi!!ing to $ay more to

avoi% t#e ot#er costs

Af time or ot#er costs are $ivota! for a given service(

t#e com$anyEs a%vertising can em$#asise t#ese

savings rat#er t#an monetary ones


8/25

Dominic Laffy


!hree %asic &areting Price Structures and

Challenges 'ssociated with !heir (se for Services

D e m a

n d - b a s e d

C o s t - b a s e

d

C o m p e

t i t i o n -

b a s e

d

)#a!!enges, 1& )osts %iffic"!t to trace&

2& Lao"r is more %iffic"!t

to $rice t#an materia!s&

+& )osts may not e'"a!

t#e va!"e t#at c"stomers

$erceive t#e services arewort#&

)#a!!enges, 1& Sma!! firms may c#arge

too !itt!e to e via!e&

2& ;eterogeneity of services

!imits com$arai!ity&

+& *rices may not ref!ect

c"stomer va!"e&

)#a!!enges, 1& Monetary $rice m"st e a%"ste% to ref!ect

t#e va!"e of non4monetary costs&

2& Anformation on service costs is !ess avai!a!e to

c"stomersF #ence( $rice may not e a centra! factor&

So"rce, a%a$te% from -Services Marketing. eit#am! 0&& et a! t# 3%ition $ 19 Cig1:&1


9/25

Dominic Laffy


Value is low price.Value is everything

I want in a service.

Value is thequality I get for

the price I pay.

Value is all that I get for all

that I give.

Four Customer Definitions of )alue

So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ 2 Cig1:&2


10/25

Dominic Laffy


Value is low price.

@ Discounting@ Odd pricing@ Synchro-pricing@ Penetration pricing

Pricing Strategies *hen the Customer

Defines )alue as Low Price

So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ 29 Cig1:&+


11/25

Dominic Laffy


Value is everything


@ Prestige pricing@ Skimming pricing

Pricing Strategies *hen the Customer Defines

)alue as Ever#thing *anted in a Service

So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ +2 Cig1:&7


12/25

Dominic Laffy


Value is the quality I

get for the price I

pay.

@ Value pricing@ Market

segmentation

pricing

Pricing Strategies *hen the Customer

Defines )alue as +ualit# for the Price Paid

So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ ++ Cig1:&


13/25

Dominic Laffy


Value is all that I getfor all that I give.

@ Price framing

@ Price bundling@ Complementary pricing@ Results-based pricing

Pricing Strategies *hen the Customer Defines

)alue as 'll !hat ,s $eceived for 'll !hat ,s -iven

So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ +7 Cig1:&6


14/25

Dominic Laffy


Value is low price. Value is everything


Value is the quality

I get for the price I pay.

Value is all that I get

for all that I give.

@ Discounting@ Odd pricing@ Synchro-pricing

@ Penetration pricing

@ Prestige pricing@ Skimming pricing

@ Value pricing@ Market segmentation

pricing

@ Price framing@ Price bundling@ Complementary pricing@ Results-based pricing

Summar# of Service Pricing Strategies for

Four Customer Definitions of )alue

So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ +: Cig1:&:


15/25

Dominic Laffy


!he Direct $elationship between

Service and Profits

Profits?Serice

So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ 7 Cig1>&1


16/25

Dominic Laffy


E.ercises

1& W#ic# a$$roac# to $ricing


17/25

Dominic Laffy


E.ercises

List services for w#ic# yo" #ave no reference$rice& Amagine yo" are t#e service $rovi%er for 2of t#ese( an% %eve!o$ a$$ro$riate $ricingstrategies for t#em

@ W#ic# va!"e %efinitions %o yo" e!ieve c"stomers wi!!#ave( an% w#at ty$e of strategies wo"!% e a$$ro$riategiven t#ose %efinitions

Cin% + $rice !ists for services


18/25

Dominic Laffy


Offensive &areting Effects of

Service on Profits

Profits

Marketshare

Reputation Sales

Pricepremium

Serice

So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ 7> Cig1>&2


19/25

Dominic Laffy


Defensive &areting Effects of

Service on Profit

Margins

Profits

Customer retention

Lo!er costs

Pricepremium

"ord of mouth

Volume of purchases

Serice

So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ 79 Cig1>&+


20/25

Dominic Laffy


Perceptions of Service/

%ehavioral ,ntentions/ and Profits

Customer Retention

Lo!er costs

Pricepremium

"ord of

mouth

Margins

Profits

Volume of purchases

#ehaioral$ntentions

Sales

Serice

So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ 7 Cig1>&


21/25

Dominic Laffy


!he 0e# Drivers of Service +ualit#/

Customer $etention/ and Profits

Serice

%ttributes

Serice

encounter

Serice

encounter

Serice

encounter

Customer Retention

#ehaioral$ntentions

Serice

encounter

Serice

&ncounters

Serice'uality Profits

So"rce, -Services Marketing. eit#am! 0&& et a! t# 3%ition $ > Cig1>&6


22/25

Dominic Laffy


Customer Retention

Lo!er costs

Price

premium

"ord of mouth

Margins

Profits

DefensieMarketing

Volume of purchases

Marketshare

Reputation

Sales

Price

premium

OffensieMarketing

Service +ualit# Spells Profits

Serice

So"rce, -Services Marketing. eit#am! 0&& et a! 7t# 3%ition $ 9 Cig1>&:


23/25

Dominic Laffy


$nnoation andLearning Perspectie

Customer Perspectie

Serice perceptions

Serice e(pectations

Perceied alue

#ehaioral intentions)

Operational Perspectie

Right first time *+ hits,

Right on time *+ hits,

Responsieness *+ on time,

ransaction time *hours. days,

hroughput timeReduction in !aste

Process /uality

0inancial Measures

Price Premium

Volume increases

Value of customer

referrals

Value of cross sales

Long-term alue of

customer

+ Loyalty + $ntent to S!itch 1 Customer Referrals 1 Cross Sales 1 of Defections

2umber of ne! products

Return on innoation

&mployee skills

ime to market

ime spent talking to

customers

Sample &easurements for the

%alanced Scorecard

Source, %a$te% from, 8&S& Ka$!an an% D&*& orton( -T#e Ba!ance% Scorecar%HMeas"res T#at Drive *erformance(. Harvard Business Review ( Ian"ary4Cer"ary

1992&

8eferre% to in -Services Marketing. eit#am! 0&& et a! t# 3%ition $ 9 Cig1>&:


24/25

Dominic Laffy


Strateg# &ap " !horntons

So"rce , -Strategy Ma$s. Ka$!an( 8&S& J orton( D&*( ;arvar% B"siness Sc#oo! *ress( $11


25/25

Dominic Laffy

Creating a flow of logic 1 fast food e.ample

ew #ires

3%"cation

Work e?$erience

Selection 3

Staffing

Selection 3

Staffing

S"$ervision

S"$$ortCairness

&mployee

Satisfaction

&mployee

Satisfaction

3m$owerment

cco"ntai!ity &mployee-%dded Value

&mployee-

%dded Value

"a!ity

S#o$$ing 3?$erienceTime!iness

Customer Satisfaction

Customer

Satisfaction

Cre'"ency

8etention

8eferra!

#uying

#ehaiour

#uying

#ehaiour

rowt#

3arnings

Cree )as# C!ow

Shareholder

Value

Shareholder

Value

3ac# "t!et

ver Time

Better t#an

)om$etition

Sustained

Profitability

Sustained

Profitability

So"rce , a%a$te% from -)oming $ S#ort on nonfinancia! $erformance meas"rement.

Attner )&D& J Larcker( D&C& – ;arvar% B"siness 8eview( ov 2+( $9+

service pricing and the financial and economic effect of service

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