Pricing Of Services By engineer

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Information about Pricing Of Services By engineer
Business & Mgmt

Published on October 13, 2008

Author: engineer_Sood

Source: slideshare.net

Description

for MBA trainees pursuing MBA

Pricing of Services Services are defined as tangible or intangible offerings to customer Services Pricing Means who pays what to whom either in Monetary or non monetary way Er. Sood

Tangibility / Intangibility Spectrum Er. Sood

Offerings : May be associated with price or price less. e.g. Internet Music Services What We use & How much it Cost. Er. Sood Name of provider Monthly Cost + & -ve Points Pressplay $ 10 to 25 Premium service // Download expires if Subscription Lapses Realone $ 10 to 20 Enhanced Radio Option// Download Expires if Sub Lapses FullAudio $ 5 to 15 Off beat Music Library // Download Expires if Sub Lapses Fasttrack, Kazza, Morpheus, Apunkabollywood Free of Cost Unlimited download ,huge selection // artist don’t paid.

Significance of Pricing It builds 3 key differences between customer evaluation of pricing for services and goods. Customers often have inaccurate or limited reference prices for services. Price is a key signal of quality in service. 3. Monetary price is not the only price relevant to service customer. Er. Sood

It builds 3 key differences between customer evaluation of pricing for services and goods.

Customers often have inaccurate or limited reference prices for services.

Price is a key signal of quality in service.

3. Monetary price is not the only price relevant to service customer.

Now Question Arises. ! ! What role does the price play in consumer decision about services? ! ! How important is the price to potential buyers compared with other factors and services features? Answer: services companies must understand how pricing works, but first they must understand how customer perceive prices & prices change 1. Customer Knowledge of service prices. To what extent do customer use price as a criterion in selecting services? How much do consumers know about cost of services? Let’s see one example Er. Sood

What do the following services cost in your home town? Automobile service ____________? May be 100 Rs to Lakh Rs Doctor checkup ____________? In Chd. From 150 to 500 Rs. Pizza hut service ____________? Free after 30 or 45 mins. Paid if in time. Saloon Charges ____________? Minimum 50 to 70 Rs per visit. etc etc Were you able to fill prices accurately, if yes then it was on the basis of Ref. Prices . Reference prices : is the price point in memory for a good or service and can consists the price last paid, the price most frequently paid. Er. Sood

Cost may be different due to: Service heterogeneity limits knowledge. Providers are unwilling to estimate prices. Individual customers needs vary. Price information is overwhelming in service. Prices are not visible. 2. Nonmonetary cost : that cost which represents other sources of sacrifice provided by consumers when buying and using a service e.g. Time cost : Waiting time as well as time customer interact with provider. Search cost : Search efforts to select & indentify service providers. Psychological cost : is most painful nonmonetary. E.g. fear of rejection, fear of uncertainty, Er. Sood

Service heterogeneity limits knowledge.

Providers are unwilling to estimate prices.

Individual customers needs vary.

Price information is overwhelming in service.

Prices are not visible.

3. Prices as indicator of service quality Why Pricing Strategies. One of the interesting aspect of pricing is that buyers are likely to use prices as an indicator of both services cost and services quality Developing a pricing strategy is a continuous marketing process and is undertaken when: A new product or service is introduced An existing product or Service is revised The competitive environment changes A product or service moves through its life cycle A competitor initiates a price change Costs rise or fall dramatically The firm’s prices come under government scrutiny. Er. Sood

Developing a pricing strategy is a continuous marketing process and is undertaken when:

A new product or service is introduced

An existing product or Service is revised

The competitive environment changes

A product or service moves through its life cycle

A competitor initiates a price change

Costs rise or fall dramatically

The firm’s prices come under government scrutiny.

Pricing Objectives Er. Sood

Structure of pricing. Cost based pricing: here org determines the expenses from the raw material & labor, odds amounts or %for overhead& profit & thereby arrives @ prices. Price= direct cost + overhead cost (share of Fixed cost) + profit margin(% of full cost) Price Floor (Merchandise, service, and overhead costs) R O I A firm sets prices by computing merchandise, service, and overhead costs and then adding an amount to cover its profit goal. It is easy to derive. The price floor is the lowest acceptable price a firm can charge and attain profit. Goals may be stated in terms of ROI. Er. Sood

Cost based pricing: here org determines the expenses from the raw material & labor, odds amounts or %for overhead& profit & thereby arrives @ prices.

Price= direct cost + overhead cost (share of Fixed cost) + profit margin(% of full cost)

A firm sets prices by computing merchandise, service, and overhead costs and then adding an amount to cover its profit goal.

It is easy to derive.

The price floor is the lowest acceptable price a firm can charge and attain profit.

Goals may be stated in terms of ROI.

Cost-Based Pricing Techniques Er. Sood

Cost-Plus Pricing Prices are set by adding a pre-determined profit to costs. It is the simplest form of cost-based pricing. Markup Pricing A firm sets prices by computing the per-unit costs of producing (buying) goods and/or services and then determining the markup percentages needed to cover selling costs and profit. It is most commonly used by wholesalers and retailers. Price = Product cost (100 – Markup percent)/100 Some firms use a variable markup policy, whereby separate categories of goods and services receive different percentage markups. Er. Sood

Demand-Based Pricing A firm sets prices after studying consumer desires and finding a range of prices acceptable to target market. It begins with selling price and works backward to cost variables. It identifies a price ceiling or maximum customer will pay for a good or service. Competition-Based Pricing In competition-based pricing , a firm uses competitors’ prices rather than demand or cost considerations as its primary pricing guideposts. With price leadership , one firm announces price changes and others follow. With competitive bidding , two or more firms independently submit prices to a customer for specific goods or services, for organizations such as government or nonprofits. Er. Sood

A firm sets prices after studying consumer desires and finding a range of prices acceptable to target market.

It begins with selling price and works backward to cost variables.

It identifies a price ceiling or maximum customer will pay for a good or service.

In competition-based pricing , a firm uses competitors’ prices rather than demand or cost considerations as its primary pricing guideposts.

With price leadership , one firm announces price changes and others follow.

With competitive bidding , two or more firms independently submit prices to a customer for specific goods or services, for organizations such as government or nonprofits.

Value-based pricing Strategy The whole system of business is run by values. values to customers defined in 4 segments Er. Sood

Skimming Pricing SOME OTHER TERMS Penetration Pricing This approach aims toward the mass market to gain high sales volume. Goals are volume and market share. This strategy is aimed at the segment interested in quality, uniqueness, and/or status. Goals are profit maximization, return on investment, and early recovery of cash. Er. Sood

This approach aims toward the mass market to gain high sales volume.

Goals are volume and market share.

This strategy is aimed at the segment interested in quality, uniqueness, and/or status.

Goals are profit maximization, return on investment, and early recovery of cash.

Chapter Summary The chapter presents an overall framework for developing and applying a pricing strategy. It examines and applies the alternative approaches to a pricing strategy. It discusses several specific decisions that must be made in implementing a pricing strategy like cost based, value based, demand based competitor based Strategies. It shows the penetration pricing and skimming pricing . Er. Sood

The chapter presents an overall framework for developing and applying a pricing strategy.

It examines and applies the alternative approaches to a pricing strategy.

It discusses several specific decisions that must be made in implementing a pricing strategy like cost based, value based, demand based competitor based Strategies.

It shows the penetration pricing and skimming pricing .

Er. Sood

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