Pricing Strategy (Pricing for Service)


N's spirit Basic MBA > Pricing Strategy (Pricing for Service)

Pricing Strategy (Pricing for Service)

The price of a service has different feature from that of a product. Price of a product can frequently be judged for customers if it is expensive or cheap as long as the cost of it can be speculated. On the contrary, price of a service is difficult to be judged because it is invisible. Therefore, pricing for service would be more difficult task.


Functions of service

Service mainly has three functions as below.

Providing information about service level
Relative price compared with other services is understandable when customers judge its price.

Building a brand image
Normally, high price tells customers that a service has high brand image and low price tells them that a service has cheap brand image.

Adjusting customer demand
Products can be stocked in compliance with demand. For services, however, supply volume cannot. Only what should be sold today can be sold only today. Therefore, to adjust customer demand by setting appropriate price which brings appropriate sales volume is more important. Adjustable price is frequently applied to services, for example, higher price for high season and lower price for off season.

Screening customers
The quality of a service is sometimes decided by customers buying it. For example, service level of language school is decided not only by the level of trainers but also by students. If there are some students who are not so motivated in the class of the school, service level would be lower and it affects other students. To avoid it and keep only motivated students, there is an option to set higher price, which has customer screening effect.


Pricing for a service

In case of setting price for a service, cost plus based pricing is rarely adopted and value based pricing is more frequently adopted. If a service has possibility to build long relationship to customers, LTV (Life Time Value) is more important.

For example, the maintenance cost of bank account is higher for customers having relatively less money because the bank have to take care of them by spending almost same cost as ones having much money and cannot expect to expand sales by selling other services from them.

In this case, if the bank raises charge for them, what will happen? People who have less money are usually young, so the bank may give up future opportunity to get trusted customers.


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Marketing
Marketing Process
Segmentation
Positioning
Marketing Mix (4P)
Product Strategy
Pricing Strategy 1
Pricing Strategy 2
Pricing Strategy 3
Pricing Strategy 4
Price Strategy for Service
Innovation of Pricing Model
Channel Strategy
Promotion Strategy
Prevention of Competitor's Imitation
Brand Strategy
B2B Marketing 1
B2B Marketing 2
Estimation of Market Size
Estimation of Market Size (ATAR model)
Estimation of Market Size (Logistic curve)
Estimation of Market Size(BASS model)
Stage Gate System


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