Documente Academic
Documente Profesional
Documente Cultură
PRICING AND
PROMOTION OF
SERVICES
Distribution
Distribution embraces three
interrelated elements:
! Information and promotion ow
! To get customer interested in
buying the service
! Negotiation ow
! To sell the right to use a service
! Product ow
! To develop a network of local sites
Distribution of
Supplementary and Core
Services
Distribution relates to both core services
and supplementary services
! Core services for people processing and
possession processing services require
physical locations
! Core services for mental stimulus
processing and information processing
can be distributed electronically
Distribution of
Supplementary and
Core Services
! Supplementary services can be
tangible or intangible in nature;
latter can be distributed widely and
cost-eectively via nonphysical
channels
! Telephone
! Internet
Information and Physical Processes
of Augmented Service Product
Exceptions
Billing
Payment
Information
processes
Information
Consultation
Safekeeping
Physical
processes
Order-
taking
Core
Hospitality
Determining
the type of
contact:
options for
service
delivery
Six Options for Service
Delivery
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Channel
Preferences Vary
among Customers
! For complex and high-
perceived risk services,
people tend to rely on
personal channels
! Individuals with greater
condence and
knowledge about a
service/channel tend to
use impersonal and self-
service channels
Channel
Preferences Vary
among Customers
! Customers with
social motives tend
to use personal
channels
! Convenience is a key
driver of channel
choice
PLACE DECISIONS
! Cost, productivity, and access
to labor are key determinants
to locating a service facility
! Fast food vs. Specialty Stores
! Locational constraints
! Operational requirements
- Airports
! Geographic factors
- Ski resorts and resors
! Need for economies of scale
- Hospitals
PLACE DECISIONS
! Ministores
! Creating many small
service factories to
maximize geographic
coverage
- Automated kiosks
! Separating front and back
stages of operation
- Jollibee Commissary
! Locating in multipurpose
facilities
! Proximity to where
customers live or work
- Service stations
TIME DECISIONS
! Traditionally, schedules were
restricted
! Service availability limited to
daytime, 40 to 50 hours a
week
! Sunday historically considered
as a rest day in Christian
tradition,
Saturday in Jewish tradition,
and Friday in Muslim tradition
TIME DECISIONS
! Today
! For exible, responsive
service operations:
- 24/7 service24 hours a day, 7
days a week, around the world
(Service Perspectives 4.3)
! Some organizations still avoid
7-day operations, for
example:
- Atlanta-based Chick-l-A
Being closed on Sunday is part
of our value proposition
PRICING STRATEGy
Pricing strategy
Costs
Competition
Value to customer
Approaches to
pricing
! Cost-based pricing
! Set prices relative to nancial costs
(problem: dening costs)
! Activity-based costing
! Pricing implications of cost analysis
! Competition-based pricing
! Monitor competitors pricing strategy
(especially if service lacks dierentiation)
! Who is the price leader? Does one rm
set the pace?
! Value-based pricing
! Relate price to value perceived by
customer
Cost Based
! Traditional costing approach
! Emphasizes expense categories
(arbitrary overhead allocation)
! May result in reducing value generated
for customers
! ABC management systems
! Link resource expenses to variety and
complexity of goods/services produced
! Yields accurate cost information
! When looking at prices, customers
care about value to themselves, not
what service production costs
Value BASED
! Value exchange will not take
place unless customer sees
positive net value in
transaction
! Net value = Perceived benets
to customer (gross value)
minus all Perceived outlays
(Money, Time, Mental/Physical
eort)
! Monetary price is not only
perceived outlay in
purchasing, using a service
! Consumer surplus: dierence
between price paid and
amount customer would have
been willing to pay in absence
of other options
Enhancing net
value
! Enhance gross value
benets delivered
! Add benets to core
product
! Enhance
supplementary
service
! Manage perceptions
of benets delivered
ENHANCING NET
VALUE
! Reduce outlayscosts incurred
by customers
! Reduce price and/or other
monetary costs of acquisition
and usage
! Cut amount of time required
to evaluate, buy, use service
! Lower physical and mental
eort associated with
purchase and use
! Reduce perceptions of amount
of cost, time, eort required
Enhancing
Perceptions of
Gross Value
! Reduce uncertainty
! Service guarantees
! Benet-drivenpricing aspect(s)
of service that create value
! Flat rate (quoting a xed price in
advance)
! Relationship pricing
! Nonprice incentives
! Discounts for volume purchases
! Discounts for purchasing
multiple services
! Low-cost leadership
! Convince customers not to
equate price with quality
! Keep economic costs low to
ensure protability at low price
Paying for Service:
The Customers
Perspective
! Customer expenditures on
service comprise both nancial
and nonnancial outlays
! Incremental nancial outlays
! Price of purchasing service
! Expenses associated with
search, purchase activity, usage
! Nonmonetary costs
! Time costs
! Physical costs
! Psychological (mental) costs
! Sensory costs (unpleasant
sights, sounds,
feel, tastes, smells)
Determining Total Costs of
a Service to Customer
hyslcal eorL
sychologlcal
burdens
Sensory
burdens
necessary
follow-up
roblem
solvlng
lncldenLal expenses
Cperaung cosLs
urchase
1lme
Money
* lncludes all ve
cosL caLegorles
Search cosLs*
urchase and servlce
encounLer cosLs
Aer cosLs*
! Which clinic would you patronize if you
needed a chest x-ray (assuming all three
clinics offer good quality)?
! Price Php 850
! Located 15 mins away
by car or transit
! Next available
appointment is in 1
week
! Hours: Mon-Fri,
8AM-10PM
! Estimated wait at clinic
is about 30 to 45 mins
! Price Php 450
! Located 1 hour away by
car or transit
! Next available
appointment is in 3
weeks
! Hours: Mon-Fri,
9AM-5PM
! Estimated wait at clinic
is about 2 hours
Cllnlc A Cllnlc 8
! Price Php 1250
! Located next to your
office or college
! Next appointment is
in 1 day
! Hours: Mon-Fri,
8AM-10PM
! By appointment-
estimated wait at
clinic is 0 to 15 mins
Cllnlc C
Increasing Net Value by
Reducing
Nonmonetary Costs of
Service
! Reduce time costs of service at each
stage
! Minimize unwanted psychological
costs of service
! Eliminate/redesign unpleasant/
inconvenient procedures
! Eliminate unwanted physical costs of
service
! Decrease unpleasant sensory costs of
service
! Unpleasant sights, sounds, smells, feel,
tastes
Putting Service Pricing
into Practice
! How much to charge?
! The pricing tripod model provides a
useful departure point
! A specic gure must be set for the
price
! Need to consider the pros and cons,
the ethical issues
! What basis for pricing? (How dene
unit of service?)
! Completing a task
! Admission to a service performance
! Time based
! Monetary value of service delivered
(e.g., commission)
! Consumption of physical resources
(e.g., food and beverages)
Putting Service Pricing
into Practice
! Who should collect payment?
! Service provider or specialist
intermediaries
! Direct or nondirect channels
! Where should payment be
made?
! Conveniently located
intermediaries
! Mail/bank transfer
! When should payment be
made?
! In advance
! Once service delivery has been
completed
Putting Service Pricing
into Practice
! How should payment be made?
! Cash
! Token
! Stored value card
! Electronic fund transfer
! Charge card (debit/credit)
! Vouchers
! Third-party payment
! How to communicate prices?
! Relate the price to that of
competing products
! Ensure price is accurate and
intelligible
IMC in
SERVICES
Communicating Services
Presents Both Challenges
and Opportunities
! May be dicult to
communicate service
benets to customers,
especially when
intangible
! Intangibility creates four
problems:
! Abstractness
! No one-to-one
correspondence with
physical objects (nancial
security, safety)
! Generality
! Items that comprise a class
of objects, persons, or
events
! Nonsearchability
! Cannot be searched or
inspected before purchase
! Mental impalpability
! Customers nd it hard to
grasp benets of complex,
multidimensional new
oerings
Advertising Strategies for
Overcoming Intangibility