Description
This is ppt about pricing strategies ppt tells about price as a concept, cost factors, cost absed methods, demand based.
Service Industry Pricing Strategies
Priceline.com
Travelocity.com Travelguru.com Makemytrip.com Esego.com
Price is a Multi-dimensional Concept
Policy decision require at least 3 aspects 1 Identification of Situation 2 Understanding the Factors – Internal / External 3 Selection of right Method of price determination
Price is a Multi-dimensional Concept
Situations
•Service Life Cycle stagesIntroduction, Growth, Maturity or Decline
•Competition levels –
High or Low
•Consumer types –
Gullible or Discerning
•Service level promotion –
Service Mix
•Distribution geography –
Local area or wide area
Factors
• Cost Factor
Determine the cost of the product
• Demand Factor
Estimate the demand for the product at various prices
• Competitor Factor
Estimate the reaction of competitors to alternative prices
• Channel Factor
Consideration of trade margins and number of people in supply chain if the service is not individualistic in nature.
• Marketing Strategy Factor
High quality image – high margins
• Politico – Legal Factors
Regulatory bodies have control on pricing
• Management judgment Factor
An perceived executive judgment
Price is a Multi-dimensional Concept
Method
• Cost based Method
1. Cost Plus or Mark-up
Price = Direct Costs + Overhead Costs + Profit margins ie Material & Labor + Fixed cost + % on Full Cost
2. Target Return Prices are set in anticipation of earning a desired target
3. Pay back method or Capital recovery Price are determined to cover the capital employed in a specified period 4. Experience curve An experience curve represents the relationship between cost & cumulative experience. With the learning, costs decline & allow fixation of lower prices
Price is a Multi-dimensional Concept
Method
• Competition based Method
1. Leadership pricing Some product items may be priced low, to attract customers & to generate more overall demand for other items.
2. Competitive pricing It almost matches the market prices of competitors, many a times slightly lower price than the competitor. 3. Going Rate pricing Matches the competitor’s price or same level pricing method 4. Sealed Bid Pricing In Industrial Marketing, open or closed bids are invited. Firms quote their prices, anticipating what the competitor would quote
Price is a Multi-dimensional Concept
Method
• Demand based Method
1. Discrimination/Differential/Variable/Flexible Product are sold at 2 or more prices based on customer segment , product-form, image, location and time.
2. Perceived value Based on perceived value of each component of the product, the price is estimated & employed 3. Psychological Based on attitudes of consumers in quality-price relationship eg High price high quality, Odd prices- convey the notion of a discount or bargain 4. Value Pricing to generate value satisfaction to consumers. Every day low pricing (EDLP) Low pricing during Festival or special promotion, while high/normal every day
3 Key difference between customer evaluation of pricing for services and goods 1 Customer often have inaccurate or limited reference prices for services 2 Price is the key signal to quality in services 3 Monetary price is not the only relevant price to service customers
Techniques of Pricing
•Market Price •Active Price •Leadership Price •Loss leadership Price •Discount Price •Odd Price or Psychological Price •Lot pricing •Bargain Pricing •Discriminatory Pricing
Markup pricing Mark down pricing Margins
Sodexho coupon Ticket Restaurant Credit cards
MARGIN = S.P. – C.P. X 100 S.P. MARK UP = S.P. – C.P. X 100 C.P. MARK UP = MRP 1.XX MARK UP of HLL (LUX) Soap = 8 % if MRP is Rs 19/MARK UP = Rs 19 = Rs 17.59 1.08
Customer knowledge of Service Prices
• What do mean by “Reference Price”?
It is the last memory for goods or services, may consist of
Price last paid The price frequently paid As told to you Seen on any Media
• • • • •
Service Heterogeneity limits knowledge Provider Unwillingness to Estimate Prices Individual Customer needs Vary No Price display of service Prices are not visible
The Role of No monetary Costs
Time Cost
Search Cost Convenience Cost
Psychic Cost
Approaches to Pricing Services
Cost Based
Competition Based
Demand Based
Cost Based Pricing 1) Cost Plus pricing
Price = Direct Costs + Overhead Costs + Profit margins
Material & Labor Fixed Cost % on Full cost
Cost Plus services – Markup added Problems 1. Costs are difficult to trace
2. Labor is more difficult to price than materials
3. Costs may not equal value
2.Target Return pricing
Prices are set in anticipation of earning a desired target
3. Pay back method or Capital recovery
Price is determined to cover the capital employed in a specified period
Competition based Pricing
Approached are used in 2 situation • Service are standard across the providers • The is Oligopolies
where there are a few large service providers
Problems 1. Small firms may charge too little to be viable
2. Heterogeneity of services limits comparability 3. Prices may not reflect customer value
Demand Based
In Cost and Competition based Customer is not considered
This base emphases Customers
Four Customer Definitions of Value
1)Value is low price
2)Value is everything, I want in a service
3)Value is the quality , I get for the price I pay
4)Value is all that I get for all that I give
Value is low price Some customers equate value with low price. For them it is PRICE, PRICE & ONLY PRICE that matter
For dry Cleaning : “Value means the lowest price” For Carpet steam cleaning : “ Value is price –which one is on sale” For a fast food restaurant : When I can use coupon, I feel that the service is a value” For airline travel : ” Value is when airline tickets are discounted”
Value is everything, I want in a service Rather than focusing on the money given up, some customers emphasize the benefits they receive from the service or product for them quality is far more important than money they pay.
For MBA degree : “Value is the very best education I can get” For Medical services : “ Value is high quality” For a social club : “ Value is what gives me a status in society” For a music concert : “ Value is the best performance”
Value is the quality , I get for the price I pay Other type of customers see value as a trade-off between the Money they give up and quality they Receive for them price do matters but not while compromising on quality
For a hotel for vacation : “Value is price first & quality second” For a hotel for business travel: “Value is lowest price for a quality brand” For a computer service contract : “Vale is affordable quality”
Value is all that I get for all that I give They consider all the benefits they receive & sacrifice component (not only money but time & effort) when describing value
For a housekeeping service : “Value is how many rooms I can get cleaned for what the price is” For a Furniture polishing : “Value is what I pay in cost, time & his effort for a elegant look” For executive education : “Value is getting a good educational experience in the shortest time possible”
In Cost and Competition based Customer is not considered
This base emphases Customers Four Customer Definitions of Value
1)Value is low price
Value means lowest cost irrespective of quality
2)Value is everything, I want in a service
Value means benefits, price is secondary
3)Value is the quality , I get for the price I pay
Value means price first, then quality
4)Value is all that I get for all that I give
Value means benefits = sacrifice (not only money but time & effort)
1) Value is low price Discounting
Discounts are offered to communicate to price-sensitive customers
Odd pricing
Rs 499 rather than Rs 500
Synchro-pricing
This technique is used to have yield management eg. Place differentials / Time differentials / Quantity differentials
Penetration pricing
Generally used for new services as introductory to stimulate trails.
2) Value is everything, I want in a service Prestige pricing
This is a special form by service providers who offer higher quality or status price
Skimming pricing
This is a strategy in which new services are introduced at high prices with large promotional expenditures. It is an effective approach when services are major improvement over past services.
3) Value is the quality , I get for the price I pay
Value pricing
Widely used for “giving more for less”
Market segmentation / Discrimination Pricing
Different prices for different groups with different quality level of service
4) Value is all that I get for all that I give Price bundling
It means price bundling of group of similar types of services
Complementary pricing
It consist of 2 related strategy. Captive pricing & two part pricing
Results-based pricing
Pricing dependant on the result of the service.
•Contingency Pricing
Used by Lawyers - % of compensation / % of gain Used by Stardoms - % of box-office collection
•Money Back Guarantees
doc_652551654.ppt
This is ppt about pricing strategies ppt tells about price as a concept, cost factors, cost absed methods, demand based.
Service Industry Pricing Strategies
Priceline.com
Travelocity.com Travelguru.com Makemytrip.com Esego.com
Price is a Multi-dimensional Concept
Policy decision require at least 3 aspects 1 Identification of Situation 2 Understanding the Factors – Internal / External 3 Selection of right Method of price determination
Price is a Multi-dimensional Concept
Situations
•Service Life Cycle stagesIntroduction, Growth, Maturity or Decline
•Competition levels –
High or Low
•Consumer types –
Gullible or Discerning
•Service level promotion –
Service Mix
•Distribution geography –
Local area or wide area
Factors
• Cost Factor
Determine the cost of the product
• Demand Factor
Estimate the demand for the product at various prices
• Competitor Factor
Estimate the reaction of competitors to alternative prices
• Channel Factor
Consideration of trade margins and number of people in supply chain if the service is not individualistic in nature.
• Marketing Strategy Factor
High quality image – high margins
• Politico – Legal Factors
Regulatory bodies have control on pricing
• Management judgment Factor
An perceived executive judgment
Price is a Multi-dimensional Concept
Method
• Cost based Method
1. Cost Plus or Mark-up
Price = Direct Costs + Overhead Costs + Profit margins ie Material & Labor + Fixed cost + % on Full Cost
2. Target Return Prices are set in anticipation of earning a desired target
3. Pay back method or Capital recovery Price are determined to cover the capital employed in a specified period 4. Experience curve An experience curve represents the relationship between cost & cumulative experience. With the learning, costs decline & allow fixation of lower prices
Price is a Multi-dimensional Concept
Method
• Competition based Method
1. Leadership pricing Some product items may be priced low, to attract customers & to generate more overall demand for other items.
2. Competitive pricing It almost matches the market prices of competitors, many a times slightly lower price than the competitor. 3. Going Rate pricing Matches the competitor’s price or same level pricing method 4. Sealed Bid Pricing In Industrial Marketing, open or closed bids are invited. Firms quote their prices, anticipating what the competitor would quote
Price is a Multi-dimensional Concept
Method
• Demand based Method
1. Discrimination/Differential/Variable/Flexible Product are sold at 2 or more prices based on customer segment , product-form, image, location and time.
2. Perceived value Based on perceived value of each component of the product, the price is estimated & employed 3. Psychological Based on attitudes of consumers in quality-price relationship eg High price high quality, Odd prices- convey the notion of a discount or bargain 4. Value Pricing to generate value satisfaction to consumers. Every day low pricing (EDLP) Low pricing during Festival or special promotion, while high/normal every day
3 Key difference between customer evaluation of pricing for services and goods 1 Customer often have inaccurate or limited reference prices for services 2 Price is the key signal to quality in services 3 Monetary price is not the only relevant price to service customers
Techniques of Pricing
•Market Price •Active Price •Leadership Price •Loss leadership Price •Discount Price •Odd Price or Psychological Price •Lot pricing •Bargain Pricing •Discriminatory Pricing
Markup pricing Mark down pricing Margins
Sodexho coupon Ticket Restaurant Credit cards
MARGIN = S.P. – C.P. X 100 S.P. MARK UP = S.P. – C.P. X 100 C.P. MARK UP = MRP 1.XX MARK UP of HLL (LUX) Soap = 8 % if MRP is Rs 19/MARK UP = Rs 19 = Rs 17.59 1.08
Customer knowledge of Service Prices
• What do mean by “Reference Price”?
It is the last memory for goods or services, may consist of
Price last paid The price frequently paid As told to you Seen on any Media
• • • • •
Service Heterogeneity limits knowledge Provider Unwillingness to Estimate Prices Individual Customer needs Vary No Price display of service Prices are not visible
The Role of No monetary Costs
Time Cost
Search Cost Convenience Cost
Psychic Cost
Approaches to Pricing Services
Cost Based
Competition Based
Demand Based
Cost Based Pricing 1) Cost Plus pricing
Price = Direct Costs + Overhead Costs + Profit margins
Material & Labor Fixed Cost % on Full cost
Cost Plus services – Markup added Problems 1. Costs are difficult to trace
2. Labor is more difficult to price than materials
3. Costs may not equal value
2.Target Return pricing
Prices are set in anticipation of earning a desired target
3. Pay back method or Capital recovery
Price is determined to cover the capital employed in a specified period
Competition based Pricing
Approached are used in 2 situation • Service are standard across the providers • The is Oligopolies
where there are a few large service providers
Problems 1. Small firms may charge too little to be viable
2. Heterogeneity of services limits comparability 3. Prices may not reflect customer value
Demand Based
In Cost and Competition based Customer is not considered
This base emphases Customers
Four Customer Definitions of Value
1)Value is low price
2)Value is everything, I want in a service
3)Value is the quality , I get for the price I pay
4)Value is all that I get for all that I give
Value is low price Some customers equate value with low price. For them it is PRICE, PRICE & ONLY PRICE that matter
For dry Cleaning : “Value means the lowest price” For Carpet steam cleaning : “ Value is price –which one is on sale” For a fast food restaurant : When I can use coupon, I feel that the service is a value” For airline travel : ” Value is when airline tickets are discounted”
Value is everything, I want in a service Rather than focusing on the money given up, some customers emphasize the benefits they receive from the service or product for them quality is far more important than money they pay.
For MBA degree : “Value is the very best education I can get” For Medical services : “ Value is high quality” For a social club : “ Value is what gives me a status in society” For a music concert : “ Value is the best performance”
Value is the quality , I get for the price I pay Other type of customers see value as a trade-off between the Money they give up and quality they Receive for them price do matters but not while compromising on quality
For a hotel for vacation : “Value is price first & quality second” For a hotel for business travel: “Value is lowest price for a quality brand” For a computer service contract : “Vale is affordable quality”
Value is all that I get for all that I give They consider all the benefits they receive & sacrifice component (not only money but time & effort) when describing value
For a housekeeping service : “Value is how many rooms I can get cleaned for what the price is” For a Furniture polishing : “Value is what I pay in cost, time & his effort for a elegant look” For executive education : “Value is getting a good educational experience in the shortest time possible”
In Cost and Competition based Customer is not considered
This base emphases Customers Four Customer Definitions of Value
1)Value is low price
Value means lowest cost irrespective of quality
2)Value is everything, I want in a service
Value means benefits, price is secondary
3)Value is the quality , I get for the price I pay
Value means price first, then quality
4)Value is all that I get for all that I give
Value means benefits = sacrifice (not only money but time & effort)
1) Value is low price Discounting
Discounts are offered to communicate to price-sensitive customers
Odd pricing
Rs 499 rather than Rs 500
Synchro-pricing
This technique is used to have yield management eg. Place differentials / Time differentials / Quantity differentials
Penetration pricing
Generally used for new services as introductory to stimulate trails.
2) Value is everything, I want in a service Prestige pricing
This is a special form by service providers who offer higher quality or status price
Skimming pricing
This is a strategy in which new services are introduced at high prices with large promotional expenditures. It is an effective approach when services are major improvement over past services.
3) Value is the quality , I get for the price I pay
Value pricing
Widely used for “giving more for less”
Market segmentation / Discrimination Pricing
Different prices for different groups with different quality level of service
4) Value is all that I get for all that I give Price bundling
It means price bundling of group of similar types of services
Complementary pricing
It consist of 2 related strategy. Captive pricing & two part pricing
Results-based pricing
Pricing dependant on the result of the service.
•Contingency Pricing
Used by Lawyers - % of compensation / % of gain Used by Stardoms - % of box-office collection
•Money Back Guarantees
doc_652551654.ppt