Chapter 9: Managing service promises

Question 1

Explain the three basic marketing price structures and challenges for services!

Answer 1

There are 3 major pricing approaches for services:
- Cost-based pricing = determine the cost per unit of service and add a mark-up
- Competition-based pricing = base your pricing based on what competitors charge
- Demand-based pricing = In this method the customer’s responsiveness to purchase the product at different prices is compared and then an acceptable price is set.
Challenges for cost-based pricing:
- Costs are difficult to trace
- Labor is more difficult to price than materials
- Costs may not equal the value that customers perceive the service to be worth
Challenges for competition-based pricing:
- Small firms may charge too little to be viable
- Heterogeneity of service limits comparability
- Prices may not reflect customer value
Challenges for demand-based pricing:
- Monetary price must be adjusted to reflect the value of non-monetary costs
- Information on service costs is less available to customers, hence, price may not be a central factor

Question 2

What are the major challenges for developing an integrated communication plan for services marketeers? Explain in detail the diverse components of an integrated communication strategy in the case of services.

Answer 2

An integrated marketing communications plan or IMC plan incorporates market research, strategic planning, audience segmentation, marketing channel selection, creative briefs and campaign messaging, budgeting, ROI analysis and a system for campaign metrics and evaluation.
Some challenges include:
- A shift in market place power from manufacturer to wholesaler to retailer/shift in channel power.
- A movement away from relying on advertising focused approach.
- Rapid growth of data base marketing.
- A shift in traditional promotions.
- Change in the way the advertising agencies compensated.
- Rapid growth of internet marketing.
- Growing competition in relationship marketing.
- Change from mere information delivery to value delivery.
- Consumer empowerment.
- Fragmentation of media.
- Increasing advertising clutter.
- Desire for greater accountability

Question 3

What different aspects regarding pricing illustrate the typical differences between products and services?

Answer 3

There are 3 major pricing approaches for services:
- Cost-based pricing = determine the cost per unit of service and add a mark-up
- Competition-based pricing = base your pricing based on what competitors charge
- Demand-based pricing = In this method the customer’s responsiveness to purchase the product at different prices is compared and then an acceptable price is set.
Challenges for cost-based pricing:
- Costs are difficult to trace
- Labor is more difficult to price than materials
- Costs may not equal the value that customers perceive the service to be worth
Challenges for competition-based pricing:
- Small firms may charge too little to be viable
- Heterogeneity of service limits comparability
- Prices may not reflect customer value
Challenges for demand-based pricing:
- Monetary price must be adjusted to reflect the value of non-monetary costs
- Information on service costs is less available to customers, hence, price may not be a central factor

Question 4

What is dynamic pricing and what different types of users does it attract?

Answer 4

= use of price to manage demand for a service by capitalizing on customer sensitivity to prices.
Dynamic pricing can be used to attract:
- Bargain hunters = looking for high quality products and services at a low price
- Status seekers = less price sensitive, because they only care about the status that the product or service entails.
- Convenience seekers = will look for the alternative that is most convenient for them (bundles) and doesn’t want to put in a lot of effort to do research (can use price framing to convince them).
- Performance seekers = the price of the service will depend on the result of the service
- Multiple segments = time, place, quantity, and incentive differentials to differentiate different segments.

Question 5

Provide a couple of characteristics effective advertising should have within a services context !

Answer 5

• Address service intangibility = make services more tangible by doing things such as: focusing on tangibles, using brand icons (influencers), featuring service employees in ads (ex. Carglass), …
• Manage service promises = create strong service brand and coordinate external communications. This can be done through multiple communication tools such as viral marketing, paid search advertising, traditional advertising, …
• Manage customer expectations = can be done by doing things such as: making realistic promises, offering service guarantees, …
• Manage customer education = can be done by doing things such as: preparing customers for the service process, clarifying expectations after the sale, …
• Manage internal marketing communication = not only horizontal, but vertical communications as well.