Part 6 - 17 Pricing of Service

Question 1

3 Key differences between customer evaluation of pricing for service and goods (1)

Answer 1

1. Customers often have inaccurate or limited reference prices for services:
   - Service variability limits knowledge
   - Providers are unwilling to estimate prices
   - Individual customers needs vary
   - Collection of price information is overwhelming in service
   - Prices are not visible

Question 2

3 Key differences between customer evaluation of pricing for service and goods (2)

Answer 2

2. Monetary price is not the only price relevant to service customers
   Non-monetary costs are:
   - time cost (waiting for a doc, appointment)
   - search cost (the effort to identify and select desired services)
   - convenient cost (reschedule for the service)
   - psychological cost (worriy about the result - a surgery)

Question 3

3 Key differences between customer evaluation of pricing for service and goods (3)

Answer 3

3. Price as an indicator of service quality
   The higher the risk connected to that service (e.g. the quality is hard to detect), the more price function as a surrogate代理人 signalling quality

Question 4

Approaches to pricing service

Answer 4

1. Cost-based pricing as to maximize costs (e.g., wholesaling, advertising)
2. Competition-based pricing as to compete in markets (e.g., airline, rental cars)
3. Demand-based pricing as to focus on customer´s value (e.g., private-airline services, ad-hoc services)

Question 5

Challenges for Cost-based pricing

Answer 5

1. Cost are difficult to trace
2. Labour is more difficult to price than materials
3. Costs may not = value that customer perceive the services are worth

Question 6

Challenges in competition based pricing

Answer 6

1. Small firms may charge too little to ve viable
2. Heterogeneity of service limits comparability
3. Prices may not reflect customer value

Question 7

Dynamic Pricing

Answer 7

Dynamic pricing is the use of price to manage demand for a service by capitalizing on customer sensitivity to prices.
It’s technology based and is mostly used by airline companies

Question 8

Adapting pricing

Answer 8

Pricing techniques that aim at adapting the level o fprice depending on the type of consumers
* Attracting the bargain hunters (e.g., discounting).
* Attracting status seekers (e.g., skimming pricing).
* Attracting convenience seekers (e.g., price bundling)
* Attracting performance seeker (e.g., result-based pricing)
* Attracting multiple-segments (e.g., time-differentials)