Pricing

Question 1

Difficulty of Pricing Services for Firms

Answer 1

Harder to calculate financial costs of creating a service process or performance, compared to a manufactured good.

Variability of inputs and outputs. How can firms define a “unit” of service and establish basis for pricing?
Unit in higher education
Unit in legal services
Unit in medical services

Question 2

Difficulty of Understanding Pricing of Services for Customers

Answer 2

Customers find service pricing difficulty to understand, risky and sometimes even unethical!

Customers find it hard to compare prices across competition.

Customers tend to be less certain about their reservation price (maximum willingness-to-pay).

Many non monetary costs when buying services (harder to quantify)

Question 3

Pricing Strategy: Three Approaches to Profit Maximization

Answer 3

Cost-Based Pricing
Set prices relative to financial costs (problem: defining costs)

Competition-Based Pricing
Competitors’ pricingstrategy as an anchor

Value-Based Pricing (or demand-based)
Relate price to value perceivedby customer

Question 4

Pricing Strategy: Cost-Based

Answer 4

Customers do not know the price until after service is provided.

True cost of service is hard to calculate (from managerial side).

Services have high fixed/variable cost ratios.

Economies of scale tend to be limited.

Question 5

Pricing Strategy: Competitor-Based Pricing

Answer 5

Competitor-based strategies
Price signaling (any price is matched) 

Going-rate pricing (follow pricing of one market’s actor)

Pricing strategy used for differentiation from competitors

Question 6

Pricing Strategy: Value-Based Pricing (or demand-based)

Answer 6

READ NOTES

Question 7

Yield Management

Answer 7

READ NOTES