Pricing of services Flashcards
What is one of the main challenges in pricing services?
Prices can vary depending on customers’ desires
This variability makes it hard to estimate prices in advance.
What are the costs customers must consider when purchasing a service?
- Price
- Convenience
- Psychological costs
These costs influence the overall decision-making process of customers.
What are time costs in the context of service pricing?
Most services require customers’ direct participation and thus consume real time
This means customers invest their time in receiving the service.
Define search costs.
The effort invested to identify and select from among services you desire
This reflects the time and resources spent in finding the right service.
What are convenience costs?
Cost in obtaining a service, e.g., travel costs
These costs can affect the overall affordability and accessibility of a service.
What are psychological costs?
Costs that customers experience as sacrifices when purchasing and using services
This includes emotional or mental stress related to the purchase.
What is a cost-based pricing strategy?
Price = direct costs + overhead costs + profit margin
This method includes all associated costs in determining the final price.
What do direct costs involve in a cost-based pricing strategy?
- Materials
- Labour associated with delivering the service
Direct costs are essential for calculating the overall price.
What are overhead costs in the context of pricing?
A share of fixed costs
These costs are not directly tied to the production of a service but are necessary for operation.
What does profit margin represent in a pricing strategy?
Percentage of full costs that the firm wants as profit
This is a crucial factor in determining the final price of a service.
What is a challenge of cost-based pricing?
Costs are more difficult to trace
Labour is often harder to price than materials, complicating cost calculations.
What is competition-based pricing?
Pricing based on prices charged by other firms in the same industry or market
This strategy is often used to remain competitive within an industry.
In what situations is competition-based pricing used?
- When services are standard across service providers
- In oligopolies with few large service providers
These conditions facilitate price comparisons among firms.
What is a challenge for competition-based pricing?
Small firms may charge too little to be viable
This can lead to unsustainable business practices.
What is value-based pricing?
Pricing focus is on the customer and not the company or market
This strategy considers what customers are likely to pay based on perceived value.
What are non-monetary costs in value-based pricing?
Costs that contribute to the perception of the value
These may include time and emotional costs associated with the service.
What is a challenge for value-based pricing?
Value may be perceived differently due to different tastes, knowledge, buying power, and ability to pay
This variability can complicate pricing strategies.
What is dynamic pricing?
Use of price to manage demand for a service by capitalizing on customer sensitivity to prices
This strategy requires detailed data on past demand patterns.
Give two examples of dynamic pricing.
- Uber
- Ticketmaster
These companies utilize dynamic pricing to adjust rates based on demand.
What is a strategy to attract bargain hunters?
Offering discounts
Discounts make price-sensitive buyers feel they are receiving extra value.
What is odd pricing?
Setting the price just below the exact amount, e.g., £19.50 instead of £20
This tactic is used to make products appear cheaper.
What is penetration pricing?
Introducing a new service into a market at low prices to stimulate trial and widespread use
Commonly utilized by online streaming services.
What is prestige pricing?
Value-based pricing where providers offer high quality or status services
This approach targets customers seeking luxury or prestige.
What is skimming pricing?
Introducing new services at high prices with large promotional expenditures
Often seen with new restaurants featuring celebrity chefs.
