Deck 15: Pricing of Services

Question 1

Which approach to pricing (cost-based, competition-based, or demand-based) is the most fair to customers? Why?

Answer 1

Approaches to Pricing Services are as mentioned below:
• Cost-based pricing
• Competition-based pricing
• Demand-based pricing.
Cost-based pricing:
Cost based pricing is a pricing which include direct costs, Overhead costs and Profit margin. This price is company oriented.
Competition-based pricing:
Competition based pricing approach focuses on how the prices are charged by the competitors in the industry, and accordingly the prices are fixed.
Demand-based pricing:
Demand-based pricing neither considers the companies costs nor takes the competitors prices, it purely considers the customer's demands and preferences.
The Demand-based pricing is most fair to customer because it purely considers the customer's demands and preferences. Prices are set according to their demand and how they perceive the product.

Question 2

List five services for which you have no reference price. Now put yourself in the role of the service providers for two of those services and develop pricing strategies. Be sure to include in your description which of the value definitions you believe customers will possess and what types of strategies would be appropriate, given those definitions.

Answer 2

The following are some of the services which assumed no reference pricing:
• All kind of services provided by the government authorities
• Railway services
• Legal services
• Auditing and assurance services
Railway services:
The strategy for this service can include prestige pricing. This is because it offers high quality of services to the customers.
Legal services:
The strategy for this service is Price Framing. This help the customer to view the service.

Question 3

Is it possible to use all three approaches simultaneously when pricing services? If you answer yes, describe a service that is priced this way.

Answer 3

All the three pricing approaches may be used simultaneous depending upon the type of the business and its services.
The businesses may follow the three pricing approaches simultaneously, in different markets.
Example :
Auditing and assurance services provided by the CPA use these three pricing strategies simultaneously.
The company charges cost based pricing for services like income tax return filings etc.
Competition-based pricing is used for services which have high competition in the market.
For the services like audit and advisory services it charges are based on Demand-based pricing.

Question 4

In the next week, find three price lists for services (such as from a restaurant, dry cleaner, or hairstylist). Identify the pricing base and the strategy used in each of them. How effective is each?

Question 5

For what consumer services do you have reference prices? What makes these services different from others for which you lack reference prices?

Question 6

Consider that you are the owner of a new private college and can prepare a value/ price package that is appealing to students. Describe your approach. How does it differ from existing offerings?

Question 7

Name three services you purchase in which price is a signal to quality. Do you believe that there are true differences across services that are priced high and those that are priced low? Why or why not?

Question 8

Go to the Priceline.com Internet site and become familiar with the way it works. Next, go to Orbitz and Travelocity and compare the way they operate. What are the benefits and trade- offs in using Priceline over Orbitz and Travelocity?

Question 9

Describe the nonmonetary costs involved in the following services: getting an automobile loan, belonging to a health club, having allergies diagnosed and treated, attending an executive education class, and getting braces.

Question 10

Consider the specific pricing strategies for each of the four customer value definitions. Which of these strategies could be adapted and used with another value definition?