Answer to Question #208994 in Management for PAS

Question

SUBJECT : SERVICE MARKETING

Discuss the scope of pricing the services , by giving 6 points with elaboration?

Answer 1

Service prices are different for consumers. This is because of factors such as: service heterogeneity limits knowledge, service providers are unwilling to limit prices e.g. in the legal and medical field, individual customer needs vary, prices are not visible and price information is overwhelming in services.

Monetary price is not the only price relevant to service customers. Non-monetary costs such as time cost, search cost, convenience cost and psychological cost also play a significant role in service pricing.

Price is a key indicator of quality in the service industry. Some customers are attracted by high price and perceive it as an indicator of service quality. Low price, on the other hand, is related to low quality service.

Three major approaches to pricing services include: cost-based pricing, competition-based pricing and demand-based pricing. The seller's costs are the primary consideration in cost-based pricing. It involves setting prices based on the costs for producing, distributing and selling the service.

Competition-based pricing involves setting prices based on competitors' strategies, costs, prices and market offerings. In highly competitive markets, consumers will base their judgments of a service' value on the prices that competitors charge for similar services.

Demand-based pricing approach is based on the customer's demand and the perceived value of the product. Under this approach, the customer's responsiveness to purchase the service at different prices is compared and then an acceptable price is set.