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Summary Service Industry q3
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Summary Service Industry q3
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Service Industry Q3Inhoudsopgave
WEEK 1 P OF PRICE: PRICING OF SERVICES...................................................................................................... 2
.........................................................................................................................................................................4
WEEK 2: P of process Blueprint and standards................................................................................................8
Week 3: P of process; capacity management................................................................................................ 12
WEEK 4: WAITING LINES............................................................................................................................... 15
WEEK 5: P of place....................................................................................................................................... 22
Week 6: Internationalization and servitization............................................................................................. 25
,WEEK 1 P OF PRICE: PRICING OF SERVICES
• Describe how a service firm can use pricing in order to illustrate pricing effects on
profit;
Marketing mix: 4 P’s
- Product
- Place
- Price
- Promotion
Service marketing mix: 7 P’s
- Process
- Physical evidence
- People
Of the classical four Ps of the marketing mix (product, place, promotion, and price),
it is price that usually receives the least attention, even though the pricing decision
probably has the greatest impact on a company’s profits.
Also: pricing behavior affects customer satisfaction and customer loyalty. “Price is
distinguished from other marketing devices by the force and the speed of sales-
effect, the shortness of time it takes to change it, the elasticity of competitive
reactions and cash flow implications.
Non-monetary costs:
= What it costs a customer (other than money) to buy a product, including the time
spend on shopping and the risk taken in the assumption that the product will deliver
expected or promised benefit.
• The monetary price should already take into account, and compensate for, this
non-monetary price.
Different types:
• Search costs: the effort to identify and select the desired service (e.g. time)
Search costs—the effort invested to identify and select among services you
desire; is also higher for services than for physical goods. Prices for services are
rarely displayed on shelves of service establishments for customers to examine as
they shop, so these prices are often known only when a customer has decided to
experience the service. Another factor that increases search costs is that each
service establishment typically offers only one “brand” of a service (with the
exception of brokers in insurance or financial services), so a customer must
initiate contact with several different companies to get information across sellers.
• (In)Convenience costs: arranging schedules, travelling time
If customers have to travel to a service, they incur a cost, and the cost becomes
greater when travel is difficult, as it is for elderly persons. For example, if service
hours do not coincide with the customers’ available time, they must arrange their
schedules to correspond to the company’s schedule. This causes inconvenience.
Another example: if consumers have to spend the effort to prepare to receive a
service (such as removing all food from kitchen cabinets in preparation for an
exterminator’s spraying), they make additional sacrifices.
• Time costs: length of time to be served
Most services require direct participation of the consumer and thus consume real-
time: time waiting as well as the time when the customer interacts with the
service provider. Consider the investment you make to exercise, see a physician,
,or get through the crowds to watch a concert or baseball game. Not only are you
paying money to receive these services; you’re also expending time. Time
becomes a sacrifice made to receive service in multiple ways. First, because
service providers cannot completely control the number of customers or the
length of time it will take for each customer to be served, customers are likely to
expend time waiting to receive the service. Waiting time for a service is virtually
always longer and less predictable than waiting time to buy goods.
• Psychological costs: fear of not understanding (pension), fear of refusal (bank),
fear of the outcome (surgery): risk taking
all of these, constitute psychological costs that customers experience as sacrifices
when purchasing and using services. All change, even positive change, brings
about psychological costs that consumers factor into the purchase of services. A
firm needs to find the perfect balance of monetary and non-monetary costs in
order to sell its product. This balance can be achieved by the firm itself. For
example, a coffee shop owner may choose to increase the price of his coffee in
exchange for payment convenience- by offering the credit card payment facility.
It is up to the consumers whether they are willing to pay more money for
convenience, or pay less money in return for extra efforts.
Roles:
• Non monetary costs play a role in the assessment of the quality of processes,
the assessment of the price/value relationship and hence in customer
satisfaction.
• People are willing to pay more if they perceive a decrease in nonmonetary
costs.
Dealing with non-monetary costs:
F.e: websites offering comparison and expert advise such as Coolblue (Search
costs)
F.e: Valet parking at aiport
F.e: Additional service for VISA application (Psychological costs)
Pricing decisions:
4 STEPS
Pricing objectives, Pricing strategy, Pricing structure, Pricing levels/tactics
1 Pricing objectives
The pricing objectives should be in line with the overall business and marketing
strategy; e.g. acquiring market share, maximizing short-term profit, prevent
competition from entering the market, communicate brand positioning, stimulate
sales of other company services ….
,1.1 Profits-related Objectives:
Profit has remained a dominant objective of business activities.
Company’s pricing policies and strategies are aimed at following profits-related
objectives:
Maximum current profit: This objective is aimed at making as much money as
possible. Company tries to set its price in a way that more current profits can be
earned. However, company cannot set its price beyond the limit. But, it concentrates
on maximum profits.
Target return on Investment: Most companies want to earn reasonable rate of
return on investment.
(1) fixed percentage of sales, (2) return on investment, or (3) a fixed rupee
amount.
Company sets its pricing policies and strategies in a way that sales revenue
ultimately yields average return on total investment. For example, company decides
to earn 20% return on total investment of 3 crore rupees. It must set price of
product in a way that it can earn 60 lakh rupees.
1.2 Sales-related Objectives:
The main sales-related objectives of pricing may include:
Sales growth: Company’s objective is to increase sales volume. It sets its price in
such a way that more and more sales can be achieved. It is assumed that sales
growth has direct positive impact on the profits. So, pricing decisions are taken in
way that sales volume can be raised. Setting price, altering in price, and modifying
pricing policies are targeted to improve sales.
Target Market Share: A company aims its pricing policies at achieving or
maintaining the target market share. Pricing decisions are taken in such a manner
that enables the company to achieve targeted market share. Market share is a
specific volume of sales determined in light of total sales in an industry. For example,
company may try to achieve 25% market shares in the relevant industry.
Increase in Market Share: Sometimes, price and pricing are taken as the tool to
increase its market share. When company assumes that its market share is below
than expected, it can raise it by appropriate pricing; pricing is aimed at improving
market share.
, 1.3 Competition-related Objectives:
Competition is a powerful factor affecting marketing performance. Every company
tries to react to the competitors by appropriate business strategies.
With reference to price, following competition-related objectives may be priorized:
To Face Competition:
Pricing is primarily concerns with facing competition. Today’s market is characterized
by the severe competition. Company sets and modifies its pricing policies so as to
respond the competitors strongly. Many companies use price as a powerful means to
react to level and intensity of competition.
To Keep Competitors Away: To prevent the entry of competitors can be one of the
main objectives of pricing. The phase ‘prevention is better than cure’ is equally
applicable here. If competitors are kept away, no need to fight with them. To achieve
the objective, a company keeps its price as low as possible to minimize profit
attractiveness of products. In some cases, a company reacts offensively to prevent
entry of competitors by selling product even at a loss.
To Achieve Quality Leadership by Pricing: Pricing is also aimed at achieving the
quality leadership. The quality leadership is the image in mind of buyers that high
price is related to high quality product. In order to create a positive image that
company’s product is standard or superior than offered by the close competitors; the
company designs its pricing policies accordingly.
To Remove Competitors from the Market: The pricing policies and practices are
directed to remove the competitors away from the market. This can be done by
forgoing the current profits – by keeping price as low as possible – in order to
maximize the future profits by charging a high price after removing competitors from
the market. Price competition can remove weak competitors.
1.4 Customer-related Objectives:
Customers are in center of every marketing decision. Company wants to achieve
following objectives by the suitable pricing policies and practices:
To Win Confidence of Customers: Customers are the target to serve. Company
sets and practices its pricing policies to win the confidence of the target market.
Company, by appropriate pricing policies, can establish, maintain or even strengthen
the confidence of customers that price charged for the product is reasonable one.
Customers are made feel that they are not being cheated.
To Satisfy Customers: To satisfy customers is the prime objective of the entire
range of marketing efforts. And, pricing is no exception. Company sets, adjusts, and
readjusts its pricing to satisfy its target customers. In short, a company should
design pricing in such a way that results into maximum consumer satisfaction.
1.5 Other Objectives:
Over and above the objectives discussed so far, there are certain objectives that
company wants to achieve by pricing.
Market Penetration: This objective concerns with entering the deep into the
market to attract maximum number of customers. This objective calls for charging
the lowest possible price to win price-sensitive buyers.
Promoting a New Product: To promote a new product successfully, the company
sets low price for its products in the initial stage to encourage for trial and repeat
buying. The sound pricing can help the company introduce a new product
successfully.
Maintaining Image and Reputation in the Market: Company’s effective pricing
policies have positive impact on its image and reputation in the market. Company,
by charging reasonable price, stabilizing price, or keeping fixed price can create a
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