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Service Industry 2 Summary
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Service Industry 2P of Price:
pricing decision probably has the greatest impact on a company’s profits. Besides that, it also affects
customer satisfaction and customer loyalty.
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.
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.
Types of non-monetary costs:
• Search costs: the effort to identify and select the desired service (e.g. time)
• (In)Convenience costs: arranging schedules, travelling time
• Time costs: length of time to be served
• Psychological costs: fear of not understanding (pension), fear of refusal (bank), fear of the
outcome (surgery): risk taking
,The four steps in the pricing process:
- Step 1: Pricing objectives.
o The pricing objectives should be in line with the overall business and marketing
strategy;
f.e acquiring market share, maximizing short-term profit, prevent competition from
entering the market, communicate brand positioning.
- Step 2: Pricing strategies.
o The pricing strategy establishes a framework for pricing decisions and determines
the way in which prices will be set. Cost, competition and value as experienced by
the consumer should be taken into account.
- Step 3: Pricing Structure
o The pricing structure takes into account a set of characteristics that will have an
effect on price levels and answers questions like : Which aspect of the service will be
priced? What will be included for that price? Will there be differentiation among
different customers, payment conditions?
Having different options for different prices
-> F.e. (on a plane) pay for extra leg room / get a neck cushion for free
- Step 4: pricing tactics:
, o Promotions or other short term actions
-> f.e. quantity discounts, lower prices in off-peak hour
- Additional challenges for pricing of services:
Relative fixed capacity
o If demand exceeds capacity, none can be added
Perishable inventory
o If capacity goes unsold, the revenue is lost forever
Cost and pricing structure
o High fixed costs and low variable costs
Yield Management (or Revenue Management)
The process of allocating the right type of capacity, to the right customer, at the right price.
Used for Airline seats, hotel rooms, rental cars, restaurant seats.
Variable pricing entails taking advantage of customers’ variable willingness to pay.
Requirements for yield management:
Relatively Fixed Capacity
Possible to Segment Markets (with varying price sensitivity)
Perishable Capacity
Marginal sales costs is low, but the cost of adding extra capacity is high
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