Summary
Summary Service Industry II
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A full summary of the Service Industry II introduction lecture and chapters.
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Service industry IIContent
1. P of Price: Pricing of Services
2. P of Process: Blueprint and Standards
3. P of Process: Capacity Management
4. P of Process: Waiting Lines
5. P of Place: Decisions and implications
6. Practice test/ Internationalization
7. SI wrap up: Servitization
Learning objectives
Describe how a service firm can use pricing in order to illustrate pricing effects
on profit;
Explain how a service firm can use capacity and waiting lines in order to
identify opportunities to improve productivity;
Recognize what resource and location decisions can be used by a service firm
in order to research how its performance could be enhanced;
Describe the key elements of process design in order to develop an effective
service process;
Summarize the notion of “Servitization” in order to illustrate the growing
importance of service marketing for services and goods;
Recognize differences in cultures in order to illustrate the impact on the
service marketing mix.
1. P of Price: Pricing of Services
Training 1 + Chapter 9 (p174-197) + Chapter 10 (p226-233)
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. (Marion Debruyne, Service
Management p175)
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.” (Simon H. Price Management 89)
Prices have a direct impact on company’s bottom line. A small %
improvement in price can generate a large % increase in profitability.
The other p’s are more cost related instruments
In spite of its obvious importance, not many service marketeers deal with the
pricing issue in a structured or creative way. One major cause is that many
separate issues are involved in pricing decisions.
,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.
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
How can one reduce non-monetary costs? Reduce the perception of time, offer
premium service
The role of non-monetary costs
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. Also:
People are willing to pay more if they perceive a decrease in nonmonetary
costs.
Dealing with non-monetary costs example: websites offering comparison
and expert advice
The Dutch online retailer Cool Blue is heavily investing in this and uses videos in
which they guide and support you as a customer in your product choice. You lack the
personal touch, but you get a lot of expertise. Moreover, you can choose where and
when to look at the recommendations.
Pricing decisions : a four-step process
Pricing The pricing objectives should be in line with the overall
Objectives 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 ….
Pricing Strategy 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.
Pricing structure 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?
Pricing Promotions or other short term actions e.g. quantity
levels/tactics discounts, lower prices in off-peak hours…
, Step 1: Pricing objectives
Pricing objectives can be divided into 2 categories;
1. Short-term tactical moves
2. Long-term strategic moves
Choices with respect to pricing objectives are usually influenced by the dominant
form of regulation in the market. A service company can be:
1. Subject to government regulation (e.g. railways, post offices and universities);
2. Subject to a certain amount of self-regulation (e.g. lawyers and doctors);
3. Services where the market mechanism decides (e.g. cleaning services, hotels,
and catering)
Step 2: Three basic marketing price strategies
Cost-based strategies
Mark-up pricing: A fixed margin is added to the service’s cost to determine the
price,
o Mark-up price = unit cost / (2 – desired mark-up%)
Target return pricing = based on the desired return on investment
o Target return price = unit cost + (ROI x Investment) / Expected number
of units sold
Disadvantages of cost-based strategies
o When price is only based on cost, pricing objective can only be to reach
a certain profit level
o Cost-based strategies require estimated units sold. However, number of
units sold will be influenced by the price itself, taking into account the
price elasticity of demand.
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