Page 210 - DMGT510_SERVICES_MARKETING

Unit 11: Pricing of Services

11.4.2 Competitor-based Pricing Notes

This pricing is based on what the competitor is offering. A service firm uses this method to make
an entry in the market, finding an appropriate price bracket for its service offer - without having
to go through a trial and error process - by pegging itself to the competition. The service
marketer needs to be astute enough to recognize who his competition is. The competition could
be from firms offering the same services fulfilling similar needs (direct competition - State Bank
of India versus Canara Bank), different services fulfilling similar needs (substitute competition
- a restaurant versus movie theatre versus discotheque) or similar services fulfilling different
needs (indirect competition - a theme park like Essel world catering to tourists, lovers,
recreationists, shoppers etc.)
Going Rate Pricing: This is used in those services where cost levels are difficult to establish, and
a going rate is preferred.

Example: In one street a cluster of restaurants (‘Khau gali” and ‘Chowpatty’ in Mumbai,
‘Chhappan Dookaan’ and ‘Sarafa’ in Indore, ‘Paranthe wala Gali’ in Delhi, etc.) serve basically
the same fare at the same prices. The same is true for apparel stores, electronics or books in one
street (‘Fashion Street’ and ‘Heera Panna’ in Mumbai). Charging a going rate is an easy way to
avoid calculation of costs.
Sealed-bid pricing: This is the system of tenders and quotations where bids are received from
service providers. Thus housekeeping, restaurant and canteen contracts, security services, fleet
operations, etc., are usually awarded on the basis of predetermined specification fulfilment and
their offer price. The appropriate price and therefore the provider are chosen.

Pricing below the Competition
Here, the new entrant service provider will price his offers below the competition, with the full
intention of increasing his market share at the time of consideration. Thus, an airline that
intends to slash its prices will definitely acquire more customers trading off against profitability.
The danger to this approach is that the service marketer might price himself out of business or
might invite price retaliation. This will increase commoditisation of the service, make customers
very price sensitive and may forever remove concepts of value and brands. The size of the
market actually comes down. Often, cash discounts are offered. Certain service providers, like
discount retailers, base their lower-than-the-competition price on low mark-up, high volume
and minimal service.
Pricing above the Competition

This kind of pricing works only for premium or very distinctive services. If the target market is
class (foreign banks, high-end boutiques like Sheetal, Concorde aircraft flights, up-market
restaurants, etc.) as opposed to mass, then this pricing method works. But if there is a general
recession, then above-the-market pricing is unsustainable.

11.4.3 Demand-based Pricing

This is based on what the customers are prepared to pay. Different customers have different
upper-ceilings on the price that they are willing to pay for a service. The skill required for a
service marketer is a fine knowledge of consumer demand and the consumer’s ability to pay
(correct identification of the early adopters, middle-majority and laggards in a market) Price
discrimination logically takes place here.

LOVELY PROFESSIONAL UNIVERSITY 205