Page 216 - DMGT510_SERVICES_MARKETING

Unit 11: Pricing of Services

(b) Corporate management could instruct all divisions to trade on an agreed full cost Notes
pricing basis.
(c) A system of dual pricing can be adopted where selling divisions receive a market
price (where this can be identified) while the buying division pays the full cost of
production. Any difference is transferred to corporate accounts.
2. A proportion of the internal service producer’s fixed costs can be spread over all resource
users as a standing charge, regardless of whether they actually use the services of that unit.
This would enable the internal supplier to compete on price relatively easily, while still
allowing resource users for whom a higher standard of service is worth paying a premium
to buy in their requirements from outside.

Self Assessment

State whether the following statements are true or false:
15. The success of a saturation pricing strategy also depends on the level of knowledge, which
consumers have about prices.
16. Tactical pricing can provide short-term competitive advantage.

11.6 Summary

Price is one of the most critical elements of the marketing mix for services - both for profit

as well as not-for-profit firms. It is the only marketing mix variable which generates
revenue.
Price is what customers are willing to pay for services. How much a customer has to pay

depends on the value he perceives in the service offer. The payment can be in many forms
- money, barter, or return services.
Value is the ratio of perceived benefits of the service to be purchased to price and other

added costs. Travelling time, hassles, energy costs, and psychic costs are some examples of
added costs.
An organisation attempts to achieve a variety of objectives through pricing like profit or

income objectives, volume or sales related objectives, status-quo oriented objectives and
society related objectives.

The service marketer has to make his pricing decisions after obtaining in-depth knowledge

of his firm’s costs, competitive strategies, government policy, the prevailing and potential
demand and most important, his corporate objective.
The firm has to consider the consumer demand, cost structure, company objectives,

government policies, competitor policies and entry exit barriers while deciding on the
prices.
There are four important bases for price determination: What it costs to produce a service,

the amount that consumers are willing to pay for it, the price that competitors are charging
and the constraints on pricing that are imposed by government and/or regulatory bodies.
In Cost-based method of pricing, the service marketer adds up all his costs, adds his profit

margin and the result is the price. The skill required of the service marketer is the ability
to identify and measure the different types of costs: direct, indirect, fixed and variable, etc.

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