MANAGING

SERVICE
PROMISES
 Provider Gap 4

CUSTOMER

Service External
COMPANY Delivery Communications
The to Customers
Communicatio
n Gap

Part 6 Opener
Pricing and services

Lecture 11
Pricing of Services

 Discussthree major ways that service prices

are perceived differently from goods prices by
customers

 Articulatethe key ways that pricing of services

differs from pricing of goods from a company’s
perspective
Overview (cont.)

 Demonstrate what value means to customers

and the role that price plays in value

 Describe strategies that companies use to

price services
3 key differences
 Customer knowledge of service prices:
 Service variability limits knowledge
 Providers are unwilling to estimate prices
 Individual customer needs vary
 Collection of price information is overwhelming
 Prices are not visible
 Role of non-monetary costs:
 Time costs
 Search costs
 Convenience costs
 Psychological costs
 Price as an indicator of service quality
Three Basic Marketing Price Structures and
Challenges Associated with Their Use for Services
P= DC+OC+Profit
Challenges:
1. Costs difficult to trace.
Challenges: 2. Labor is more difficult to
1. Small firms may charge too price than materials.
little to be viable. 3. Costs may not equal the
2. Heterogeneity of services value that customers
limits comparability. perceive the services are
3. Prices may not reflect worth.
customer value.

Challenges:
1. Monetary price must be adjusted to reflect
the value of non-monetary costs.
2. Information on service costs is less available to
customers; hence, price may not be a central factor.
Four Customer Definitions of Value

Value is everything
Value is low price.
I want in a service.

Value is the Value is all that

quality I get for I get for all
the price I pay. that I give.
Pricing Strategies When the Customer Defines
Value as Low Price

Value is low price.

• Discounting
• Odd pricing
• Synchro-pricing
• Penetration pricing
Pricing Strategies When the Customer Defines
Value as Everything Wanted in a Service

Value is everything
I want in a service.

• Prestige pricing
• Skimming pricing
Pricing Strategies When the Customer Defines
Value as Quality for the Price Paid

Value is the quality I

get for the price I pay.

• Value pricing
• Market segmentation
pricing
Pricing Strategies When the Customer Defines
Value as All That Is Received for All That Is Given

Value is all that I get

for all that I give.
• Price framing
• Price bundling
• Complementary pricing
• Results-based pricing
Summary of Service Pricing Strategies for
Four Customer Definitions of Value

Value is low price. Value is everything

I want in a service.
• Discounting
• Odd pricing • Prestige pricing
• Synchro-pricing • Skimming pricing
• Penetration pricing

Value is the quality Value is all that I get

I get for the price I pay. for all that I give.
• Value pricing • Price framing
• Market segmentation • Price bundling
pricing • Complementary pricing
• Results-based pricing
Integrated marketing
communications
Integrated Services Marketing
Communications
 Service communication challenges.
 Integrated service marketing communications

 Present four ways to integrate marketing communications

in service organizations
 Present specific strategies for managing promises,
managing customer expectations, educating customers,
and managing internal communications.
Communications and the Services
Marketing Triangle
Company

Internal Marketing External Marketing

Vertical communications Communication
Horizontal communications Advertising
Sales promotion
Public relations
Direct marketing

Employees Interactive Marketing Customers

Personal selling
Customer service center
Service encounters
Servicescapes
Source: Kotler, Philip, Marketing Management: Analysis, Planning, Implementation, and Control, 9th Edition, © 1997.
Approaches for Integrating Services
Marketing Communication

Manage
customer
expectations

Goal:
Manage Delivery is Improve
service greater than customer
promises or equal to education
promises

Manage
internal
marketing
communication
 Approaches for Managing
Service Promises

MANAGING SERVICE PROMISES

Goal:
Create Coordinate Make Offer Delivery is
effective external realistic service greater than
services communication promises guarantees or equal to
communications promises
 Services Advertising Strategies Matched
with Properties of Intangibility

Source: Adapted from B. Mittal, “The Advertising of Services: Meeting the Challenge of Intangibility,” Journal of Service Research, 2, no. 1, August
1999, pp. 98–116.
Approaches for Managing
Customer Expectations
Offer choices

Create tiered-value
offerings

Communicate criteria for

service effectiveness

Negotiate
unrealistic
expectations

Goal:
Delivery is
greater than
or equal to
promises
Approaches for Improving Customer
Education

Goal: Prepare Confirm Clarify Teach

Delivery is customers performance expectations customers to
greater than for the to standards after the sale avoid peak
or equal to service demand periods
promises process and seek slow
periods
Approaches for Managing Internal Marketing
Communications
Goal:
Delivery is
greater than
or equal to
promises

Create
effective vertical
communications

Create
effective horizontal
communications

Align back-office
personnel with
external customers

Create
cross-functional
teams