The final task, once each of the other issues has been addressed, is to decide how the organization’s pricing policies can best be communicated to the target market(s). People need to know the price for some product offerings well in advance of purchase; they may also need to know how, where, and when that price is payable. This information must be presented in ways that are intelligible and unambiguous, so that customers will not be misled and question the ethical standards of the firm.
Managers must decide whether or not to include information on pricing in advertising for the service. It may be appropriate to relate the price to the costs of competing products or to alternative ways of spending one’s money.
Certainly, salespeople and customer service representatives should be able to give prompt, accurate responses to customer queries about pricing, payment, and credit. Good signage at retail points of sale will save staff members from having to answer basic questions on prices.
Many of the tactical price techniques used to sell tangibles can be used to sell intangibles. In both cases the particular tactics used are dependent upon the kind of service involved, the target market and general conditions prevailing in that marketplace at the time (e.g.., supply shortages, therefore possible over-demand for service products Some of the frequently used pricing tactics in services markets are now considered.
(a) Differential or flexible pricing
(b) Discrete pricing
(c) Discount pricing
(d) Diversionary pricing
(e) Guarantee pricing
(f) High price maintenance pricing
(g) Loss leader pricing
(h) Offset pricing
(i) Price lining.
Differential or flexible Pricing:
Differential pricing is the practice of charging different prices according, for example, to customers’ willingness to pay.
It is used chiefly to:
(a) Build primary demand particularly for non-peak time service use;
(b) Even out fluctuations in demand which may occur in many services and to reduce the influence of perish ability’ of a service.
Some forms of differential pricing include:
(a) Price-time differentials (e.g. used in holiday, utilities and telephone services);
(b) Customer ability to pay differentials (e.g. used in management consultancy; professional services; bank loan rates);
(c) Service product type differentials (e.g. used for different models of telephone rental);
(d) Place differential (e.g. used in hotel room pricing and in theatre seat pricing).
The ability to use differential pricing tactics is dependent upon a market being segment able on a price basis, low chance of resale or reallocation of a service to another, and minimum customer resentment towards the practice. Differential pricing seems to be one of the most common practices in the service sector. It is particularly used in those services where a bespoke price is quoted.
Some problems which can occur when differential pricing is used are:
(a) Customers may delay their purchases and wait for differentials to be exercised (e.g. holiday markets are increasingly experiencing this growing customer sophistication)
(b) Customer may come to expect discounts as a regular feature of service product offer where differential prices are used.
For these reasons some service organizations deliberately resist differential pricing. Instead they use uniform price practices, charging the same price to all customers irrespective of time, place or ability to pay.
Discrete pricing means setting the price so that it is pitched at a level that brings it within the competence of the decision-making unit, which is sympathetic towards a particular service or organization. Practiced in a number of organizational markets for services like contract catering and plant maintenance it demands a clear knowledge of price limits within which decision makers have authority to work (e.g., purchasing officers may be able to order projects to a value of Rs. 10,000 without further approval).
Discount pricing occurs in most markets. Discounts in services marketing serve two purposes.
(a) They are a payment or reward for services undertaken which enable service production and consumption to take place (e.g. fees paid to intermediates in financial markets)
(b) They are promotional devices to encourage actions like early payment, bulk purchase or off peak usage.
Examples of the former include commission payments to insurance brokers or unit trust advisers for services rendered, Examples of the latter include cash discounts offered by advertising agencies for prompt payment; quantity discounts offered by ferry operators for group travel; temporal discounts for off-peak daily use of a service (e.g. Rail discounts) or for use at a particular time of the week or season of the year, promotional discounts (e.g. short-term price reductions offered by a dry cleaning service or special offers made by a franchiser to a franchisee). These discounts may be on top of differential pricing practices that are operating in a market.
Most service organizations can offer special reductions or payments of these kinds. What is less well understood is that these payments erode the margins available to the service producer. Discounts have traditionally been regarded as tactical pricing adjustments.
Increasingly though they are seen to have strategic importance. A new area of marketing, ‘margin management’ is emerging. It is concerned with the trade-off decisions which determine how the total channel margin should be split between intermediaries and customers involved in the process. It is as relevant to the marketing of services as it is to the marketing of goods.
This occurs where a low basic price may be quoted foe a service or parts of a service to develop an image of a low price structure. Restaurants may offer a basic meal at an attractive price to encourage custom though most diners may finish up eating from other higher priced menus; a garage may offer a reduced rate standard service in the expectation of picking up additional, higher priced repair work.
This occurs where payment is made only if certain results are guaranteed. Employment agencies may only charge fees when clients obtain suitable employment; estate agents may only take commission if a property actually sells.
It is an appropriate tactic for a service organization to use when:
(a) The specific promises inherent in a guarantee can be determined and assured;
(b) When high quality service operators are finding it difficult to compete in a competitive cut price competitive environment;
(c) The customer is seeking some clear assurance of results (e.g. rust proofing; guaranteed return on investments).
High Price Maintenance Pricing:
This practice is used where consumers associate the price of service with its quality. In these circumstances some service organizations will deliberately pursue a high quality high price posture. Those organizations that have cultivated a particular market segment or established a particularly prestigious reputation may use this approach of using price as an index of quality.
Loss Leader Pricing:
Loss leader pricing means charging a reduced price for the first order or contract in the hope of getting further business from a customer at better prices.
It is an appropriate practice in those markets where:
(a) Customers are dissatisfied with existing suppliers;
(b) Buyers are relatively unsophisticated;
(c) Market prices are competitive.
The chief disadvantage is that an initially low price may become a price ceiling. Customers may resist further price increases once that ceiling has been established. Nevertheless it is used in marketing consultancy and management education services.
A practice similar to diversionary pricing in which a low basic price is quoted but ‘extras’ carry relatively higher charges. For example, a management consultant may quote a price for his time but exclude the extras associated with an assignment like travel and hotel costs.
Price lining is where prices are not varied but the quality, quantity and level of service is to reflect cost changes. It is not normally recommended as a way of dealing with cost changes. It is more appropriate in circumstances where fixed set of charges can apply to a range of standard services. Leasing firms use price lining and dry cleaning establishments have recently introduced pricing practices which reflect lining.
A problem with this practice is that quality, quantity and level of service product differentiation has to be relatively easy for customers to appreciate (e.g. as in airline travel on long haul flights). Price lining can therefore be difficult to implement in repair services.
Studies have shown that customers do not expect to receive a lower quality repair service on lower cost products than higher cost products. The value of a repair is not necessarily related to the value of the product being repaired.