setting a price for the service rendered. copyright © houghton mifflin company. all rights...
TRANSCRIPT
![Page 1: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/1.jpg)
Setting a Price for the Service Rendered
![Page 2: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/2.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 2
Price Labels (or Names) Vary
• You might pay:• A commission to a stockbroker
• A membership fee to a fitness club
• A finance charge to a credit card company
• A premium to an insurance firm
• A fare for transportation
• Rent for housing
• A rate for telephone services
![Page 3: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/3.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 3
Why Do Service Prices Vary?
• Perishability
• Yield management systems
![Page 4: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/4.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 4
Yield Management in Services
• The objective of yield management is to maximize profits from the fixed operating assets – labor, equipment, and facilities.
![Page 5: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/5.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 5
![Page 6: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/6.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 6
Pricing Objectives
• Profit-oriented objectives• stress generating high returns on
the service’s investments in resources and labor.
• Volume-oriented objectives• stress processing large numbers of
customers or their possessions.
![Page 7: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/7.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 7
![Page 8: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/8.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 8
Pricing Approaches
• Cost-based approach• focuses on the price floor: the minimum price
that covers all costs of producing the service.
• Customer-based approach• focuses on the price ceiling: the maximum
price customers are likely to pay.
• Competition-based approach• establishes the service’s price in relation to
the competition.
![Page 9: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/9.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 9
The Relationship Between Service Price and Value
• Value is an assessment of the benefits of a service versus the costs associated with it.
• Cost-benefit analysis
• Price/demand elasticity
![Page 10: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/10.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 10
Basic Pricing Anchors
• Price floor - the marketer’s minimum• Costs and profits
• Price ceiling - the customer’s maximum• Perceived value vs. needs (necessity vs.
discretion)
• Price benchmarks - the competitors’ prices• Comparability indicators
![Page 11: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/11.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 11
Basic Pricing Decisions
• Levels and approach• Why? Market share, patronage or profit
• Bases• What basis? Hourly, flat fee,
contingency fee?
• Collection• How and when? Before, during, after
![Page 12: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/12.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 12
Calculating Service Costs
• Cost determinations
• Formula for calculating price
![Page 13: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/13.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 13
Expenses that are uniform per
unit of output within a
relevant time period
As volume increases, total
variable costs increase
Variable Costs are…
![Page 14: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/14.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 14
THERE ARE TWO CATEGORIES OF
VARIABLE COSTS
1.Cost of Goods Sold
2.Other Variable Costs
![Page 15: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/15.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 15
Covers materials, labor and factory overhead applied directly to production
Variable Costs – Cost of Goods Sold
![Page 16: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/16.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 16
Other Variable Costs
Expenses not directly tied to
production but vary directly
with volume
Examples include:
Sales commissions, discounts,
and delivery expenses
![Page 17: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/17.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 17
Expenses that do not fluctuate with output volume within a relevant time period
They become progressively smaller per unit of output as volume increases
No matter how large volume becomes, the absolute size of fixed costs remains unchanged
Fixed Costs
![Page 18: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/18.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 18
THERE ARE TWO CATEGORIES OF
FIXED COSTS
1.Programmed costs
2.Committed costs
![Page 19: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/19.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 19
Result from attempts to
generate sales volume
Examples include:
Advertising, sales promotion,
and sales salaries
Fixed Costs – Programmed Costs
![Page 20: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/20.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 20
Costs required to maintain the
organization
Examples include
nonmarketing expenditures,
such as:
rent, administrative cost, and
clerical salaries
Fixed Costs – Committed Costs
![Page 21: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/21.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 21
Relevant and
Sunk Costs
![Page 22: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/22.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 22
Future expenditures unique to the
decision alternatives under consideration.
Expected to occur in the future as a result of some marketing action
Differ among marketing alternatives being considered
In general, opportunity costs are considered relevant costs
Relevant Costs are…
![Page 23: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/23.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 23
The direct opposite of relevant costs.
Past expenditures for a given activity
Typically irrelevant in whole or in part to future decisions
Examples of sunk costs:
Past marketing research and development expenditures
Last year’s advertising expense
Sunk Costs are…
![Page 24: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/24.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 24
When marketing managers attempt to
incorporate sunk costs into future
decisions, they often fall prey to the Sunk
Cost Fallacy – that is, they attempt to
recoup spent dollars by spending even more
dollars in the future.
Example: Continuing to advertise a failing
product heavily in an attempt to recover
what has already been spent on it.
Sunk Cost Fallacy
![Page 25: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/25.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 25
![Page 26: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/26.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 26
P
TCNPFC
SCVC
price;
total costs;net profit;fixed costs;
shared costs;variable costs.
P = TC + NPwhere TC = FC + SC + VC
Cost Calculations in Pricing a Service
![Page 27: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/27.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 27
Price Bundling and Other Strategies
• Price bundling means linking several service offerings or features into one attractive price to give different customer segments a packaged service offering.
![Page 28: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/28.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 28
![Page 29: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/29.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 29
Pricing Considerations
• Positioning• price/quality relationship
• Portfolio mix• segments differ in price sensitivity
• Demand/capacity• demand management tool
• Membership• affinity benefits
![Page 30: Setting a Price for the Service Rendered. Copyright © Houghton Mifflin Company. All rights reserved.8 - 2 Price Labels (or Names) Vary You might pay:](https://reader031.vdocuments.net/reader031/viewer/2022032803/56649e265503460f94b15f2c/html5/thumbnails/30.jpg)
Copyright © Houghton Mifflin Company. All rights reserved. 8 - 30
Pricing Considerations
• Customization• higher priced tailored versions
• Price bundling• combination prices
• Participation• lower price for customer effort