[Free] Services Pricing And Revenue Management
Pricing of any service is crucial to the success of the service and the service provider in the market.
Requirements
- No prior knowledge is required
Description
Service price is the amount of money or goods for which a service can be bought or sold. Hence, it is a measure of the value of the service in monetary or financial terms. So, service price is value measured by what must be given, done or undergone to obtain something. Service price is also the marketing variable that can be changed most quickly, such as in reaction to a competitor price change. As you have seen the value of a service is expressed in monetary or financial terms through the price of the service. However, for customers, price is the amount that they pay for the value of the service that they want to enjoy or gain benefits from by purchasing the service, as compared with other available services.
The secondary motivation for customers to buy a service comes from the perceived value that they see in the service. This value makes them perceive certain benefits in purchasing the service that will satisfy their needs and wants. Hence, ‘Value’ can be defined as:
(Perceived) VALUE = (Perceived) BENEFITS – (Perceived) COSTS
So, the primary motivation for customers to buy a service is mainly due to a need and a want.
One of the approaches to create great working pricing strategies is to look to the past to seek ideas for the present. Hence, you can look at the past pricing strategy trends that worked in the market and for your organization and create ideas by tweaking those pricing strategies to work in the present day environment.
So, the biggest challenge that a service organization faces is to fix a service price that fits in the perceived value of the service as perceived by the different people. For this purpose, service organizations generally try to ‘segment’ the market, that is, to divide up the market into groups of consumers whose preferences are broadly similar, in order to gain the maximum possible value from the available market.
Also, there are two major ways in which service organizations try to increase the value of their service in the eyes of the customer:
By increasing the benefits that the service will deliver to the customer
By reducing the service delivery cost so that price can be reduced
You must keep in mind that for the customers, it is the price of a service that is the most obvious indicator of cost and so an organization must get the service pricing right.
Author(s): Management Study Guide
