BEM120 2024 Chapter 9 Class Notes PDF

2024/08/29 1 Service Marketing Mix Product (Ch4) Process Place (Ch7) (Ch8)...

2024/08/29 1 Service Marketing Mix Product (Ch4) Process Place (Ch7) (Ch8) Service Marketing Mix People Price (7Ps) (Ch6) (Ch9) Physical Promotion Evidence (Ch10) (Ch5) Grasping Service Marketing. 3rd Edition. 7 1  2024/08/29 Learning Outcomes After studying this chapter, you should be able to: 1. Describe how the unique characteristics of services affect its pricing. 2. Explain possible objectives of a service organisation in the context of its pricing policy. 3. Discuss ‘cost’ as the first element in the foundation of pricing. 4. Differentiate between the cost methods that could be used in pricing decision-making. 5. Discuss ‘competition’ as the second element in the foundation of pricing. 6. Discuss ‘demand’ as the third element in the foundation of pricing. 7. Describe the factors that can affect the elasticity of demand. Grasping Service Marketing. 3rd Edition. 8 Learning Outcomes After studying this chapter, you should be able to: 8. Define the term ‘price segmentation’. 9. Describe the meaning of value from a customer’s perspective. 10. Discuss the different cost considerations when a customer purchases a service. 11. Discuss the various approaches to price segmentation. 12. Explain the four strategic pricing options in detail. 13. Describe the uses of the different pricing techniques and tactics available to the service marketer. 14. Provide practical examples to illustrate any of the theoretical issues discussed in this chapter. 15. Provide service management-related solutions to any marketing problems discussed in this chapter. Grasping Service Marketing. 3rd Edition. 9 2  2024/08/29 What is Price? Financial medium facilitating exchange between service providers and their customers (i.e. it’s the monetary value of products and services) Exchange: Money is paid by customer to a service provider in exchange for service Exchange will only occur when both the customer and the service provider gain value from the exchange Grasping Service Marketing. 3rd Edition. 10 Fare Premium Rent Terms for price used in services marketing Broker Admission Tuition Commission Service charge Grasping Service Marketing. 3rd Edition. Rates 11 3  2024/08/29 Example of price in terms of “premiums” Grasping Service Marketing. 3rd Edition. 12 Example of price in terms of “rates” Grasping Service Marketing. 3rd Edition. 13 4  2024/08/29 Example of price in terms of “rates” Grasping Service Marketing. 3rd Edition. 14 Introduction Price in perspective What would we like to achieve with our pricing? Pricing strategies and techniques to What informs our consider when pricing? taking service to market Grasping Service Marketing. 3rd Edition. 15 5  2024/08/29 Pricing Objectives Helps to form expectations of the service (i.e.↑ price = ↑ quality) Grasping Service Marketing. 3rd Edition. 16 The Relationship between Price and Quality Grasping Service Marketing. 3rd Edition. 17 6  2024/08/29 The Relationship between Price and Quality R2,200 pppn incl. R980 pppn incl. breakfast breakfast Grasping Service Marketing. 3rd Edition. 18 Pricing Objectives Helps to form expectations of the service (i.e.↑ price = ↑ quality) Yet, ensure that its consistent with positioning …. Grasping Service Marketing. 3rd Edition. 19 7  2024/08/29 Pricing should be consistent with positioning…. Grasping Service Marketing. 3rd Edition. 20 Pricing Objectives Due to the characteristics of services can make pricing tricky Service characteristics that impact pricing of a service: Intangibility Inseparability Perishability Variability (Heterogeneity) Grasping Service Marketing. 3rd Edition. 21 8  2024/08/29 Pricing Objectives Service characteristics that impact pricing of a service: Intangibility: Purchasers incur an expense rather than add to accumulation of physical goods > tangible, > standardised prices (restaurant) < tangible, < standardised prices (insurance) Inseparability: Places time/ geographical limits on SP in terms of serving their market and buyers’ search for a provider Therefore competition influences prices Grasping Service Marketing. 3rd Edition. 22 Pricing Objectives Lets first understand how service characteristics impact pricing of a service: Intangibility: Purchasers incur an expense rather than add to accumulation of physical goods > tangible, > standardised prices (restaurant) < tangible, < standardised prices (insurance) Inseparability: Places time/ geographical limits on SP in terms of serving their market and buyers’ search for a provider Therefore competition influences prices Grasping Service Marketing. 3rd Edition. 23 9  2024/08/29 Pricing Objectives Lets first understand how service characteristics impact pricing of a service: Perishability Demand fluctuations cannot be met by inventory management (storage) - need to be staffed and stocked even if no customer ∴ need to manage demand through pricing (create demand in off-peak periods) Variability (Heterogeneity) Same tangible product = same price Services are difficult to standardise, > unique service, > can be charged = competitive advantage Grasping Service Marketing. 3rd Edition. 24 Pricing Objectives Several objectives can be pursued by means of pricing policy: Survival Sales maximisation Prestige Social considerations Stimulate patronage Match supply and demand Grasping Service Marketing. 3rd Edition. 25 10  2024/08/29 Pricing Objectives Several objectives can be pursued by means of pricing policy: PRICING OBJECTIVE Survival UnfavourableUnfavourable market conditions market conditions AttainAttain desired level desired of ofprofitability level for profitability for survival survival (i.e. (i.e. lower lower prices to survive tough times) prices to survive tough times) Sales Maximisation Ensure critical Ensure critical mass i.t.osales mass i.t.o sales volumes volumes Economies-of-scale Economies-of-scale benefitsbenefits = competitive = competitive advantage advantage Prestige High prices = exclusive High prices / prestigious = exclusive positioning / prestigious positioning Social considerations Prices regulated by government & cannot be prices regulated by government & cannot be economically justified. economically justified. Stimulate patronage New service must New service attract must attract new customers. new customers. Introductory Introductoryprice discounts price = stimulates discounts trial usetrial use = stimulates Match supply & demand Ensure Ensure maximum productive maximum productive capacity capacity attime at given given time High prices during High prices during peak peak demand periods demand periods Low prices during low demand periods Low prices during low demand periods Grasping Service Marketing. 3rd Edition. 26 Pricing Objectives: Survival Grasping Service Marketing. 3rd Edition. 27 11  2024/08/29 Pricing Objectives Several objectives can be pursued by means of pricing policy: PRICING OBJECTIVE Survival Unfavourable market conditions Attain desired level of profitability for survival (i.e. lower prices to survive tough times) Sales Maximisation Ensure critical mass i.t.o sales volumes Economies-of-scale benefits = competitive advantage Prestige High prices = exclusive / prestigious positioning Social considerations Prices regulated by government & cannot be economically justified. Stimulate patronage New service must attract new customers. Introductory price discounts = stimulates trial use Match supply & demand Ensure maximum productive capacity at given time High prices during peak demand periods Low prices during low demand periods Grasping Service Marketing. 3rd Edition. 28 Pricing Objectives: Sales Maximisation Grasping Service Marketing. 3rd Edition. 29 12  2024/08/29 Pricing Objectives Several objectives can be pursued by means of pricing policy: PRICING OBJECTIVE Survival Unfavourable market conditions Attain desired level of profitability for survival (i.e. lower prices to survive tough times) Sales Maximisation Ensure critical mass i.t.o sales volumes Economies-of-scale benefits = competitive advantage Prestige High prices = exclusive / prestigious positioning Social considerations Prices regulated by government & cannot be economically justified. Stimulate patronage New service must attract new customers. Introductory price discounts = stimulates trial use Match supply & demand Ensure maximum productive capacity at given time High prices during peak demand periods Low prices during low demand periods Grasping Service Marketing. 3rd Edition. 30 Pricing Objectives: Prestige R 32 000 pppn Grasping Service Marketing. 3rd Edition. 31 13  2024/08/29 Pricing Objectives Several objectives can be pursued by means of pricing policy: PRICING OBJECTIVE Survival Unfavourable market conditions Attain desired level of profitability for survival (i.e. lower prices to survive tough times) Sales Maximisation Ensure critical mass i.t.o sales volumes Economies-of-scale benefits = competitive advantage Prestige High prices = exclusive / prestigious positioning Social considerations Prices regulated by government & cannot be economically justified. Stimulate patronage New service must attract new customers. Introductory price discounts = stimulates trial use Match supply & demand Ensure maximum productive capacity at given time High prices during peak demand periods Low prices during low demand periods Grasping Service Marketing. 3rd Edition. 32 Pricing Objectives: Social considerations Grasping Service Marketing. 3rd Edition. 33 14  2024/08/29 Pricing Objectives Several objectives can be pursued by means of pricing policy: PRICING OBJECTIVE Survival Unfavourable market conditions Attain desired level of profitability for survival (i.e. lower prices to survive tough times) Sales Maximisation Ensure critical mass i.t.o sales volumes Economies-of-scale benefits = competitive advantage Prestige High prices = exclusive / prestigious positioning Social considerations Prices regulated by government & cannot be economically justified. Stimulate patronage New service must attract new customers. Introductory price discounts = stimulates trial use Match supply & demand Ensure maximum productive capacity at given time High prices during peak demand periods Low prices during low demand periods Grasping Service Marketing. 3rd Edition. 34 Pricing Objectives: Stimulate patronage Grasping Service Marketing. 3rd Edition. 35 15  2024/08/29 Pricing Objectives Several objectives can be pursued by means of pricing policy: PRICING OBJECTIVE Survival Unfavourable market conditions Attain desired level of profitability for survival (i.e. lower prices to survive tough times) Sales Maximisation Ensure critical mass i.t.o sales volumes Economies-of-scale benefits = competitive advantage Prestige High prices = exclusive / prestigious positioning Social considerations Prices regulated by government & cannot be economically justified. Stimulate patronage New service must attract new customers. Introductory price discounts = stimulates trial use Match supply & demand Ensure maximum productive capacity at given time High prices during peak demand periods Low prices during low demand periods Grasping Service Marketing. 3rd Edition. 36 Pricing Objectives: Match supply & demand Grasping Service Marketing. 3rd Edition. 37 16  2024/08/29 Foundations of Pricing Creates price floor – Creates price ceiling – Pricing in accordance what can org. afford what are customers with competitors to charge? wiling to pay? Cost Competition Demand Balance between Cost vs Demand Grasping Service Marketing. 3rd Edition. 38 Foundations of Pricing Fixed Cost Variable Cost-based pricing strategy used when the marketer sets prices by calculating the cost of producing the service and then adding the desired profit mark-up to these figures Methods: Cost-plus pricing Determine price based on cost + mark-up (demand & competition ignored) Rate ofpricereturn Determine pricing based on rate of return/profits needed Activity-based costing Determine price based on cost per service-generating activity Break-even Determine price basedpricing on break-even sales volumes needed Grasping Service Marketing. 3rd Edition. 39 17  2024/08/29 Foundations of Pricing Competition Competition-based pricing strategy the marketer sets prices in accordance with those of competitors Price uniformity Price positioning Grasping Service Marketing. 3rd Edition. 40 Competition-based pricing strategy VS Grasping Service Marketing. 3rd Edition. 41 18  2024/08/29 Foundations of Pricing Demand Demand-based pricing strategy the marketer sets prices after researching customer desires and determines the range of prices that is acceptable to the target market(s) Price elasticity of demand Grasping Service Marketing. 3rd Edition. 42 Foundations of Pricing Demand To understand relationship between price and demand – Elasticity of Demand = % change in demand / % change in price (i.e. how sensitive is demand to price change?) – If % change in demand > % change in price = price elastic (sensitive) – If % change in demand < % change in price = price inelastic (not sensitive) Elasticity / Inelasticity of Demand affected by: – Availability of substitute products – Is service necessity or luxury? – Consumer spending power Grasping Service Marketing. 3rd Edition. 43 19  2024/08/29 Price Elasticity of Demand Elastic demand Inelastic demand Price Price (R) (R) 0 0 Quantity Quantity Grasping Service Marketing. 3rd Edition. 44 Foundations of Pricing Cost Cost-plus pricing Determine cost + add mark-up Rate of return pricing Determine price based on rate Calculate cost & add profit of return/profits needed Fixed (don’t change with Activity-based pricing Calculate cost per service- demand) & variable costs generating activity (change with demand) Break-even pricing Determine price based on break-even sales volumes needed Competition Depends on strength of competitions. Degree of price uniformity established in markets with intensive Set prices in accordance with competition and little differentiation competitors Price position depends on quality of service Demand Effective segmentation needed. Research needed Set price according to what’s Consider price elasticity of demand acceptable to target market e.g. medical services = inelastic. Entertainment services = elastic. Grasping Service Marketing. 3rd Edition. 45 20  2024/08/29 Activity Are the following examples of Elastic OR Inelastic Demand? Elastic Inelastic Inelastic Inelastic Inelastic Elastic Grasping Service Marketing. 3rd Edition. 46 Activity Netflix, South Africa’s favourite streaming service, charges only R99 p/m for their basic package. In August 2021, streaming service BritBox launched in SA at only R99.99 per month, including a 7-day free trial. Based on the scenario, which foundation of pricing is Britbox using? 1. Cost 2. Competition 3. Demand Grasping Service Marketing. 3rd Edition. 47 21  2024/08/29 Activity Netflix, South Africa’s favourite streaming service, charges only R99 p/m for their basic package. In August 2021, streaming service BritBox launched in SA at only R99.99 per month, including a 7-day free trial. Based on the scenario, which foundation of pricing is Britbox using? BritBox is using competition-based pricing. They’ve set their subscription price in accordance with competitor Netflix. Grasping Service Marketing. 3rd Edition. 48 Who is in class ….? Scan or visit: https://b.socrative.com/login /student/ Room name: BEM1202023 (*no spaces) Grasping Service Marketing. 3rd Edition. 50 22  2024/08/29 Introduction Price in perspective What would we like to achieve with our pricing? What informs our pricing? Grasping Service Marketing. 3rd Edition. 51 Foundations of Pricing Creates price floor – Creates price ceiling – Pricing in accordance what can org. afford what are customers with competitors to charge? wiling to pay? Cost Competition Demand Balance between Cost vs Demand Grasping Service Marketing. 3rd Edition. 52 23  2024/08/29 Price Segmentation Pricing from the customer’s perspective: ✓ Value perceived by customer based on needs and wants – subjective ✓ Depends on the customer’s perceptions of what they receive, their past Value experiences and competitors’ offerings Cost Risk reduction Level of customer involvement and participation Grasping Service Marketing. 3rd Edition. 53 Value differs from customer to customer… Grasping Service Marketing. 3rd Edition. 54 24  2024/08/29 Price Segmentation Pricing from the customer’s perspective: Value ✓Cost Perception of value = Perceived benefits - sacrifice (i.e. costs which can take different forms) Risk reduction Level of customer involvement and participation Grasping Service Marketing. 3rd Edition. 55 Price Segmentation Cost Various forms: This Monetary costmoney paid by the customer to obtain the service. refers to the actual Physical cost Time cost Sensory cost Mental cost Grasping Service Marketing. 3rd Edition. 56 25  2024/08/29 Example of Monetary Cost Grasping Service Marketing. 3rd Edition. 57 Price Segmentation Cost Various forms: This Monetary costmoney paid by the customer to obtain the service. refers to the actual This Physical cost is the physical energy spent by the customer to acquire the service or transportation & parking. Time cost Sensory cost Mental cost Grasping Service Marketing. 3rd Edition. 58 26  2024/08/29 Example of Physical Cost Grasping Service Marketing. 3rd Edition. 59 Price Segmentation Cost Various forms: This Monetary costmoney paid by the customer to obtain the service. refers to the actual This is the physical energy spent by the customer to acquire (get) the service Physical – can incl.cost transportation & parking. This Time cost refers to the time that customer has to wait to get service. NOT THE SERVICE ITSELF Sensory cost Mental cost Grasping Service Marketing. 3rd Edition. 60 27  2024/08/29 Example of Time Cost Grasping Service Marketing. 3rd Edition. 61 Price Segmentation Cost Various forms: This Monetary costmoney paid by the customer to obtain the service. refers to the actual This is the physical energy spent by the customer to acquire the service or transportation Physical&cost parking. SERVICE TimeITSELF This refers costtime that customer has to wait to get service. NOT THE to the This Sensory cost refers putting up with noise, smells, unappealing environments. Mental cost Grasping Service Marketing. 3rd Edition. 62 28  2024/08/29 Example of Sensory Cost Grasping Service Marketing. 3rd Edition. 63 Price Segmentation Cost Various forms: This Monetary costmoney paid by the customer to obtain the service. refers to the actual This is the physical energy spent by the customer to acquire the service or transportation Physical&cost parking. This Time refers cost to the time that customer has to wait to get service. NOT THE SERVICE ITSELF This Sensory cost refers putting up with noise, smells, unappealing environments. This Mental cost of inadequacy, fear, anxiety or any form of mental refers to feelings effort. Grasping Service Marketing. 3rd Edition. 64 29  2024/08/29 Example of Mental Cost Grasping Service Marketing. 3rd Edition. 65 Price Segmentation COST Monetary Actual money paid Physical Physical energy spent (includes transportation & parking costs) Time Time spent waiting, doing price comparisons, collecting information & acquiring service. Sensory Noise, unpleasant smells, uncomfortable seats, visually unappealing environments. Mental Emotions & feelings: inadequacy, fear, anxiety, mental effort Grasping Service Marketing. 3rd Edition. 66 30  2024/08/29 Costs Discuss all the costs involved in purchasing and/or the actual flight to Harare with Flysafair 1. Monetary 2. Physical 3. Time 4. Sensory 5. Mental Grasping Service Marketing. 3rd Edition. 67 Price Segmentation Pricing from the customer’s perspective: Value Cost ✓ Price used to assess potential risk of the buying decision. Risk reduction ✓ High price – High / Low Risk; Low price – High / Low risk Level of customer involvement and participation Grasping Service Marketing. 3rd Edition. 68 31  2024/08/29 Price Segmentation Pricing from the customer’s perspective: Value Cost Risk reduction Level ✓ Pricing of tends customer involvement to be inelastic for high-involvement and (e.g. dentist), while elastic for low-involvement (e.g. gardening) participation ✓ Co-creation services customers also expect to pay less (self-service restaurant) ✓ Price should be compatible with level of service offered Grasping Service Marketing. 3rd Edition. 69 Price Segmentation Segmentation approaches for pricing: Price segmentation: can be defined as pricing policy in which different prices are set for the same service, depending on different market segments Grasping Service Marketing. 3rd Edition. 70 32  2024/08/29 Example of Price Segmentation Looking to be covered for Beat2 offers extensive BestMed's comprehensive life’s unexpected tumbles, hospital cover (at private plans offer excellent our hospital plans give hospitals) as well as hospital and chronic unlimited cover for planned access to a savings benefits to young, middle- and unplanned hospital account for general day-to- age and established stays day expenses. families. Grasping Service Marketing. 3rd Edition. 71 Segmentation Approaches for Pricing Approaches: Time-based pricing (When) Purchase-based pricing (Where) Customer-based pricing (Who) Grasping Service Marketing. 3rd Edition. 72 33  2024/08/29 Segmentation Approaches for Pricing Time-based pricing Price based on time e.g. Off-peak vs peak times Purchase-based pricing Price based on location Depends on convenience, ambience, & prestige value of location e.g. rural vs urban Customer-based pricing Price based on customer e.g. Children, adults, senior citizens, students Grasping Service Marketing. 3rd Edition. 73 Example of Time-based Pricing Grasping Service Marketing. 3rd Edition. 74 34  2024/08/29 Example of Purchase-based Pricing Sandton vs Grasping Service Marketing. 3rd Edition. Hatfield 75 Example of Customer-based Pricing Grasping Service Marketing. 3rd Edition. 76 35  2024/08/29 Segmentation approaches for pricing UK residents pay £5.99 p/m for a basic BritBox subscription (approx. R120p/m). South Africans, however, can subscribe to the same service for only R99 p/m. Which segmentation approach for pricing is BritBox utilising in this scenario? 1. Time-based 2. Purchase-based 3. Customer-based Grasping Service Marketing. 3rd Edition. 77 Segmentation approaches for pricing UK residents pay R120 p/m for a basic BritBox subscription. South Africans, however, can subscribe to the same service for only R99 p/m. Which segmentation approach for pricing is BritBox utilising in this scenario? 1. Time-based 2. Purchase-based 3. Customer-based Grasping Service Marketing. 3rd Edition. 78 36  2024/08/29 Segmentation approaches for pricing Which segmentation approach for pricing is Two Oceans Aquarium utilising based on the admission below? 1. Time-based 2. Purchase-based 3. Customer-based Grasping Service Marketing. 3rd Edition. 79 Segmentation approaches for pricing Which segmentation approach for pricing is Two Oceans Aquarium utilising based on the admission below? 1. Time-based 2. Purchase-based 3. Customer-based Grasping Service Marketing. 3rd Edition. 80 37  2024/08/29 Segmentation approaches for pricing Which segmentation approach for pricing is Michaelangelo Hotel in NYC utilising based on the rates below? 1. Time-based 2. Purchase-based 3. Customer-based Grasping Service Marketing. 3rd Edition. 81 Segmentation approaches for pricing Which segmentation approach for pricing is Michelangelo Hotel in NYC utilising based on the rates below? 1. Time-based 2. Purchase-based 3. Customer-based Grasping Service Marketing. 3rd Edition. 82 38  2024/08/29 Introduction Price in perspective What would we like to achieve with our pricing? Pricing strategies and techniques to What informs our consider when pricing? taking service to market Grasping Service Marketing. 3rd Edition. 83 Pricing Strategies To achieve pricing objectives there are four (4) strategic pricing strategies available: Used when ↑ price charged for specific service targeted at specific market Price-skimming strategy that will value the service more highly than other segments Penetration pricing strategy Price-quality strategy Value pricing strategy Grasping Service Marketing. 3rd Edition. 84 39  2024/08/29 Example of Price-skimming Strategy VS. Grasping Service Marketing. 3rd Edition. 85 Pricing Strategies To achieve pricing objectives there are four (4) strategic pricing strategies available: Price-skimming strategy Used when a relatively low price is charged for a service which is targeted Penetration at the mass market pricing strategy Price-quality strategy Value pricing strategy Grasping Service Marketing. 3rd Edition. 86 40  2024/08/29 Example of Penetration Pricing Strategy Grasping Service Marketing. 3rd Edition. 87 Pricing Strategies To achieve pricing objectives there are four (4) strategic pricing strategies available: Price-skimming strategy Penetration pricing strategy Price-quality Refers to the positive relationship between price and quality (i.e.↑ price ↑ quality) strategy = Value pricing strategy Grasping Service Marketing. 3rd Edition. 88 41  2024/08/29 Pricing Strategies To achieve pricing objectives there are four (4) strategic pricing strategies available: Price-quality strategy Refers to the positive relationship between price and quality (i.e.↑ price = ↑ quality) Criteria to judge price-quality relationships: ✓ Referrals (WOM) ✓ Service org. reputation & image (through advertising) ✓ Physical. Evidence of service org. ✓ Treatment of customers Grasping Service Marketing. 3rd Edition. 89 Example of Price-quality Strategy Grasping Service Marketing. 3rd Edition. 90 42  2024/08/29 Example of Price-quality Strategy Grasping Service Marketing. 3rd Edition. 91 Pricing Strategies To achieve pricing objectives there are four (4) strategic pricing strategies available: Price-skimming strategy Penetration pricing strategy Price-quality strategy Value Used to reinforce the positioning of the service and the benefits the pricing strategy customer receives from the service Grasping Service Marketing. 3rd Edition. 92 43  2024/08/29 Value Pricing Strategy Grasping Service Marketing. 3rd Edition. 93 Pricing Strategies Price-skimming High price for specific service targeted at specific market segment that values service highly. High initial price. Gradually lowered over time to access new segments & protect market share against new entrants. Service has unique advantages Penetration Relatively low price for service targeted at mass market. pricing Attracts largest part of market, encourages switching of service providers. Introductory services. Price-quality Price depends on quality. Higher price = higher quality Value pricing Relate price to value. Emphasise benefits received for piece paid. Understand what target market values before setting price. Grasping Service Marketing. 3rd Edition. 94 44  2024/08/29 Introduction Price in perspective What would we like to achieve with our pricing? Pricing strategies Plan of action designed to achieve objectives (What?) and techniques What informs our Procedures / tactics pricing? to execute the strategy (How?) to consider when taking service to market Grasping Service Marketing. 3rd Edition. 96 Pricing Techniques Benefit pricing Price bundling (Mixed-leader & mixed-joint) Pricing discounts or reductions Contingency pricing Behaviour modification pricing Price increases Grasping Service Marketing. 3rd Edition. 97 45  2024/08/29 Pricing Techniques Benefit pricing - Reduces risk and structure price so customer benefit via bonus/benefit - Determine what customer value before pricing in order to directly benefit them Grasping Service Marketing. 3rd Edition. 98 Example of Benefit Pricing 99 46  2024/08/29 Example of Benefit Pricing 100 Pricing Techniques Price bundling (Mixed-leader & mixed-joint) A. (Pure) Price Bundling: 2/more services in single package at single price Services more valuable as a bundle than separate (always bundled) B. Mixed Bundling (2 types) – Can sell bundled or individual: 1. Mixed-leader: ❑ Offer discount off second service when leader (i.e. main) service is bought ❑ Usually leader services has higher demand and discounted service has lower demand 2. Mixed-joint: ❑ When package price is lower than total price of individual services Grasping Service Marketing. 3rd Edition. 101 47  2024/08/29 Example of Price bundling(A) You cannot purchase a single channel with DSTV, you need to purchase a package that includes the channels you want Grasping Service Marketing. 3rd Edition. 102 Example of Mixed-Leader bundling (B1) Grasping Service Marketing. 3rd Edition. 103 48  2024/08/29 Example of Mixed-Joint bundling (B2) Grasping Service Marketing. 3rd Edition. 104 Example of Mixed-Joint bundling (B2) R72 x 5 x 2 = R720 vs R666 Grasping Service Marketing. 3rd Edition. 105 49  2024/08/29 Pricing Techniques Pricing discounts or reductions - Offer discount to encourage repeat purchasing/multiple uses of service - Types of discount/reductions: 1. Cash discount – to prompt early payment 2. Quantity discount – for bulk purchases 3. Periodic price reduction (to attract new customers): i. Short-term price reduction (reduction for relatively brief period - responding to competitive pressure) ii. Temporary discount (to balance S&D - especially for seasonal demand) 4. Multiple-use discount – discount for fixed/unlimited uses or time Grasping Service Marketing. 3rd Edition. 106 Example of Cash discount Grasping Service Marketing. 3rd Edition. 107 50  2024/08/29 Example of Quantity discount Vs. Grasping Service Marketing. 3rd Edition. 108 Example of Short-term price reduction Competitor pressure Grasping Service Marketing. 3rd Edition. 109 51  2024/08/29 Example of Temporary discount Balance S&D - Seasonal Grasping Service Marketing. 3rd Edition. 110 Example of Multi-use discount Grasping Service Marketing. 3rd Edition. 111 52  2024/08/29 Pricing Techniques Contingency pricing - Contingent = dependent or something depends on something else Therefore price is dependent on the outcome of the service - Outcome is important but uncertainty high. - Usually for services that customer unfamiliar with / iintimated by Grasping Service Marketing. 3rd Edition. 112 Example of Contingency pricing Grasping Service Marketing. 3rd Edition. 113 53  2024/08/29 Pricing Techniques Behaviour modification pricing - Is when we price a service in such a way as to modify a customers behaviour - Service providers want to get customers to take certain actions that will decrease the cost for the service organisation - Works when demand is elastic Grasping Service Marketing. 3rd Edition. 114 Example of Behaviour Modification Pricing ABSA customer FNB ATM Grasping Service Marketing. 3rd Edition. 115 54  2024/08/29 Pricing Techniques Price increases - Some situations may warrant price increase (negative perception) - Costs might increase warranting price increase - How to handle? Wait until a competitor increases their prices Communicate price increase with customers Make minor price adjustments over a period of time to make the price increase less noticeable Grasping Service Marketing. 3rd Edition. 116 Example of Price increase Grasping Service Marketing. 3rd Edition. 117 55  2024/08/29 Pricing Techniques Contingency behaviour Benefit pricing Structure price so customer benefit via bonus/benefit. increases Determine what customer value before pricing in order to directly benefit them. discount benefit Price bundling bundling Mixed-Leader: discount off 2nd service if bought with 1st (leader) service. 2/more services in single package at Mixed-Joint: package price lower than total of individual services single price Price discounts / Cash: Prompts early payment Reductions Quantity: bulk purchases (economies of scale) Temporary price reduction: balance supply & demand Short-term price reduction: new entrant threatens market Multiple-use discount: fixed/unlimited uses & fixed/unlimited amounts Contingency pricing Outcome is important but uncertainty high. Price depends on outcome. Behaviour Price gets customer to take certain actions to benefit of service provider. modification pricing Price increases Wait for competition to increase prices, communicate, minor price adjustments or modify service to justify higher price. Grasping Service Marketing. 3rd Edition. 118 56