Service Industry Q3 summary
-of the classical four Ps of the marketing mix it is the price that usually receives the least
attention, even though the pricing decision probably has the greatest impact on a company’s
profits.
-pricing behavior affects customer satisfaction and customer loyalty. “price is distinguished
from other marketing devices by the force and the speed of sales-effect, the shortness of
time it takes to change it, the elasticity of competitive reactions and cash flow implications.
Non-monetary costs:
What it costs a customer (other than money) to buy a product, including the time spend on
shopping and the risk taken in the assumption that the product will deliver expected or
promised benefit.
-the monetary price should already be taken into account, and compensate for, this non-
monetary price.
Types of non-monetary costs:
Search costs: the effort to identify and select the desired service (time).
(in)convenience costs: arranging schedules, travelling time.
Time costs: length of time to be served.
Psychological costs: fear of not understanding (pension), fear of refusal (bank)< fear
of the outcome (surgery): risk taking.
The role of non-monetary costs:
Non-monetary costs play a role in the assessment of the quality of processes, the
assessment of the price/value relationship and hence in customer satisfaction.
People are willing to pay more if they perceive a decrease in non-monetary costs.
Dealing with non-monetary costs:
-websites offering comparison and expert advise
-valet parking service at the airport
-additional service for VISA application
Pricing decisions:
1. The pricing objectives should be in line with the overall business and marketing
strategy, e.g. acquiring market share, maximizing short-term profit, prevent
competition from entering the market, communicate brand positioning, stimulate
sales of other company services.
2. The pricing strategy establishes a framework for pricing decisions and determines the
way in which prices will be set. Cost, competition and value as experienced by the
consumer should be taken into account.
3. The pricing structure takes into account a set of characteristics that will have an
effect on price levels and answers questions like: which aspect of the service will be
priced? What will be included for that price? Will there be differentiation among
different customers, payment conditions?
, 4. Pricing levels/tactics: promotions or other short-term actions. E.g. quantity discounts,
lower prices in off-peak hours.
Additional challenges for pricing of services:
Related fixed capacity
-if demand exceeds capacity, none can be added
Perishable inventory
-if capacity goes unsold, the revenue is lost forever
Challenge: how to maximize revenue from fixed capacity and perishable inventory?
Cost and pricing structure
-high fixed costs and low variable costs
Yield management:
The process of allocating the right type of capacity, to the right customer, at the right price.
So as to maximize revenue or yield.
Variable pricing:
Variable pricing entails taking advantage of customers’ variable willingness to pay.
Yield management requirements:
Relatively fixed capacity
Possible to segment markets
Perishable capacity
Marginal sales costs is low, but the cost of adding extra capacity is high
In order to deliver a service (cost effective), service firms need to manage their processes.
Process= element of the service marketing mix that looks at the ‘systems’ used to deliver the
service.
Possible sources of variability:
1. Service provider
2. The customer
3. The surroundings
Challenge in designing services:
1. Potential heterogeneity in the process
Service blueprinting is a specialized form of business process mapping that allows to better
visualize the degree of customer contact to identify the points of interaction: moments of
truth.
Service blueprinting is a practical technique used for:
-service design and improvement
-quality improvement
-service innovation
-strategic change focused around customers
-of the classical four Ps of the marketing mix it is the price that usually receives the least
attention, even though the pricing decision probably has the greatest impact on a company’s
profits.
-pricing behavior affects customer satisfaction and customer loyalty. “price is distinguished
from other marketing devices by the force and the speed of sales-effect, the shortness of
time it takes to change it, the elasticity of competitive reactions and cash flow implications.
Non-monetary costs:
What it costs a customer (other than money) to buy a product, including the time spend on
shopping and the risk taken in the assumption that the product will deliver expected or
promised benefit.
-the monetary price should already be taken into account, and compensate for, this non-
monetary price.
Types of non-monetary costs:
Search costs: the effort to identify and select the desired service (time).
(in)convenience costs: arranging schedules, travelling time.
Time costs: length of time to be served.
Psychological costs: fear of not understanding (pension), fear of refusal (bank)< fear
of the outcome (surgery): risk taking.
The role of non-monetary costs:
Non-monetary costs play a role in the assessment of the quality of processes, the
assessment of the price/value relationship and hence in customer satisfaction.
People are willing to pay more if they perceive a decrease in non-monetary costs.
Dealing with non-monetary costs:
-websites offering comparison and expert advise
-valet parking service at the airport
-additional service for VISA application
Pricing decisions:
1. The pricing objectives should be in line with the overall business and marketing
strategy, e.g. acquiring market share, maximizing short-term profit, prevent
competition from entering the market, communicate brand positioning, stimulate
sales of other company services.
2. The pricing strategy establishes a framework for pricing decisions and determines the
way in which prices will be set. Cost, competition and value as experienced by the
consumer should be taken into account.
3. The pricing structure takes into account a set of characteristics that will have an
effect on price levels and answers questions like: which aspect of the service will be
priced? What will be included for that price? Will there be differentiation among
different customers, payment conditions?
, 4. Pricing levels/tactics: promotions or other short-term actions. E.g. quantity discounts,
lower prices in off-peak hours.
Additional challenges for pricing of services:
Related fixed capacity
-if demand exceeds capacity, none can be added
Perishable inventory
-if capacity goes unsold, the revenue is lost forever
Challenge: how to maximize revenue from fixed capacity and perishable inventory?
Cost and pricing structure
-high fixed costs and low variable costs
Yield management:
The process of allocating the right type of capacity, to the right customer, at the right price.
So as to maximize revenue or yield.
Variable pricing:
Variable pricing entails taking advantage of customers’ variable willingness to pay.
Yield management requirements:
Relatively fixed capacity
Possible to segment markets
Perishable capacity
Marginal sales costs is low, but the cost of adding extra capacity is high
In order to deliver a service (cost effective), service firms need to manage their processes.
Process= element of the service marketing mix that looks at the ‘systems’ used to deliver the
service.
Possible sources of variability:
1. Service provider
2. The customer
3. The surroundings
Challenge in designing services:
1. Potential heterogeneity in the process
Service blueprinting is a specialized form of business process mapping that allows to better
visualize the degree of customer contact to identify the points of interaction: moments of
truth.
Service blueprinting is a practical technique used for:
-service design and improvement
-quality improvement
-service innovation
-strategic change focused around customers
