Training 1 Pricing of services
The price of a service has an impact on profit, customer satisfaction, and customer loyalty. The price
is based on the value you are giving.
Non-monetary costs: What it costs for a customer to buy a product or service other than money. For
example, the time spent shopping or the risk that it won’t match your expectations.
Types of non-monetary costs:
Search costs: The time you use to search the product or service that you want to buy or use. This
time you could have used it for something else.
(In) convenience costs: The inconvenience a customer undergoes to be able to make use of a service.
E.g. difficulty for the elderly, travel time, inconvenient service times, having to prepare for a service.
Things that cause trouble or difficulty, arranging schedules and traveling time. For example: To be
able to go on vacation you have to get to the airport, wait at the airport, take a covid test. This is
extra inconvenient time you spent to make the journey.
Time costs: The time waiting for service and the time the customer interacts with the service. How
long it takes to be served.
For example, How long it takes till you get served in a restaurant or when you go to class and
in the end, the class appears to be a waste of time. It costs time and you didn’t get the
service you expected.
Psychological costs: The psychological energy/ damage the service causes.
Such as fear, patients, and frustration. For example getting frustrated because of the service,
the fear for the outcome of surgery and when you buy a cheap plane ticket, you are also
paying with frustration for the long waiting lines and smaller chairs.
The effects of non-monetary costs:
Non-monetary costs affect the rating of the price/ value balance if the price is worth the value the
service delivers. It thus influences customer satisfaction.
Non-monetary costs can cause people to pay more for a service to reduce (potential) non-monetary
costs. For example, a parking service at the airport. You pay more money so that you only have to
give your keys and the airport will arrange the rest.
Why are non-monetary costs important:
They play a role in the assessment of the quality of the processes.
They play a role in the assessment of the price-value relationship.
This together influences the customer satisfaction.
The 4 levels of pricing decisions:
Pricing objectives
Pricing strategies
Pricing structure
Pricing levels/ tactics
A 4 step process to make pricing decisions:
Step 1 Pricing objectives: Pricing objectives
should be in line with the overall business and
, marketing strategy. What does the company want to achieve? For example, Maximizing the profit, do
you want to build relationships with customers, or do you only want to satisfy them?, or achieving
the biggest market share…
Step 2 Pricing strategy: The way you set your prices. The 3 basic marketing price strategies are:
o Cost-based pricing: Basing the price on how much it costs to make + profit.
o Value/customer-based pricing: Basing the price on what the customer wants to pay for it/
the value the customer experienced. The prices can be different according to what the
customer wants. For example a premium Netflix account or a basic account.
o Competition-based pricing: The price is based on the prices of competitors.
Step 3 Pricing structure: Which characteristics of the service will have an effect on the price of the
service. It shows things such as what will be included in the price and if there is differentiation among
customers. For example, A flight ticket for a seat at the window costs $50, a regular flight ticket costs
$40 and a guarantee to sit together costs $50. Another example is, children under 5 years old get a
discount.
Step 4 Pricing levels/ tactics: Promotions or other short-term actions. For example, a quantity
discount, lower prices in off-peak hours, every new customer gets 10% discount.
Challenges for pricing of services:
o The capacity in services is relatively fixed. When the demand is higher than the capacity, the
services can’t add extra capacity. An airplane has 10 seats available for $100 per seat. All
seats are sold for $100, but there is an offer for $110. What should the airplane do?
The price of a service has an impact on profit, customer satisfaction, and customer loyalty. The price
is based on the value you are giving.
Non-monetary costs: What it costs for a customer to buy a product or service other than money. For
example, the time spent shopping or the risk that it won’t match your expectations.
Types of non-monetary costs:
Search costs: The time you use to search the product or service that you want to buy or use. This
time you could have used it for something else.
(In) convenience costs: The inconvenience a customer undergoes to be able to make use of a service.
E.g. difficulty for the elderly, travel time, inconvenient service times, having to prepare for a service.
Things that cause trouble or difficulty, arranging schedules and traveling time. For example: To be
able to go on vacation you have to get to the airport, wait at the airport, take a covid test. This is
extra inconvenient time you spent to make the journey.
Time costs: The time waiting for service and the time the customer interacts with the service. How
long it takes to be served.
For example, How long it takes till you get served in a restaurant or when you go to class and
in the end, the class appears to be a waste of time. It costs time and you didn’t get the
service you expected.
Psychological costs: The psychological energy/ damage the service causes.
Such as fear, patients, and frustration. For example getting frustrated because of the service,
the fear for the outcome of surgery and when you buy a cheap plane ticket, you are also
paying with frustration for the long waiting lines and smaller chairs.
The effects of non-monetary costs:
Non-monetary costs affect the rating of the price/ value balance if the price is worth the value the
service delivers. It thus influences customer satisfaction.
Non-monetary costs can cause people to pay more for a service to reduce (potential) non-monetary
costs. For example, a parking service at the airport. You pay more money so that you only have to
give your keys and the airport will arrange the rest.
Why are non-monetary costs important:
They play a role in the assessment of the quality of the processes.
They play a role in the assessment of the price-value relationship.
This together influences the customer satisfaction.
The 4 levels of pricing decisions:
Pricing objectives
Pricing strategies
Pricing structure
Pricing levels/ tactics
A 4 step process to make pricing decisions:
Step 1 Pricing objectives: Pricing objectives
should be in line with the overall business and
, marketing strategy. What does the company want to achieve? For example, Maximizing the profit, do
you want to build relationships with customers, or do you only want to satisfy them?, or achieving
the biggest market share…
Step 2 Pricing strategy: The way you set your prices. The 3 basic marketing price strategies are:
o Cost-based pricing: Basing the price on how much it costs to make + profit.
o Value/customer-based pricing: Basing the price on what the customer wants to pay for it/
the value the customer experienced. The prices can be different according to what the
customer wants. For example a premium Netflix account or a basic account.
o Competition-based pricing: The price is based on the prices of competitors.
Step 3 Pricing structure: Which characteristics of the service will have an effect on the price of the
service. It shows things such as what will be included in the price and if there is differentiation among
customers. For example, A flight ticket for a seat at the window costs $50, a regular flight ticket costs
$40 and a guarantee to sit together costs $50. Another example is, children under 5 years old get a
discount.
Step 4 Pricing levels/ tactics: Promotions or other short-term actions. For example, a quantity
discount, lower prices in off-peak hours, every new customer gets 10% discount.
Challenges for pricing of services:
o The capacity in services is relatively fixed. When the demand is higher than the capacity, the
services can’t add extra capacity. An airplane has 10 seats available for $100 per seat. All
seats are sold for $100, but there is an offer for $110. What should the airplane do?
