Factors Considered in Service Pricing: Pricing Considerations

Different types of factors that can affect the service pricing are mentioned below:

Factors Considered in Service Pricing

1. Costs Involved in Providing Service and Breakeven Analysis: The accurate analysis of the precise costs is quite significant for the service firms for utilizing the costs as the tool for pricing decisions.

It is important to determine the cost of each separate service in cases where a larger number of pf services are offered by the service firms.

The three main elements of the services which can be used to determine the cost of service are elaborated below:

i. Variable Costs: With the change in the service output level, the amount of variable costs also changes. The costs of raw materials, staffing costs, and different types of other costs such as sales promotion, distribution, and so on are included in these costs.

ii. Fixed Costs: There is no change in these costs within the service volume. These are the costs associated with the rates and local taxes, depreciation of vehicles and machinery, costs associated with buildings and infrastructure, etc.

iii. Overheads: These are the costs that are associated with the administration and managerial activities of the organization.

2. Competitor Pricing: For effective price decisions, the organizations require relevant information about the pricing policy of their competitors.

However, this does not directly imply that they will set similar or lower prices of the products and services as that of the competitors, but in most cases, it is quite common to observe the tactical price battle among the competing brands and products.

Apart from gaining the short-term marketing advantage and using the price cut as one of the promotional tools, this can also result in a de-valued market position and will ultimately result in the loss of revenues for all the competing brands in the industry.

Competition-based pricing which is also known as “me too” pricing is quite common in the price-sensitive markets and there is hardly any difference in the core benefits offered by the brands.

For example, all the major banks impose similar types of bank charges and similarly, in order to sustain in the industry, similar fares are charged by the airlines.

In fact, some other kinds of marketing mix elements like service quality can be implemented by the organizations which are conducting their business with the help of the competition-based pricing strategies.

3. Demand Levels and Elasticity: The pricing decisions will also be affected majorly by the demand level. There are a number of factors due to which there can be a variation in the demands:

  1. Economic situations and patterns in consumer expenditure
  2. The life cycle stage of a service
  3. Seasonal fluctuations
  4. Busier times of day – peak periods
  5. The extent of marketing and promotional effort
  6. Level of substitutability of the product or service.

While conducting a demand forecast and determining the potential demand, it is very important to have a close eye on the pricing.

As the price increases or decreases, the demand of some products and services can vary while there can be some products or services which are unaffected by these variations in the sensitivity of demand in the relation to the price changes can be estimated with the help of price elasticity of demand.

4. Regulatory Factors: The pricing decisions and the prices charged are also governed by the various rules and regulations formed by the government or other public sector organizations.

5. Influences of Price on other Elements of Marketing Mix: All the marketing mix elements are interconnected. In order to develop an appealing and credible marketing mix, it is quite important to have the synergy among the various marketing mix elements.

The various effects of pricing on the other elements of the marketing mix are discussed below:

i. Product/Service Offering: The value of the products must be reflected precisely by the prices.

Due to subjective perceived values of the products and services, it is quite complex to accurately determine the value associated with the products and services.

Different customers may have different values for products and services. In order to attract the maximum number of customers, a wide range of values having varying price levels are offered by most of the organizations.

ii. Promotion: Promotions and prices may or may not be combined together. In order to attract price-sensitive customers, suitable pricing strategies are often used and the same is communicated to all the target customer groups.

In fact, the promotional messages also include messages related to promotional pricing such as special discounts or vouchers. There may be some cases where prices are not reflected in the promotional messages.

Such messages communicate about the quality of the services and focus on the values which are given significance by the customers.

iii. Place: Selected distribution channels will be used by the products and services which have extremely high prices as it can be used to express the quality and status of the offerings.

In fact, the prices and the locations are also closely connected to each other. Most of the expensive services such as law firms and stockbrokers are usually situated in the premium locations of the city.

In comparison to any other provincial practitioner, a premium price will be paid by the consumers to utilize the services from these service providers.

iv. People: Quality of the services should not be compromised to lower the prices. The prices which are charged by the services are often reflected by the level of services.

In fact, costlier services are associated with the services provided by well- trained staff members and specialist knowledge.

v. Process and Physical Evidence: In the service sector, the value of the money is mainly determined on the basis of the physical evidence of the services.

The price of the service must be justified by the physical environment, facilities, decor, etc., in which the customer is going to receive the service.

In order to attract the customers, high street travel agents utilize a number of traits associated with these marketing mix elements which include bright offices having the latest computer technology for online booking and information systems along with well-trained staff members in smart uniforms.

6. Positioning: The manner in which the products and services are perceived and evaluated by the customers represents the concept of positioning.

It is a clear reflection of how the customers rates and ranks the features and qualities of the services of different service providers.

The services can be perceived as high or low quality by the customers or being cheaper or costlier in comparison to other services available in the market.

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