Three Basic Price Structures and Difficulties Associated With Usage For Services
Three Basic Price Structures and Difficulties Associated With Usage For Services
Three Basic Price Structures and Difficulties Associated With Usage For Services
PROBLEMS:
1. Costs difficult to trace 2. Labor more difficult to price than materials 3. Costs may not equal value
PROBLEMS:
1. Small firms may charge too little to be viable 2. Heterogeneity of services limits comparability 3. Prices may not reflect customer value
PROBLEMS:
1. Monetary price must be adjusted to reflect the value of non-monetary costs 2. Information on service costs less available to customers, hence price may not be a central factor
Competition-Based Pricing
Monitor competitors pricing strategy (especially if service lacks differentiation like dry cleaning and its an oligopoly like airline)
Challenges: Small firms may charge too and not make margins high enough to remain in business Heterogeneity of services across and within providers makes it difficult to compare
Relate price to value perceived by customer i.e. prices are based on what customers will pay for the services provided Challenges: Monetary price must be adjusted to reflected the value of non-monetary costs Information on service costs may be less available to customers, making monetary price not as salient indicator to quality