the traditional services marketing mix

8/2/2019 The Traditional Services Marketing Mix

1/35


2/35

2. Price Because services are intangible and experiential in nature, the price

becomes more important to consumers as a cue of what to expect.

Consumers often use price as one of the inputs or tangible cues intoforming expectations of a service and in making purchase decisions.

The more consumers pay for a service, the more they expect.

Higher prices tend to convey higher quality. However, an extremelyhigh price may be viewed by consumers as rip-off.

Lower prices tend to convey lower quality but for some services andfor some consumers, this is acceptable.

Price is an important element in controlling demand.

Increasing the price at peak demand times reduces the demand.

Restaurants, movie theaters, and airlines often use this strategywhen demand exceeds supply.

The higher price will cause some demand to shift from high-to lower-usage periods.

Services may lower the price at low- usage times. lower price will notonly cause a shift of demand, but it will also stimulate new demand.


3/35

PRICE DETERMINANTS

1. Pricing objectives

2. Cost

3. Demand/price curve

4. Elasticity of price

5. Competition

6.

Operational position and7. Marketing mix composition.


4/35

Organizational Pricing objectives

1. Profit maximization - the price is set at the levelthat will yield the highest total revenue for the firmwithin a pre specified profit constraint.

2. Sales maximization - the price is set at the levelthat will yield the highest total revenue.

3. Market share maximization - the price is set at thelevel that will provide the firm with the largest

market share or total unit sales.4. Competitive parity - prices are set that are

approximately equal with the competition.


5/35

Cost Analysis

Costs normally serve as a pricing floor.

Calculating the cost of a service is more difficult than goods.

The first step in analyzing costs is to separate costs into variableand fixed components.

Variable costs are those that change with demand. Food and fuel costs for an airplane are variable costs. Chemicals

for a pest control service are variable costs.

Fixed costs do not change with the quantity demanded althoughdemand may have some impact on them.

The cost of an airplane is a fixed cost for an airline.


6/35

Demand/ Price Curve Demand/ price curve shows the demand for a service at various

prices.

The demand/ price schedule can be generated from historicaldata or sales forecasts.

See the diagram

Demand increases as the price declines until the price reaches$35.

Customers feel the quality of the service will be unacceptable atlower price.

If the firms pricing objective is market share maximization, the$40 price will yield the highest demand.

Variable cost is $25 per service unit.

The $50 price would be the sales maximization price because itwould yield the highest total revenue at $8,000.

The profit maximization price would be $60 because it yields thehighest gross margin, $4,550.


7/35


8/35

Competition

Prices that are drastically different than competitors will be moreelastic than prices that are close to the competition.

In addition to primary competitors, firms must be aware ofsecondary and third level competitors.

Operational Position The operational position chosen by the service will have a major

impact on the price. Firms using the cost efficiency operational approach will have

a lower price than firms using the other approaches. Firms using the customization approach will tend to have the

highest prices. Firms using service quality approach will tend to be in the

middle price range.


9/35


10/35

Pricing Modifications

Service firms have four variations of pricingwhich they can use to boost sales and profits.

1. Differential pricing2. Yield management3. Price bundling4. Multiple-use discounts


11/35


12/35


13/35


14/35

Price Bundling Price bundling is offering consumers two or more goods or services in a single

package for a special price.

Pure vs. Mixed Bundling

Pure bundling is combining two or more goods or services not sold individuallyinto a single package for the consumer.

Pure bundling is used when the combination of goods or services is morevaluable to the consumer than any of them would be independently.

The typical fast lube service facility not only lubes a vehicle and changes the oil

but they also may check tires, batteries, brake fluid, power steering fluid,transmission fluid, and tire air pressure.

Mixed bundling is combining two or more goods or services sold individually intoa single package for a special price.

By combining all of these services into one package, greater revenue isgenerated than if each were sold individually.

by combining all of the services into one package, economies of scale and

operating efficiencies can be obtained. It is less confusing to consumers since they do not have to decide which

services they need.


15/35


16/35

Multiple-use Pricing Discounts

Multiple-use pricing discounts are price reductions givento customers for repeat usage of a service.

The multiple-use discount can be for: A fixed number of uses or be unlimited.

A fixed duration of time or it can be for an unlimited amount oftime.


17/35

Ctd

Duration Usage Example Movie

Theatre Offering

Limited Limited 10 sessions duringJanuary for $50.00

Limited Unlimited $30.00 for April, nolimit to number ofsessions

Unlimited Limited 10 sessions for$50.00

Unlimited Unlimited 10% discount tochildren


18/35

Price Increases Price increase strategies:

1. Wait until someone else increases their prices, and thenquickly follow.

2. Use a communications program to explain to customerswhy the price increase is necessary.

3. Make no acknowledgement of a price increase, and thenhope that customers will not notice it.

4. Increase price in small increments over a period of time.

5. Modify the service offering or add a service feature that

would justify the price increase to the consumer.


19/35


20/35

Risk and Price

Consumers see price as a means of modifying risk.

Suppose a hotel manager wants to install a swimming pool withfour bids for installing the pool were Birr 2,000,000 Birr1,900,500, Birr 1,800,700 and Birr 1,600,600.

The low bid will be eliminated. The manager views the low bid astoo risky.

consumers will shy away from purchasing from low- pricedvendors because of perceived risk.

High bids are not always viewed as being less risky. If a highbidder is substantially higher than the competition, consumers

normally feel that it is not a good value because the higher priceis not justified.


21/35


22/35


23/35

Channel Structures The channel length tends to be shorter for services than for goods. Direct Channel - Many services are performed by a service provider

for the consumer with no intermediaries using a distribution systemcalled a direct channel.

Indirect Channel - Other services use agents or intermediaries toperform one or more functions.

The service process rendered by service providers to customers canbe divided into 4 components:

1. information,2. reservation,3. payment, and4. consumption.

Service providers can use agents or third parties to perform any of the4 functions.

Airlines use travel agents to perform the first three functions. Travel agents provide information, make reservations, and collect

payment. The consumption phase is performed by the airlines.


24/35


25/35

Multichannel Systems To increase market coverage, many service firms are using a

multichannel approach. Multichannel distribution involves the use of two or more

channels to reach one or more market segments. In addition to increasing market coverage, multichannel

distribution strategy lowers costs of distribution. Most airlines use a multichannel distribution strategy.

Tickets can be purchased directly through an airline such as theairline or they can be purchased through a local travel agent.

Distribution Growth Options1. multisite,2. multiservice,

3. multisegement.4. Multisite, multiservice5. Multisite, multisegement6. Multiservice, multisegement7. Multisite, multiservice, multisegement


26/35


27/35

CtdGrowth

strategy

Benefits Concerns

Multisite

1. rapid expansion

2. sales growth

3. easiest to manage

1. good locations

2. financial resources

3. managing multiple outlets

4. quality control

5. too rapid growth

Multiservice

1. serve current customers

better

2. can gain new customers

3. sales growth

1. decline in efficiency


3. managing multiple service

4. quality control

Multisegement 1. better utilization offacility

2. sales growth

1. locating a complementary segment2. customer confusion

3. quality of service


28/35

CtdMultisite,

multiservice 1. sales growth2. one-stop shopping for

customers3. serve current customers

better

1. overhead costs

2. managing service structure

3. quality of services

Multisite,

multisegement 1. sales growth

2. each site can specialize

in a segment

1. overhead costs


3. quality service

Multiservice,

multisegement 1. sales growth

2. serve current customers

better

3. gain new customers



3. customer confusion

Multisite,

multiservice,

multisegement1. sales growth

2. one-stop shopping

3. prevent competition

from eroding market

share

1. Overhead costs.




5. customer confusion


29/35

Franchising

Franchising is a method of expanding rapidly with low capital investments. Franchising is a multisite distribution growth strategy involving the selling of a

service concept to a third party who agrees to establish and operate a servicefacility according to a franchisors specifications.

Most franchise contracts maintain tight controls over the franchise guidelines The franchisor will receive a percentage of the franchisees income which is

normally between 2% to 3% of the franchisees net income.

Benefits of Franchising Franchising provides outside capital for growth. Franchising provides additional management with prior experience for managing

the business. Franchising provides lower risk for a franchisee than building ones own

business. The franchise offers an established brand name and a business plan that has

proven to be successful. Most franchisors assist with advertising, promotions, and operations

management. Expert help is available for franchise operators when problems arise. These services, provided by the franchisor, reduce the risk of a franchise failing


30/35

Ctd.

Advantages to the Franchisor

capital for growth

faster growth

additional management additional income

Disadvantages to the Franchisor

lower potential profits

controlling service quality controlling firm image


31/35

Ctd

Advantages to the Franchisee

Lower risk

Established brand name

Successful business plan

Expert assistanceDisadvantages to the Franchisee

Franchise fees

Lack of freedom

Controlled by the franchisor


32/35


33/35


34/35

Distribution Management Distribution management involves two components: an organizational

management structure and economies-of-scale plan.

Organizational structure Centralization and decentralization are the two forms of organization

structure. In a centralized organization, key decisions and power are located with

the top managers of the firm. In a decentralized organization, key decisions and power are shared

among both top and middle management. Using a centralized organizational structure is common with:

a multisite growth strategy because of the highly standardized, brandedservice offering.

services using the cost efficiency or technical service quality approach.

It is more difficult to achieve when using a multiservice or a

multisegement growth strategy. A decentralized organizational structure seems to work better: when multisite strategies are coupled with a multiservice or a multisegement

strategy. for firms using a functional service quality or a customization operational

approach.


35/35

the traditional services marketing mix

Documents