Pricing is customer‘s perception of the value of the product.

1. Marketing of Infrastructure Services and Utilities
Module 5
Module ~ 5
1

2. Module 5
Marketing of Infrastructure Services and Utilities
PRICING
2

3. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
At the end of this module the learning outcomes
are
1. What is the concept of pricing?
2.
What steps need to be followed in fixing prices?
3. What are the various types of pricing methods?
3

4. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
Suggested Readings
1. Marketing Management by Philip
Kotler, Millenium edition, Chapter – 15
2. Service Marketing by Pearson: 7th edition
chapter 6
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5. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
What is pricing?
Pricing is customer‘s perception of the value of
the product.
5

6. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
PRICE
– One of the element of Marketing Mix
– Produces revenue
– Other elements result in costs
– Very flexible
- Changed quickly
– Other elements relatively more difficult to
change
Needs to be handled well?
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7. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
Pricing policy – six step procedure
1. Selecting the pricing objective
2. Determining demand
3. Estimating costs
4. Analyzing competitor‘s cost, prices and offers
5. Selecting a price method
6. Selecting final price
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8. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
Setting the price objective
Can be many
- Survival
- Maximum current profit
- Maximum market share
- Maximum market skimming
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9. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
Example-Intel
Market Skimming strategy:
– New chip (Pentium 4) launched
– Artificially high priced 1000 $
– High margin
– Who pays 1000 $
– People who can‘t wait
– Gradually reduce price
– Increases volume
– Prices drop down to 50% after 2 yrs.
– Pentium 5 will be ready
– Pentium 4 will be phased out
Intel skims the market.
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10. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
ExampleMarket – Penetration Strategy
• Launch at a lower market price
• Gain market share
AKAI Color TV
- Priced very low
- How?
- Chinese kits- Cheap.
- Old for new.
- Offered exchange schemes
Prices lowered further
Customer pays the difference
By 1998, was the no. 3 player in the market success story.
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11. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
2. Determining demand
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Price is related to demand
How sensitive is demand to price
Price elasticity of demand critical
Suppose price is increased by Rs.1 lac of two cars
• Maruti 800
• Mercedes.
– Where will be more affect on demand
– Maruti – 800
Price is highly elastic to demand in Maruti – 800
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12. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
Price is highly inelastic to demand in case of
Mercedes
– Estimating price elasticity of demand is
critical.
– This depends on
1. No of substitutes
2. Habits of consumers
3. Quality difference
4. Do buyers really notice the change in
price?
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13. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
3. Estimating costs.
– Price = costs + profit
– Costs are of two types
• Fixed cost
• Variable cost
Fixed cost
- Do not change with volume sales
Examples
– Salaries of sales personnel
– Cost of building
– Cost of trucks.
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14. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
Variable costs
• Vary with sales volume.
• Cost of raw material
Maruti – 800
- Cost of wheel
- Cost of engine
- Cost of carburetor
Pricing has to be such that it recovers all costs in the
long run
14

15. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
4. Analyzing competitor’s costs prices
and offers
Pricing has to consider
– Competitor‘s costs and prices
– Image of competitors products
– In a price war-
• Winner is the one who has the lowest cost
– Do not try to fight on prices if your costs
are higher then your competitors
15

16. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
5. Selecting a pricing method.
Earlier we understood:
1. Customer‘ s demand.
2. Costs
3. Competitors prices / cost
Six methods of pricing
1. Mark up pricing
2. Target – return pricing
3. Perceived- value pricing
4. Value- pricing
5. Going- rate pricing
6. Sealed- bid pricing
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17. Marketing of Infrastructure Services and Utilities
PRICING METHODS
1. Mark – up pricing
– Estimate costs
– Add profit margin
– Arrive at prices
Cost + Profit Margin = PRICE
– Profit Margin
• Depend on many factors
• High on seasonal items
• Fixed by government
– Life saving drugs
– Fertilizers
– Electricity
Module 5

18. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
2. TARGET – RETURN PRICING
- You investment in a business
- You expect a return
- Return varies from individual to individual
EXAMPLE
- Suppose you invest 10 Lac Rs to make mixers
- You want 20% return on investment
= 0.2 x 10 Lacs = 2 Lacs
- Your costs are Rs 16/ mixer
No .of mixers to be sold = 50,000
Target – return price
= Unit Cost + (desired return x invested capital)
Unit Sales
18

19. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
= Rs 16 + 0.20 x 1000000
50,000
= Rs 20
If you sell 50000 mixers at a price of Rs 20, you well
earn a return on investment of 20%
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20. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
3. Perceived-value pricing
– Base price on perceived value
– Buyer‘s perception of value and not seller‘s cost, as the key to pricing .
Example HP – Printers
– HP – Leader in printers
– How to increase sales?
– Reduces prices of low end printers
– Affordable
– Volume has increased
– Increased prices of consumables
• Ribbons, cartridges
• High margins
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21. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
4. Value pricing
– Low value pricing for a high offering
Compaq – Computers
– Strong brand
– Lowering prices
– Competition from local assemblers
– Making customers shift from assemblers to
branded manufacturers
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22. Marketing of Infrastructure Services and Utilities
Module 5
5. Going rate pricing
– Basis of price largely on competitor prices
– Prices almost identical
– Typically in oligopolistic markets
Example
Airtel, Essar, Reliance – Delhi
– Earlier Airtel, Essar
– Prices almost identical
– When one changes prices
– Other follows
– Launch of Dolphin – MTNL
– Lower monthly charges
– Lower airtime changes
– Essar, Airtel, Reliance also lower
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23. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
6. Sealed – bid prices
– Common as ―Tenders‖
– Each company bids a price which is confidential
– Company quoting lower prices likely to get business
– If you bid very low price, your profit is less
– High bid, less chances of getting order
– You have to assess what your competitor will bid?
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24. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
Sealed bid – Example
DTC
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Runs buses
Requires tyres
Invites bids
Tyre manufacturer bid
CEAT, MRF, Goodyear, Apollo
Each has to put the ―Right Price‖
To be the lowest
Not very low
Sometimes MRF Wins
Sometimes Goodyear wins
Understanding each other‘s strategy in the past
situation critical
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25. Marketing of Infrastructure Services and Utilities
Module 5
Setting the Price
The Three Cs Model for Price Setting
25

26. Marketing of Infrastructure Services and Utilities
Module 5
PRICING METHODS
7. Selecting the Final Price
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–
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Discussed various pricing methods
Which one will suit the company
Other factors
a. Psychological Pricing
Bata – Example
- Shoe price Rs. 999.95 paise
- Three – Figure pricing
b. Influence of other Marketing – Mix
elements
- Product quality
- Positioning
Can Lifebuoy be priced at Rs. 35/Can Mercedes be priced at Rs. 10 Lacs.
26

27. Marketing of Infrastructure Services and Utilities
DISTRIBUTION OF
SERVICES
Module 5

28. Marketing of Infrastructure Services and Utilities
Module 5
Delivering Service Through Intermediaries
and Electronic Channels
 Service Distribution
 Direct or Company-Owned Channels
 Franchising
 Agents and Brokers
 Electronic Channels
 Common Issues Involving Intermediaries
 Strategies for Effective Service Delivery Through
Intermediaries

29. Marketing of Infrastructure Services and Utilities
Module 5
Delivering Service Through Intermediaries
• Identify the primary channels through which services are
delivered to end customers.
• Provide examples of each of the key service intermediaries.
• View delivery of service from two perspectives—the service
provider and the service deliverer.
• Discuss the benefits and challenges of each method of service
delivery.
• Outline the strategies that are used to manage service delivery
through intermediaries.

30. Marketing of Infrastructure Services and Utilities
Module 5
Service Provider Participants
• service principal (originator)
– creates the service concept
(like a manufacturer)
• service deliverer (intermediary)
– entity that interacts with the customer in the
execution of the service
(like a distributor/wholesaler)

31. Marketing of Infrastructure Services and Utilities
Module 5
Services Intermediaries
• Franchisees
– service outlets licensed by a principal to deliver a unique service
concept it has created
• e.g., Jiffy Lube, Blockbuster, McDonald‘s
• Agents and Brokers
– representatives who distribute and sell the services of one or more
service suppliers
• e.g., travel agents, independent insurance agents
• Electronic Channels
– all forms of service provision through electronic means
• e.g., ATMs, university video courses, TaxCut software

32. Module 5
Marketing of Infrastructure Services and Utilities
Benefits and Challenges for
Franchisers of Service
• Benefits:
– Leveraged business
format for greater
expansion and revenues
– Consistency in outlets
– Knowledge of local
markets
– Shared financial risk and
more working capital
• Challenges:
– Difficulty in maintaining
and motivating
franchisees
– Highly publicized disputes
and conflict
– Inconsistent quality
– Control of customer
relationship by
intermediary

33. Module 5
Marketing of Infrastructure Services and Utilities
Benefits and Challenges for
Franchisees of Service
• Benefits:
– An established business
format
– National or regional brand
marketing
– Minimized risk of starting a
business
• Challenges:
– Encroachment
– Disappointing profits and
revenues
– Lack of perceived control
over operations
– High fees

34. Module 5
Marketing of Infrastructure Services and Utilities
Benefits and Challenges in Distributing
Services through Agents and Brokers
• Benefits:
– Reduced selling and
distribution costs
– Intermediary‘s possession
of special skills and
knowledge
– Wide representation
– Knowledge of local
markets
– Customer choice
• Challenges:
– Loss of control over
pricing
– Representation of multiple
service principals

35. Marketing of Infrastructure Services and Utilities
Module 5
Benefits and Challenges in Electronic Distribution
of Services
• Benefits:
– Consistent delivery for
standardized services
– Low cost
– Customer convenience
– Wide distribution
– Customer choice and
ability to customize
– Quick customer feedback
• Challenges:
– Price competition
– Inability to customize with
highly standardized
services
– Lack of consistency due
to customer involvement
– Changes in consumer
behavior
– Security concerns
– Competition from
widening geographies

36. Marketing of Infrastructure Services and Utilities
Module 5
Common Issues Involving Intermediaries
• conflict over objectives and performance
• difficulty controlling quality and consistency across
outlets
• tension between empowerment and control
• channel ambiguity

37. Module 5
Marketing of Infrastructure Services and Utilities
Strategies for Effective Service Delivery
Through Intermediaries
• Control Strategies:
– Measurement
– Review
• Partnering Strategies:
– Alignment of goals
– Consultation and
cooperation
• Empowerment Strategies:
– Help the intermediary
develop customeroriented service
processes
– Provide needed support
systems
– Develop intermediaries to
deliver service quality
– Change to a cooperative
management structure

38. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
38

39. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
At the end of this module the learning
outcomes are
• What is the purpose of physical evidence?
• Various types of physical evidence
• Role of physical evidence
• Various types of physical evidence
strategies.
39

40. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Suggested readings
• Services Marketing by Zeithmal and
Bitner, Chapter 10, 2nd edition
40

41. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
What is physical evidence
• Services are intangible
• Customers rely on tangible cues or
physical evidence for evaluation of
services
• Before purchase
41

42. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Elements of Physical Evidence
Facility exterior
• Exterior design
• Signage
• Parking
• Landscape
• Surrounding environment
42

43. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Facility interior
• Interior design
• Equipment
• Signage
• Layout
• Air quality/temperature
43

44. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Other Tangibles
• Business cards
• Stationary
• Billing Statements
• Reports
• Employee dress
• Uniforms
• Brochure
• Internet / web pages
44

45. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Services Communication through physical
evidence
• Heavy
Hospitals
Resorts
Childcare
• Limited
Insurance
Courier service
45

46. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Types of physical evidence
• Self–service (customer only)
• Interpersonal services (Both customer
and employee )
• Remote service (employee only)
46

47. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Self-Service
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Customer performs most of the activities
Very few employees involved
ATMs
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Various locations
Mostly self service
How should the facilities be
Physical evidence
Pleasing
Easy to use for customers
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48. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
REMOTE SERVICES
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•
Other extreme
Virtually no customer involvement
Customer rarely visits facilities
It may be another country
How physical evidence is designed
Employee interests and preferences
Motivate employees
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49. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
GE call centre in India
• Harrod‘s
• Customer care
• Done by GE in India
• Facilities design in India
• Indian flavour
• Local culture
Facilities design according to employee taste
and preferences
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50. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Interpersonal services
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Between two extremes
Both
Customer
Employee are present
Examples
Hotels
Hospitals
Banks
How should the physical evidence be ?
50

51. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Interpersonal services
Hospital
• Physical evidence design
• Take care of customer interest
• Take care of employee interest
• Affects the quality of interaction
51

52. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
ROLES OF THE SERVICESCAPE
– Package
– Facilitator
– Socializer
– Differentiator
52

53. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Package
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•
Would you buy an ‗Arrow‘ shirt
From a grocery shop
Unlikely to buy
Why ?
Poor packaging and physical surroundings
In services, similar concept conveys an image
‗Dress for success‘
Potray a particular image
53

54. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
PVR Multiplex
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•
•
•
Movie content is same
Why people prefer PVR multiplex
The way it is packaged
Well designed facilities
Booking counter
Lobby
Chair
Seats
• Huge success
Packaging a key success factor
54

55. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Facilitator
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How it improves your efficiency
Better facilities
Improves performance
Singapore Airlines
Reclining seats in 60s
Seats become like beds in 90s
Headphones
Video on seats
Facility to work on computers
Improves the customer efficiency
55

56. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Socializer
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Employees and customers interact
Most offices
Seating place for employees
Customer meeting place
Closed room also provided
Privacy and confidential matters
Employees seating plan
At lower levels
Open space
No cabins
Conductive for socialization
56

57. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Socializer
• Barista
• Coffee parlor
• Not just to sip coffee
• Interaction
• Read magazines
• Play guitar
• People sit for longer hours
Ambience conducive for socialization
57

58. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Differentiator
• Physical design
• Differentiates from competitors
• Unusual/exotic experience
In Hotels
• Different designs
• Unique experiences
58

59. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Differentiator
Shakti restaurant – Hyderabad
– Created on tree
– Rooms are on different branches of tree
– Has three floors
– Unique experience
59

60. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Physical evidence strategies
•
•
•
•
•
•
Recognise the strategic impact of physical evidence
Map the physical evidence of service
Clarify roles of the servicescape
Assess and identify physical evidence opportunities
Be prepared to update and moderate the evidence
Work cross–functionally
60

61. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Recognize the strategic Impact of
physical evidence
• Role of physical evidence must be defined
• Before designing and executing service
strategy
• Clarify the overall role of physical evidence
• Decisions on physical evidence are
• Costly
• Permanent
61

62. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Changing external design of a hotel
• Can you change the external design of a
hotel
• Unlikely as changing the design is difficult
• Why ?
• Need to break and rebuilt is a costly
decision
62

63. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Map the physical evidence of service
• Before deciding physical evidence
• Take every employee into confidence
• Show even customers
• Get feedback
• Finalise after consultation
63

64. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Clarify role of the servicescape
• Identity roles of
Customers
Employees
McDonald’s
• Customers role
• Created playing space for children
• Keeping children busy
• Informal and place to enjoy
64

65. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Assess and identify physical evidence opportunities
•
•
•
•
Current Physical evidence
Is it enough
May be outdated
Physical evidence upgradation
AirIndia
•
•
•
•
1986
Interiors design changed
Customers feedback
Airlines lacked modern image
65

66. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
Be prepared to update and modernise the
evidence.
• Everything has an element called ‗fashion‘.
• Design, colours and styles change.
British Airways.
• Earlier government company.
• Privatised in 80‘s.
• Changed
•
•
•
•
logo,
colour
aircraft,
dress.
66

67. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
. Work cross-functionality.
• What dress should employees wear when employees service
customers.
• Different views.
• Operations dept.
• Comfort of employees.
• Marketing department.
• Appealing to customers.
• Conflict.
Something which is comfortable may not be appealing and
vice versa.
67

68. Marketing of Infrastructure Services and Utilities
Module 5
PHYSICAL EVIDENCE IN
SERVICES
How to ensure success
• All have to work together.
• Have a team which has members from all
departments.
• Marketing
• Operations
• Finance
• Teamwork matters.
68