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Chapter Objectives • Discuss the concept of perceived value as it pertains to comparing total customer cost to total customer value. • Understand the special considerations of service pricing as they relate to cost, demand, customer, competitor, profit, product, and legal considerations. • Discuss the pros and cons of using cost-based pricing in service pricing decisions. • Discuss the circumstances under which price segmentation is most effective. • Explain satisfaction-based, relationship, and efficiency approaches to pricing and provide examples of service firms that are using each of these pricing strategies. ® © 2017 Cengage Learning . May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Opening Vignette: Pay What You Can Restaurants • The “Pay What You Can” movement began at Salt Lake City’s One World Café more than 12 years ago • Denver is now home to three such restaurants • Customers can pay for their meals with cash or labor, or nothing at all • The business model is simple: – Feed all customers, regardless of their ability to pay – Ask those who can afford it to contribute a little more to help others • There are no set prices on the menu • These restaurants bring together people from all walks of life, rather than only the poor • Entrepreneurs around the country are considering opening these restaurants ® © 2017 Cengage Learning . May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Art of Pricing • Pricing policy is the last stronghold of medievalism in modern management…[Pricing] is still largely intuitive and even mystical in the sense that the intuition is often the province of the big boss (Dean, 1947) • Pricing is approached in Britain like Russian roulette—to be indulged in mainly by those contemplating suicide (Chief Executive, 1981) ® © 2017 Cengage Learning . May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 6.1: Buyer’s Perception of Value ® © 2017 Cengage Learning . May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 6.2: Unique Differences Associated with Service Prices ® © 2017 Cengage Learning . May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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