Guidelines for service pricing

Guidelines for service pricing:

1)                  Pricing strategy should enable handling demand fluctuations successfully. As services cannot be inventoried, pricing should encourage customers to use the service during period of low demand.

2)                  As services need to have some tangible element attached to it, service pricing should be based on costs so as to take into account the tangible clues.

3)                  Service price as an indicator of quality: Services not having specific brand names to indicate quality, customers use price as an indicator of quality. This in particular in some cases, where the price variation is too much with in a particular class of service (e.g. Tour operators). Also, where the risk associated with the service is high (e.g. Heart surgery). Price is taken as an indicator of quality. Thus pricing too low can give wrong signals and pricing too high can set expectations that the firm may find it difficult to match in service delivery. Because goods are dominated by search qualities. Price is normally not used to judge quality.

4)                  Pricing strategy should cope-up with the degree of competition operation with in certain geographic and time zone. E.g. Bus operators will have to consider prices of train. It also includes the stage of strategic low pricing to attract first time customers.