Developing Pricing Strategy Questions & Answers

Q:  In what ways can price capture and communicate value in services?

A:  Developing Price can capture and communicate value in a variety of ways by, for example:

  • Making a desired service appear affordable
  • Suggesting that what is offered is a special and limited offering with greater value than what is normally offered (Package deals and bundled offers for example)
  • Being competitively attractive and appealing
  • Reflecting the marketed quality of the service offering
  • Demonstrating the quantifiable benefit to the customer
Q:  Compare and contrast the strategic and functional role of price within a service setting.

A: The strategic role of price includes service product positioning, value signaling, countering or pre-empting competitive action, maximizing resource and capacity utilization and yield, demand manipulation and management.  The functional role includes cost recoupment, sales, revenue and profit generation, and serving the attainment of marketing objectives.

Q. Explain and discuss the role of price in managing the balance between supply and demand.

A:  Price adjustments in the form of temporary reductions or discounts, special offers and incentives, can help to stimulate demand, shift demand, control or limit demand. Correspondingly, they can also be used to improve the extent of capacity utilization and, thereby, improve yield.

Q: Describe three service marketing situations that involve a price/quality signaling relationship and explain why it occurs.

A:  Any number of service industries and providers might be nominated here.  Among some of the more prominent are professional services (including, for example, cosmetic surgeons and other medical and dental specialists, barristers and QCs, and selected management consultants), up-market hotels and restaurants, selected transportation services and retail outlets (exclusive jewelry, clothing and homeware stores for example), and hospitals.

In explaining why this occurs students might adopt both a customer and organizational perspective. In discussing this from a customer perspective one might usefully invoke self-concept theory, Maslow’s Hierarchy of Needs, Risk Aversion Theory, ways by which otherwise high-involvement decision-making may be shortened, individual aspirations and motivations.  From an organizational perspective one might take into account niche marketing and targeting objectives, competitive positioning, Role and Script Theory.

Q:  In what service industries is yield management likely to be particularly important, and why?

A:  Almost any service organization stands to benefit from yield management, but service industries in which this is likely to be particularly important include those where capacity is very much constrained, lacking flexibility and characterized by high fixed costs.

Examples include the hotel and hospital sectors, transportation services, fixed seating sporting and entertainment venues, many educational institutions, and industries in which firms are constrained by the capacity of their respective capital equipment and technological resource base (printing, equipment servicing, and telecommunications for example).

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