Comparison of the competitor prices in a service context and the implications of setting up an effective pricing strategy

Résumé du document

These days, services have known an outstanding growth and have become an important part of economies (Avlonitis and Indounas 2007). Thus, more people work today on services, than ever before and services are no longer just an insignificant option linked to tangible goods (Palmer 2005). However, marketers cope with many issues in services due to its special characteristics, issues “that are not encountered by marketers of tangible goods” (Clemes et al 2000). Pricing is one of these issues as Berry and Yadav (1996) explained that “little research exists on the pricing of services and few people understand the special challenges involved». Similarly, Monroe and Kent (1989) have suggested that service providers have “a naive and unsophisticated approach to pricing». In this situation, it can be argued that service users could feel lost and quite uncertain about prices.

Thus, the purpose of this essay is to discuss the difficulty of comparing competitor's prices in a service context and to investigate its implications for setting up an effective pricing strategy. According to Berry and Yadav (1996), it is very complicated for customers to compare and evaluate prices in a service context. This is mainly due to the special characteristics of the services, especially the intangibility and the Heterogeneity (Zeithaml and Bitner 2000).

Rushton and Carson (1989) have argued that intangibility, or lack of physical attributes (Bebko 2000), is considered as the main and the most important characteristic of the service. Thus, because services are “intangible deeds and performances” (Zeithaml and Bitner 2000), they cannot be seen or touched in the same manner that we can see or touch tangible goods. Consequently, it makes the evaluation, before and after purchase, more difficult for customers (Rushton and Carson 1989). Levitt (1981) suggested that the intangibility is the main factor responsible for the evaluation problems for customers.

Extraits

[...] Nicoulaud (1988) argued that the best solution to heterogeneity is to standardise services and prices; therefore the comparison could be easier. Finally, it can be argued that the rapid growth of services in economies, and even in marketing research will facilitate the work of marketers for setting up efficient marketing strategies, especially in pricing. Furthermore, people realise the special challenges involved with services and services marketing is becoming a big academic field. So, even if few researches exist on pricing today, the importance of services will set up a new deal. [...]

[...] In this situation, it can be argued that service users could feel lost and quite uncertain about prices. Thus, the purpose of this essay is to discuss the difficulty of comparing competitor's prices in a service context and to investigate its implications for setting up an effective pricing strategy. According to Berry and Yadav (1996), it is very complicated for customers to compare and evaluate prices in a service context. This is mainly due to the special characteristics of the services, especially the intangibility and the Heterogeneity (Zeithaml and Bitner 2000). [...]

[...] The “Flat-rate pricing” reduce customers' uncertainty by fixing the price in advance and delete all the unpredictable costs for the customer. In summary, the “satisfaction-based pricing” is a good way to confront with customers' uncertainty, but it is risky because it involves the reputation of services providers. However, the problem with this perspective is that it cannot be the only solution to face the problem of comparison. Service providers have also to take into account their competitors' prices, and that is what zeithaml and Bitner (2000) called the “competition-based pricing”. [...]

[...] Thus, we saw that the big issue with pricing a service is to confront customer's uncertainty and lack of confidence. To do that, many authors suggest Value- based pricing, which include many tools to create a strong relationship with customers and reduce their doubts (Berry et al 1996; Zeithaml and Bitner 2000). So, firms could decrease uncertainty through services guarantees for example. The work of Berry et al (1996) supports this view to a large extent, as their work suggests that “satisfaction-based pricing” can reduce the uncertainty due to the intangibility of services. [...]

[...] But, the problem is, no only consumer has problems with service's prices, even service marketers cannot evaluate and implement an effective and efficient pricing strategy taking account of its special characteristics. With regards to how consumer behaves with services' prices, we'll see below that many authors worked on how the firms have to implement services prices' to overcome these problems and many strategies were created to deal with the specificity of services .Indeed, marketers have to be conscious of the importance of pricing in developing businesses in services, and the atypical characteristics of services has to be understood (Berry and Yadav 1996). [...]