978-0078112102 Chapter 15 Lecture Note

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CHAPTER 15:

PRICING OF SERVICES

CHAPTER TOPICS

Three Key Ways that Service Prices Are Different for Consumers

Approaches to Pricing Services

Pricing Strategies that Link to the Four Value Definitions

Technology Spotlight: Dynamic Pricing on the Internet Allows Price Adjustments Based on Supply

and Demand

Global Feature: Unique Tipping and Pricing Practices Around the World

Strategy Insight: Pricing Variation in Airlines Offers Strategic Opportunities

CHAPTER OBJECTIVES

1. Discuss three major ways that service prices are perceived differently from goods prices by

customers.

2. Articulate the key ways that pricing of services differs from pricing of goods from a company’s

perspective

3. Demonstrate what value means to customers and the role that price plays in value.

4. Describe strategies that companies use to price services.

5. Give examples of pricing strategy in action.

LECTURE TIPS & AIDS

1. To illustrate the difficulty in pricing services, an example many students may have fun discussing is

creative dating services. In particular, a company could (theoretically) help someone plan and

execute a creative date. A creative date might include a date based upon a particular theme (e.g., a

red date where the participants dress in red, drive a red car, go to “Red Robin” restaurant, eat red

meat, drink red wine, and watch the movie “Reds”), a catered wine and cheese picnic in the park, or

an ABC date (e.g., doing something for each letter of the alphabet, such as Acting out your favorite

movie scenes, Bragging about a childhood accomplishment, Chugging a Coke, Driving downtown,

etc.). The major discussion could center on what a provider should charge for assisting a client in

creating a creative date. Many of the pricing issues identified in the chapter could be discussed. For

example:

What value would you (as a customer) put on such a service?

Should a provider of creative dates set the price based upon costs, competition, or demand?

If pricing is based on costs, should it be for the provider’s time in dreaming up (i.e., creating

the date), the time it takes to execute the date, and/or the amount of involvement of the client

in the process?

Should the service fee be based on the satisfaction of the couple experiencing the date?

Should the fee be based on the client’s ability to pay? That is, should students pay less for

this service than professionals?

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If you were the customer, what references might you use in determining whether the price

being charged was appropriate? (reference pricing)

QUESTIONS TO USE WITH CHAPTER OPENING VIGNETTE

Chapter 15: Airlines Make Huge Profits but Baffle Customers with Fees

1. Discuss the pros and cons of airlines charging for individual services from the customer’s and the

company’s perspectives.

2. Resources such as “The Ultimate Guide to Airline Fees” chart compiled by Smarter Travel and

mentioned in the opening vignette can help customers compare fees for service across airlines.

Consider a trip you might make via airline. Go to the website

(https://www.smartertravel.com/2015/03/17/airline-fees-the-ultimate-guide/) and take a look at the

chart. Would you find this information helpful in planning your next airline trip? Why or why not?

Describe the customer segment(s) that you think would benefit most from this information.

ACTIVE LEARNING ACTIVITIES

1. Consumer frustration with the price haggling and high pressure tactics associated with car sales has

led to several new types of competitors in the industry. Identify these new competitors and discuss

how technology and changing consumer demands have affected the channels of distribution for

automobiles. (You may want to use the Internet to do some information-gathering for this exercise.)

2. Working with a small group, decide on a specific service offering (like a haircut, automobile

insurance, or listing a home through a realtor) and complete the following steps:

Discuss how consumers compare the different providers for the service you chose. Is price an

important factor? If so, do customers know the prices of different competitors’ offerings?

How do they compare them?

Collect pricing information for your service by assuming the role of a potential customer.

How did you find out the information? Was it easy to compare the prices of competitors’

services? What other cues did you use to make inferences about the desirability of the

different offerings?

Be prepared to analyze your service in class and to compare it to other groups’ services with

regards to pricing issues.

POSSIBLE WEB SITES FOR CHAPTER 15

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Company Location

American Airlines www.aa.com

eBay www.eBay.com

Hotwire.com www.hotwire.com

JetBlue Airlines www.jetblue.com

Orbitz www.orbitz.com

Priceline.com www.priceline.com

Ryanair www.ryanair.com

Southwest Airlines www.southwest.com

Travelocity www.travelocity.com

APPROPRIATE CASES FOR CHAPTER 15

From previous Zeithaml, Bitner, and Gremler Services Marketing texts:

Michelin Fleet Solutions: From Selling Tires to Selling Kilometers [included in the sixth edition

of this text: Zeithaml, Bitner, and Gremler (2013) Services Marketing: Integrating Customer

Focus Across the Firm, New York, NY: McGraw-Hill Companies]

Hong Kong Disneyland [included in the fifth edition of this text: Zeithaml, Bitner, and Gremler

(2009) Services Marketing: Integrating Customer Focus Across the Firm, New York, NY:

McGraw-Hill Companies]

Virgin Mobile USA: Pricing for the Very First Time [included in the fifth edition of this text:

Zeithaml, Bitner, and Gremler (2009) Services Marketing: Integrating Customer Focus Across

the Firm, New York, NY: McGraw-Hill Companies]

easyCar.com [included in the fourth edition of this text: Zeithaml, Bitner, and Gremler (2006)

Services Marketing: Integrating Customer Focus Across the Firm, New York, NY: McGraw-Hill

Companies]

Custom Research Inc. (A) [included in the fourth edition of this text: Zeithaml, Bitner, and

Gremler (2006) Services Marketing: Integrating Customer Focus Across the Firm, New York,

NY: McGraw-Hill Companies]

General Electric Medical Systems – [included in the fourth edition of this text: Zeithaml, Bitner,

and Gremler (2006) Services Marketing: Integrating Customer Focus Across the Firm, New

York, NY: McGraw-Hill Companies]

Virgin Atlantic Airways [included in the third edition of this text: Zeithaml and Bitner (2003)

Services Marketing: Integrating Customer Focus Across the Firm, New York, NY: McGraw-Hill

Companies]

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Ernst & Young LLP [included in the third edition of this text: Zeithaml and Bitner (2003)

Services Marketing: Integrating Customer Focus Across the Firm, New York, NY: McGraw-Hill

Companies]

North Pittsburgh Telephone Company [included in the third edition of this text: Zeithaml and

Bitner (2003) Services Marketing: Integrating Customer Focus Across the Firm, New York, NY:

McGraw-Hill Companies]

From other sources:

Zipcar: Refining the Business Model [Harvard Business School Case 9-803-096, 2005]

Golden Arch Hotel: McDonald’s Adventure in the Hotel Industry [American Graduate School of

International Management (Thunderbird) Case, A02-05-0017, 2005]

La Grand Alliance [Harvard Business School Case 9-175-266, 1998]

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