Page 350 - Foundations of Marketing

Developing and Managing Goods and Services | Chapter 11 317

of the service. For instance, a restaurant might give a small discount if children are well-
behaved. Service marketers can reduce problems by encouraging customers to share the
responsibility of maintaining an environment that allows all participants to receive the
intended benefits of the service environment.

Pricing of Services

Services should be priced with consumer price sensitivity, the nature of the transaction, and
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its costs in mind. Prices for services can be established on several different bases. The prices
of pest-control services, dry cleaning, sports events, and a physician’s consultation usually are
based on the performance of specific tasks. Other service prices are based on time. For example,
attorneys, consultants, counselors, piano teachers, and plumbers often charge by the hour or day.
Some services use demand-based pricing. When demand for a service is high, the price is
also high; when demand for a service is low, so is the price. The perishability of services means
that when demand is low, the unused capacity cannot be stored and is therefore lost forever.
Every empty seat on an airline flight or in a movie theater represents lost revenue. Some services
are very time-sensitive because a significant number of customers desire the service at a particu-
lar time. This point in time is called peak demand. A provider of time-sensitive services brings
in most of its revenue during peak demand. For an airline, peak demand is usually early and late
in the day. Providers of time-sensitive services often use demand-based pricing to manage the
problem of balancing supply and demand. They charge top prices during peak demand and lower
prices during off-peak demand to encourage more customers to use the service. This is why
the price of a matinee movie is often half the price of the same movie shown at night.
When services are offered to customers in a bundle, marketers must decide whether to offer
the services at one price, price them separately, or use a combination of the two methods. For
example, some hotels offer a package of services at one price, whereas others charge separately
for the room, recreation facility, and breakfast. Some service providers offer a one-price option
for a specific bundle of services and make add-on bundles available at additional charges. For
example, a number of cable television companies offer a standard package of channels for one
price and offer add-on channel packages for additional charges. Telephone services, such as
call waiting and caller ID, are frequently bundled and sold as a package for one price.
Because of the intangible nature of services, customers rely heavily at times on price as an
indicator of quality. If customers perceive the available services in a service category as being
similar in quality, and if the quality of such services is difficult to judge even after these ser-
vices are purchased, customers may seek out the lowest-priced provider. For example, many
customers seek auto insurance providers with the lowest rates. If the quality of different ser-
vice providers is likely to vary, customers may rely heavily on the price-quality association.
For example, if you have to have an appendectomy, will you choose the surgeon who charges
an average price of $ 1,500 or the surgeon who will take your appendix out for $ 399 ?

Distribution of Services
Marketers deliver services in various ways. In some instances customers go to a service pro-
vider’s facility. For instance, most health-care, dry-cleaning, and spa services are delivered
at the service providers’ facilities. Some services are provided at the customer’s home or
business. Lawn care, computer systems installation, and carpet cleaning are examples. Some
services are delivered primarily at “arm’s length,” meaning that no face-to-face contact occurs
between the customer and the service provider. Several equipment-based services are deliv-
ered at arm’s length, including electric, Internet, cable television, and telephone services.
Providing high-quality customer service at arm’s length can be costly but essential in keeping
customers satisfied and maintaining market share. Allstate insurance knows that customer
satisfaction is important and emphasizes good public service. The company offers six months
of free car insurance premiums to customers who are not satisfied with the handling of a paid
auto insurance claim. The company states that it wants its customers to be satisfied with their
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overall experience, not just the payout of the claim.

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