Explain the Methods of Pricing in Services


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Methods of Pricing in Services:


1)      Cost based pricing: It is also called as cost-plus pricing. Under this method the company determines les the cost of service delivery as well as a pre-determined rate of profit in order to arrive at a price. It is necessary to-, analyze all costs accurately and differentiate between fixed and variable costs in order to use cost as the basis for pricing decisions. In the service industries it is complicated to identify and trace the cost to the particular offering. This method of pricing is widely used in catering services and by advertising agencies.

2)      Demand based pricing : In this method of pricing the cost is not considered but the serve provider allows the demand to determine the price. Demand based pricing is generally us where the services are price sensitive. The consumer perception of the value of the service quality varies. Therefore successful demand based pricing is based on effective segmentation of market to achieve the maximum price from the segment.

3)      Competition based pricing: Homogeneous services that are standards without specie service attributes are the best examples of competition based pricing. In this method of pricing the price is determined on the basis of competitor’s price. Price under such situations may be used to gain short-term competitive advantage over rival

 


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