Price management in service companies

Price management is the goal-oriented design of the consideration for the product offered by the company. The following can be named as the design parameters of price management:

Price management has different meanings in the service sector. In the case of price standardization, ie setting of prices by third parties (e.g. tax consultant's fee schedule), the price scope is limited. If the prices are freely determined, there is price scope that can be used for price management. Characteristics of services are the immateriality and the integration of the external factor (external production factor). These features cause a high level of quality, performance and cost uncertainty when using or purchasing services and thus make pricing and the identification of comparable offers for comparison of offers more difficult.

The quality of a service cannot be checked prior to the provision of the service, because no test copy exists due to the immateriality and previous experiences or experiences of third parties are not very meaningful due to the inconsistency of the quality (quality controlling in service companies). The reason for the inconsistency of the quality is the changing efficiency of the provider as well as the dependence of the quality on the characteristics of the external factor (e.g. hair type in hairdressing services). The service uncertainty results from the dependency of the scope of a service on the state of the external factor, which may only become recognizable during the provision of the service (e.g. damage to a car).

In the case of personal services, internal factors can be substituted by external factors within certain limits. In this way, tasks within the framework of a consulting project can be transferred to employees of the customer. The reason for the cost uncertainty is the composition of the procurement costs of a service. Unlike in-kind services, the procurement costs include not only the consideration for the service, but also the costs of the external factor, such as the cost of a rental car for repairs. Difficulties are found in determining these costs if the provision of the external factor results in opportunity costs, such as target contributions, which are lost because the customer's employees are involved in a consulting project and have to postpone their own tasks. Another reason for the cost uncertainty arises from the uncertainty about the extent to which internal factors are substituted by external factors.

With price management, success targets are aimed for (e.g. profit, return targets). The sub-goals of price management, via which the desired success goals are operationalized, include, among other things, increasing customer satisfaction or promoting a product launch. The cost structure in service companies is characterized by a high proportion of fixed costs. Capacity utilization thus becomes an important determinant of success. Consistently high capacity utilization is therefore of particular importance as a sub-goal of price management.
Price differentiation is of paramount importance for price management in service companies. It occurs when different prices are charged for the same product. The following six forms of price differentiation can be used in isolation or in combination:

1) In the case of personal price differentiation, the same products are offered to different customer groups, which are delimited according to personal characteristics, at different prices (e.g. discounts for children and students when entering swimming pools).

2) With spatial price differentiation, the same services are offered in different geographical areas at different prices.

3) The time-based price differentiation is most frequently used, in which different prices are charged for the same product depending on the time of use. The prices can be differentiated according to time of day (daily and moonlight tariffs of the telephone companies), weekdays (working day and weekend tariffs) or seasons (special tariffs for the Christmas holidays).

4) If different prices are charged for the same products that differ in their individual performance features but not in their basic functions, performance-related price differentiation is used (e.g. admission prices for different tiers in the cinema and theater).

5) If the price per unit of quantity decreases with the quantity accepted by the customer, there is a quantitative price differentiation. Bonus programs, block tariffs and two-part tariffs often appear in the case of services. Bonus programs provide that a customer is granted a discount for a certain amount of demand (e.g. frequent flyer programs of the airlines). If the consideration from a customer consists of a quantity-independent and a quantity-dependent component, a two-part tariff is present, which is typical for telecommunications services. If the customer can choose between different combinations of quantity-independent and quantity-dependent components, a block tariff is available (e.g. Bahncard from Deutsche Bahn AG).

6) In the case of price bundling, various services are combined for which a total price is required that is often below the sum of the individual prices (e.g. trips consisting of flights, overnight stays and excursions).

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