Price Management for Services

servicesIn highly developed economies, services typically account for more than three quarters of the gross domestic product (GDP). Services have a range of special characteristics which are very important for price management. Price management for services has to cover a very broad spectrum, from the complex yield management systems used by airlines to the straightforward, everyday price setting in many sub-sectors. This chapter deals with service-specific problems in price management and follows the pricing process of analysis, decision-making, and implementation. The characteristics of services relevant for price management include intangibility, the integration of customer resources, the ratio of fixed to variable costs, the lack of transferability from one customer to another, the importance of experience and trust, and the local nature of services. Price differentiation for services is more powerful and rewarding than for material goods because many services are highly customized. Furthermore, differentiated prices can be implemented more effectively and tend to be accepted by customers more readily. Services have not escaped the effects of the Internet. Price transparency as well as price and value competition have been increasing dramatically.