Types of Service Pricing Strategies
An organization’s objectives determine the desired results of pricing policies. Strategies are the means by which these objectives are achieved. Before discussing pricing strategies, it is useful to lay the ground work for analyzing the underlying factors that influence price decisions. Four important bases for price determination can be identified:
- What it costs to produce a service
- The amount that consumers are prepared to pay for it
- The price that competitors are charging
- The constraints on pricing that are imposed by regulatory bodies.
The cost of producing a service represents a minimum price that a commercial organization would be prepared to accept over the long term for providing the service. The maximum price achievable is that which customers are prepared to pay for the service. This will itself be influenced by the level of competition available to the customers to satisfy their needs elsewhere. Government regulation may intervene to prevent organizations charging the maximum price that consumers would theoretically be prepared to pay.
