Impact of characteristics of services on pricing

Prices set in services market are considerably influenced by characteristics of services. The impact of characteristics of services on pricing is discussed below:

Characteristics of services and prices

1. Services are perishable in the sense that they cannot be stored. The fluctuation in demand cannot be met easily through inventory. Service providers use special offers and price reduction as a tool for utilizing spare capacity. Marginal pricing is used in markets like airline travel and package holidays. Use of such pricing policies results-in customer satisfaction. Buyers postpone purchase of services in anticipation of price reduction.

2. Customers avail many services according to their convenience. Use of certain services is not confined to a time frame. Customers are able to perform certain services themselves. So, this factor has increased competition among service providers.

3. Services are intangibles and are not created in a factory assembly line. Intangibility has several price implications. Generally, service providers are unwilling to estimate prices. In medical and legal services, prices.can be fixed only after the service is provided. The fundamental reason for this is that they do not know themselves what the actual services will involve, until they fully examine the patient or understand the client’s case. So, customers often buy services without advance knowledge about the final price of the service.

4. Services provided are more varied than physical products. Customer needs vary from one individual to another. Service quality and service quantity may be adjusted to meet such varied customer requirements. Some hairstylists service price varies across customers. Factors such as length of hair, type of hair cut, conditioning treatment etc., largely influence the price. Similarly, in case of hotel accommodation, prices will vary with the size of room, season, availability of room, room type, individual or group accommodation etc. So, customer requirement play a vital role in the price of service.

5. Prices charged for homogeneous services are highly competitive. However, regulatory agencies such as trade association or government agencies prescribe ‘fees’ for services. When service is unique, prices charged by the service providers vary considerably. In such cases, prices are the indicator of the quality of services.

6. In case of physical goods, retail stores display the products by category. This allows customers to compare the prices of different brands. But display of service is not possible by the service providers.

7. Services are inseparable from the person providing them. This places geographical limits on markets that can be served. So, buyers of services search for service-provision within certain geographic limits.