SERVICE INDUSTRY-PRICING ISSUES J. R KUMAR Faculty Director, FAPCCI. The basic aim of the Service Industry is to provide services to the clients/customers who need those services. These services include the services for the manufacturing units, as well as the services to other direct or indirect service providers who offer services to others involved in meeting human needs. Pricing the services is always considered as difficult, especially when the quality of services vary from customer to customer.
Some of the methods adopted could be: a. Charge the price as per cost of service-Based on costing of time spent, materials used etc. , in rendering the service. b. What the others are charging. -most common method. c. What customer is willing to pay or what the customer is charging his customers based on this input service. d. Gamble and charge an estimated price. We can see that every consultant might have tried one or more of such methods, or variations of them, at one time or another with varying degrees of success.
If service providers are operating in a protected environment, they have the advantage of charging the declared price as fixed by the apex/regulatory body. When the service provider is operating in a competitive field, the price fixation is very difficult. Similarly in case of service providers operating in unorganized sectors, the price fixation is very difficult job and many service providers are underpaid. If we are service providers and if study the methods adopted by established service providers in industry it can help us in pricing our services properly.
Some of such factors which are generally considered by the service providers in fixing price for their services are: 1. Market Conditions-Demand for services and availability of Service providers. Most service providers go by this. Once price is fixed based on market forces, the other variable to earn profit is to maximize the operating cost. 2. Experience of the Service Provider- Experienced service providers demand and get higher price, than the new entrants. Same service provider can gradually increase his price as he gains experience and skill in that line. . Cost Plus. The services can not be sold at prices lower than cost plus reasonable return on investment. Here the service provider identify and group costs into fixed and variable to cover full variable cost in the price as done in case of products. 4. Location of the place where services are required. Service providers charge higher fees when services are provided in remote places. Services rendered in remote places can get higher price than at place where such services are readily available in plenty or where competitors are operating. 4.
Entry Barriers-Many services prescribe certain entry qualification like lawyer, doctors, accountants, and Engineers. Those service providers, who have necessary qualification and permitted to operate charge based on their expected earning level and here the educational qualification gives and indication of price to be fixed for the service offered. 5. Price customer is willing to pay. Golden principle followed by service providers is to fix the price based on the principle as to what the ‘customer can pay’. It is don after discussions with service receiver about their perception of cost of services required vs. uality . No service provider would like to loose a Customer, by demanding price which the customer has no ability to pay. Often services are offered at by new entrants at uneconomical prices, because the service is a perishable commodity and we need the customers are needed in the long range for continuing the business. If customer is able to perceive that he is getting more than what he is paying for, there is every possibility of long range relation ship between the service receiver and the service provider.