Question

What are the three basic price structure and difficulties associated with usage for service?

Answer 1

The three basic price structures are:

1. Cost-Based Pricing

2. Competition-Based Pricing

3. Demand-Based Pricing

 

Challenges associated with them are:

Competition based

i. Small firms may charge too less to be viable.

ii. Prices may not reflect customer value.

iii. Heterogeneity of services limits comparability.

Cost based

i. It is difficult to trace the costs.

ii.  Costs may not equal the value that customers perceive the services are worth.

iii. It is more difficult to price the labour than the materials.

Demand based

i. Information on service costs is less available to customers so price may not be a central factor.

ii. Monetary price must be adjusted to reflect the value of non-monetary costs.