Question

Identify and describe the foundations of pricing strategies and the various approaches to pricing a service. Choose two service bills that you receive and think of how they built their foundational pricing strategy.

Answer 1

The foundations of pricing strategy are:

• Costs: It is the one way in which companies see the overall costs they are incurring in providing the service and then they may add some margin for profit while pricing for the services. Costs incurred is one of the important foundation in shaping the pricing strategies.
• Competition: The second foundation stone of pricing strategy is competition, in this method the competitor’s price who is providing the same kind of services is taken as reference and then the pricing strategy is framed. It is generally used in a situation where everyone is providing the same kind of service and there is generally not much difference amongst the services of different service providers.
• Value to the customer: The pricing strategy of services are often unsuccessful because there is no relationship between the price and value being provided by the service. The customer may think that they are overcharged for the service and may switch to other alternative. Value may be different for different customers, for e.g. some may think that the cheapest service is the best while other may not care about price instead he wants high quality of services. The company while framing its pricing strategy must look at its customers otherwise the pricing strategy will prove to be a disaster.

The two service bills I receive and their foundational pricing strategy are discussed below:

Bill No. 1- This bill is of my telecom service provider, it is one of the most expensive telecom service providers in the country but it has 2nd highest number of subscribers. After carefully analysing its pricing strategy I have found that the company has built its pricing strategy on value-based approach. The services are expensive but the company is still enjoying the 2nd position in the market.

Bill No. 2- This bill is of may cable service provider, when I first subscribed to this service the price was very low and there were only two companies operating in the market, over the years I kept seeing the price I was charged kept increasing and now it has increased to a much higher level. In my analysis I think this company kept increasing its price because of its counterparts in the market. Since cable service is a standard service and more or less everyone provides the same kind of services thus the company has kept its pricing strategy based on the competition.