Most banks charge their customers an extra fee when they use a "foreign" ATM (that is, one belonging to another bank). This surcharge is on top of any service charges for account activity, which might be as much as $1.25 per transaction if the balance falls below a certain level. The surcharge, initially $1.00, was first implemented in 1996 after heavy lobbying by banks to convince the two largest ATM networks—Visa's "Plus" and MasterCard's "Cirrus" to withdraw their ban on additional surcharges.
The banks argued successfully that permitting surcharges would encourage placement of ATMs in useful, but out-of-the-way places where volume would be lower. By 1999,90 percent of all banks were surcharging at an average rate of $1.35; in addition, all independently owned ATMs imposed charges, averaging $1.59 per transaction. The result was accusations by consumer groups of price gouging, leading to growing political pressure in the United States to limit or even ban surcharges.
Banks responded with claims that making ATMs available to no customers was a service that offered value and that people were clearly prepared to pay for this convenience. However, data showed ATM usage peaking in late 1999 as more people used their debit cards to obtain cash when making purchases at grocery stores, which don't typically charge fees.
The big winners from surcharges appear to be several dozen small companies that install inexpensive ATMs and connect them to a national network. These non-bank ATMs impose a double surcharge: first the $1 + fee for use of a "foreign" ATM plus an additional charge that may be as high as $3 for a simple cash withdrawal. To make matters worse, non-bank ATMs often fail to disclose the extra surcharge. The first that users know about it is when they find it billed to their bank accounts.
Despite these drawbacks, many small business owners approve of the non-banks' approach to doing business. When the owner of a minim art was unable to persuade a bank to put an ATM in his store, he leased a machine from a company for about $300 a month. Users pay an extra $1.50 surcharge for each transaction, of which $0.80 goes to the minim art owner. He claims that, thanks to the machine, his store attracts more customers and sells more merchandise, netting him a profit of up to $50 a month after paying the leasing fee.
What Should Be the Basis for Pricing?
To set a price, managers must define the unit of service consumption. Should it be based on completing a specific service task, such as repairing a piece of equipment, cleaning a jacket, or cutting a customer's hair? Should it be based on admission to a service performance, such as an educational program, film, concert, or sports event? Should it be time based, as in using an hour of a lawyer's time, occupying a hotel room for a night, or renting a car for a week? Should it be tied to value, as when an insurance company scales its premiums to reflect the amount of coverage provided or a realtor takes a percentage commission on the selling price of a house?
Some service prices are tied to consumption of physical resources like food, water, or natural gas. Rather than charging customers an hourly rate for occupying a table and chairs, restaurants put a sizeable mark-up on the food and drink items consumed. Long-distance phone call pricing reflects a combination of distance and time rates. Transportation firms have traditionally charged by distance, with freight companies using a combination of weight or cubic volume and distance to set their rates.
Another straightforward pricing strategy involves charging a flat rate, like postal charges for domestic letters below a certain weight or a zone rate for packages that groups geographic distances into broad clusters. These policies have the virtue of consistency, but they ignore relative market strength on different routes.
Price Bundling Many services unite a core product with various supplementary services, such as a cruise ship where the tariff includes meals and bar service. Should such service packages be priced as a whole (referred to as a "bundle"), or should each element be priced separately? If people prefer to avoid making many small payments, price bundling may be preferable—and it's certainly simpler to administer.
However, if customers dislike being charged for product elements they don't use, itemized pricing may be better. Bundled prices offer guaranteed revenue from each customer, while giving users a clear idea in advance of how much the bill will be. By contrast, unbundled pricing provides customers with flexibility. Some firms offer an array of choices. Mobile phone subscribers, for instance, can select from among several service options.
One choice involves paying a small monthly fee for a basic service and then extra for each call. Another alternative is to pay a higher flat rate in return for several hundred minutes of calling time. At the top of the pricing scale is the option that provides business users with unlimited access to long-distance calls over a prescribed area.
Discounting To attract the attention of prospective buyers or to boost sales during a period of low demand, firms may discount their prices, often publicizing this price cut with coupons or an advertising campaign. Marketers of subscription services, such as cable television, Internet service, cellular telephone service, or credit cards, often employ a strategy of offering the service at a discount or even free of charge for an introductory period.
There are risks to a discounting strategy. It dilutes the contribution from each sale, may attract customers whose only loyalty is to the firm that can offer the lowest price on the next transaction, and may give a bargain to customers who would have been willing to pay more. Nevertheless, selective price discounting targeted at specific market segments can help to fill capacity that would otherwise go unused.
Volume discounts are sometimes used to cement the loyalty of large corporate customers, who might be inclined to spread their purchases among several different suppliers. Rewarding smaller customers by occasionally offering them a discount off their next purchase may also build loyalty.
Who Should Collect Payment?
Sometimes firms choose to delegate provision of supplementary services like billing to an intermediary. Although the original supplier pays a commission, using a third party may still be cheaper and more efficient than performing those tasks itself. Commonly used intermediaries include travel agents who make hotel and transportation bookings; ticket agents who sell seats for theaters, concert halls, and sports stadiums; and retailers who sell services ranging from prepaid phone cards to home and equipment repair.
Where Payment Should Be Made?
Payment for many services is collected at the service facility just before or immediately following service delivery. When consumers purchase a service well in advance of using it, there are obvious benefits to using intermediaries that are more conveniently located, or allowing payment by mail. (Airports, theaters, and stadiums, for instance, are often situated some distance from where potential customers live or work.) A growing number of service providers now accept credit cards for telephone bookings and sales over the Internet.
The simplicity and speed with which payment is made may influence the customer's perceptions of overall service quality. Thus service firms should pay special attention to providing payment collection procedures that are both efficient and effective from both the customers' and the companies' perspectives. Poorly designed payment methods may encourage "jaycustomer" behaviors like delayed payments or worse yet no payment at all.
For example, one driver told a journalist that he refuses to pay tolls at New Jersey's automated tollbooths "on principle, because the toll plazas are badly designed and irritating the state set up a system so bad, you have to abuse it.
When Should Payment Be Made?
Two basic options are to ask customers to pay in advance (e.g., an admission charge, airline ticket, or postage stamps), or to bill them on completion of service delivery (e.g., restaurant bills and repair charges). Occasionally a service provider may ask for an initial payment in advance of service delivery, with the balance being due later (e.g., management consulting).
This approach is also quite common with expensive repair and maintenance jobs, especially when the firm often a small business with limited working capital must buy materials up front. Asking customers to pay in advance means that the buyer is paying before the benefits are received. But prepayments may be advantageous to the customer as well as to the provider. Advance payment saves time and effort, especially with frequently purchased services.
How Should Payment Be Made?
Service businesses must decide on the types of payments they will accept. Although cash is a simple payment method, it raises security problems and is not always convenient for customers (especially for large purchases). Checks are convenient for customers, but sellers need to develop controls to discourage invalid payment. A $15 to $20 charge for returned checks is not uncommon at retail stores.
Credit cards are convenient and have the advantage of being accepted worldwide, regardless of currency. Businesses that refuse to accept such cards increasingly find themselves at a competitive disadvantage. Prepayment cards simplify the process of paying for services like road and bridge tolls or telephone calls. Internet service provider World Online has introduced a new type of prepayment card in the United Kingdom that operates on the prepaid model popular in the mobile phone industry.
British consumers buy the cards from local retailers and then use a PIN number located on a scratch-off panel on the back of the card to open an account with World Online. These cards are mainly aimed at teenagers, but they are also marketed to the 50 percent of British adults who don't have credit cards. World Online plans to roll out the service across the rest of Europe.
Smart cards store value in a microchip embedded within the card. To accept payment in this form, however, service firms must first install card readers. This sophisticated payment option requires partnerships between banks, retailers, and telephone companies. Working together, these partners can provide a smart card that serves as an "electronic wallet," enabling customers to download digital money to their cards from their bank accounts from an ATM or by telephone, using a special card reader.
The latest innovation is card readers that can be attached to an account holder's computer. As a student, you may have personal experience with this form of payment, since many universities provide students with personalized smart cards that can be used to buy drinks from vending machines, make photocopies, pay fines for late return of library books, and many other purposes.
Other payment procedures include directing the bill to a third party for payment and using vouchers as supplements to (or instead of) cash. Insurance companies often designate approved garages to inspect and repair customers' vehicles when they are involved in accidents. To make life easier for the customer, the garage bills the insurance company directly for the work performed.
This saves the customer the effort of paying personally, filing a claim, and waiting for reimbursement. Vouchers are sometimes provided by social service agencies to elderly or low-income people. Such a policy achieves the same benefits as discounting but avoids the need to publicize different prices or require cashiers to check eligibility.
In the business-to-business environment, most suppliers offer credit accounts, payable monthly, which generate membership relationships with customers. Online payments are often made through third-party firms like Clareon that specialize in managing electronic transactions between customers and vendors (Figure).
Communicating Prices to the Target Markets
The final task is to decide how the organization's pricing policies can best be communicated to its target markets. People need to know the price for some product offerings well in advance of purchase. They may also need to know how, where, and when that price is payable. This information must be presented in ways that are intelligible and unambiguous, so that customers will not feel misled.
Managers must decide whether or not to include information on pricing in advertisements for the service or on the company's Web site. Advertising sometimes relates the price to those of competing products or to alternative ways of spending one's money. Customers expect salespeople and service representatives to be able to give prompt, accurate responses to queries about pricing, payment, and credit. Good signage at retail points of sale saves staff members from having to answer basic questions on prices.
Finally, when the price is presented in the form of an itemized bill, marketers should ensure that it is both accurate and intelligible. Hospital bills, which may run to several pages and contain dozens of items, have been much criticized for inaccuracy. Telephone bills, too, used to be confusing. They were often printed on small sheets of paper, crammed with technical jargon and it was hard to determine how the total charge due was computed. But many firms have worked to develop new and clearer formats that are easier for consumers to interpret.
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Principles Of Service Marketing Management Tutorial
Services In The Modern Economy
Understanding Service Processes
Managing Service Encounters
Customer Behavior In Service Environments
Relationship Marketing And Customer Loyalty
Complaint Handling And Service Recovery
The Service Product
Pricing Strategies For Services
Promotion And Education
Service Positioning And Design
Creating Delivery Systems In Place, Cyberspace, And Time
Creating Value Through Productivity And Quality
Balancing Demand And Capacity
Managing Customer Waiting Lines And Reservations
Employee Roles In Service Organizations
The Impact Of Technology On Services
Organizing For Service Leadership
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