Pricing Your Service Optimally

The following is a transcript of an interview with Professor Irene C. L. Ng, Associate Professor of Marketing, Director of the Centre for Service Research and Head of Postgraduate Studies at the School of Business and Economics, University of Exeter, UK, who is back in her native Malaysia for regional conferences and lectures.

Gabriel Ng (GN)
Thank you for taking the time to speak with me, Professor.

Professor Ng
(Prof Ng)
My pleasure.

GN
We’re here to discuss your new book, “The Pricing and Revenue Management of Services: A Strategic Approach”, recently published by Routledge in their ‘Advances in Management and Business Studies’ series.

Prof Ng
Done your homework, I see.

GN
Always. Let me get right to the point: your research in this book is exclusively about services. Why? What makes services so different from products, that you want to highlight them in your book?

Prof Ng
There is very little understanding of pricing generally and even less for services as they are usually intangible, perished upon production, simultaneous in consumption and production and often inconsistent in delivery. Services that exhibit such characteristics pose a huge challenge to pricing.

GN
Your book features 11 service strategies for higher revenues through pricing and revenue management, probably of most interest to marketing practitioners. Care to take us through a few of them?

Prof Ng
That’s quite a bit to go through and I’m afraid we won’t be able to fit all that needs to be said. Suffice to say that they provide managers with innovative ways of pricing. The book is part of the Routledge ‘Advances’ series so you would expect cutting edge service strategies to help companies get ahead.

GN
Hmm. And here I thought that “First world services at Third world prices” was all one needed to know about a service strategy here in Malaysia.

Prof Ng
Only if you want to be less profitable! Services have a big potential to increase their revenues. Some of the companies whom I work with, and who have traditionally been in manufacturing, are now earning greater revenues from services. For example, Rolls Royce revenues are 54% from service, and BAE Systems are also 50% service. What they, as well as other companies, hope to understand is how to price based on value and how to grow their revenues from service.

GN
So who do you think in Malaysia would have the most to benefit from reading your book? Don’t be shy, now, you could be identifying potential customers.

Prof Ng
Any company interested in value-based pricing and innovating in service.

GN
Not rising to the bait, I see. Fine, then. Why is it so difficult for service firms to price optimally?

Prof Ng
Unlike goods, services are often sold before production/consumption, so it’s often sold in advance. This implies that risk and uncertainty is always associated with the pricing of services, and having to price while taking into account customer perception of risks in purchasing services makes it even more difficult. Marketers still think that cost-based pricing is still the way to go. In services, cost is meaningless – almost all of it has been sunk and are fixed costs and marginal costs are negligible. The way to price services is based on value, moderated by the capacity of the service.

GN
Like Air Asia? The ticket prices increase as the capacity fills up?

Prof Ng
That’s only the capacity half of the story. The other half (value-based) is still not well understood which is a large part of the 11 strategies in the book

GN
Sometimes, when I’m on an Air Asia flight that’s full, I feel like standing up and asking everyone what they paid for their flight, just to compare and see. What do you think about that?

Prof Ng
The power of value-based pricing is that customers are willing to pay different prices. No one is holding a gun to their heads. In the end, they buy at the price they are willing to buy, whether at $5 or $100. Understanding how to price a service from a value perspective helps firms increase revenues and make customers happy too. It might sound like its too good to be true but the book will explain why and how.

GN
Last question: I’m a columnist and therefore a service provider. How do you think I should increase my revenues?

Prof Ng
You have a limited capacity to write, time-wise. If you have 4 publishers vying for your time, your revenues should increase as your capacity reduces, if you price it right. However, you also can choose what you wish to write about, and if your content contributes value to the publisher, you will also be able to increase your revenues. Capacity-based and value-based pricing have tensions, and you should know how to manage the tension optimally for your own benefit!

GN
Hmm. I was thinking, “Ask for more money”, but I guess that’ll do! Well, that’s all the space we have for this week. Thanks for your time, Prof!

Disclosure: Gabriel Ng has worked in consumer marketing for 8 years, but has been Professor Irene Ng’s brother for much longer. Find out more about Professor Ng’s new book, her research and her consulting work at the University of Exeter at http://www.ireneng.com.

Unedited version of column that appeared in "The Sun", 23rd January 2008. Edited PDF version here.

New Year’s Resolutions for the Malaysian Marketer

It’s the new year, and you, dear marketer, are still bleary from all the partying over the weekend. Now you’re drinking copious amounts of Americano while trying to drag your fuddled brain back to lucidity, pretending to read this newspaper. The idea of new year’s resolutions is laughable at this point. Fear not. Here they are for you, carefully selected from observations of some marketing gaffes of 2007.

1. I resolve to responsibly oversee the copywriting on my print advertising if I am qualified or have it professionally vetted if I am not, and not to surrender it to my MS Word’s spell and grammar checker. Not everybody can come up with bad copy that sounds good, like Samsung’s “World Best” tagline of yesteryear.
   
   
2. I resolve not to schedule the same radio ads for more than 2 weeks in a row, and certainly resolve to pull the plug after 1 month. Especially on peak hour morning shows when repetitive radio ads are as annoying as the slow traffic on Jln Tun Razak.
   
   
3. I resolve to strenuously encourage my marketing and sales executives to change their strange adopted English first names to something less cringe-inducing. I am referring to those who call themselves, for instance, Coma Tan, or Season Wong or Winky Teh.*
   
   
4. I resolve not to cave in to my CEO’s sometimes off-hand, uninformed and unhelpful pronouncements when vetting ad campaigns, in spite of my appointed advertising agency’s strenuous efforts to actively solicit them. I resolve to do my level best to end the era of egocentric ad campaigns in my lifetime.
   
   
5. I resolve not to use billboards that can be seen from the North South highway which are not run by Big Tree since they are, well, not on the North South highway. (Unless they are waaay cheaper and are legible for at least 3 seconds by a person with 6/6 vision driving at 110km/h, so what if they are lurking at the edge of oil palm plantations).
   
   
6. I resolve not to copy the Petronas TVCs since they are in a class of their own and my efforts would seem pedestrian in comparison.
   
   
7. I resolve not to pander to my advertising agency’s penchant for constructing ads which appeal to “opinion leaders” which are invariably modelled after their A/X clad, pinot-noir drinking selves and have very little to do with the Malaysian public.
   
   
8. I resolve to try originating my brand propositions and messaging in Bahasa Malaysia or in Chinese and then only translating them to English, since Nielsen reports that only 4% of the Chinese population and 2% of the Malay population speak English as their most often used language. Of course, that might end up breaking resolution #1 (please see above). Life, after all, is a series of trade offs.
   
   
9. I resolve to try to incorporate some number crunching rigour to my marketing budget, such as those fancy marketing ROI tools being bandied about around town by some ad agencies and consulting firms, and also to make sure any allocation for purchasing them comes on top of my existing budget.
   
   
10. I resolve to stop using scratch cards or fake “winning lottery tickets” in my promotional mailers because, while they are depressingly effective, they do so much to bring down the dignity of what it means to be a human being.
    

There you go. Now, email me who you think “inspired” those resolutions above and I’ll send you a mystery gift. ;-)


* These are not real people and any resemblance to any person, living or dead, is unintentional and coincidental. And also, well, slightly tragic. Although I must admit “Winky” is kind of cute.

(as seen in "The Sun", January 2nd 2008. e-paper link here.)