Price Sensitivity in the Service Industry
Price management is the analysis of separate revenue-altering aspects from consumer behavior to competitor pricing and product value, among others. That information is used to develop strategies for price optimization, inventory control, forecasting, promotion, and more. Can companies in the service industry benefit by adopting pricing strategies? In this article, we look at price sensitivity and how it plays a role in the service industry. Is the customer looking for your service different from a consumer who shops online for certain products? Consumers who shop online are known to be more price sensitive than ones who shop at retail stores. With the dramatic increase in the number of consumers shopping online, one might presume they are also price sensitive towards other types of purchases. You can sell your services online, but the service is not tangible. You can't zoom in on a picture and rotate it. You can't say, "That service will look good with red pumps!" So, how does price sensitivity factor in towards an optimized price? In the service industry, price sensitivity only plays a small part in the consumer's decision to buy your service. This does not mean there won't be customers who will always take the lowest price. It means that there are more important factors to consider to obtain the ideal price for your service. With that in mind, you can focus on other influences that will determine your optimized price. The first question being, "What can you do to increase profits without losing the quality of your service while being competitive in your market?" Now that's a tough question. How do you know what is the best price for your service? Are you riding the wave of competitor prices? Do you only run promotions during slower revenue periods? Are you achieving the best price possible while maintaining growth? If you are a service organization who wants to grow and increase profit ratios, you might consider incorporating a price management program into your financial business model. As I stated before, price management is about analytics and strategies. Financial analytics has changed considerably in the past ten years. New strategies can be evoked to get more customers buying your service while maintaining a healthy growth.