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Pricing and Service Charge

 

DisciplinesMarketing > Pricing > Pricing and Service Charge

Types | Discussion | See also

 

Everything you sell has a price (unless you are giving it away, but then it is not being sold). Sometimes also, companies display the price, but then add an additional service charge of some kind.

Types of service charge

Service charges

Restaurants may let people leave a tip of their own choosing. They may also simply add a service charge to the bill. If they do this, it is usually mentioned at the bottom of the menu (often in small type). It may also just appear on the bill as a separate item, such that customers only find out this cost if they scrutinize the bill when they receive it (which they may not do). Some restaurants also suggest offering additional voluntary tips.

Cover charges

In some countries a fixed 'cover charge' is a standard addition to a restaurant bill. This is for bread, water and the general price of sitting at a table. The food is then added separately. The idea of this is that it fairer way of showing what the costs are, though it can be a surprise to people unused to such charges (typically tourists).

Call-out charges

Service companies that drive to a customer's home, typically to fix an appliance, may have a fixed call-out charge that is applied before any cost of expert service actions. Other suppliers, such as doctors might also apply a call-out charge.

Delivery charges

When items are being delivered to a given address, this may be added as an extra. Delivery charges typically start with a basic cost and then become larger based on distance. When delivery is by post, then it may include post and packaging as well as the actual shipping cost. When delivery is by hand, then it includes the time of the person doing the delivery.

Discussion

The biggest question with service charges is whether to show them separately or whether to include them in a single price. Or indeed whether to make them 'free' (although of course you have to recoup the costs you incur somewhere).

Showing service charges as separate items can make the main product seem cheaper, though it can also create a dissonance where the customer has already mentally accounted for the product at the given price and then sees the additional service charges as an unpleasant and unfair 'tax' being added on top, perhaps after they have committed to the purchase.

Including service charges without specifying their costs makes mental accounting for the product easier, although it also may make your product seem more expensive if customers compare your all-in pricing with the separated product cost of other suppliers. A key benefit that single pricing offers is simplicity. Customers are told everything they must pay in one price, which may lead to greater trust and hence more future purchases.

See also

Shipping and Pricing

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