Monetary Pricing Objectives
Above table illustrates and explains three basic categories of pricing objectives:
Revenue-oriented pricing objectives
Revenue-oriented pricing objectives, which must be based on a clear understanding of fixed, variable and semi-variable costs, have the purpose of covering costs, increasing sales and revenue, and optimizing profit.
Operations-oriented pricing objectives
Operations-oriented pricing objectives serve the purpose of matching demand and supply so as to ensure optimal use of productive capacity at any given time.
Patronage-oriented pricing objectives
Patronage-oriented pricing objectives serve to maximize patronage, recognize differential abilities to pay among various market segments, and offer payment methods responsive to customer preferences.
It is important that students understand the role that pricing objectives play in serving the attainment of business goals and objectives, as well as marketing goals and objectives.
Non-Monetary Pricing Objectives
In the context provided by not-for-profit organizations other non-monetary pricing objectives may also apply. These may include, for example, perceived fairness, equity and affordability, and the desired attitudinal response and support sought from patrons and the wider community.
In other words, in establishing the quantum of money sought, it bears considering the role that this stated amount might play in achieving the desired attitudinal response and support from those markets.
From the perspective of the organization and its purposes, it bears considering what the price or desired financial amount, the level at which it is set, and how it is communicated, can be employed to express credibly something of what the organization stands for, its principles and values.
In this way ‘price’ can be used to play a role in achieving more than simply revenue generation and cost recoupment alone.
Pricing Relative to Demand Levels
Price elasticity is used to measure the crucial effects of demand sensitivity on price change. The determination of this is crucial to a marketer, and especially so in a service setting. This is because of the perishability of services and the variability of demand, and the need to optimize the use of fixed capacity in a context of fluctuating demand.
Changes in price, up and down, affect people’s willingness to buy, and so a challenge continually facing service marketers is deciding what direction and scale of price movement will serve to maintain the most suitable balance between capacity/supply and demand, whilst at the same time maximizing sales, revenue and profitability.
Monetary versus non-monetary costs
Monetary costs are all those of a purely financial nature – i.e. the costs of, and directly associated with, the purchase.
Non-monetary costs represent the time and effort that a customer is prepared to invest in finding a service that suits their particular needs and then availing themselves of that service, as well as the associated trade-offs that they are prepared to make vis-à-vis the risks perceived to be associated with one service provider as opposed to another.
Why is cost-based pricing particularly problematic in service industries?
Fundamentally because of difficulties in deciding how to assign overhead costs. Also, because the provision of services is highly labour-intensive and involves highly variable amounts of time in dealing with the different needs and requirements of different customers, estimating the amount and value of employee time required to deliver a “standard” service element is almost impossible.