Pricing objectives and pricing methods in the

Topics: Pricing, Marketing, Profit maximization Pages: 35 (8311 words) Published: June 16, 2014
Pricing objectives and pricing methods in the
services sector
George J. Avlonitis and Kostis A. Indounas
Department of Marketing and Communication, Athens University of Economics and Business, Athens, Greece Abstract
Purpose – The purpose of this research paper is to explore the pricing objectives that service companies pursue along with the pricing methods that they adopt in order to set their prices.
Design/methodology/approach – An extensive review of the literature revealed the complete lack of any previous work aiming to investigate the potential association between these two important elements of a company’s pricing strategy. Thus, the value of the paper lies in the fact that it presents the first attempt to examine this issue empirically. In order to achieve the research objectives, data were collected from 170 companies operating in six different services sectors in Greece through personal interviews. Findings – The findings of the study reveal that the objectives, which are pursued, are fundamentally qualitative rather than quantitative in their nature with a particular emphasis given on the companies’ customers. However, the pricing methods, which are adopted by the majority of the companies, refer to the traditional cost-plus method and the pricing according to the market’s average prices. The study also revealed that the pricing objectives are, as should be expected, associated with the pricing methods. Practical implications – The practical implications of the findings refer to the fact that managers might gain a lot by placing their emphasis on an integrated pricing approach and implement pricing methods that are in line with the pricing objectives that have been initially set. However, the context of the study (Greece) is an obvious limitation to the ability to generalize these findings, suggesting the need for future research that replicates the current study in other countries.

Originality/value – Managers might gain a lot by placing their emphasis on an integrated pricing approach and implement pricing methods that are in line with the pricing objectives that have been initially set. Keywords Service industries, Pricing policy, Greece

Paper type Research paper
An executive summary for managers and executive
readers can be found at the end of this article.
Introduction
A number of different authors have underlined the
importance of pricing decisions for every company’s
profitability and long-term survival. For instance, Nagle and Holden (1995, p. 1) point out:
[. . .] if effective product development, promotion and distribution sow the seeds of business success, effective pricing is the harvest. Although effective pricing can never compensate for poor execution of the first three elements, ineffective pricing can surely prevent those efforts form resulting in financial success.

Moreover, Marn and Rosiello (1992), Simon (1992),
Lovelock (1996), and Shipley and Jobber (2001) have
suggested that pricing is the only element of the marketing
mix that produces revenues for the firm, while all the others are related to expenses. Diamantopoulos (1991) has also
argued that price is the most flexible element of marketing
strategy in that pricing decisions can be implemented
relatively quickly in comparison with the other elements of
marketing strategy.
Despite this significance of pricing as an element of the
company’s marketing strategy, there seems to be a lack of
interest among marketing academics on this issue, which has
brought Nagle and Holden (1995) to suggest that pricing is
the most neglected element of the marketing mix. Within this context, the empirical research that has been conducted on
the field of pricing is very limited, while this is even more evident in the case of services. However, the distinctive
characteristics of services (intangibility, heterogeneity,
perishability and inseparability) necessitate a closer look at the way at which services are priced (Schlissel...

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