pricing factors

8/9/2019 Pricing Factors

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George F. Avlonitis and Kostis A. Indounas

Presented by Haseok Lim


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` No previous research has investigated the extent

to which the pricing objectives pursued are

associated with the pricing methods. Pricing Objectives and Pricing Methods


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` Table 1 Summarizes the fundamental pricing

objectives Channon, 1986; Cannon and Morgan,

1990; Bonnici, 1991; Payne, 1993; Palmer, 1994;

Bateson, 1995; Drake and Llewellyn, 1995;Woodruff, 1995; Ansari, 1996; Hoffman and

Bateson, 1997; Langeard, 2000.


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` Oxenfeldt (1983) defined pricing methods as the

explicit steps or procedures by which firms arrive

at pricing decisions.

Pricing of services falls into three catagories: cost-basedmethod, competition based and demand based.


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` Cost Based Methods: Cost plus method (Schlissel, 1977; Goetz, 1985;

Zeithaml, 1985; Ward, 1989; Palmer, 1994; Payne, 1993;

Bateson, 1995; Zeithaml and Bitner, 1996).

Target return pricing (McIver and Naylor, 1986; Meidan,

1996).

Break-even analysis (Channon, 1986, Lovelock, 1996)

Contribution analysis (Schlissel and Chasin, 1991;

Bateson, 1995). Marginal pricing (Palmer, 1994).


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` Competition Based Methods Pricing similar to competitors or according to the markets

average prices (Channon, 1986; Payne, 1993; Palmer,

1994; Woodruff, 1995; Zeithaml and Bitner, 1996).

Pricing above competitors (Bonnici, 1991; Meidan, 1996,

Zeithaml and Bitner, 1996; Mitra and Capalla, 1997;

Langeard, 2000).

Pricing below competitors (Payne, 1993; Palmer, 1994;

Zeithaml and Bitner, 1996). Pricing according to the dominant price in the market

(Kurtz and Clow, 1998).


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` Demand Based Pricing Perceived Value Pricing prices (Channon, 1986;

Lovelock, 1996; Zeithaml and Bitner, 1996; Hoffman and

Bateson, 1997).

Value Pricing (Cahill, 1994)

Pricing according to the customer needs (Bonnici, 1991;

Ratza, 1993).


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` Service sectors were investigated in Greece Banks, insurance companies, transportation and shipping

companies, airline companies, information technology

companies, and medical services.

These service sectors represents B2B, B2C

In 2000, according to ICAPs Directory, the number of

companies in the sectors in question was 1,495.x The sample was reduced to 558 companies, and due to

change in address or the closedown, the original sample

was reduced to 464 companies.


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` The companies were notified by a letter saying the

objectives of the study and a week later, a

telephone call was made to each company to

examine the possibility of participating the study. From 464 companies, 170 companies (36.7%) agreed to

participate

` Appointment was made and interviews were

conducted.


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` Ten-page questionnaire. Before using the questionnaire for data collection, a

detailed pretest based on personal interviews among two

academics and ten practitioners was undertaken in order

to increase its validity.

` Pricing Objectives List of 28 pricing objectives and were asked to indicate

using 1 to 5 scale.

` Pricing Methods List of 12 pricing methods and were asked to use binary

scale. (O and 1)


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` Pricing Objectives Factor Analysis was performed (Table III).

Three most important are related to customers:

maintenance of the existing customers, attracting of new

customers, and the satisfaction of customer needs.

(Table III)

Other important objects were the cost coverage, the

creation of a prestige image for the company, its long-

term survival and the service quality leadership.

Objectives related to profit, sales and market share are

less important


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` Least important objective was discouragement of

new competitors entering into the market.

` Companies tend to regard the qualitative

objectives as being more significant than thequantitative ones.

` Other researchers (Meidan and Chin, 1995; Morris

and Fuller; 1989, Schlissel, 1977) said the profit

related objectives are considered as being themost important ones.


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` Pricing Methods Cost plus method and the

pricing according to the

markets average prices.


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` Logistic regression analysis with the Maximum

Likelihood Ratio Method was carried out. Used to examine to the impact of pricing objects set on

the pricing methods in the study are categorical variables

while the pricing objectives are continuous variables.

Nine logistic regression analysis were examined, and

four were found to be statistically significant.

x Target return pricing


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` The fundamental aim of

the target return pricing

method is to yield the

target return on the firms

potential investment andachieve satisfactory profit

and sales.


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` The possibility of adopting itincreases when theobjectives that are pursuedare associated with thecompetitors and the

customer.` Service quality-related

objectives andmaximization of profits andsales reduced theprobability of pricingaccording to market prices.


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Dominant Market Price Pricing Below Competitors


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` Companies were pursuing qualitative rather than

quantitative objectives with an emphasis being

placed on attracting new customers, maintaining

the existing ones and satisfying their needs.


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` Managers responsible for pricing decisions within

their firms is to move away from simplistic cost

plus formulas and treat pricing from a customers

point of view. Customer Orientation

` Managers need to continuously pay attention to

competitors pricing behavior to make sure they

stay in the market.


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` This research was based in Greece, thus, future

research must be in other countries.

` Future research may investigate the impact of the

context of the organization and the impact ofenvironmental variables such as the sector of

operation, the market structure.

` Investigate the impact that different pricing

objectives and methods have on the achievementof corporate objectives.


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` Increased heterogeneity associated with cross-

sectional samples due to the fact that they induce

negative effects on the quality of the findings.


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` Avlonitis, G. J. and Indounas, K. A. (2005). Pricing

objectives and pricing methods in the services

sector.The Journal of Services Marketing, 19 (1),

47. Retrieved March 23, 2008, from ABI/INF

ORMGlobal.

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