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George F. Avlonitis and Kostis A. Indounas Presented by Haseok Lim.

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1 George F. Avlonitis and Kostis A. Indounas Presented by Haseok Lim

2  To examine the pricing objectives pursued along with the pricing methods adopted by service organizations.  To investigate whether the pricing objectives pursued are associated with the pricing methods adopted.

3  No previous research has investigated the extent to which the pricing objectives pursued are associated with the pricing methods. ◦ Pricing Objectives and Pricing Methods

4  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.


6  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- based method, competition based and demand based.

7  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).

8  Competition Based Methods ◦ Pricing similar to competitors or according to the market’s 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).

9  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).

10  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 ICAP’s Directory, the number of companies in the sectors in question was 1,495.  The sample was reduced to 558 companies, and due to change in address or the closedown, the original sample was reduced to 464 companies.

11  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.


13  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)


15  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

16  Least important objective was discouragement of new competitors entering into the market.  Companies tend to regard the qualitative objectives as being more significant than the quantitative ones.  Other researchers (Meidan and Chin, 1995; Morris and Fuller; 1989, Schlissel, 1977) said the profit related objectives are considered as being the most important ones.

17  Pricing Methods ◦ Cost plus method and the pricing according to the market’s average prices.

18  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.  Target return pricing

19  The fundamental aim of the target return pricing method is to yield the target return on the firm’s potential investment and achieve satisfactory profit and sales.

20  The possibility of adopting it increases when the objectives that are pursued are associated with the competitors and the customer.  Service quality-related objectives and maximization of profits and sales reduced the probability of pricing according to market prices.

21 Dominant Market Price Pricing Below Competitors

22  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.

23  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.

24  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 of environmental variables such as the sector of operation, the market structure.  Investigate the impact that different pricing objectives and methods have on the achievement of corporate objectives.

25  Increased heterogeneity associated with cross-sectional samples due to the fact that they induce negative effects on the quality of the findings.

26  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/INFORM Global.

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