ServiceFriday: The Structure of Your Market Influences Your Pricing Objectives

Center for Services Leadership

March 8, 2019

What are the pricing objectives that service organizations pursue to price their services? And how does the market structure impact these objectives? A study in the Journal of Service Marketing by Kostis Indounas found that among 700 companies in the logistics, financial services, IT and airline industry, companies are “mainly interested in maintenance of existing customers and the attraction of new ones to ensure their long-term survival when setting their prices and while adapting a customer-oriented philosophy.” Other important pricing objectives are related to the effort to cover costs, offer a high-quality service, create a prestigious image, survive in the market, and to be a leader in terms of service quality.

The study identified 6 different types of market structures and their impact on the pricing objectives:

1. “A competitive market in which the company possesses a competitive advantage: impose prices that lead to maximum profits

2. A competitive market in which the company does not possess a competitive advantage: determine ‘fair’ prices for the customers

3. A competitive market in which customers place an emphasis on price: differentiating on non-price elements, e.g. high-service quality, prestigious image

4. An oligopolistic market: maintain dominant position, price collusion, avoiding price wars

5. A competitive market in which competitors are not differentiated: no clear pricing objectives, focus mainly on covering costs

6. A noncompetitive market in which the company offers higher prices: attracting new customers”

In addition to the objectives stated, covering costs and achieving satisfactory profits are also found to be important. This research shows that companies operating in different market structures should be guided to set their pricing objectives according to their market structure.

To access this research article, visit the Journal of Services Marketing at Emerald Insight. (A fee may apply to download.)

Open source access to the research paper is at this link: https://bit.ly/2ESTIy2