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Unit 11: Pricing of Services
(MIS), Marketing Research, Estimation and forecasting methods as well as Test marketing would Notes
not know their demand curves - and thus may not be able to pursue profit maximisation.
Volume or Sales Related Objectives
(a) To increase sales volume: A service firm pursues this pricing objective to grow rapidly
(market penetration) and/or to discourage new entrant competition. The goal is usually
described as a percentage increase in volume sales over a certain period of years. To
achieve this, the service marketer could either discount the price or have an innovative
pricing strategy.
Example: Sahara Air recently tried innovative pricing; Reliance Infocomms entry-level
Dhirubhai Ambani Pioneer Offer and then Monsoon Hungama pricing for its wireless in
local loop (WiLL) mobile services are classic examples of such pricing objectives and strategy.
(b) To maintain or increase market share: The market share of a firm is indicative of its
market position. Any slippage in market share will not only reduce revenues but would
also be a public relations disaster. Market share can fall due to aggressive competition
(better-priced rival products, better substitutes) or external factors like currency devaluation.
The latter might make imports cheaper and exports expensive. Falling market share would
make capacity utilisation impossible and increase idle cost. A hotel which loses market
share will suffer such losses - apart from loss of prestige.
Status-quo Oriented Objectives
Prices are set only to maintain the firms previous position - The most passive of all pricing
goals. The firm really seeks to avoid a price war.
(a) Competition rendezvous: Service firms that enter a market late - like most private insurance
companies in India - try to set a price as prevalent in the market. The main objective is to
make an entry in the market than to make a profit. Often, the new entrant safely brackets
himself to a successful firm to get the same positioning and image without going through
the hassles of complex decision making models. For example, a new B-school might
structure its fees on similar lines as the competition.
(b) Price stabilisation: Here a service firm tends to follow the leader when setting its
prices. The main objective is not to start a price war, which would be harmful to all the
players.
Society Oriented Objectives
Certain service firms set prices not for profit, sales or beating the competition. Their objective is
social responsibility or responsibility to the customer. They might actually make losses but the
objective is the general benefit of society at large. Most metro railway ticket prices, public
library memberships and postal services follow societal pricing goals.
Example: The Indian Postal Service might actually incur a net cost of ` 4.00 for a postcard
but price it at one rupee. Most Non-Governmental Organisations (NGOs) price their offerings,
like greeting cards, toys, wall hangings, etc., high with the objective of transferring their surplus
for the service of social causes.
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