The role of Non-monetary Costs

In recent years economists have recognized that monetary price is not the only sacrifice consumers make to obtain products and services. Demand, therefore, is not just a function of monetary price but is influenced by other costs as well. Non monetary costs represent other sources of sacrifice perceived by consumers when buying and using a service. Time costs, search costs, and psychological costs often enter into the evaluation of whether to buy or rebuy a service, and may at times be more important concerns than monetary price. Customers will trade money for these other costs as mentioned below:

Time costs

Most services require direct participation of the consumer and thus consume real time: time waiting as well as time when the customer interacts with the service provider.

Consider the investment you make to exercise, see a physician, or get through the crowds to watch a concert or baseball game. Not only are you paying money to receive these services; you’re also expending time. Time becomes a sacrifice made to receive service in multiple ways. First, because service providers cannot completely control the number of customers or the length of time it will take for each customer to be served, customers are likely to expend time waiting to receive the service. Waiting time for a service is virtually always longer and less predictable than waiting time to buy goods.

Search costs

Search costs—the effort invested to identify and select among ser vices you desire—are also higher for services than for physical goods. Prices for services are rarely displayed on shelves of service establishments for customers to examine as they shop, so these prices are often known only when a customer has decided to experience the service.

Another factor that increases search costs is that each ser vice establishment typically offers only one “brand” of a service (with the exception of brokers in insurance or financial services), so a customer must initiate contact with several different companies to get information across sellers.

Convenience costs

There are also convenience (or perhaps more accurately inconvenience) costs of services. If customers have to travel to a service, they incur a cost, and the cost becomes greater when travel is difficult, as it is for elderly persons.

Further, if service hours do not coincide with the customers’ available time, they must arrange their schedules to correspond to the company’s schedule. And if consumers have to expend effort and time to prepare to receive a service (such as removing all food from kitchen cabinets in preparation for an exterminator’s spraying), they make additional sacrifices.

Psychological costs

Often the most painful nonmonetary costs are the psychological costs incurred in receiving some services. Fear of not understanding (insurance), fear of rejection (bank loans), fear of uncertainty (including fear of high cost)— all of these, constitute psychological costs that customers experience as sacrifices when purchasing and using services. All change, even positive change, brings about psychological costs that consumers factor into the purchase of services.

When banks first introduced ATMs, customer resistance was significant, particularly to the idea of put ting money into a machine: customers felt uncomfortable with the idea of letting go of their checks and bank cards. Direct deposit, a clear improvement in banking service for the elderly with limited mobility, was looked on with suspicion until the level of comfort improved.

Reducing Non-monetary Costs

The managerial implications of these other sources of sacrifice are compelling. First, a service firm may be able to increase monetary price by reducing time and other costs.

E.g. a services marketer can reduce the perceptions of time and convenience costs when use of the service is embedded in other activities (such as when a convenience store cashes checks, sells stamps, and serves coffee along with selling products).

Second, customers may be willing to pay to avoid the other costs. Many customers willingly pay extra to have items delivered to their home—including restaurant meals—rather than transporting the services and products themselves. For reduced waiting time in a professional’s office (as in so-called executive appointments where, for a premium price, a busy executive comes early in the morning and does not have to wait).

Many other services save time, thus actually allowing the customer to “buy” time. Household cleaning services, lawn care, babysitting, interactive cable shopping, personal shopper service, home banking, home delivery of groceries, painting, and car pet c1eaning— of these represent net gains in the discretionary time of consumers and could effectively be marketed that a that allow the customer to buy time are likely to have monetary value for busy consumers.