The role of non-monetary costs

By Priya Chetty on October 30, 2010

When a customer buys a product, he is not only spending money, he is spending other things as well. These things are called non-monetary costs and they are spent in the form of time, convenience, effort and psychology (Businessdictionary, n.d.). 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 determined by monetary price but is influenced by other costs as well. Non-monetary costs has become an important concept in social marketing.

Types of non-monetary costs

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 (Zeithaml, 1996).

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

When a consumer decides to buy a product/ service, he makes effort in searching for the best one among all the choices. This effort is called “search cost” and is a type of non-monetary costs (Lovelock, 2011). Search costs—the effort invested to identify and select among services 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 service 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. The inconvenience a person undergoes to avail a product/ service is called convenience cost, and it is a type of non-monetary costs (Zeithaml, 2011).

For example, if service hours do not coincide with the customers’ available time, they must arrange their schedules to correspond to the company’s schedule. This causes inconvenience. Another example: if consumers have to spend effort 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.

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Psychological costs

Often the most painful non-monetary 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 (Zeithaml, 1996). All change, even positive change, brings about psychological costs that consumers factor into the purchase of services.

A firm needs to find the perfect balance of monetary and non-monetary costs in order to sell its product. This balance can be achieved by the firm itself. For example, a coffee shop owner may choose to increase the price of his coffee in exchange for payment convenience- by offering the credit card payment facility. It is up to the consumers whether they are willing to pay more money for convenience, or pay less money in return for extra efforts.

References

  • Business Dictionary (n.d.)  “Non-monetary Price”. [online]. Available at http://www.businessdictionary.com/definition/non-monetary-price.html Last accessed on 29th October 2013.
  • Lovelock, C. (2011). Services Marketing, 7/e. New Delhi: Dorling Kindersley.
  • Zeithaml, V. (2011). Services Marketing. New Delhi: Tata McGraw Hill.
  • Zeithaml, V.  (1996). Services Marketing. New York: Tata McGraw Hill.
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