What do products/services cost? How do we know? - Marketing of Library and Information Services

Library Trends, Wntr, 1995 by Darlene E. Weingand

ABSTRACT

OF the four elements in the "marketing mix," price (cost) analysis provides the library manager with valuable data for decision-making and a practical approach to developing marketing strategies. This article examines the concept of the program budget, cost-finding methodologies, the influence of demand, the impact of technology, and budget presentation. Emphasis is given to looking beyond simple numbers and considering pricing within the broader definition of what products cost" - and to whom.

INTRODUCTION

Of the elements in Kotler's (1982) "marketing mix" (p. 8), pricing is probably the most confusing. Certainly, library administrators have a strong interest in the issue of pricing and the questions that surround it. Taken at face value, it appears that this discussion will be about user fees - but that is definitely not the case. In the nonprofit sector, price or pricing must be defined as "cost" - the cost to produce a product. As one of the key elements in the marketing plan, price needs to identify all present and potential cost factors, including direct costs personnel costs, indirect costs, profit (if applicable), and intangibles. Careful analysis of these factors yields a realistic appraisal of what a product actually costs to produce (Weingand, 1987, p. 74). Yet, how many library managers truly know exactly what each product/service costs?

The Foundation: A Program Budget

There is a direct relationship between cost factors and the budgeting process - and specifically, the structure of that process. While there are many types of budget formats - and many municipalities and institutions have requirements as to what format must be submitted - it is the program budget that yields the most information for planning and decision-making. It is certainly understandable that a funding authority would want all submitted budgets to conform to a single type and style in order to be able to make comparisons among units, and the library must comply with these instructions. Yet, it is a straightforward and relatively painless exercise to take the sums from a program budget and insert them into more condensed formats such as the line item budget.

Why bother? There is simply no profit-oriented business that does not know exactly what costs are involved in producing a product; such information is critical in order to establish the price tag for each item. In the nonprofit sector - where libraries are located - the need for such information has not been recognized. It is true that only rarely must a price tag be established in connection with libraries; however, even though the fiscal pie is fixed, decisions must be made as to how to allocate those resources. If cost factors are not known, simple demand or customer interest will yield only one-half of the equation.

In program budgeting, each product essentially carries its own budget for direct and indirect costs. These separate budgets can be merged in order to create a condensed format budget; for example, all of the "personnel" entries can be taken from the spectrum of program budgets and added together to produce a line item total for personnel. Yet, the library manager will know that the personnel costs are for each product and, since personnel costs in the library's overall budget hover around the 70 percent mark, being knowledgeable about how those staff hours are being spent is necessary information.

Although a budget may, on the surface, appear to be a description of anticipated costs, it is actually a statement of the policy being adopted by the operating organization. The operational and fiscal aspects of budget creation are generally presented separately, although in reality they usually evolve simultaneously (Hamon et al., 1992, p. 12). Data from past and present budgets are examined in order to inform projections for the future. If the only such data available come from a condensed budget format, such as the line item budget, this comparison will need to wait until tentative program budgets have been created and the line item sums calculated.

Cost Finding

In order to produce the components of a program budget, costfinding methodology of some type must be used. Each product of the library (e.g., reference service, circulation, the collection, network access, and so on) is broken down systematically so that each cost can be associated with an output. This is the opposite of the planning process for a new program, where the desired output would be stated and the resources necessary for that output would be estimated to arrive at a budget. It is a useful exercise to examine a known service in order to learn to recognize those factors that must be considered when planning a new program (Hamon et al., 1992, p. 12).

When doing cost finding, the product (program) being examined must be clearly identified and defined, with a designated output that reflects the mission, goal, and objectives to which that product relates. Each objective in the library's plan requires the implementation of one or more products in order to realize that objective. The relationship between cost and benefit can be ascertained once all cost factors are known.