Determining the Right Pricing Strategy


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Determining the Right Pricing Strategy

  1. 1. Determining the Right Pricing Strategy COM 546, Group #3 September 25, 2010
  2. 2. Cost-Oriented Pricing <ul><li>Examples: </li></ul><ul><ul><li>Markup pricing: found in retail trades where the retailer adds predetermined but different markups to various goods </li></ul></ul><ul><ul><li>Cost-plus pricing: describes pricing of jobs that are non-routine and difficult to “cost” in advance (i.e., market research, many services) </li></ul></ul><ul><li>Organizational Example: </li></ul><ul><ul><li>Red Cross charges a price for its blood that covers irreducible cost of recruiting, processing, collecting and distributing blood to hospital </li></ul></ul><ul><ul><li>*Some non-profit org charge less than costs ( cost-minus pricing ) </li></ul></ul><ul><li>Setting prices largely on the basis of costs, either marginal costs or total costs including overhead </li></ul>
  3. 3. Cost-Oriented Pricing (continued) <ul><li>Popular form of cost-orientated pricing uses break-even analysis </li></ul><ul><li>“How many unites of an item would have to be sold to cover fully the costs” –> this is the break-even volume </li></ul><ul><li>Formula: </li></ul><ul><li>Break even volume = Fixed Cost </li></ul><ul><li>Price – variable cost </li></ul><ul><li>Pros: </li></ul><ul><li>Popular because there is less uncertainty about costs than about demand </li></ul><ul><li>Also easier to implement for org that have many items to price </li></ul><ul><li>Cons: </li></ul><ul><li>Ignores how valuable the offering is to target audiences </li></ul>
  4. 4. Value-Based Pricing <ul><li>Looks at strength and nature of demand rather than the level of costs to set the price </li></ul><ul><li>Price should reflect the perceived value in the audience’s head </li></ul><ul><li>Cons: </li></ul><ul><li>Difficult to learn what target audience members would pay for a given product or service </li></ul><ul><li>The ethics involved with raising prices on basic necessity type items (i.e., medicines) </li></ul>
  5. 5. Competition-Oriented Pricing <ul><li>Pricing based on alternative organizations (i.e., a rival museum) </li></ul><ul><li>A non-profit marketer may choose to charge the same as the competition, a higher price, or a lower price </li></ul><ul><li>Distinguishing characteristic is that the organization does not seek to maintain a rigid relation between its price and its own costs or demand </li></ul><ul><li>Its own costs or demands may change, but the organization maintains its price because competitors maintain their prices </li></ul>
  6. 6. Sliding Scale Pricing <ul><li>Sliding scale pricing is when products or services are priced differently based on individual attributes such as one’s ability to pay, age, location, etc. </li></ul><ul><li>Sliding scales often give opportunities to people who may not be able to afford certain products or services otherwise </li></ul><ul><li>Example: Medical fees. Medical fees often vary based on financial income </li></ul>
  7. 7. Sliding Scale Pricing <ul><li>To be a “good Samaritan” to those less fortunate </li></ul><ul><li>To receive a tax deduction for offering charitable services </li></ul><ul><li>To retain customers </li></ul><ul><li>To get existing customers to refer new ones </li></ul><ul><li>It’s often possible to still turn a profit even though the price is lower </li></ul><ul><li>Why would an organization use a sliding scale pricing system? </li></ul>
  8. 8. Sliding Scale Pricing <ul><li>Some other organizations that often use sliding scale pricing are: </li></ul><ul><li>Adoption agencies </li></ul><ul><li>Law firms </li></ul><ul><li>Educational establishments </li></ul><ul><li>Healthcare establishments </li></ul><ul><li>Sliding scales are most often used by non-profits. However, this is not always the case. </li></ul>
  9. 9. Promotional Pricing <ul><li>Specials in pricing that are designed to encourage increased buying. This practice is extremely common in the private sector. </li></ul>
  10. 10. Examples of Promotional Pricing <ul><li>Series or bulk discounts </li></ul><ul><ul><li>Examples: “see five plays for the price of four” at a local theater; get a free night at Seaworld hotel when you buy two </li></ul></ul><ul><li>“ Early bird” discounts </li></ul><ul><ul><li>Examples: subscribe early to a theater group’s series and get a percentage off; earn free tickets to the NC State Fair when you buy tickets before October </li></ul></ul><ul><li>Percentage discounts </li></ul><ul><ul><li>Examples: get a second ticket to a performance for half off; buy one pair of shoes, get the second for half off </li></ul></ul><ul><li>Last minute discounts </li></ul><ul><ul><li>Examples: get unsold tickets the day of a performance for half price; get unsold flights and hotels for 60% discounts if you travel in the next 30 days </li></ul></ul>
  11. 11. Triangle Family Services (TFS) <ul><li>TFS provides individuals and families with resources to transition from crisis to stable and healthy life situations </li></ul><ul><li>A United Way organization, TFS has operated in the Raleigh-Durham area since 1937 </li></ul><ul><li>TFS provides help for more than 7,000 individuals and families each year </li></ul><ul><li>Services are offered in areas of: </li></ul><ul><ul><li>Mental Health </li></ul></ul><ul><ul><li>Family Safety </li></ul></ul><ul><ul><li>Financial Stability </li></ul></ul>
  12. 12. Triangle Family Services (TFS) <ul><li>For the Individual Therapy (45-50 min) service the organization offers: </li></ul><ul><ul><li>Cost-Oriented Pricing: TFS would charge exactly how much it costs to have the therapist for 50 minutes do the session as well as an hour of time for the building, amenities, paperwork </li></ul></ul><ul><ul><li>Value-Based Pricing: TFS would raise the price due to high demand of individual sessions </li></ul></ul><ul><ul><li>Competition-Based Pricing: TFS would charge less than a local therapist </li></ul></ul><ul><ul><li>*This portion was unanswered by group members. Last minute addition. </li></ul></ul><ul><li>How can an area non-profit utilize these pricing strategies? </li></ul>
  13. 13. Triangle Family Services (TFS) <ul><li>For Mental Health services TFS could use a sliding scale to determine prices for: </li></ul><ul><ul><li>Individual and Family Counseling </li></ul></ul><ul><ul><li>Children’s Mental Health </li></ul></ul><ul><ul><li>Psychiatric Consultation </li></ul></ul><ul><ul><li>Medication Management </li></ul></ul><ul><ul><li>Parenting Education Classes for Separated or Divorced Parents </li></ul></ul><ul><li>For the Financial Stability services TFS could use a sliding scale to determine prices for: </li></ul><ul><ul><li>Consumer credit and budget counseling </li></ul></ul><ul><ul><li>HUD-approved housing counseling </li></ul></ul><ul><ul><li>Financial Literacy Workshops </li></ul></ul><ul><ul><li>Emergency Housing Assistance </li></ul></ul><ul><ul><li>*This portion was unanswered by group members. Last minute addition. </li></ul></ul><ul><li>How can an area non-profit utilize these pricing strategies? </li></ul>
  14. 14. Triangle Family Services (TFS) <ul><li>For the Individual Therapy (45-50 min) service TFS could use promotional pricing strategies like: </li></ul><ul><ul><li>Series or bulk discounts: When an individual purchases 5 therapy sessions, they only have to pay the price of 4. </li></ul></ul><ul><ul><li>Percentage discounts: When an individual refers a friend to use TFS’ therapy sessions, the individual and friend each receive 1- % off. </li></ul></ul><ul><li>For Educational Workships like “Parents Forever” TFS could use promotional pricing strategies like: </li></ul><ul><ul><li>“ Early bird” discounts: When an individual signs up a month early for a workshop they get a 25% discount </li></ul></ul><ul><ul><li>Last minute discounts: When a workshop only has a few individuals signed up the week it starts, individuals could receive 15% off when they enroll </li></ul></ul><ul><ul><li>*This portion was unanswered by group members. Last minute addition. </li></ul></ul><ul><li>How can an area non-profit utilize these pricing strategies? </li></ul>
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