determining the right pricing strategy

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Determining the Right Pricing StrategyCOM 546, Group #3September 25, 2010

+Cost-Oriented Pricing

Examples: Markup pricing: found in retail trades where the retailer

adds predetermined but different markups to various goods Cost-plus pricing: describes pricing of jobs that are non-

routine and difficult to “cost” in advance (i.e., market research, many services)

Organizational Example: Red Cross charges a price for its blood that covers

irreducible cost of recruiting, processing, collecting and distributing blood to hospital

*Some non-profit org charge less than costs (cost-minus pricing)

Setting prices largely on the basis of costs, either marginal costs or total costs including overhead

+Cost-Oriented Pricing (continued) Popular form of cost-orientated pricing uses break-even analysis

“How many unites of an item would have to be sold to cover fully the costs” –> this is the break-even volume

Formula:Break even volume = Fixed Cost

Price – variable cost

Pros:

Popular because there is less uncertainty about costs than about demand

Also easier to implement for org that have many items to price

Cons:

Ignores how valuable the offering is to target audiences

+Value-Based Pricing

Looks at strength and nature of demand rather than the level of costs to set the price

Price should reflect the perceived value in the audience’s head

Cons:

Difficult to learn what target audience members would pay for a given product or service

The ethics involved with raising prices on basic necessity type items (i.e., medicines)

+Competition-Oriented Pricing

Pricing based on alternative organizations (i.e., a rival museum)

A non-profit marketer may choose to charge the same as the competition, a higher price, or a lower price

Distinguishing characteristic is that the organization does not seek to maintain a rigid relation between its price and its own costs or demand

Its own costs or demands may change, but the organization maintains its price because competitors maintain their prices

+Sliding Scale Pricing

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.

Sliding scales often give opportunities to people who may not be able to afford certain products or services otherwise

Example: Medical fees. Medical fees often vary based on financial income


To be a “good Samaritan” to those less fortunate

To receive a tax deduction for offering charitable services

To retain customers

To get existing customers to refer new ones

It’s often possible to still turn a profit even though the price is lower

Why would an organization use a sliding scale pricing system?


Some other organizations that often use sliding scale pricing are:

Adoption agencies

Law firms

Educational establishments

Healthcare establishments

Sliding scales are most often used by non-profits. However, this is not always the case.

+Promotional PricingSpecials in pricing that are designed to encourage increased buying. This practice is extremely common in the private sector.

+Examples of Promotional Pricing

Series or bulk discounts Examples: “see five plays for the price of four” at a local

theater; get a free night at Seaworld hotel when you buy two

“Early bird” discounts 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

Percentage discounts Examples: get a second ticket to a performance for half

off; buy one pair of shoes, get the second for half off

Last minute discounts 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

+Triangle Family Services (TFS)

TFS provides individuals and families with resources to transition from crisis to stable and healthy life situations

A United Way organization, TFS has operated in the Raleigh-Durham area since 1937

TFS provides help for more than 7,000 individuals and families each year

Services are offered in areas of: Mental Health Family Safety Financial Stability


For the Individual Therapy (45-50 min) service the organization offers:

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

Value-Based Pricing: TFS would raise the price due to high demand of individual sessions

Competition-Based Pricing: TFS would charge less than a local therapist

*This portion was unanswered by group members. Last minute addition.

How can an area non-profit utilize these pricing strategies?


For Mental Health services TFS could use a sliding scale to determine prices for: Individual and Family Counseling Children’s Mental Health Psychiatric Consultation Medication Management Parenting Education Classes for Separated or Divorced Parents

For the Financial Stability services TFS could use a sliding scale to determine prices for: Consumer credit and budget counseling HUD-approved housing counseling Financial Literacy Workshops Emergency Housing Assistance*This portion was unanswered by group members. Last minute addition.



For the Individual Therapy (45-50 min) service TFS could use promotional pricing strategies like: Series or bulk discounts: When an individual purchases 5 therapy

sessions, they only have to pay the price of 4. Percentage discounts: When an individual refers a friend to use TFS’

therapy sessions, the individual and friend each receive 1- % off.

For Educational Workships like “Parents Forever” TFS could use promotional pricing strategies like: “Early bird” discounts: When an individual signs up a month early

for a workshop they get a 25% discount 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

*This portion was unanswered by group members. Last minute addition.


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