Techniques to determine pricing strategies within a social franchise
October 23rd 2014Cebu, Philippines
Health Market ExpansionCost Effectiveness
Health Impact Equity Quality
Discussion: The impact of changing price on the goals of a social franchising network
Franchisor Pricing/Revenue Considerations
Franchisors earn revenue from many sources, and therefore pricing of these income sources is important. Revenue streams including: • Franchise Fees • Franchise Royalty Fees • Advertising and Marketing Administrative
Fees • Services provided to Franchises • Sales of Products & Supplies • Training Fees • Sales of Promotional Items • Rebates from Suppliers
McDonalds Pricing PolicyThe official stance on McDonald’s pricing policy is highlighted within the company’s mission statement:
“being in touch with the pricing of our competitors allows us to price our products
correctly, balancing quality and value.”
McDonalds Global Pricing Strategies• McDonald’s know that, despite the cost savings
inherent in standardization, success is often attributed to being able to adapt to a specific environment.
• This is true for its pricing strategy, which is one of localization rather than globalization.
McDonalds Local Pricing Strategies1. Value Pricing - Pricing method based on
the perceived worth of goods or services to its intended customers.
2. Product Line Pricing – Bundling, Value Meals, Super-Sizing
3. Promotional Pricing – most McDonalds offer some type of promotional pricing scheme which change regularly
4. Penetration Pricing - Penetration Pricing When McDonald’s first began to break into the coffee market
Value Pricing: why Big Macs are not priced the same in every country
1. Differing tax, labor, and transportation costs can all distort prices however the value of a country’s currency is not what drives pricing strategies
2. Essentially, every population values the Big Mac differently. – For some McD’s is a luxury family-time
treat.– For others McD’s is a cheap on-the-go
convenience.3. McD’s understand Value Across Different Demographics.
How McDonald’s sets prices in a new territory…
The process that McDonald’s use to determine price:• Selecting price objective ( market Share)• Analyzing competitors costs, prices and offers• Determining Positioning and Demand • Estimate Costs• Selecting a final price
Price Differences within a country• The franchisor can and does
define a maximum retain price.• The Franchisor uses promotions
(e.g. Dollar Menus) to control prices in franchisee-owned outlets (making it expensive for franchisees to drop out)
• Franchisor-owned directly set and control prices.
• In franchisee-owned outlets – franchisees have flexibility over
price.– Generally charge more than
corporate owned outlets
Company-owned outlets
• Considers future customers as an important source of future profits (regardless of the specific outlet they visit).
• Focus on long-term customer experience
• Lower prices and higher quality• Dollar Menu - attracts patrons
with a low willingness to pay. (Considered as a management tool to achieve a high degree of price unity)
Franchised outlets
• Franchisee cares about future customers only as long as they visit their own outlet.
• Focus on maximizing short-term profits
• Higher prices and lower quality• Dollar Menu – Constrains
ability of franchisees to set high prices
Price Differences within a country
FRANCHISORWe are a health
organization that needs to consider the public health goals of a social
franchise
FRANCHISORWe are a health
organization that needs to consider the public health goals of a social
franchise
FRANCHISEEI need to make enough
money to send my kids to school…
CLIENTI don’t have
much money…
DONORI want your social
franchise to be sustainable..
Do we capitalize on the same revenue streams as a for-profit franchise?
Private sector franchisors earn revenue from many sources, and therefore pricing of these income sources is important. Revenue streams include: • Franchise Fees • Franchise Royalty Fees • Advertising and Marketing
Administrative Fees • Services provided to Franchises • Sales of Products & Supplies • Training Fees • Sales of Promotional Items • Rebates from Suppliers
Supply-Side Pricing
Supply Side Pricing: Pricing strategies which aim to alter the incentives of healthcare providers to provide certain services.• Vouchers• Insurance• Loyalty-type Schemes • Performance Based Financing schemes• Client registration fees
Demand-Side PricingDemand Side Pricing: Pricing strategies aimed at manipulating patient co-payments for a given service. • Vouchers • Conditional cash payments • Travel reimbursement• Bundling of services