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Essentials of Health Care Marketing 2 nd Ed. Eric Berkowitz Chapter 9 Price

Essentials of Health Care Marketing 2 nd Ed. Eric Berkowitz Chapter 9 Price

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Text of Essentials of Health Care Marketing 2 nd Ed. Eric Berkowitz Chapter 9 Price

  • Essentials of Health Care Marketing 2nd Ed.Eric BerkowitzChapter 9Price

  • Chapter 9 Learning ObjectivesAppreciate the many factors that affect pricing decisionsRecognize the array of alternative pricing strategies available to health care marketersCalculate break-even pricingLearn the positioning value of price

  • IntroductionPrice The level of monetary reimbursement a firm demands for its goods or servicesRepresents the economic value that the buyer provides to the producer in exchange for a product or servicePrice should be established that corresponds to the level of value that the consumer perceives in the service being offeredCan affect consumer demand & competition response

  • IntroductionPrice in healthcarePreviously was based on predetermined reimbursement formulasCompetition or consumer perception of value were not consideredManaged care has changed all this (capitation)Pricing information now on the Web, and is scrutinized

  • Learning Objective 1Establishing the priceMultistep processIdentify the constraints to the pricing policyDetermine objectivesEstimate demand and revenueDetermine the cost, volume, and profit relationshipsSelect a pricing strategyConsider the positioning element

  • Learning Objective 1Identifying constraintsDemand basic economicsNewness in life cycleVolume objectives or profit objectivesSingle vs. Multiple-Product pricingHow many products in line? Complementary?

  • Learning Objective 1Identifying constraints continuedProduction CostChannel Length (distribution determines price)Market StructureMonopoly, oligopoly, monopolistic competition, pure competition

  • Learning Objective 1Pricing objectivesProfitSalesMarket shareImageStabilization

  • Learning Objective 1Estimating demand and revenuePrepare a demand schedulesummary of amounts of a product that are desired at each price levelHelps understand consumers price sensitivity at various levelsPrice elasticity change in demand relative to price changes

  • Learning Objective 1Cost and volume relationshipsFixed costs do not change based on volume Variable costs vary with amount of service deliveredTotal cost total expense firm bears in delivering and marketing its serviceCombination of fixed and variable costs

  • Learning Objective 1Cost and volume relationships continuedCost-plus pricingSelling price represents total cost of service plus some additional amount for profitDoes not consider the differences between fixed and variable costs

  • Learning Objective 1Cost and volume relationships continuedMarginal Cost PricingPrice per additional procedure must equal or exceed the cost of an additional procedureUseful in attracting large-volume purchasersMarkup pricingP=BR; Price = Service Cost (100-Markup %)/100

  • Learning Objective 1Cost and volume relationships continuedTarget PricingSets price to provide a targeted rate of ROI for a standard level of service deliveryCommon in capital-intensive firmsLimitation price is set w/no consideration of market demand.Demand-Minus pricingWhat the market is willing to pay, and mark backwardsVery marketing-based vs. CFO-based

  • Learning Objective 3Break-even analysisCompany determines break-even point needed to cover total costs.Break even point = total fixed cost price - variable costPoint of volume where total revenue equals total cost.

  • Learning Objective 2Pricing strategiesPrice lining product linesGives impression of quality differences between price linesOdd pricing just below whole $ amountsItem budget theoryOne-price vs. flexible pricingOne-price policy, same price to all customers under same conditionsFlexible pricing policy negotiation, consumer buying power

  • Learning Objective 2Pricing strategiesPrestige pricingLeader PricingBundled PricingGoing rate pricingDiscountsVolumeFunctionalSeasonalallowances

  • Learning Objective 4Positioning value of priceConsider competitive environment & where product/service is priced (high/low)Consider how much focus will be placed on price in promotion (active/passive)

  • SummaryThe price an organization establishes has an economic, perceptual, and positioning value to the firm.Multiple factors affect the pricing decision, such as demand, life cycle, product line, and channel structure.Organizations can pursue several different pricing objectives profit, sales, market share, image, and stabilization.

  • Summary continuedAn important consideration in pricing is determining the amount of sales needed in order to break even. This figure is based on the total fixed cost, variable cost, and price charged.In addition to break-even pricing, firms can follow a cost-plus pricing, marginal cost pricing, markup pricing, target pricing, or demand-minus price-setting policy.In establishing price lines, it is essential to have noticeable differences in perceived quality for the distinct lines.

  • Summary continuedOdd pricing is based on item budget theory, which assumes a consumer predetermines the amount to be spent on an item.Prestige pricing is counter-intuitive to the economic logic of a rational buyer. Too high a price, however, will lead to a decline in demand.Bundling, or selling several medical services together at one set price, is becoming a common strategy in health care.

  • Summary continuedThere are several ways an organization can reduce the price for a product. Discounts can be based on volume, function, seasonality, or an allowance.Price has an important positioning value depending on how active or passive a role it plays in the promotional strategy, and on the level of the price relative to the competition.

    Have students explain/discuss capitationDiscuss each step briefly with the students see pp. 242-260. Elaborate. This would be a good time for think-pair-share, breaking the students into groups to discuss each step in the process.Discuss volume vs. profit in introductory phase of the PLCDiscuss. Have students recap market structure from chapter 3 and discuss pricing in eachHave students discuss each of the objectivesHave students discuss price elasticity Have students give examples of fixed, variable, and total costSee example on p. 244See example on p. 245Discuss reasons for odd pricingDiscuss each and healthcare implications, pp. 257-260Refer to pp. 250 Figure 8-4