Dec 5, 2013

#aesa2013 - 10:45am - Not All About the Numbers

#aesa2013 - 10:45am - Not All About the Numbers

Why I chose this:
I am interested in learning what is needed for the "next generation" of cooperative services through contracted services and programs.

What I learned:
Billed as something of a "Pricing 101" course.

Pricing is not an exact science. Must understand the variable that affect pricing decisions.

Cost Centers - mini businesses within the agency with their own budgets and revenue monitoring. Each department chair is responsible for those cost centers (some departments have multiple cost centers). They are expected to break even, but not all do and that is addressed at year end.

Various approaches:

Scientific Approach - Calculate actual costs plus overhead and investment. Salary, benefits, indirect cost rate, investment factor, based on 194 days/7.5 hrs per day. $885/day, $118/hour. Did not work well because it used the same pricing model at every situation. Made sense, but didn't work well with school participation - price seen as too high for some services.

Sky Pick

Copy Cat - Does not deal with actual costs.

Going Rate - Also does not deal with actual costs.

One Size Fits All

Price is critical - communicates a lot about the product or service, many link price with quality, free=low quality, expensive=high quality

Consider: Supply/cost, Demand/revenue, perceptions, competition and strategies, gov regulation, organization's desired pricing position.

Amount of service and demand for service must be met, always moving and changing. Dept heads must be able to figure this. Any price changes are done AFTER the fiscal year.

Just because you can justify a price with figures, it still might not be right for the market.

Positive price - Actual price
Normative Price - cost based on what consumer will pay. People must understand why they are being charged ("Why can't you do this for free?")

Offer similar services and make a case for quality, perception, prestige. What is the value-added piece?

Consumers' perception of the value they are getting, even if the reality doesn't match (GM Employee Pricing to general public)

Prestige pricing - hard to live in a world of exclusivity for services/products.

Know variable costs, fixed costs, balance profitability with palatability.  Don't get bogged down in fixed costs, but definitely consider those. May not have to be calculated into the actual cost of service/product.

We need a defensible pricing platform because people can and will research other providers. So, what do we offer that makes it value-added?

We spend a lot of time on pricing, so we must build value into what we offer.

How do we create that culture? Track record helps. Showing results from other similar programs. Show how districts can save money.

What should it cost to take part in consortium buying (bidding)?
Increase the fee to consumer. Some have an agreement with vendors for a percentage return for administrative costs based on the bids.

What are issues to consider?

What should it cost to provide a day's worth of professional development? Survey the market. Districts overlook prep time. Clerical support, follow-up, etc. How much are you saving the district in costs to send their folks elsewhere? Take into account a 'loss-leader' approach. Look at long-term earning potential.

Providing a technology audit. What price? Travel, personnel, competition. What is value to your process versus competition approach? What info are you providing? What follow-up?

Price of particular products (books, etc)? Make sure that districts do not get better price by going through the vendor directly.

A key is that you have personnel that will ensure the success of what you are offering - especially in new programs that you are trying to develop for future growth.

You may ultimately decide that a service/product is not worth offering.

Competition? Repeat customer, brand new service, loss leader, etc...

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