Techniques to determine pricing strategies within a social franchise October 23rd 2014 Cebu, Philippines

Spin of the wheel….. ….Magic Formulae

Session Objectives Understand that developing pricing strategies is an art rather than a science Have an understanding of what the private sector does and considers when looking at Price ‘P’ Realize that setting prices too high will impact upon on equity and health impact objectives Realize that setting prices too low will impact upon cost-effectiveness, efficiency and sustainability objectives Have discussed different demand-side pricing strategies Have discussed different supply-side pricing strategies Considered whether to ‘police’ pricing policies or adopt a laissez-faire approach to pricing

Session Objectives

Discussion: The impact of changing price price on the goals of a social franchising network

Health Market Expansion Discussion: The impact of changing price on the goals of a social franchising network Health Impact Equity Quality Cost Effectiveness Health Market Expansion

Pricing: How do private sector franchises manage price?

Pricing: Case Example McDonald’s

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 Policy The 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 Strategies Value Pricing - Pricing method based on the perceived worth of goods or services to its intended customers. Product Line Pricing – Bundling, Value Meals, Super-Sizing Promotional Pricing – most McDonalds offer some type of promotional pricing scheme which change regularly 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 Differing tax, labor, and transportation costs can all distort prices however the value of a country’s currency is not what drives pricing strategies 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.

Value Pricing: why Big Macs are not priced the same in every country

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

Is the price of a Big Mac the same in all outlets within a country?

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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

Price Differences within a country Company-owned outlets Franchised 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) 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

Pricing Strategies within a social franchise

I want your social franchise to be sustainable.. DONOR I want your social franchise to be sustainable..

FRANCHISOR We are a health organization that needs to consider the public health goals of a social franchise

I need to make enough money to send my kids to school… FRANCHISEE I need to make enough money to send my kids to school…

I don’t have much money… CLIENT I don’t have much money…

I want your social franchise to be sustainable.. FRANCHISOR We are a health organization that needs to consider the public health goals of a social franchise DONOR I want your social franchise to be sustainable.. CLIENT I don’t have much money… FRANCHISEE I need to make enough money to send my kids to school…

Do Pricing Strategies Matter?

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 Pricing Demand Side Pricing: Pricing strategies aimed at manipulating patient co-payments for a given service. Vouchers Conditional cash payments Travel reimbursement Bundling of services

Laissez-faire? Policing? Manipulating? Enforcing Price Laissez-faire? Policing? Manipulating?

Session Objectives