BUFDG Conference 2003 The Pricing Agenda Professor David Westbury Chair, Joint Costing and Pricing Steering Group.

Joint Costing & Pricing Steering Group HEFCE SHEFC ELWa DE & L U Uk SCOP U Scotland HHEW the HEIs

Role of JCPSG To advise universities and colleges on the development of good practice in Costing and Pricing. To encourage the integration of financial and academic decision making.

JCPSG Web-site

Funding the Future: The Same or Different? It must be different! Action is needed now

Transparency Review Outcomes Research TeachingIntensive Publicly funded T-4%-2% Non publicly funded T+35%+30% Publicly funded R-35%-90% Non publicly funded R-30%-80% Other activities+25%+10% Informal data,

What is a price...? What the customer pays for goods or services. A price does not exist in isolation. Part of the relationship between the purchaser and the provider.

Pricing Issues Pricing is a different discipline from Costing Pricing is strongly linked to Marketing

Pricing Strategy The parts must fit together:- Institutions can do a lot individually, but some aspects may require joint action

Pricing Strategy and Marketing The Marketing Mix Pricing is only one of four factors in the marketing mix: Products and Markets Pricing Strategy Promotion Distribution Methods

Pricing and Corporate Objectives Pricing Policy Financial Objectives Marketing Objectives Corporate Objectives

Key Pricing Factors Corporate Strategy Corporate strategy must underpin pricing strategy Tensions between competing strategic objectives may exist Action is needed to resolve tensions

General Approaches to Pricing 1) Market based 2) Cost based Derive from two different cultures: Private sector and public sector

Question… Can the two pricing cultures exist together in one institution? Yes… but there has to be a university strategy and framework

Market based Pricing Price is based on the value to the customer in the market place Private Sector Culture

Key Pricing Factors Customers The customer is king - but Who is the customer and what do they want? Customers will balance benefits of a purchase against costs Need to understand customers perception of benefit and value in deciding prices

Market Based Pricing Two main types: Competitive market pricing: price set by assessment of market and competitors Value pricing: price set from a calculation of the value of the product to the customer

Key Pricing Factors Competition Understanding the market Analysing competitors Assessing market position

An Example of a Competitive Market for Fees N=161, mean=8306, 2002/3

Example of Value Pricing of a Contract

Pricing Strategy price value low high AB DE C

Cost based Pricing Price is based on cost recovery, or if possible, cost plus contribution Public Sector Culture

Total Costs = Direct Costs + Indirect (support) Costs + Costs of Capital & Assets Costing

Direct and Indirect Costs Cost of project, eg. Short course Direct costs: Teaching staff Consumables Indirect costs: Accommodation Administration Library & IS Etc. Indirect and other costs can be related to direct costs through a rate card

Pricing and Market Position High demand, low competition: Value price Low demand, high competition: Market price High demand, high competition: Market price Low demand, low competition: Cost plus price

Then What? If price exceeds full economic cost, proceed If cost exceeds price, then either not proceed, or reduce costs, or subsidise if strategically important

Pricing and Transparency Review Categories CategoryPricing PFTChanging from cost based to market or value based NPFTMarket based PFRCost based NPFRMarket or value based OtherMarket or value based

What Have We Done So Far? Advocacy with Government Advocacy within the sector Publications

OST, Research Councils, and Funding Councils Group considering options for funding regime Move from overhead rate to full economic cost? Project proceeding to determine FEC: JCPSG and 9 pilot institutions based on TRAC methods Volume versus price? What about charities?

Market Pricing: What Next? How many have pricing policies? Markets and competition? Not yet a mature market? Role of marketing disciplines? How do we change an inappropriate price-value equation?

JCPSG Publications Pricing toolkit for the higher education sector October 2000 available electronically on web-site

JCPSG Publications Developing a pricing strategy in higher education institutions July 2002 Available electronically on web-site

JCPSG Publications The use of indirect cost rates in costing government contracts – technical guidance September 2001 Available electronically on web-site

The Pricing Agenda Discussion

Time for Change There is scope for improvement in pricing decision making Government is starting to respond Institutions must respond too where they can SPREAD THE WORD