Techniques to determine pricing strategies within a social franchise

October 23rd 2014Cebu, Philippines

Spin of the wheel…..

….Magic Formulae

Session Objectives

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

Health Market ExpansionCost Effectiveness

Health Impact Equity Quality

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

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 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.

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?

video

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

Pricing Strategies within a social franchise

DONORI want your

social franchise to be

sustainable..

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…

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 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 PricingDemand 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

Session Objectives