Pricing strategies and decisions @ baba
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Pricing Strategies and Decisions
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LEARNING OBJECTIVES
1. How do health care consumers, providers, and companies process and evaluate prices?
2. What are the different methods and seven steps for setting an initial price for a product or service?
3. How should prices be adapted to meet varying circumstances and opportunities?
4. When should an organization initiate a price change?
5. How should an organization respond to a competitor’s price change?
6. What influence do government and private payers have on pricing decisions?
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LO1. How do health care consumers, providers, and companies process and evaluate prices?
Reference prices Price-quality inferences Price cues
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LO2. What are the different methods and seven steps for setting an initial price for a product or service?
Methods Markup pricing Target-return pricing Value pricing Going-rate pricing
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LO2. What are the different methods and seven steps for setting an initial price for a product or service? (cont)
Steps Selecting the pricing objective Determining demand Estimating costs Analyzing competitors’ costs, prices, and offers Deciding whether to use price as a competitive strategy Selecting a pricing method Selecting the final price
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LO2. What are the different methods and seven steps for setting an initial price for a product or service? (cont)
To set prices Customers’ demand schedule Cost function Competitors’ prices
Steps Costs set a floor to the price Competitors’ prices and the price of substitutes
provide an orienting point Customers’ value assessment of unique features
establishes the price ceiling
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LO3. How should prices be adapted to meet varying circumstances and opportunities?
Geographical pricing - by location Price discount and allowances - ie. early
payment, volume purchases, and off-season buying allowances and discounts
Promotional pricing - to stimulate early purchase
Differentiated pricing - to accommodate differenced in customers, products, and location
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LO4. When should an organization initiate a price change?
Increase price to maintain profits Overdemand and cannot supply all
customers Reduce to remain market leader
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LO5. How should an organization respond to a competitor’s price change?
Maintain price and profit margin Maintain price and add value Reduce price Increase price and add brands Launch a low-price line
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LO6. What influence do government and private payers have on pricing decisions?
Government Congress sets method of payment and rates change over time Centers for Medicare and Medicaid Services administer pricing
schemes Prices set by procedure, product, diagnosis Coding systems in place
Private payers Insurance determines medical expense ratio Consumer is responsible for premium, deductible, co-insurance,
and co-payment
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CONCLUSION
Seemingly little logic to health care pricing and distribution
Task of setting prices differs by who is paying
Pricing is adjusted by additional factors Government set many prices Private insurances want to be competitive