How does one arrive at a competitive pricing strategy for a multi-service practice where there are no specific products in question?

Answer 1

I believe this falls under the purview of Packaging.If your question is competitive pricing of services....then utilize ABC (Activity Based Costing) to determine the Cost per activity related to the service.

Accumalate all such activities into a package and arrive at Cost per Package. Analyse the overall revenues that packages may stream in discounted over the next three years. You now have two points of Play

a) Cost per package

b) Overall discounted cost per enhanced package.

Example: Lets consider the example of an unsought service- Funeral Services.

A bare service package may consist of only the Good and material i.e Coffin Box, Tomb stone etc. and Service rendered i.e Transportation, Grave digging and tomb stone laying etc..

If this packaged into one bare package the Cost per package is simple the cost of Goods and all activities involved. which is point 1). Cost per Package

Now let say we had a more emotional and holistic approach, considering the fact that the dearly departed is a loved one of a very loving family ; then that family might be concerned on the regular maintenance and up keep of the grave.

This may provide some innovation on the package deal and you may design a package with a contract to service the grave on a monthly basis for the next five years. This brings in more revenues per customer as it adds value to the package.This also outlays costs on the books of the funeral services company and simultaneous future revenues.

The point is that relative to the two Cost Points above we have simultaneous two revenue points per customer.Thus througha value added package deal we can actually reduce the Cost per initial package activity to point b.

We now have two Cost points ; futrther enhancements will give rise to more Cost Points per inintial package which will be lower than those of the bare package per se.

Thus as part 1 we form several Cost Points.

Part II

Look at the Competition service offering and map their cost points for every degree enhanced service.

Compare the two on a graph....you have your Pricing ranges. Now connect all the Cost points an a curve and their respective Profits per customer on another.

You will find that while one curve (i.e ) Cost per customer falls the other rises with every degree enhancement. Now to detrmine your operating point look for the largest differences in adjoining price and cost points.

Now, all you have to do is determine a package and its adjoining price....best of luck

First - by "product" I asume you mean tangible goods? Because products are both tangiblew goods and (more importantly (intangible) services. Buyers will always focus on the intangilbels - services first - because that is where the primary benefits to them are - not in the tangibles.

Pricing using a costing method is of secondary use in answering this question. Buyers do not care what your costs are.

Buyers are seeking to maximise their "value" in any purchase - so use a value based method. What is it your customers value about the sort of services you offer? Can you ascertain how they think of value in relation to your services? The Marketing Association of ANZ has a number of papers and short courses on this topic.