1) Define price2) What are common pricing

mistakes?3) What are internal and external

factors to consider when setting the price?

4) How could the United Way vary its price for a summer day camp to different audiences?

Our Definition of Price:A monetary or nonmonetary value that an organization attributes to a product or service based on what customers are willing and able to pay for that product or service

Comprises the “marketing mix” with product, place, promotion, and people

Must reflect supply and demand

The only “P” to generate revenue

Monetary prices have five objectives:1.Surplus Maximization

2.Cost recovery

3.Market Size maximization

4.Social Equity

5.Market Disincetivization

Nonmonetary costs (“Psychic” costs) Measure the stress associated with a

transaction Embarrassment of using certain types

of products or services (STD testing) Awkwardness (Discussing test results

with sexual partners) Fear (pain associated with STD testing,

being diagnosed with an STD)

Question # 2:

This strategy sets the price based on the cost of an item/service, and then adds a reasonable margin to gain profits. The problem with this is that it ignores customer’s perceptions of value. Often a consumer views a higher priced item as having better quality or being more valuable (known as Value-Based Costing). In this instance the organization is loosing money because customers would be willing to buy the product/service at a higher price. On the other hand, this strategy could make prices higher than optimum, thus reducing sales.

This technique allows the “market” to set the price. However, this is not always an accurate method because the “market” is not always representative of the customers. Therefore, organizations should price to sell to unique customers rather than the entire market.

This process allows customers to negotiate prices. This method often involves a salesperson. The reasoning behind “Pricing to Close a Deal” is that consumers are more likely to make a purchase if they can pick the price, and at the same time the organization is still making profits. However, this process tends to undermine pricing confidence and often results in a loss of money since many of the customers would have been willing to buy the product/service at a higher price.

This strategy sets lower prices in order to gain an advantage over their competitors. Engaging in this technique may allow organizations to increase market share which in effect can lead to higher profitability. However, this is often a risky endeavor because competitors will likely counteract by reducing their prices at well. This can often lead to a “pricing war” between organizations, which is great for the consumers, but results in a loss of profits for the organization.

What is a fair price for a product/service from a nonprofit organization? Should prices be reduced? Should products/services be free?Ex. Should the poor have to pay for certain medications? Should museums charge an admission fee?

Many nonprofit organizations face these concerns with pricing a product/service. If mistakes are made when it comes to pricing, many stakeholders may view the decisions as unfair, thus resulting in a loss of support for the organization.

Question #3

When deciding what to charge for a product or service, there are multiple challenges the book discusses.

Organizational Objectives- the very first thing an organization must do is decide these. The objectives effect all aspects of pricing. Here are the five mentioned in the book: Surplus Maximization: nonprofits want to gain the most

surplus Cost Recovery: nonprofits want to recover a reasonable

amount and have the rest covered by another source Market Size Maximization: This is a zero price where the

organization chooses to attract the greatest number of customers.

Social Equity: Organization wants to price their services in a way that helps society equal. They may charge certain groups but not all equally

Market Disincentivization: The organization sets a pricing objective to keep individuals from doing a certain behavior. The pricing decision may price certain groups out of being able to afford a product or service.

Ethical challenges- Some nonprofits have difficulty setting pricing due to the value placed on the product or service by the target audience. This can imbalance of price and demand. Example: A nonprofit gives out flu vaccines every year.

This product is of great value to certain sections of the community (i.e. elderly, poor, young, etc.). However great the demand, the nonprofit must ethically set the price to a standard that these target audiences can afford due their ethical responsibilities to society.

External challenges can literally be as simple as the weather. Example: An outdoor concert is provided by

the town. However, the weather is forecast to be horrible. This can adversely effect the demand on everything from attendance and ticket sales to sponsorship and advertising. The weather can negatively or positively effect the bottom line of your nonprofit's profits.

Competition's pricing- This is actually one of the strategies in our book (Competition-Oriented Pricing). When an organization bases their price off a competitor's similar product or service, the price can increase or decrease based on the  competitors changes and not on its own costs or demands.

Target Audience- This goes along with the ethical challenges somewhat. If your target audience for a good or service is less affluent, on a fixed budget, or using government funded welfare, an organization would want to create a price to match the consumer’s ability.

OR… Your organization may instead want to

capture the most a target audience would pay. Example: A museum charges less for a weekday

pass while they charge more for a weekend pass. The target audience who pay a premium for a ticket are doing so because they are willing to pay more for something they really want. This is known as discriminatory pricing.

Government Regulation- Your product or service may have an existing set price cap that would affect how much you can charge.

The government’s tax exempt status as well as other grant moneys may also allow the nonprofit to spend more on products and pass the savings along to the consumers.

There are many more factors….

Question # 4

HOW COULD THE UNITED WAY HOW COULD THE UNITED WAY VARY ITS PRICEVARY ITS PRICE FOR A SUMMER FOR A SUMMER

DAY CAMP TO DIFFERENT DAY CAMP TO DIFFERENT AUDIENCES?AUDIENCES?

Varying the Price: Varying the Price:

Different Different AudiencesAudiences of The United Way of The United Way Partners of United Way: (Premium Fee)

The United Way could ask current and prospective partners to pay a very high price because their brand name will not only be in conjunction with the United Way but with the camp and its’ many happy faces.

For Example: The NFL, a current partner with the UW, would likely pay the high price to send kids low income children to this summer camp in order to continue their goodwill with the United Way.

Sponsors: (Moderate Fee)Individuals who wish to sponsor a child and send them to the camp—The United Way could get this segment to pay a moderate fee because they feel that they are doing “what is right” or “doing the right thing”.

For Example: everyday people in the local community will want to help those who are less fortune by sending them to a charitable camp.

Varying the Price: Varying the Price: Different Different AudiencesAudiences of The United of The United

WayWayVolunteers of the United Way: ( moderate fee/offer incentives)

The United Way is a Nonprofit, thus many of its successes are completed by an army of volunteers and/or donors. In this situation, the United Way could offer incentives for those who raise the money to send lower income children to camp! For Example: Education is a huge part of the United Way, thus a bunch of

teachers could get together and raise money for these kids to go to camp….in turn, the United Way could offer resources (books, etc.) to the school.

Families of Lower Income: (very low or free)

The price offered to this segment should be vary low considering that these are people who may not have the means to spend the money on such luxuries. In this situation, the United Way should offer them a reduced price (plus offer transportation to and from camp) or simply offer them the chance of a lifetime…send their children for free!

Andreasen, A. and Kotler, P. (2008). Strategic Marketing for Nonprofit Organizations. Pearson Prentice hall, New Jersey.

http://www.learnmarketing.net/Price.htm http://liveunited.org/ Riley, S. (1995). The Four Ps of Marketing and

Three Ps More. Retrieved from http://www.stayinginwales.com/b2b/docs/Marketing;%20Definition.pdf

Holden, R., & Burton, M. Retrieved Sep. 23, 2010. http://www.businessknowhow.com/money/pricingstrategies.htm