Funeral Service Pricing Introduction

Objectives of Pricing recover: merchandise costs recover: merchandise costs operating expenses operating expenses profit profit satisfaction for consumer satisfaction for consumer fair to consumer fair to consumer value value understandable to the consumer understandable to the consumer choices choices

Factors That Influence Pricing Price Determination Price Determination Price Quotation Price Quotation Both must comply with applicable federal and state law. Both must comply with applicable federal and state law.

Cash Advance Items “Any item or service or merchandise described to a purchaser as a cash advance, accommodation, cash disbursement or similar term. Also, any item obtained from a third party and paid for by the funeral provider on the purchaser’s behalf.” “Any item or service or merchandise described to a purchaser as a cash advance, accommodation, cash disbursement or similar term. Also, any item obtained from a third party and paid for by the funeral provider on the purchaser’s behalf.”

Price Determination “method used by management to establish the selling price for services and merchandise” “method used by management to establish the selling price for services and merchandise” Basic Services of the FD and Staff Basic Services of the FD and Staff Embalming Embalming Transfer of Remains Transfer of Remains Caskets: catalog vs. SR vs. computer Caskets: catalog vs. SR vs. computer

Methods of Price Determination 1) Markup 1) Markup 2) Graduated Recovery 2) Graduated Recovery 3) Sales Frequency 3) Sales Frequency Markdown: “a reduction of selling price below the original selling price” Markdown: “a reduction of selling price below the original selling price”

Consumer Value Index (CVI) “the percentage derived by dividing the wholesale cost of the merchandise by the retail price of the merchandise” “the percentage derived by dividing the wholesale cost of the merchandise by the retail price of the merchandise” CVI = Wholesale Cost Retail Cost Retail Cost CVI + Markup = 100%

CVI (cont’d) If a casket retails for $2400 and has a wholesale cost of $600 what is the CVI? If a casket retails for $2400 and has a wholesale cost of $600 what is the CVI? If the same casket retails for $1800, what is the CVI? If the same casket retails for $1800, what is the CVI? If the same casket retails for $1200, what is the CVI? If the same casket retails for $1200, what is the CVI?

Merchandise Value Ratio (MVR) “the relationship between the wholesale cost of the merchandise and the total cost (both of service and merchandise) to the consumer” “the relationship between the wholesale cost of the merchandise and the total cost (both of service and merchandise) to the consumer” MVR = Wholesale Cost (Total of Merch. + Serv.) (Total of Merch. + Serv.)

MVR (cont’d) If ABC FH’s basic service charge for a traditional funeral is $3495; and the Jones family selects a casket retailing for $2400 with a wholesale cost of $827, what is the MVR? If ABC FH’s basic service charge for a traditional funeral is $3495; and the Jones family selects a casket retailing for $2400 with a wholesale cost of $827, what is the MVR?827 ( ) =.14 MVR ( ) =.14 MVR What happens if the same casket had a retail price of $1800?

Markup (AKA: Gross Casket Margin, Margin) (AKA: Gross Casket Margin, Margin) “the difference between merchandise cost and selling price” “the difference between merchandise cost and selling price” Retail PriceWholesale Price - Wholesale Price+ Markup MarkupRetail Price

Markup (cont’d) If the wholesale price of the casket is $600, and the retail price is $1800, what is the markup? If the wholesale price of the casket is $600, and the retail price is $1800, what is the markup? Value Progression: the more a consumer spends, the more value he/she should receive Value Progression: the more a consumer spends, the more value he/she should receive

Types of Markup 1) Fixed Multiple or Times Factor 1) Fixed Multiple or Times Factor 2) Percent 2) Percent 3) Fixed Dollar Amount 3) Fixed Dollar Amount

Fixed Multiple/Times Factor “the casket cost is multiplied by a constant factor” “the casket cost is multiplied by a constant factor” The multiple is usually 2-4. The multiple is usually 2-4. Every casket receives the same markup factor. Every casket receives the same markup factor. As you move up the price ladder there is no improvement in the CVI. As you move up the price ladder there is no improvement in the CVI.

Percent Markup is a percent of the selling price. Markup is a percent of the selling price. If the wholesale price is $600 and the retail price is $1800, the markup is $1200. To calculate markup as a percent: = 67% 1800 = 67%

Fixed Dollar Amount (Straight Line Model) (Straight Line Model) add the same dollar amount to wholesale cost if item of merchandise add the same dollar amount to wholesale cost if item of merchandise CVI increases with the value of the casket CVI increases with the value of the casket

Graduated Recovery “ a pricing method where the markup varies” “ a pricing method where the markup varies” Types: Types: 1) Increasing Price Structure 2) Declining/Decreasing Price Structure 3) Modified Declining Price Structure 3) Modified Declining Price Structure

Increasing Price Structure There is a direct relationship between the markup and the price of the casket. There is a direct relationship between the markup and the price of the casket. CVI tends to decrease with each step upward in the product assortment CVI tends to decrease with each step upward in the product assortment Advantages and Disadvantages Advantages and Disadvantages

Declining/Decreasing Price Structure There is an inverse relationship between the markup and the price of the casket. There is an inverse relationship between the markup and the price of the casket. Higher priced caskets are given a lower markup. Higher priced caskets are given a lower markup. The markup is inversely proportional to the wholesale cost of the casket. The markup is inversely proportional to the wholesale cost of the casket. Advantages and Disadvantages Advantages and Disadvantages

Modified Declining Price Structure Similar to the declining model except the lowest priced casket is less expensive. Similar to the declining model except the lowest priced casket is less expensive. Entry-level offerings remain within the range of affordability for most consumers. Entry-level offerings remain within the range of affordability for most consumers. A gradual improvement in CVI is evident as the consumer climbs the price ladder. A gradual improvement in CVI is evident as the consumer climbs the price ladder. Advantages and Disadvantages Advantages and Disadvantages

Sales Frequency “the number of times sales in a given price bracket occur over a fixed period of time” “the number of times sales in a given price bracket occur over a fixed period of time” What are the advantages of recording and analyzing sales? What are the advantages of recording and analyzing sales?

Terms for Analyzing Data Average (Mean) Average (Mean) Median Median Mode Mode Range Range

Price Quotation “method by which prices are explained to the consumer” “method by which prices are explained to the consumer” Methods: 1) itemization Methods: 1) itemization 2) package pricing 2) package pricing 3) unit pricing 3) unit pricing 4) bi-unit pricing 4) bi-unit pricing 5) functional pricing 5) functional pricing

Itemization “the method of price quotation by which each unit of service and/or merchandise is priced separately” “the method of price quotation by which each unit of service and/or merchandise is priced separately” Required by the FTC Required by the FTC 16 required items for the GPL 16 required items for the GPL

Considerations for Itemization importance of the activity importance of the activity pay scale of employees who perform the task pay scale of employees who perform the task percentage of building used percentage of building used time devoted to the task time devoted to the task frequency of use/selection frequency of use/selection known rate/scale known rate/scale competitive factors competitive factors “position” of the firm “position” of the firm establish a reasonable markup establish a reasonable markup don’t discount merchandise price don’t discount merchandise price

Package Pricing “a pricing method which groups together selected services and/or merchandise” “a pricing method which groups together selected services and/or merchandise” allowed by the FTC allowed by the FTC

Unit Pricing “a method of price quotation in which one price includes both service and casket” “a method of price quotation in which one price includes both service and casket” 1960’s 1960’s

Unit Pricing Technique Casket$_________ Casket$_________ Includes: services of FD & staff Includes: services of FD & staff embalming and other prep. embalming and other prep. facilities, equip. & staff facilities, equip. & staff transfer of remains transfer of remains hearse to cemetery hearse to cemetery limousine for family limousine for family flower car flower car

Bi-unit Pricing “a method of price quotation showing separately the price of the service to be rendered and the price of the casket” “a method of price quotation showing separately the price of the service to be rendered and the price of the casket” service cost +casket cost +casket cost total price of funeral total price of funeral

Bi-unit Pricing Technique Casket $_________ Services $________ Includes: services of FD & staff embalming and other prep. embalming and other prep. facilities, equip. and staff facilities, equip. and staff transfer of remains transfer of remains hearse to cemetery hearse to cemetery limousine for family limousine for family flower car flower car

Functional Pricing “a method of price quotation in which the charges are broken down into several major component parts such as professional services, facilities, automobile and merchandise” “a method of price quotation in which the charges are broken down into several major component parts such as professional services, facilities, automobile and merchandise” 4 categories: professional services 4 categories: professional services facilities facilities transportation transportation casket casket

Functional Pricing Casket $_______ Services $_______ Facilities $_______ (includes staff & equip. for visitation & funeral) Transportation $_______ (includes transfer of remains, hearse, limousine and flower car)

NJSB Requirements for SFG&SS Categories 13: : I Professional Services I Professional Services II Other Staff and Related Facilities II Other Staff and Related Facilities III Transportation III Transportation IV Merchandise IV Merchandise Does this look familiar?

Pricing Strategies Competitive Pricing: products sold will be priced about the same as those offered by competitors Competitive Pricing: products sold will be priced about the same as those offered by competitors Penetration Pricing: products are priced lower than those offered by the competitor Penetration Pricing: products are priced lower than those offered by the competitor Prestige Pricing: setting relatively high prices for the product Prestige Pricing: setting relatively high prices for the product

Pricing Strategies (cont’d) Skimming: charging a high price for the product Skimming: charging a high price for the product Leader Pricing: price one or a few items at very low prices to attract consumers Leader Pricing: price one or a few items at very low prices to attract consumers Odd Number Pricing: avoid using round numbers when pricing products Odd Number Pricing: avoid using round numbers when pricing products Opportunistic Pricing: (Price Gouging) taking advantage of a situation when setting prices for product Opportunistic Pricing: (Price Gouging) taking advantage of a situation when setting prices for product

Selecting a Vendor Considerations: Considerations: 1) product line 1) product line 2) delivery 2) delivery 3) terms: Trade Credit Terms 3) terms: Trade Credit Terms (cash discount) (cash discount)

Trade Credit Terms 2/10,Net 30 OR 2/10,n/30 2/10,Net 30 OR 2/10,n/30 MOM MOM EOM EOM CWO CWO CBD CBD COD COD

Considerations (cont’d) 4) sales representatives 4) sales representatives 5) point of sale materials 5) point of sale materials 6) merchandising assistance 6) merchandising assistance 7) reputation 7) reputation Accommodation Merchandise: merchandise other than “regular” merchandise Accommodation Merchandise: merchandise other than “regular” merchandise

Price Pointing Good/Better/Best Good/Better/Best Pricing caskets in a logical progression of value to the consumer. Pricing caskets in a logical progression of value to the consumer. Caskets in the lowest (good) price line end in “95”. Caskets in the lowest (good) price line end in “95”. Caskets in the middle (better) price line end in “25” or “75”. Caskets in the middle (better) price line end in “25” or “75”. Caskets in the higher (best) price line end in “00” or “50”. Caskets in the higher (best) price line end in “00” or “50”.