1. Techniques to determine pricing strategies within a social franchise
October 23rd 2014
Cebu, Philippines

2. Spin of the wheel…..
….Magic Formulae

4. Session Objectives
Understand that developing pricing strategies is an art rather than a science
Have an understanding of what the private sector does and considers when looking at Price ‘P’
Realize that setting prices too high will impact upon on equity and health impact objectives
Realize that setting prices too low will impact upon cost-effectiveness, efficiency and sustainability objectives
Have discussed different demand-side pricing strategies
Have discussed different supply-side pricing strategies
Considered whether to ‘police’ pricing policies or adopt a laissez-faire approach to pricing

5. Session Objectives

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

7. Health Market Expansion
Discussion: The impact of changing price on the goals of a social franchising network
Health Impact
Equity
Quality
Cost Effectiveness
Health Market Expansion

8. Pricing: How do private sector franchises manage price?

9. Pricing: Case Example McDonald’s

10. 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

11. McDonalds Pricing Policy
The 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.”

12. 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.

13. McDonalds Local Pricing Strategies
Value Pricing - Pricing method based on the perceived worth of goods or services to its intended customers.
Product Line Pricing – Bundling, Value Meals, Super-Sizing
Promotional Pricing – most McDonalds offer some type of promotional pricing scheme which change regularly
Penetration Pricing - Penetration Pricing When McDonald’s first began to break into the coffee market

14. Value Pricing: why Big Macs are not priced the same in every country
Differing tax, labor, and transportation costs can all distort prices however the value of a country’s currency is not what drives pricing strategies
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.

15. Value Pricing: why Big Macs are not priced the same in every country

16. 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

17. Is the price of a Big Mac the same in all outlets within a country?

18. video

19. 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

20. Price Differences within a country
Company-owned outlets
Franchised 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)
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

21. Pricing Strategies within a social franchise

22. I want your social franchise to be sustainable..
DONOR
I want your social franchise to be sustainable..

23. FRANCHISOR
We are a health organization that needs to consider the public health goals of a social franchise

24. I need to make enough money to send my kids to school…
FRANCHISEE
I need to make enough money to send my kids to school…

25. I don’t have much money…
CLIENT
I don’t have much money…

26. I want your social franchise to be sustainable..
FRANCHISOR
We are a health organization that needs to consider the public health goals of a social franchise
DONOR
I want your social franchise to be sustainable..
CLIENT
I don’t have much money…
FRANCHISEE
I need to make enough money to send my kids to school…

27. Do Pricing Strategies Matter?

28. 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

29. 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

30. Demand-Side Pricing
Demand Side Pricing: Pricing strategies aimed at manipulating patient co-payments for a given service.
Vouchers
Conditional cash payments
Travel reimbursement
Bundling of services

31. Laissez-faire? Policing? Manipulating?
Enforcing Price
Laissez-faire? Policing? Manipulating?

32. Session Objectives