Techniques to
determine pricing
strategies within
a social franchise
October 23rd 2014
Cebu, Philippines
Spin of the wheel…..
….Magic Formulae
Session Objectives
Discussion: The impact of changing price
price on the goals of a social franchising network
Discussion: The impact of changing price
on the goals of a social franchising network
Health Impact
Equity
Cost Effectiveness
Health Market Expansion
Quality
Pricing: How do private sector
franchises manage price?
Pricing: Case Example McDonald’s
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
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.”
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.
McDonalds Local Pricing Strategies
1. Value Pricing - Pricing method based on
the perceived worth of goods or services to
its intended customers.
2. Product Line Pricing – Bundling, Value
Meals, Super-Sizing
3. Promotional Pricing – most McDonalds
offer some type of promotional pricing
scheme which change regularly
4. Penetration Pricing - Penetration Pricing
When McDonald’s first began to break into
the coffee market
Value Pricing: why Big Macs are not priced
the same in every country
1. Differing tax, labor, and
transportation costs can all distort
prices however the value of a
country’s currency is not what drives
pricing strategies
2. 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.
Value Pricing: why Big Macs are not priced
the same in every country
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
Is the price of a Big Mac the same in
all outlets within a country?
video
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
Price Differences within a country
Company-owned 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)
Franchised outlets
• Franchisee cares about future
customers only as long as they
visit their own outlet.
• Focus on maximizing shortterm profits
• Higher prices and lower quality
• Dollar Menu – Constrains
ability of franchisees to set
high prices
Pricing Strategies
within a social
franchise
DONOR
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
FRANCHISEE
I need to make enough
money to send my kids to
school…
CLIENT
I don’t have
much money…
DONOR
I want your social
franchise to be
sustainable..
CLIENT
I don’t have
much money…
FRANCHISOR
We are a health
organization that
needs to consider
the public health
goals of a social
franchise
FRANCHISEE
I need to make enough
money to send my kids to
school…
Do Pricing Strategies Matter?
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
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
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
Enforcing Price
Laissez-faire? Policing? Manipulating?
Session Objectives