AF4Q Sustainability Webinar
Pricing, Value & Prioritization
December 16, 2013
Today’s Objectives
Lay the foundation for an actionable
path towards:
1. Establishing a price for the valueadd products and services
alliances provide
2. Identifying who values these
products and services and to what
degree
3. Focusing efforts on products and
services with the greatest
opportunity for impact and
financial return
2
Six Drivers of Sustainability
Impact
Articulation
Focused
Business
Strategy
Economic
Viability
Capacity
to Deliver
Impact
Outcomes
Partnership Building & Stakeholder Engagement
3
Establishing the Right Price
4
Identifying Key Pricing Factors
•
Costs: The fixed and variable costs required to deliver a
product or services.
•
Value: The perceived benefit provided to the customer
group(s).
•
Competition: The alternative options the customer has to
select from to receive the product or service.
•
Positioning: The unique strengths and assets that
differentiate you as a provider of these goods and services.
While each of these factors impact pricing, it’s critical to first
understand your true costs to develop an informed pricing baseline.
5
Creating an Informed Baseline
1. Products &
Services
• Identify the key products and/or services
you provide (or are considering providing)
that deliver value to the community.
2. Fixed and
Variable Costs
• Identify and allocate the fixed and
variable costs associated with providing
these products and/or services.
3. Break Even
Price & Volume
• Determine the price and the target
number of customers needed to break
even.
6
Pricing In Action:
Better Health Greater Cleveland
Product/
Service
Costs
Pricing
• Current: PCMH NCQA Recognition Application
Process Technical Assistance support for providers
• Potential: Clinical effectiveness, financial
management and operational efficiency
• Fixed Costs Include: Management time, equipment,
training and certification.
• Variable Costs Include: Consultant time, travel
expenses, space rental
• Identified costs
• Added 10% margin
• Provided 50% discount to members
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Baseline Lever to Pull: Break Even Price
Variable
Costs Per
Customer
Fixed
Costs
Total
Costs
Estimated
# of
Customers
Estimated
# of
Customers
Total Cost
Break
Even Price
Two Levers to Pull:
Break Even Price & Break Even Volume
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Baseline Lever to Pull: Break Even Volume
Fixed
Costs
# of Units to
Sell to Break
Even
Price
per Unit
Variable
Cost per
Unit
Two Levers to Pull:
Break Even Price & Break Even Volume
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Discussion
• Are you allocating both fixed and variable
costs within each of your service lines?
Are you covering your full costs?
• What challenges have there been in
doing so?
• What tolerance is there for raising prices
to increase margins when necessary?
• How have you navigated resistance?
10
Balancing Price with Value
11
Understanding Your Value
A value proposition addresses the following:
•
Market: Who is the specific group you are targeting?
•
Offering: What programs, services and/or products are you
delivering to achieve your desired social impact?
•
Benefit: How do your programs/services/products deliver
value to the market?
•
Differentiation: How are you different from and better than the
alternatives?
A strong value proposition is a clear statement of the tangible results
a customer gets from using your services and/or products.
12
Translating Your Value
Gains
Jobs:
What is this
stakeholder trying to
get done?
What are the things (e.g.,
benefits, experiences) that this
stakeholder most appreciates
or hopes for in pursuit of its
“jobs”?
Value Proposition:
Pains
What are the things (e.g.,
undesired costs, situations,
challenges) that this
stakeholder most dislikes or
fears in pursuit of its “jobs”?
How does or might your product
or services create gains or relieve
pains for this stakeholder?
13
Value in Action:
Better Health Greater Cleveland
CUSTOMIZED TECHNICAL ASSISTANCE for Practice/Health System Transformation
Target Market
Small to medium sized providers/health systems in the local community.
Need
Many small to medium sized providers lack necessary, internal, subject
matter expertise in areas that are critical, as transitioning to PCMH,
ACO delivery models and Total Cost of Care reimbursement evolves.
Additionally, many can’t afford to secure large, expensive, consulting
firms to address this need.
Benefit
Providers receive customized, and affordable TA support that positions
them for success under new conditions.
Positioning
Highly reputable, customer centric, in-person, cost-effective TA Provider
who is invested in their local community health improvement and
economic success.
Marketing/
Communications
Currently targeting provider membership organizations. Opportunity to
expand to non-members in the future.
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Next Steps to Developing a Value
Proposition
Conduct Market Research to:
1. Assess
Customers
• What is the customer trying to get done?
• What are the gains (e.g., benefits, experiences) that this
customer most appreciates or hopes for in pursuit of its
“jobs”?
• What are the pains (e.g., undesired costs, situations,
challenges) that this customer most dislikes or fears in
pursuit of its “jobs”?
2. Assess
Competitors
• What alternative options do your customers have to
receive this value?
• What do your customers value about comparable or
competitive products/services?
3. Determine
Position
• What is your competitive advantage?
• What can you offer that is unique and superior to the
competition?
• How does or might your product or services create gains
or relieve pains for this stakeholder?
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Discussion
• What tactics have you used in
the past to explore and
communicate your value?
• Is there alignment between
the value you see that you are
providing to customers and
the value they believe they
are receiving?
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Prioritizing Your Efforts
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Feasibility Assessment Clarifies Key
Questions
1. Overall Strengths: What are
the potential strengths and
demand for the opportunity?
2. Overall Drawbacks: What are
the potential drawbacks or
risks of the opportunity?
3. Go/No Go: Is this
opportunity more valuable
than the other opportunities
the organization could be
investing in?
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Feasibility Study Overview
Opportunity
(1= unattractive, 2= moderate,
3= very attractive)
A
External
Factors
B
C
Market Size
Market Outlook
Customers
Competitive Factors
Internal/
External
Market Profitability
Ease of Entry
Fit with Mission
Internal
Factors
Fit with Skills/Expertise
Fit with Assets and Strengths
Ability to Manage Risk
OVERALL ATTRACTIVENESS
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Prioritization in Action: Better Health Greater Cleveland
Score of 75-90 points: High Priority Product/Service
Score of 60-74 points: Medium Priority Product/Service
Score of 59 points or less: Low Priority Product/ Service
Criteria Weighting
Product/Service Scoring
Alignment
Financial
Financial
Criteria (Score each criteria 1[low
importance], 2 [medium importance],
or 3 [high importance])
Score: Definition/ Measurement (green =3 points, yellow = 2 points, red = 1 points)
Organizational Alignment
3 Vision, mission, and values (high, medium, low)
ROI
3 Negative, break-even, or positive/ margin
ROI: Timeframe to Achieve
2 0-1 yr, 1-2 yrs, 2(+) yrs
Market
Demand
Market
Demand : Duration
Products/
Services:
PCMH NCQA
Recognition
9
6
4
2
The current Demand for the product/ service is (high, medium, low)
4
2
The Demand for the product/ service is (episodic/short duration, moderate duration,
ongoing/long term )
6
4
Market
Competitive Positioning
2
How our org is positioned in the marketplace to compete with others offering the
same service or product (high, medium, low)
Market
Market Share
1
Potential reach; i.e. <50% of eligible audience, >= 50% of eligible audience
1
2
Market
Barriers to Entry
2
Barriers for BHGC entry may include, but are not limited to political, economic,
regulatory ,etc. (minimal, moderate, significant)
Strategic
Scalability
1
Scalability of the Product/Service (high, medium, low)
2
Strategic
Population Health /Social Impact
1
Potential impact is : < 50,000, 50,000 - 1.5mil, >1.5 mil
2
Strategic
Targeted Audience
2
Strategic
Product Development Cycle
2
Strategic
Product Value Proposition
3
Status of relationship with targeted audience (not started/new, developing, or
strong)
Complexity of product to be developed(high complexity, medium complexity, low
complexity)
Value prop rating for targeted audience (high, medium, low) Consider using Rogers’
factors of diffusion of innovationa
2
Internal People, Process, Systems Readiness to deliver the product/service (Ready
now, 6 mos-1 yr, > 1 yr)
2
What impact will this product have on BHGC’s reputation in the
community/region/national stage? (high, medium, low)
Strategic
Organizational Readiness
Brand
Recognition Visibility Reputation
4
6
6
6
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4
Closing Questions & Next Steps
• How may these tools
supplement the work
you are already doing?
• What additional support
would be helpful as you
apply these tools in your
specific alliance?
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Contact Information
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