Pricing strategies and market perspectives

Pricing-Opinion

Essentially, pricing approaches can be grouped into four. That is; pricing that is based on competition, pricing based on value, mark-up pricing and lastly value pricing which seeks to offer excellent service at a price that is fair. In this text, I give my opinion on the pricing approach Sherry Crow should embrace based on the four general pricing approaches. In doing so I will take into consideration the scenario presented as well as all the facts contained therein.

The General Approach to Pricing Sherry Should Embrace

In the scenario presented, we have two main groups of clients which should be separately taken into consideration. Group 1 includes those patients who are either capable of paying for themselves and/or have insurance while the second group (herein referred as group 2) is made up of patients who are essentially uninsured and cannot pay the full fee that Sherry would otherwise charge.

Based on the various issues at play, I am of the opinion that Sherry should use competition-based pricing for group 1 while for group 2; the best suited pricing approach would be mark-up pricing. Essentially, mark-up pricing involves setting of a price that has a mark-up on the product's cost. A markup is basically got by subtracting the cost of a product or service from its offer price. Hence markup is that figure which is added to the cost (total) of a service or product by the seller so as to make a profit or ensure that all costs are covered. In the case of Sherry, she has to charge her clients in group 2 at cost plus mark-up so as to recover the overhead costs. Overhead costs comprise of those costs which are incurred in the course of operating a business. They are also referred to as operation expenses. Basing her pricing for group 2 clients on mark-up pricing would ensure that Sherry meets her two goals in regard to this particular group of clients. The first goal which is to donate 10% of her work week to uninsured clients would be met based on the fact that clients in this case would not necessarily be exposed to market rates as she could choose to set a minimal markup. On the other hand, her second goal of settling her overhead costs would be met as mark-up pricing allows Sherry to factor in overhead costs in the price to be charged.

In regard to group 2 clients, it would be prudent for Sherry to use competition-based approach to pricing. It is however important to note that Sherry could also settle for mark-up pricing in this case as the approach would enable her to factor in a profit for herself over and above the total costs incurred (both fixed and variable). Competition-based pricing seeks to base the price of goods and services on the price the market leader charges for its services and products. Hence in this case, Sherry would be benchmarking her pricing on the price the market leader charges as far as the massage marketplace is concerned. In my opinion, before settling on this approach, Sherry should first take into consideration her costs and the actual profit she would want to make on the services she offers. If the two appear to be higher than the competition-based price, then it would be prudent to embrace the mark-up pricing approach. However, if her costs plus proposed profit are lower than the competition-based price, she should adopt the competition-based pricing approach as in this case; she could price her services just below what other service providers are charging so as to attract clients. This is more so the case given the fact that she is a new entrant.