Members often ask me about how the prices for SLA's products and services are determined. As might be expected, price is one of the most effective marketing tools an organization has to promote a product or service. Price conveys an image of the organization, affects demand, and can be a tool for competitive and target market segmentation. A carefully designed pricing strategy enables an organization to respond to various business conditions and opportunities.
How are SLA products and services priced? The staff uses a structured pricing strategy for each of its products and services. The pricing strategy incorporates the notion that price should be based on the value of the
product or service to the customer. Pricing falls directly in line with the association's overall goals as established by the Board of Directors, Finance Committee, and management. If the price does not generate the desired or necessary bottom line, then changes must be made or the product line discontinued. The bottom line is quite often in the red which means that the pricing strategy for other products and services must accommodate the "in red" activities.
The first step in selecting the proper pricing strategy is to determine the objectives(s) for the product or service. An individual product or service may have more than one objective and the objective(s) will most likely change over time depending on the product life cycle. For example, the objective of a new product may be to build market share or to provide a member service. As the product matures, the objective may change to utilize the product or service to attract new members.
The next step is to choose the appropriate pricing strategy. Pricing strategies generally take on three forms: profit margin (a specific net profit percentage or profit maximization); sales oriented (a specific dollar or unit sales growth, regardless of profit percentage or value); or status quo (match the competition and not "rock the boat"). There are also numerous pricing considerations in addition to the basic price of the product or service: member versus non-member pricing, group discounts, volume discounts, the competition, and cost allocations.
The staff also considers the product life cycle and the target market. There are four stages of the product life cycle: (1) Introductory: due to the high cost of research and development, initial prices are usually high. This is consistent with the consumer who is typically willing to spend more for something new and innovative. The opposite approach may be considered by pricing the product at break-even or at a loss to build market share; (2) Growth: the competition enters the market and price is often dictated by the competition; (3) Maturity: the price is usually well established and will remain constant; and (4) Decline: the price is set below market to get as much of the product sold as possible.
The target market is the group of members or customers that have a demand for the product or service. In defining the market, consideration is given to who actually makes the purchase decision, who will have an influence on that decision, and who will decide when and where to buy the product or service (initially and on a repeat basis, if applicable).
Once the pricing strategy is determined, staff examines the pricing strategy within the following parameters: (1) Does the strategy define means for achieving the objectives set? (2) Is the strategy consistent with the political environment within the association? (3) Is the appraisal of the competition open-minded and honest? (4) Have alternative strategies been thoroughly examined?
Once the pricing strategy is validated, staff utilizes pricing spreadsheets and templates to assist in predicting the effects of changes in costs and sales levels. One of the keys to successful pricing is knowing what you want to do, accurately estimating the costs to do it, and determining how it will be paid for and how much revenue it will generate. By consistently reviewing results, interim pricing adjustments can be more easily determined. The staff incorporates both direct and indirect costs into the pricing structure of each product and service to accurately reflect the "bottom line" of each.
The pricing strategy at SLA is based on the corporate model and is a critical component of the long-term financial health of the association. Accurately based prices assist in providing cost-effective products, services, and membership dues, and in providing superior service to the member base. The pricing strategy fits into our long term financial goal: The association's ability to fulfill its strategic objectives and to provide cutting-edge programs and services to its members at affordable rates, while maintaining a sound fiscal position.
A solid pricing strategy will:
· Give the association a stronger financial base with which to continue providing quality products and services.
· Provide adequate resources to further develop and implement the goals and objectives of the Strategic Plan.
· Support association units through greater funding and services to carry out their own visions for the future (the unit allotments will increase in direct proportion to the dues and fees increase).
· Allow for membership growth while incurring a proportionately smaller cost per member, or deficit, to recoup.
· Insure a consistent level of quality service to the membership.
The association has demonstrated its commitment to fiscal soundness by fulfilling its strategic objectives and by taking a proactive stand on financial policy and practices.
For more information,
contact Richard Geiger, SLA Treasurer (geigerr@sfgate.com)
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