BUFDG Conference 2003 The Pricing Agenda
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Transcript of BUFDG Conference 2003 The Pricing Agenda
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BUFDG Conference 2003
The Pricing Agenda
Professor David Westbury
Chair, Joint Costing and Pricing Steering Group.
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Joint Costing & Pricing Steering Group
• HEFCE
• SHEFC
• ELWa
• DE&L
• U Uk
• SCOP
• U Scotland
• HHEW
• the HEIs
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Role of JCPSG
• To advise universities and colleges on the development of good practice in Costing and Pricing.
• To encourage the integration of financial and academic decision making.
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JCPSG Web-site
• http://www.jcpsg.ac.uk
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Funding the Future: The Same or Different?
It must be different!
Action is needed now
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Transparency Review Outcomes
Research Teaching
Intensive Intensive
Publicly funded T -4% -2%
Non publicly funded T +35% +30%
Publicly funded R -35% -90%
Non publicly funded R -30% -80%
Other activities +25% +10%
Informal data, 1999-2000
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What is a price...?
What the customer pays for goods or services.
A price does not exist in isolation.
Part of the relationship between the purchaser and the provider.
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Pricing Issues
• Pricing is a different discipline from Costing
• Pricing is strongly linked to Marketing
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Pricing Strategy
The parts must fit together:-
Institutions can do a lot individually, but some aspects may require joint action
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Pricing Strategy and Marketing
The Marketing Mix• Pricing is only one of four factors in the marketing mix:
Products and Markets
PricingStrategy
PromotionDistribution
Methods
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Pricing and Corporate Objectives
Pricing Policy
Financial Objectives
MarketingObjectives
CorporateObjectives
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Key Pricing FactorsCorporate Strategy
• Corporate strategy must underpin pricing strategy
• Tensions between competing strategic objectives may exist
• Action is needed to resolve tensions
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General Approaches to Pricing
1) Market based
2) Cost based
Derive from two different cultures:
Private sector and public sector
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Question…
Can the two pricing cultures exist together in one
institution?
Yes… but there has to be a university strategy and framework
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Market based Pricing
Price is based on the value to the customer “in the market place”
Private Sector Culture
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Key Pricing FactorsCustomers
• The customer is king - but• Who is the customer and what do they
want?• Customers will balance benefits of a
purchase against costs• Need to understand customer’s
perception of benefit and value in deciding prices
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Market Based Pricing
Two main types:
Competitive market pricing: price set by assessment of market and competitors
Value pricing: price set from a calculation of the value of the product to the customer
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Key Pricing FactorsCompetition
• Understanding the market
• Analysing competitors
• Assessing market position
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International Fees, Lab based (£)
0
10
20
30
40
50
60
Fee (£)
Inst
itu
tio
ns
Series1
An Example of a Competitive Market for Fees
N=161, mean=8306, 2002/3
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The contract enables a product to be developed and sold
Year Income (£k) Costs (£k) Profit (£k)
1 850 750 1002 1200 790 4103 1300 850 4504 1500 900 6005 1900 950 9506 2100 1000 11007 2300 1100 12008 2500 1200 13009 1900 950 950
10 1000 730 270
Total 16550 9220 7330
Rate of return (%) 11
Net Present Value of profit £137,689.56
Value price of £138k would remove all of benefitValue price of £46k would leave 2/3 of the benefit with the company
Example of Value Pricing of a Contract
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Pricing Strategyp
rice
valuelow
high
high
A B
D E
C
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Cost based Pricing
Price is based on cost recovery, or if possible, cost plus contribution
Public Sector Culture
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Total Costs=
Direct Costs
+
Indirect (support) Costs
+
Costs of Capital & Assets
Costing
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Direct and Indirect Costs
Cost of project, eg. Short course
Direct costs:
Teaching staff Consumables
Indirect costs:
Accommodation Administration Library & IS
Etc.
Indirect and other costs can be related to direct costs through a “rate card”
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Pricing and Market Position
High demand, low competition: Value price
Low demand, high competition: Market price
High demand, high competition: Market price
Low demand, low competition: Cost plus price
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Then What?
If price exceeds full economic cost, proceed
If cost exceeds price, then either not proceed, or reduce costs, or subsidise if strategically important
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Pricing and Transparency Review Categories
Category Pricing
PFT Changing from cost based to market or value based
NPFT Market based
PFR Cost based
NPFR Market or value based
Other Market or value based
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What Have We Done So Far?
• Advocacy with Government
• Advocacy within the sector
• Publications
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OST, Research Councils, and Funding Councils
• Group considering options for funding regime• Move from “overhead rate” to full economic
cost?• Project proceeding to determine FEC: JCPSG
and 9 pilot institutions based on TRAC methods• Volume versus price?• What about charities?
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Market Pricing: What Next?
• How many have pricing policies?
• Markets and competition?
• Not yet a mature market?
• Role of marketing disciplines?
• How do we change an inappropriate price-value equation?
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JCPSG Publications
“Pricing toolkit for the higher education sector”
October 2000
available electronically on web-site
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JCPSG Publications
“Developing a pricing strategy in higher education institutions”
July 2002
Available electronically on web-site
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JCPSG Publications
“The use of indirect cost rates in costing government contracts –
technical guidance”
September 2001
Available electronically on web-site
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The Pricing Agenda
Discussion
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Time for Change
• There is scope for improvement in pricing decision making
• Government is starting to respond
• Institutions must respond too where they can
• SPREAD THE WORD