Setting Product or Service Prices

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Setting a price for a service or product can be very difficult. Patients are now checking to see prices on certain non-emergent services before having them performed. Patients also check prices on medications before they have prescriptions filled. What are the different methods and seven steps for setting an initial price for a product or service? There is much dissatisfaction with the prices of health care services. Consumers face rising co-payments and deductibles, employers are feeling the pinch of increasing government’s bill for health care keeps rising. Most participants in the health care marketplace see little logic to how health care prices are determined and distributed to participants. The task of setting prices in health care organizations differs depending on who is paying the bill: patients, government, private parties (insurers), or some combination of these stakeholders. The theory of setting appropriate prices for patients consists of seven steps: •Selecting the pricing objective:

Determining demand:
Estimating costs:
Analyzing competitors’ costs, prices, and offers:
Deciding whether to use price as a competitive strategy: •Selecting a pricing method (such as markup pricing, target return pricing, value pricing, and going-rate pricing): •Selecting the final pricing:

However, the theory must be modified by the influence of other factors, such as the health care organization’s brand strength, its pricing policies, government regulations, and the impact of price on other stakeholders. Prices must undergo further adjustment to take into account geographical factors, price discounts and allowances, promotional pricing, and differentiated pricing. The health care organization must also decide when to initiate a price increase or reduction as well as how to react to competitors’ price initiatives. The government reserves the right to set prices for payment under Medicare, Medicaid, and Veteran’s Administration programs and has set up an...
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