Download Pricing activities in Higher Education

BUFDG Conference
2003
The Pricing Agenda
Professor David Westbury
Chair, Joint Costing and Pricing
Steering Group.
Joint Costing & Pricing
Steering Group
•
•
•
•
HEFCE
SHEFC
ELWa
DE&L
•
•
•
•
•
U Uk
SCOP
U Scotland
HHEW
the HEIs
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.
JCPSG Web-site
• http://www.jcpsg.ac.uk
Funding the Future: The Same
or Different?
It must be different!
Action is needed now
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
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.
Pricing Issues
• Pricing is a different discipline from
Costing
• Pricing is strongly linked to Marketing
Pricing Strategy
The parts must fit
together:Institutions can do a
lot individually, but
some aspects may
require joint action
Pricing Strategy and Marketing
The Marketing Mix
• Pricing is only one of four factors in
the marketing mix:
Products and Markets
Distribution
Methods
Promotion
Pricing
Strategy
Pricing and Corporate Objectives
Financial
Objectives
Corporate
Objectives
Pricing Policy
Marketing
Objectives
Key Pricing Factors
Corporate Strategy
• Corporate strategy must underpin
pricing strategy
• Tensions between competing
strategic objectives may exist
• Action is needed to resolve tensions
General Approaches to Pricing
1) Market based
2) Cost based
Derive from two different cultures:
Private sector and public sector
Question…
Can the two pricing cultures
exist together in one
institution?
Yes… but there has to be a
university strategy and framework
Market based Pricing
Price is based on the value to the
customer “in the market place”
Private Sector Culture
Key Pricing Factors
Customers
• 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
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
Key Pricing Factors
Competition
• Understanding the market
• Analysing competitors
• Assessing market position
An Example of a Competitive Market for
Fees
International Fees, Lab based (£)
60
40
30
Series1
20
10
14
00
0
12
00
0
10
00
0
80
00
60
00
0
40
00
Institutions
50
Fee (£)
N=161, mean=8306, 2002/3
Example of Value Pricing of a Contract
The contract enables a product to be developed and sold
Year
Income (£k) Costs (£k) Profit (£k)
1
2
3
4
5
6
7
8
9
10
Total
850
1200
1300
1500
1900
2100
2300
2500
1900
1000
750
790
850
900
950
1000
1100
1200
950
730
100
410
450
600
950
1100
1200
1300
950
270
16550
9220
7330
Rate of return (%)
Net Present Value of profit
11
£137,689.56
Value price of £138k would remove all of benefit
Value price of £46k would leave 2/3 of the benefit with the company
Pricing Strategy
high
price
A
B
C
D
E
low
value
high
Cost based Pricing
Price is based on cost recovery, or if
possible, cost plus contribution
Public Sector Culture
Costing
Total Costs
=
Direct Costs
+
Indirect (support) Costs
+
Costs of Capital & Assets
Direct and Indirect Costs
Direct costs:
Teaching staff
Consumables
Cost of project,
eg. Short course
Indirect costs:
Accommodation
Administration
Library & IS
Etc.
Indirect and other costs
can be related to direct
costs through a “rate
card”
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
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
Pricing and Transparency
Review Categories
Category Pricing
PFT
NPFT
Changing from cost based to
market or value based
Market based
PFR
Cost based
NPFR
Market or value based
Other
Market or value based
What Have We Done So Far?
• Advocacy with Government
• Advocacy within the sector
• Publications
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?
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?
JCPSG Publications
“Pricing toolkit for the
higher education sector”
October 2000
available electronically on web-site
JCPSG Publications
“Developing a pricing strategy in higher
education institutions”
July 2002
Available electronically on web-site
JCPSG Publications
“The use of indirect cost rates in
costing government contracts –
technical guidance”
September 2001
Available electronically on web-site
The Pricing Agenda
Discussion
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