MARKET RESEARCH AND SEGMENTATION (SLP)

Pricing strategies

Shaneya Acker

Dr. Eric Oestmann

MHM 525

Trident University International

April 27, 2019

Pricing Strategies

This paper discusses pricing strategies for Continuum health partners. Continuum health partners is an organization based in the metropolitan area of New York US. The main aim of the organization is to coordinate the operations of its members to keep the organization financially solvent by controlling costs in the highly competitive industry (Pronk et al., 2015). The organization is made up of various partners who work together to enable the corporation to achieve their objectives. It provides health services in areas of weight loss, urology, stroke, women’s conditions, neck pain, asthma, infertility, heart disease, cancer, asthma, alcoholism, addiction among many others.

The following are six pricing strategies ranked in the order of their effectiveness in healthcare industry.

1. Pricing at a premium

2. Economy pricing

3. Pricing for market penetration

4. Psychology pricing

5. Price skimming

6. Bundle pricing (Gilligan & Lowe, 2018). 

Pricing at a premium is the most effective strategy in the healthcare industry. This involves keeping the prices of services high in order to influence buyers positively based on the price only. This strategy is very effective especially if you have a specific service offered to consumers. The organization must work hard to influence the consumers that their services are of a higher quality. This strategy needs serious marketing to ensure that people understand the worth of their services. The quality the services and products must also be of high quality. This together with the organization reputation supports the premium price (Belleflamme & Peitz, 2015). 

Economy pricing is aimed at attracting the most cost cautious customers. This strategy involves organizations minimizing production and marketing costs in order to reduce the costs associated with products and services. Consumers can purchase the products and services they would wish to without any struggle. This strategy could be effective in healthcare since most consumers are price cautions. People are only interested on services that will heal them. However, people may think that the products and services being offered at these low prices are of low quality. This will affect the organization negatively. Healthcare organizations must create awareness of the quality of their products.

Pricing for market penetration is used in many cases when an organization is entering the market. It focuses on reducing the prices of services and products. Most people are attracted to products of low prices. This therefore attracts consumers to buy your products and services thus growing your market share. However, this may result to lose of initial income for the business. This could work well in the healthcare industry so long as the organization conducts marketing. This creates awareness among consumers which could help the healthcare organization to stand out in the market and improve their products. After gaining momentum the organization can increase price for their services to match their market position (Hillestad & Berkowitz, 2018).

Psychology pricing involves marketers setting their products and services prices slightly lower than the actual price. An example is setting the price for an antibiotic at $29 instead of $30. This is based on the belief that consumers do not round off numbers but rather see these prices as lower. Consumers also tend to focus more on the first number than the second. The main aim of this strategy is to increase demand by creating an illusion that the prices are lower. This strategy can also be effective in healthcare. This could encourage consumers to purchase products and services more based on that perception (Belleflamme & Peitz, 2015). 

Price skimming on the other hand involves setting prices high in the introductory phase. The prices are then lowered after some time as competitors appear in the market. At the introductory phase there are many prospective consumers who are willing to purchase products and services at a high price. Consumers interpret the high prices as sign of quality. This could also be very effective in the healthcare industry. The healthcare organization needs to be innovative so that they have new products or services to introduce in the market. This would help them make a lot of prices before competition develops in the market.

Bundle pricing involves selling multiple products at a lower cost than they would be if each item was sold individually. This improves the perception of consumers on the products since they are being given an item for free. Bundling improves efficiency by reducing the distribution and marketing costs. With time, bundling can significantly increase profits from a particular product. Many services may also be sold to one consumer encounter. However, this strategy forces consumers to purchase a product even if they are not in need of it. This strategy is not effective in healthcare since many services in healthcare are independent and cannot be offered in a bundle.

Price transparency in healthcare refers to the ability of consumers to get enough information on healthcare quality and prices. Prices for the same service can vary greatly depending on the provider. In the United States it is very difficult for consumers to access this information which can help them compare providers in terms of quality and prices. Having enough of this information could help consumers anticipate their expenses and choose high quality providers. This could also help healthcare stakeholders and policy makers accountable for coming up with fair prices (Sinaiko & Rosenthal, 2016).

Lack of price transparency in the healthcare industry has resulted in fluctuation of costs for healthcare services. This problem can only be fixed by policy makers and not market forces. However, it is difficult for policy makers to understand the unwarranted variation in healthcare prices since these prices are treated as trade secrets. Increases price transparency in healthcare could provide an opportunity for policy makers to address the issues of price fluctuations.

References

Belleflamme, P., & Peitz, M. (2015). Industrial organization: markets and strategies. Cambridge University Press.

Hillestad, S. G., & Berkowitz, E. N. (2018). Health care market strategy. Jones & Bartlett Learning.

Gilligan, C., & Lowe, R. (2018). Marketing and healthcare organizations. CRC Press.

Sinaiko, A. D., & Rosenthal, M. B. (2016). Examining a health care price transparency tool: who uses it, and how they shop for care. Health Affairs, 35(4), 662-670.