Chapter 17: Developing a Program Pricing Philosophy Flashcards
6 objectives of pricing
- using resources efficiently
- fairness and equitableness
- Providing maximal opportunity for participation
- rationing
- developing positive user attitudes
- commercial sector encouragement
the price set for a service determines
who may or may not participate in an activity
participants that cant afford will be excluded
chosen price must be affordable to the
intended target market or the program will not reach its intended audience
pricing determines the amount of revenue and agency receives and thus enables
the agency to recover some or all its production costs
financial goals of an agency determine the
contribution that the price charged has on overall agency revenue
if fees and charges are sole source of revenue for an agency they must be set to
recover the production costs, plus contribute to the overhead costs and profit margin
when revenue from fees and charges represent a secondary funding source that agency usually use them to
expand the quantity of services offered or enhancing their quality
6 steps of program management accounting system (PMAS)
- agency develops policy to guide pricing decision
- identifies operational units as line or service units
- prepare line item object classification budgets
- allocated service unit costs to line units
- analysis of cost, volume, and profit to calculate full cost
- establishes price for individual service
what do agencies use PMAS for
to better manage program pricing practices
program managers manage the organization’s resources to
achieve the goals and objectives of the organization
- the agency prepares line-item object classification budgets that
match revenues with expenses needed for operating a program for each of the line units identified in step 2
- agency establishes a price for an individual service, using
the conjoint implications of the two data sets - from comprehensive pricing policy and production cost data developed in cost volume profit analysis
to better manage program pricing practices, agencies need to implement
program management accounting system.
step I PMAS
agency develops a comprehensive policy to guide its pricing decisions
two major pricing strategies
cost-based pricing and pricing not directly based on cost
many agencies establish prices that are
not directly based on cost
going rate and demand oriented pricing
are not directly based on cost
in going rate pricing the agency bases the price for service on the
price other providers charge for similar services.
in demand oriented pricing
the agency bases the price on “what the market will bear”. With this method the agency tries to charge all it can get or whatever the participants are most likely to pay for a service.
value pricing
wherein the price charged directly depends on the value customers place on the product rather than production costs.
an agencys pricing philosophy is determined by its
its role in society, the funding available to fulfill this role, and the types of services the agency offers.
an agencys pricing policy revolves around this
who to charge and how much to charge them, and who to subsidize and how much to subsidize them.
pricing all comes down to who
benefits and who should pay for the service
why are going rate pricing and demand orients pricing widely used but not reccomended
because they lack precision in revealing where the agency has been using resources to subsidize services.
