Funeral Service Pricing

1. Funeral Service Pricing Introduction

2. Objectives of Pricing • recover: merchandise costs operating expenses • profit • satisfaction for consumer • fair to consumer • value • understandable to the consumer • choices

3. Factors That Influence Pricing • Price Determination • Price Quotation • Both must comply with applicable federal and state law.

4. Cash Advance Items • “Any item or service or merchandise described to a purchaser as a cash advance, accommodation, cash disbursement or similar term. Also, any item obtained from a third party and paid for by the funeral provider on the purchaser’s behalf.”

5. Price Determination • “method used by management to establish the selling price for services and merchandise” • Basic Services of the FD and Staff • Embalming • Transfer of Remains • Caskets: catalog vs. SR vs. computer

6. Methods of Price Determination • 1) Markup • 2) Graduated Recovery • 3) Sales Frequency • Markdown: “a reduction of selling price below the original selling price”

7. Consumer Value Index (CVI) • “the percentage derived by dividing the wholesale cost of the merchandise by the retail price of the merchandise” CVI = Wholesale Cost Retail Cost CVI + Markup = 100%

8. CVI (cont’d) • If a casket retails for $2400 and has a wholesale cost of $600 what is the CVI? • If the same casket retails for $1800, what is the CVI? • If the same casket retails for $1200, what is the CVI?

9. Merchandise Value Ratio (MVR) • “the relationship between the wholesale cost of the merchandise and the total cost (both of service and merchandise) to the consumer” MVR = Wholesale Cost (Total of Merch. + Serv.)

10. MVR (cont’d) • If ABC FH’s basic service charge for a traditional funeral is $3495; and the Jones family selects a casket retailing for $2400 with a wholesale cost of $827, what is the MVR? 827 (3495 + 2400) = .14 MVR What happens if the same casket had a retail price of $1800?

11. Markup • (AKA: Gross Casket Margin, Margin) • “the difference between merchandise cost and selling price” Retail Price Wholesale Price - Wholesale Price+ Markup Markup Retail Price

12. Markup (cont’d) • If the wholesale price of the casket is $600, and the retail price is $1800, what is the markup? • Value Progression: the more a consumer spends, the more value he/she should receive

13. Types of Markup • 1) Fixed Multiple or Times Factor • 2) Percent • 3) Fixed Dollar Amount

14. Fixed Multiple/Times Factor • “the casket cost is multiplied by a constant factor” • The multiple is usually 2-4. • Every casket receives the same markup factor. • As you move up the price ladder there is no improvement in the CVI.

15. Percent • Markup is a percent of the selling price. If the wholesale price is $600 and the retail price is $1800, the markup is $1200. To calculate markup as a percent: 1200 1800 = 67%

16. Fixed Dollar Amount • (Straight Line Model) • add the same dollar amount to wholesale cost if item of merchandise • CVI increases with the value of the casket

17. Graduated Recovery • “ a pricing method where the markup varies” • Types: 1) Increasing Price Structure 2) Declining/Decreasing Price Structure 3) Modified Declining Price Structure

18. Increasing Price Structure • There is a direct relationship between the markup and the price of the casket. • CVI tends to decrease with each step upward in the product assortment • Advantages and Disadvantages

19. Declining/Decreasing Price Structure • There is an inverse relationship between the markup and the price of the casket. • Higher priced caskets are given a lower markup. • The markup is inversely proportional to the wholesale cost of the casket. • Advantages and Disadvantages

20. Modified Declining Price Structure • Similar to the declining model except the lowest priced casket is less expensive. • Entry-level offerings remain within the range of affordability for most consumers. • A gradual improvement in CVI is evident as the consumer climbs the price ladder. • Advantages and Disadvantages

21. Sales Frequency • “the number of times sales in a given price bracket occur over a fixed period of time” • What are the advantages of recording and analyzing sales?

22. Terms for Analyzing Data • Average (Mean) • Median • Mode • Range

23. Price Quotation • “method by which prices are explained to the consumer” • Methods: 1) itemization 2) package pricing 3) unit pricing 4) bi-unit pricing 5) functional pricing

24. Itemization • “the method of price quotation by which each unit of service and/or merchandise is priced separately” • Required by the FTC • 16 required items for the GPL

25. Considerations for Itemization • importance of the activity • pay scale of employees who perform the task • percentage of building used • time devoted to the task • frequency of use/selection • known rate/scale • competitive factors • “position” of the firm • establish a reasonable markup • don’t discount merchandise price

26. Package Pricing • “a pricing method which groups together selected services and/or merchandise” • allowed by the FTC

27. Unit Pricing • “a method of price quotation in which one price includes both service and casket” • 1960’s

28. Unit Pricing Technique • Casket $_________ • Includes: services of FD & staff embalming and other prep. facilities, equip. & staff transfer of remains hearse to cemetery limousine for family flower car

29. Bi-unit Pricing • “a method of price quotation showing separately the price of the service to be rendered and the price of the casket” service cost +casket cost total price of funeral

30. Bi-unit Pricing Technique Casket $_________ Services $________ Includes: services of FD & staff embalming and other prep. facilities, equip. and staff transfer of remains hearse to cemetery limousine for family flower car

31. Functional Pricing • “a method of price quotation in which the charges are broken down into several major component parts such as professional services, facilities, automobile and merchandise” • 4 categories: professional services facilities transportation casket

32. Functional Pricing Casket $_______ Services $_______ Facilities $_______ (includes staff & equip. for visitation & funeral) Transportation $_______ (includes transfer of remains, hearse, limousine and flower car)

33. NJSB Requirements for SFG&SS Categories • 13:36-1.9 • I Professional Services • II Other Staff and Related Facilities • III Transportation • IV Merchandise Does this look familiar?

34. Pricing Strategies • Competitive Pricing: products sold will be priced about the same as those offered by competitors • Penetration Pricing: products are priced lower than those offered by the competitor • Prestige Pricing: setting relatively high prices for the product

35. Pricing Strategies (cont’d) • Skimming: charging a high price for the product • Leader Pricing: price one or a few items at very low prices to attract consumers • Odd Number Pricing: avoid using round numbers when pricing products • Opportunistic Pricing: (Price Gouging) taking advantage of a situation when setting prices for product

36. Selecting a Vendor • Considerations: • 1) product line • 2) delivery • 3) terms: Trade Credit Terms (cash discount)

37. Trade Credit Terms • 2/10,Net 30 OR 2/10,n/30 • MOM • EOM • CWO • CBD • COD

38. Considerations (cont’d) • 4) sales representatives • 5) point of sale materials • 6) merchandising assistance • 7) reputation • Accommodation Merchandise: merchandise other than “regular” merchandise

39. Price Pointing • Good/Better/Best • Pricing caskets in a logical progression of value to the consumer. • Caskets in the lowest (good) price line end in “95”. • Caskets in the middle (better) price line end in “25” or “75”. • Caskets in the higher (best) price line end in “00” or “50”.