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BUFDG Conference 2003 The Pricing Agenda

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.

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BUFDG Conference 2003 The Pricing Agenda

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  1. BUFDG Conference 2003The Pricing Agenda Professor David Westbury Chair, Joint Costing and Pricing Steering Group.

  2. Joint Costing & Pricing Steering Group • HEFCE • SHEFC • ELWa • DE&L • U Uk • SCOP • U Scotland • HHEW • the HEIs

  3. 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.

  4. JCPSG Web-site • http://www.jcpsg.ac.uk

  5. Funding the Future: The Same or Different? It must be different! Action is needed now

  6. 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

  7. 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.

  8. Pricing Issues • Pricing is a different discipline from Costing • Pricing is strongly linked to Marketing

  9. Pricing Strategy The parts must fit together:- Institutions can do a lot individually, but some aspects may require joint action

  10. Pricing Strategy and MarketingThe Marketing Mix • Pricing is only one of four factors in the marketing mix: Products and Markets Distribution Methods Promotion Pricing Strategy

  11. Pricing and Corporate Objectives Financial Objectives Corporate Objectives Pricing Policy Marketing Objectives

  12. Key Pricing FactorsCorporate Strategy • Corporate strategy must underpin pricing strategy • Tensions between competing strategic objectives may exist • Action is needed to resolve tensions

  13. General Approaches to Pricing 1) Market based 2) Cost based Derive from two different cultures: Private sector and public sector

  14. Question…Can the two pricing cultures exist together in one institution?Yes… but there has to be a university strategy and framework

  15. Market based Pricing Price is based on the value to the customer “in the market place” Private Sector Culture

  16. Key Pricing FactorsCustomers • 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

  17. 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

  18. Key Pricing FactorsCompetition • Understanding the market • Analysing competitors • Assessing market position

  19. An Example of a Competitive Market for Fees N=161, mean=8306, 2002/3

  20. Example of Value Pricing of a Contract

  21. Pricing Strategy high A B price C D E low high value

  22. Cost based Pricing Price is based on cost recovery, or if possible, cost plus contribution Public Sector Culture

  23. Costing Total Costs = Direct Costs + Indirect (support) Costs + Costs of Capital & Assets

  24. 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”

  25. 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

  26. 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

  27. Pricing and Transparency Review Categories

  28. What Have We Done So Far? • Advocacy with Government • Advocacy within the sector • Publications

  29. 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?

  30. 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?

  31. JCPSG Publications “Pricing toolkit for the higher education sector” October 2000 available electronically on web-site

  32. JCPSG Publications “Developing a pricing strategy in higher education institutions” July 2002 Available electronically on web-site

  33. JCPSG Publications “The use of indirect cost rates in costing government contracts – technical guidance” September 2001 Available electronically on web-site

  34. The Pricing AgendaDiscussion

  35. 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

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