1. Pricing Understanding Pricing Objectives Done by: Kari, Alastair, Shari, Kim, Meghnaa

2. Question 1 What are the 5 different approaches to setting price-objectives? The 5 different approaches to setting price objectives are (see also pp 238-241 of Andreasen, Kotler): Surplus Maximization Cost Recovery Market Size Maximization Social Equity Market Disincentivization

3. Surplus Maximization Despite popular belief, a non-profit organization may want to set its price yield to the largest possible surplus. To calculate total surplus, you must estimate the response (demand) & cost functions; a model is provided in the text for this calculation. An organization needs to set a price value that is compatible with how much the organization spent on resources to put on an event. See this link for a basic breakdown: http://www.wordiq.com/definition/Profit_maximization Surplus maximization only considers the ultimate audience’s response to alternative prices; i.e. it doesn’t consider the response of competitors, suppliers, intermediaries, or the general public. Calculating the total surplus yields a price that maximizes short-run surplus rather than long-run surplus, which could cause loss of customers to lower, long-run prices and customers. There may be other elements in the marketing mix that can affect demand that are not reflected in the model.

4. Cost Recovery Many nonprofits focus on simply covering their operating costs. Other organizations aim for full cost recovery because it is the only source of their funding. In order to ensure the support of the public, organizations like the postal service, art galleries, etc. set a price that will entice and lure the support of the masses, keeping in mind that the support of generous donors and corporate sponsors will subsidize their overhead costs. This approach can hinder expansion, prevent the maintenance of facilities, and keep the nonprofit from being as technologically advanced as organizations generating more revenue.

5. Market Size Maximization Setting low prices for the products or services will help capture a larger audience, and this could eventually lead to more donations that can compensate for the lower prices set. There are risks associated with setting extremely low prices for your product/service. Dr. Waters and the text mentioned one of the most significant - that the audience might view the product/service as ‘cheap’ or low quality due to the low pricing. Consider the old adage, ‘if it sounds too good to be true, it probably is.’

6. Social Equity Organizations can price services in a way that contributes to social equity – also know as “fair access” to everyone by increasing or decreasing the value of a product, depending on the perceived value of an individual. The general concept of social equity is: “public (and by extension, nonprofit) services should not operate to transfer wealth from the poor to the rich” (pp241 of text). It is important to remember, however, that there is the potential for free products and services to be distrusted or undervalued in their worth. Two applicable quotes are: “Where there is injustice for one, there is injustice for all.” – Martin Luther King “ Social equity is the cornerstone of society, which cannot be maintained for a few at the expense of the many.” – Reliable Prosperity Blog

7. Market Disincentivization This pricing objective is undertaken to discourage possible patrons from engaging in a particular behavior (e.g. a high tax on alcohol and cigarettes). The approach can be combined with changes to public policies to help achieve greater affect. For example: higher cigarette taxes, combined with public smoking bans will likely be more effective at achieving the desired change in behavior (fewer people smoking) than just increased taxes. This may be done for rationed products/services (e.g. flu vaccines when there is a temporary shortage). It may be used to curtail overuse of a facility or service. Sometimes it is used to discourage a certain buying population from purchasing the product or service.

8. Question 2 What are the pros and cons of “a la carte” pricing?

10. Student membership fees

11. Previous adopters’ fees

12. Charging for school, in-class presentations (minimal charges)

13. Behavior and training support fees http://www.spcawake.org/site/PageServer?pagename=Behavior_mainpage

14. Charge a minimal fee for group tours of the SPCA facility

15. Senior citizen membership fees