AF4Q Sustainability WebinarPricing, Value & Prioritization

December 16, 2013

Today’s Objectives

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Lay the foundation for an actionable path towards:

1. Establishing a price for the value-add products and services alliances provide

2. Identifying who values these products and services and to what degree

3. Focusing efforts on products and services with the greatest opportunity for impact and financial return

Six Drivers of Sustainability

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Economic

Viability

Capacity

to Deliver

Focused

Business

Strategy

Impact

Articulation

Impact

Outcomes

Partnership Building & Stakeholder Engagement

Establishing the Right Price

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Identifying Key Pricing Factors

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• Costs: The fixed and variable costs required to deliver a product or services.

• Value: The perceived benefit provided to the customer group(s).

• Competition: The alternative options the customer has to select from to receive the product or service.

• Positioning: The unique strengths and assets that differentiate you as a provider of these goods and services.

While each of these factors impact pricing, it’s critical to first understand your true costs to develop an informed pricing baseline.

Creating an Informed Baseline

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• Identify the key products and/or services you provide (or are considering providing) that deliver value to the community.

1. Products & Services

• Identify and allocate the fixed and variable costs associated with providing these products and/or services.

2. Fixed and Variable Costs

• Determine the price and the target number of customers needed to break even.

3. Break Even Price & Volume

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Pricing In Action: Better Health Greater Cleveland

• Current: PCMH NCQA Recognition Application Process Technical Assistance support for providers

• Potential: Clinical effectiveness, financial management and operational efficiency

Product/Service

• Fixed Costs Include: Management time, equipment, training and certification.

• Variable Costs Include: Consultant time, travel expenses, space rental

Costs

• Identified costs• Added 10% margin• Provided 50% discount to members

Pricing

Baseline Lever to Pull: Break Even Price

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Fixed Costs

Variable Costs Per Customer

Estimated # of

CustomersTotal Cost

Total Costs

Estimated # of

Customers

Break Even Price

Two Levers to Pull: Break Even Price & Break Even Volume

Baseline Lever to Pull: Break Even Volume

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Price per Unit

Variable Cost per

Unit

Fixed Costs

# of Units to Sell to Break

Even

Two Levers to Pull: Break Even Price & Break Even Volume

Discussion

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• Are you allocating both fixed and variable

costs within each of your service lines?

Are you covering your full costs?

• What challenges have there been in

doing so?

• What tolerance is there for raising prices

to increase margins when necessary?

• How have you navigated resistance?

Balancing Price with Value

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• Market: Who is the specific group you are targeting?

• Offering: What programs, services and/or products are you delivering to achieve your desired social impact?

• Benefit: How do your programs/services/products deliver value to the market?

• Differentiation: How are you different from and better than the alternatives?

A value proposition addresses the following:

A strong value proposition is a clear statement of the tangible results a customer gets from using your services and/or products.

Understanding Your Value

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Translating Your Value

Jobs:What is this

stakeholder trying to get done?

Gains

PainsValue Proposition:

How does or might your product or services create gains or relieve

pains for this stakeholder?What are the things (e.g.,

undesired costs, situations, challenges) that this

stakeholder most dislikes or fears in pursuit of its “jobs”?

What are the things (e.g., benefits, experiences) that this stakeholder most appreciates or hopes for in pursuit of its

“jobs”?

Value in Action: Better Health Greater Cleveland

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CUSTOMIZED TECHNICAL ASSISTANCE for Practice/Health System Transformation

Target Market Small to medium sized providers/health systems in the local community.

Need Many small to medium sized providers lack necessary, internal, subject matter expertise in areas that are critical, as transitioning to PCMH, ACO delivery models and Total Cost of Care reimbursement evolves. Additionally, many can’t afford to secure large, expensive, consulting firms to address this need.

Benefit Providers receive customized, and affordable TA support that positions them for success under new conditions.

Positioning Highly reputable, customer centric, in-person, cost-effective TA Provider who is invested in their local community health improvement and economic success.

Marketing/Communications

Currently targeting provider membership organizations. Opportunity to expand to non-members in the future.

Next Steps to Developing a Value Proposition

• What is the customer trying to get done?• What are the gains (e.g., benefits, experiences) that this

customer most appreciates or hopes for in pursuit of its “jobs”?

• What are the pains (e.g., undesired costs, situations, challenges) that this customer most dislikes or fears in pursuit of its “jobs”?

1. Assess Customers

• What alternative options do your customers have to receive this value?

• What do your customers value about comparable or competitive products/services?

2. Assess Competitors

• What is your competitive advantage?• What can you offer that is unique and superior to the

competition?• How does or might your product or services create gains

or relieve pains for this stakeholder?

3. Determine Position

Conduct Market Research to:

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Discussion

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• What tactics have you used in

the past to explore and

communicate your value?

• Is there alignment between

the value you see that you are

providing to customers and

the value they believe they

are receiving?

Prioritizing Your Efforts

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Feasibility Assessment Clarifies Key Questions

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1. Overall Strengths: What are the potential strengths and demand for the opportunity?

2. Overall Drawbacks: What are the potential drawbacks or risks of the opportunity?

3. Go/No Go: Is this opportunity more valuable than the other opportunities the organization could be investing in?

Feasibility Study Overview

Opportunity (1= unattractive, 2= moderate,

3= very attractive)

A B C

Market Size

Market Outlook

Customers

Competitive Factors

Market Profitability

Ease of Entry

Fit with Mission

Fit with Skills/Expertise

Fit with Assets and Strengths

Ability to Manage Risk

OVERALL ATTRACTIVENESS

Internal Factors

Internal/ External

External Factors

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Prioritization in Action: Better Health Greater ClevelandScore of 75-90 points: High Priority Product/Service Score of 60-74 points: Medium Priority Product/Service Score of 59 points or less: Low Priority Product/ Service

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  Criteria Weighting Product/Service ScoringProducts/ Services:

 

Criteria (Score each criteria 1[low importance], 2 [medium importance], or 3 [high importance]) Score: Definition/ Measurement (green =3 points, yellow = 2 points, red = 1 points)

PCMH NCQA Recognition

Alignment Organizational Alignment 3 Vision, mission, and values (high, medium, low) 9Financial ROI 3 Negative, break-even, or positive/ margin 6Financial ROI: Timeframe to Achieve 2 0-1 yr, 1-2 yrs, 2(+) yrs 4

Market Demand 2 The current Demand for the product/ service is (high, medium, low) 4

Market Demand : Duration 2The Demand for the product/ service is (episodic/short duration, moderate duration, ongoing/long term ) 6

Market Competitive Positioning 2How our org is positioned in the marketplace to compete with others offering the same service or product (high, medium, low) 4

Market Market Share 1 Potential reach; i.e. <50% of eligible audience, >= 50% of eligible audience 1

Market Barriers to Entry 2Barriers for BHGC entry may include, but are not limited to political, economic, regulatory ,etc. (minimal, moderate, significant) 2

Strategic Scalability 1 Scalability of the Product/Service (high, medium, low) 2

Strategic Population Health /Social Impact 1 Potential impact is : < 50,000, 50,000 - 1.5mil, >1.5 mil 2

Strategic Targeted Audience 2Status of relationship with targeted audience (not started/new, developing, or strong) 4

Strategic Product Development Cycle 2Complexity of product to be developed(high complexity, medium complexity, low complexity) 6

Strategic Product Value Proposition 3

Value prop rating for targeted audience (high, medium, low) Consider using Rogers’ factors of diffusion of innovationa

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Strategic Organizational Readiness 2Internal People, Process, Systems Readiness to deliver the product/service (Ready now, 6 mos-1 yr, > 1 yr) 6

Brand Recognition Visibility Reputation 2

What impact will this product have on BHGC’s reputation in the community/region/national stage? (high, medium, low) 4

Closing Questions & Next Steps

• How may these tools supplement the work you are already doing?

• What additional support would be helpful as you apply these tools in your specific alliance?

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Contact Information

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