Question

Among the most important uses of managerial accounting data are establishing price for a particular product or service. This is how we earn revenue. In many situations, there are external factors that impact the price that is set. This in turns impacts the organization’s bottom line. It is important that a healthcare manager has a solid understanding of pricing strategies. Identify and discuss the pricing strategies available to a healthcare manager. Be sure to discuss what it is; how it is used; and the advantages/disadvantages of each one.

Answer 1

Pricing strategies available to healthcare manager are:

1. Cost plus pricing = full cost + profit margin

This is traditional pricing strategy for manufacturing industry .

Advantage : it ensures recovery of profit from initial stage of product lifecycle

Disadvantage : it ignores competition and customers buying power.

2. Skimming Pricing : it refers to charging high price at the introductory stage of the product. It is usually used when product is innovative and new in the market

Advantage : it ensures recovery of heavy investment made by the organization at the initial stage.

Disadvantage : there can be huge loss of market share as soon as competition enters the market

3. Going rate pricing / competitive pricing : it is method where firm tries to keep it's price at average level charged by the industry.

Advantages: a. useful where it is difficult to measure the price .

b. Yieids fair return to all firms in the industry

Disadvantage : a. Firm has very little choice about the pricing policy.

b. Firm that charges above going rate price usually unable to attract customers.