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Flevy Management Insights Case Study
Pricing Strategy Revision for Healthcare Nonprofit in North America

Fortune 500 companies typically bring on global consulting firms, like McKinsey, BCG, Bain, Deloitte, and Accenture, or boutique consulting firms specializing in Pricing Strategy to thoroughly analyze their unique business challenges and competitive situations. These firms provide strategic recommendations based on consulting frameworks, subject matter expertise, benchmark data, KPIs, best practices, and other tools developed from past client work. We followed this management consulting approach for this case study.

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Consider this scenario: A prominent healthcare nonprofit organization in North America faces a critical challenge in recalibrating its pricing strategy amidst the evolving market dynamics.

The organization has witnessed a 20% decline in funding and donations due to economic pressures, while operational costs have surged by 15%, partly due to the rising demand for health services and increased competition from for-profit entities. The primary strategic objective of the organization is to overhaul its pricing model to ensure long-term sustainability and expanded healthcare access.

The organization in question is navigating a tumultuous period characterized by financial strain and heightened competition. Initial analysis suggests that the primary issue might stem from an outdated pricing strategy that fails to reflect the current economic environment and the value provided to its beneficiaries. Furthermore, there's a noticeable gap in leveraging digital technologies for operational efficiency, which could otherwise mitigate some of the cost pressures faced.

External Analysis

The healthcare sector, particularly within the nonprofit domain, is undergoing significant transformation, driven by technological advancements and shifting donor preferences. The landscape is increasingly competitive, with new entrants and alternative healthcare solutions emerging.

Examining the competitive forces reveals:

  • Internal Rivalry: High, due to an influx of both nonprofit and for-profit organizations vying for a share of the limited funding and donations available.
  • Supplier Power: Moderate, as the organization relies on a mix of vendors for medical supplies and services, with some room for negotiation.
  • Buyer Power: High, as beneficiaries have more options for healthcare services, including from for-profit entities.
  • Threat of New Entrants: Moderate, given the barriers to entry in the nonprofit healthcare sector, though diminishing due to digital platforms.
  • Threat of Substitutes: High, with alternative healthcare and wellness solutions gaining popularity.

Emergent trends include:

  • Increased reliance on digital health solutions, offering both opportunities and risks related to technology adoption and cybersecurity.
  • Shifting donor preferences towards more transparent and impact-focused contributions.

A PESTLE analysis highlights significant regulatory shifts, technological advancements, and economic pressures impacting the sector.

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Internal Assessment

The organization boasts a committed workforce and a strong reputation for quality healthcare service. However, it faces challenges in adopting the latest digital health technologies and efficient operational practices.

SWOT Analysis

Strengths include a dedicated staff and a long-standing presence in the community. Opportunities lie in adopting digital health technologies and expanding services to underserved areas. Weaknesses are evident in operational inefficiencies and a lagging digital presence. Threats consist of increasing competition and economic uncertainty affecting funding.

Digital Transformation Analysis

There is a noticeable gap in the organization's adoption of digital health technologies, which impacts its service delivery efficiency and ability to engage with both beneficiaries and donors effectively.

Jobs To Be Done Analysis

The primary job to be done for the organization's beneficiaries is receiving accessible, affordable, and comprehensive healthcare services. There's a gap between current pricing models and the perceived value among beneficiaries, suggesting a need for a more nuanced pricing strategy.

Learn more about Pricing Strategy

Strategic Initiatives

  • Revise Pricing Strategy: Redefine the organization’s pricing model to align with beneficiary value perception and market conditions. The goal is to enhance affordability while ensuring sustainability. This initiative aims to create value by increasing service accessibility and organizational viability. It will require a detailed analysis of cost structures, beneficiary segments, and competitive pricing models.
  • Digital Transformation for Operational Efficiency: Implement digital health technologies to streamline operations and improve service delivery. The intended impact is to reduce operational costs and enhance patient experience. This will create value by improving efficiency and patient outcomes. The initiative will require investments in technology, training, and change management.
  • Strengthen Donor Engagement: Develop a donor engagement strategy that emphasizes transparency, impact reporting, and personalized communication. This aims to increase donor retention and attract new funding sources. This initiative will create value by building stronger relationships with donors, potentially increasing funding. It will require enhanced communication platforms and impact measurement tools.

Learn more about Change Management

Pricing Strategy Implementation KPIs

KPIS are crucial throughout the implementation process. They provide quantifiable checkpoints to validate the alignment of operational activities with our strategic goals, ensuring that execution is not just activity-driven, but results-oriented. Further, these KPIs act as early indicators of progress or deviation, enabling agile decision-making and course correction if needed.

Measurement is the first step that leads to control and eventually to improvement.
     – H. James Harrington

  • Service Accessibility Increase: Measures the expansion of healthcare services to underserved areas.
  • Operational Cost Reduction: A decrease in operational costs indicates successful digital transformation implementation.
  • Donor Retention Rate: An increase in this rate will reflect success in enhancing donor engagement and transparency.

These KPIs provide insights into the effectiveness of the strategic initiatives, indicating areas of success and opportunities for further improvement.

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Stakeholder Management

The successful execution of these strategic initiatives requires the active involvement and support of a diverse group of stakeholders.

  • Employees: Essential for implementing digital transformation and delivering healthcare services.
  • Technology Partners: Key to providing the digital tools needed for operational efficiency and service delivery.
  • Donors: Their funding and support are critical for sustaining and expanding healthcare services.
  • Beneficiaries: As the primary recipients of healthcare services, their feedback is crucial for adjusting services and pricing strategies.
  • Regulatory Bodies: Compliance and alignment with healthcare regulations are vital for operational legitimacy.
Stakeholder GroupsRACI
Technology Partners
Regulatory Bodies

We've only identified the primary stakeholder groups above. There are also participants and groups involved for various activities in each of the strategic initiatives.

Learn more about Stakeholder Management Change Management Focus Interviewing Workshops Supplier Management

Pricing Strategy Best Practices

To improve the effectiveness of implementation, we can leverage best practice documents in Pricing Strategy. These resources below were developed by management consulting firms and Pricing Strategy subject matter experts.

Pricing Strategy Deliverables

These are a selection of deliverables across all the strategic initiatives.

  • Revised Pricing Strategy Framework (PPT)
  • Digital Transformation Roadmap (PPT)
  • Donor Engagement Plan (PPT)
  • Operational Efficiency Improvement Report (PPT)

Explore more Pricing Strategy deliverables

Revise Pricing Strategy

The organization utilized the Value-Based Pricing framework to recalibrate its pricing strategy effectively. Value-Based Pricing, which focuses on setting prices primarily, but not exclusively, on the perceived or estimated value of a product or service to the customer rather than on the cost of the product or historical prices. This approach was instrumental because it aligned the organization's pricing model more closely with the value it provides to its beneficiaries, ensuring prices were fair and reflective of the service value. The team implemented the framework through the following steps:

  • Conducted comprehensive market research to understand the beneficiaries' perceived value of the healthcare services offered.
  • Evaluated the differential value proposition compared to alternative healthcare solutions available to the beneficiaries.
  • Adjusted pricing models based on the perceived value analysis, ensuring that prices were set to reflect the value delivered to beneficiaries while maintaining organizational sustainability.

The results of implementing the Value-Based Pricing framework were significant. The organization was able to introduce a pricing model that was both competitive and reflective of the value provided, leading to increased beneficiary satisfaction and engagement. Moreover, this strategic initiative resulted in a more sustainable revenue model that supported the organization's long-term objectives.

Learn more about Value Proposition Market Research

Digital Transformation for Operational Efficiency

In its quest to enhance operational efficiency through digital transformation, the organization employed the Lean Startup methodology. The Lean Startup approach focuses on creating and managing startups and get a desired product to customers' hands faster. It was particularly useful for this initiative as it provided a framework for testing new digital technologies and processes with minimal upfront investment, allowing for rapid iteration based on feedback. The organization followed these steps to implement the framework:

  • Initiated small-scale pilots of digital health technologies to streamline operations and improve service delivery, applying the Build-Measure-Learn feedback loop.
  • Gathered and analyzed feedback from both employees and beneficiaries to identify the most impactful digital solutions.
  • Scaled successful digital solutions across the organization, continuously monitoring performance and making iterative improvements.

The adoption of the Lean Startup methodology enabled the organization to implement digital health technologies that significantly improved operational efficiency and patient experience. This approach not only reduced operational costs but also enhanced the quality of healthcare services, demonstrating the power of agile methodologies in driving organizational change.

Learn more about Digital Transformation Organizational Change Agile

Strengthen Donor Engagement

To enhance donor engagement, the organization turned to the Stakeholder Theory framework. Stakeholder Theory posits that the interests of all stakeholders (not just shareholders) should be taken into account in the company's operations and planning. This framework was crucial for this initiative as it helped the organization to systematically identify, understand, and address the needs and interests of its donors. By following this approach, the organization:

  • Mapped out its key donor segments and conducted an analysis to understand their specific interests, preferences, and concerns.
  • Developed tailored communication and engagement strategies for each donor segment, focusing on transparency, impact reporting, and personalized communication.
  • Implemented a feedback loop with donors to continuously refine and improve engagement strategies based on their input and evolving expectations.

The implementation of the Stakeholder Theory framework led to a marked improvement in donor engagement and satisfaction. By adopting a more strategic and tailored approach to donor communication and reporting, the organization was able to increase donor retention rates and attract new funding sources, thereby securing the financial sustainability of its healthcare services.

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Key Findings and Results

Here is a summary of the key results of this case study:

  • Implemented a Value-Based Pricing strategy, leading to increased beneficiary satisfaction and a more sustainable revenue model.
  • Adopted digital health technologies through the Lean Startup methodology, reducing operational costs and improving patient experience.
  • Enhanced donor engagement using the Stakeholder Theory framework, resulting in higher donor retention rates and new funding sources.
  • Expanded healthcare services to underserved areas, improving service accessibility.

The strategic initiatives undertaken by the organization have yielded significant positive outcomes, particularly in terms of enhancing beneficiary satisfaction, operational efficiency, and donor engagement. The adoption of a Value-Based Pricing strategy has effectively aligned the organization's pricing model with the value delivered to beneficiaries, ensuring both competitiveness and sustainability. The implementation of digital health technologies through the Lean Startup methodology has notably reduced operational costs while simultaneously improving the quality of healthcare services. Moreover, the application of the Stakeholder Theory framework has successfully increased donor retention rates and attracted new funding sources, securing the financial sustainability of the organization's healthcare services. However, the results were not uniformly successful across all fronts. The expansion of services to underserved areas, while commendable, has highlighted the need for further investment in digital infrastructure to fully realize the benefits of operational efficiency gains. Additionally, the initial resistance to change among some staff members underscores the importance of a more robust change management strategy.

Given the mixed results, the organization should consider enhancing its digital infrastructure to support the expanded service accessibility in underserved areas more effectively. Investing in more comprehensive training programs and change management strategies would likely mitigate resistance to new technologies and operational practices among staff. Furthermore, exploring additional digital engagement tools could further improve donor engagement and funding opportunities. Continuous monitoring and adaptation of the pricing strategy in response to market changes and beneficiary feedback will ensure its ongoing relevance and effectiveness. These steps will not only consolidate the gains made but also address the areas where results were less than optimal, positioning the organization for sustained success in the challenging healthcare sector.

Source: Pricing Strategy Revision for Healthcare Nonprofit in North America, Flevy Management Insights, 2024

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