Pricing strategies are essential in healthcare marketing, as they determine the value of products or services and allow providers to gain a competitive advantage in the consumer-driven industry. Pricing strategies developed by a company should align with the customer’s perceived level of value, which requires managers to balance prices according to the dynamics of a specific marketplace. The following discussion post will provide an analysis of the marketing manager’s (MM) decision of a Managed Care Organization (MCO) and review the concepts of price elasticity and perceived value affecting this decision.
The reasoning of the MM might be explained by the logical conclusion that decreasing the premium to another 20 percent will produce the favorable result of increasing the number of subscribers by 40 percent. The example of the MM demonstrates the use of price elasticity in healthcare marketing. Customers’ responses to the established price may be accessed by examining the price elasticity degree. Moreover, price elasticity helps marketing managers understand how different price strategies affect consumers. The strategy provides an opportunity for managers to get an advantage from known or perceived elasticity or inelasticity of prices. It also allows managers to estimate the changes in demand following pricing strategies.
The MM’s pricing strategy can benefit from examining price elasticity, but it might negatively impact the perceived value of a product or service. The main drawback of MM’s decision to reduce the premium price to attract customers is the potential decrease in the perceived value of the service. Berkowitz (2017) suggests that “higher prices often connote better quality,” which means that the opposite is true, and lower prices may reduce the service’s value based on consumer perceptions (p. 342). Herr and Suppliet (2017) claim that price responses of consumers and levels of price elasticity depend on a distinct class of products or services. Decreasing the price by 20 percent does not guarantee a proportionate increase in the number of subscribers because a low price may suggest a low quality of the service. Therefore, considering the risks involved in the perceived value of low-price services, MM would benefit the most from the balanced pricing strategy based on relevant market research data.
Research is an important consideration for the manager of the MCO, as it involves clear identification of factors contributing to future planning and execution. Gathering research data allows managers to understand and assess the needs of consumers and evaluate various pricing practices (Berkowitz, 2017). It might be reasonable for the MM to conduct research to comprehend the historical pricing practices of MCOs or assess the rationale for existing pricing strategies and trends (Berkowitz, 2017). For instance, the study by Prager (2020) suggests that market-based strategies in the U.S. healthcare industry demonstrate a focus on financial incentives for consumers allowing them to reduce spending on certain medical services. The findings indicate that incentivizing consumers or subscribers to price shop by reasonably lowering prices may provide a competitive advantage for the MCO.
To sum up, pricing strategies play a pivotal role in healthcare marketing and assist managers in gaining a competitive advantage. The analysis of the elasticity pricing strategy selected by the MM and the review of related research evidence reveals that lower prices may be beneficial for the MCO. The MM should regard the perceived level of value to avoid underpricing of the service and negative customer or subscriber perceptions.
References
Berkowitz, E. (2017). Essentials of healthcare marketing (4th ed.). Jones & Bartlett.
Herr, A., & Suppliet, M. (2017). Tiered co-payments, pricing, and demand in reference price markets for pharmaceuticals.Journal of Health Economics, 56, 19–29.
Prager, E. (2020). Healthcare demand under simple prices: Evidence from tiered hospital networks.American Economic Journal: Applied Economics, 12(4), 196–223.