Sample pricing strategy plan for a healthcare institution

Introduction

The pricing model for telemedicine has yet to be standardized as the industry is just being to burgeon. As a result, many competitors use various pricing model that depend heavily on their business models. For startup with large amounts of cash and financial backing, many are willing to charge much lower profits in order to generate loyal and entrenched followers. Many technology-based companies such as Amazon and Microsoft followed this strategy during their start up phases. Amazon for example, generated substantial loses for a majority of its existence as it looked to generate a lower customer following while also building out its product offerings. Microsoft used the same tactic in order to become the dominate word processing software. Once it became dominate, it then was able to charge higher prices and add additional services. Pricing for startup telemedicine organizations look to be employing the same technique. This can very disruptive, as these software providers are purposing taking financial losses and operating on thin margin to take market share from competitors. Those competitors who do not have the financial backing, capital, or investor base to sustain these losses will ultimately lose market share and ultimately profitability. We are currently witnessing this within the retail sector as many of the more established department stores such as JC Penny, Sears, and Neiman Marcus have all filed for bankruptcy due to their inability to compete with online retailers who used aggressive price tactics. On the other end of the spectrum are more established providers who are not “pure play” telemedicine providers. Here they provide a combination of service each with different profit characteristics. As a result, these businesses do not rely entirely on revenue from the telemedicine operation solely. As a result, these operations have much more pricing flexibility as it relates to their own telemedicine product offering relative to their competitors. Going back to the retail example earlier Costco has been able to thrive in the current environment has their core retail operations have performed very well due their cost focus strategy. Even with Amazon operating at loss and undercutting their prices, Costco still offering such as compelling value proposition that consumers still used their services. As a result, there were able to slowly roll out their online offering to better compete with Amazon. In this instance AZ Hospital will take a similar approach to its pricing strategy relative to competitors. The hospital benefits from other “core” services that allows it to be flexible as it relates to its telemedicine product offering. As a result, the company does not feel pressured to take losses in order to properly roll out its product. Instead the company can be patient and deliver a compelling experience, leveraging its healthcare expertise and potentially charging premium prices (David, 2014).

Pricing Plan with justification from a reputable source like payors or CMS. - Pricing Plan with sourcing and analysis.

To being, the current pricing strategy will revolve around a low monthly base fee and a combination of consultation fees that are based on the product being demanded by the consumer. This pricing structure will first be very transparent to the consumer prior to engaging with the company. The start the base monthly fee will start at $20 per month. The other fees will be based partiality on internal profit margin projections and partially on competitive pricing. As stated in the introduction, the company will not engage in price wars with vendors and providers looking to take market share. Instead, the company will look to leverage its value proposition in a similar manner to Costco in the retail industry.

The justification for this pricing model is that AZ Hospital has both a physical and online presences which is very difficult for competitors to replicate. Consumers have much more flexibility and options to choose how they would like to engage with the company. In addition, due to our physical presence, our facility can offer services that many telemedicine providers cannot replicate. It is this seamless transition between online and offline services that gives our firm a sustainable competitive advantage relative to peers. In some case, it will allow us to form partnerships with certain telemedicine providers who are unable and unwilling to provide the services we offer. For example, it is very difficult for competitor such as Doctor on Demand to provide an X-Ray over the internet. As such they often must contract this work out to other providers. Our pricing structure accounts for the costs needed to maintain the physical presence in the market, the flexibility of product offerings, the depth of product offerings, and the quality in which these offerings are administered. As a result, we don’t intend to lower our prices as our competitors who do not have these offerings and their associated costs. Chart 1 below depicts total telemedicine costs for various treatments. Notice how the range varies dramatically for basic and often routine treatments. As noted in the introduction this primary due to the infancy of the industry and also due to the various pricing structures employed by our competitors (Gerard, 2003).

Chart 1 – Cost Disparity for Telemedicine Treatment

Chart 2 below provides a similar example to chart one. Here the chart takes one treatment, “Birth Control” and shows the split between the visit cost and the prescription drug cost. As you can see from this chart, the variations are wide and often depend heavily on the provider, the quality of service provided, and the overall product offering. Some of our telemedicine competitors such as Hurx do not charge anything for their visit with their revenue being incurred solely from the sale of prescription drugs. Likewise, competitors such as Doctor on Demand charges a large consultation fee upfront, with very low prescription drug cost on the back end. A majority of the competitors however, use a combination of both items as it relates to their pricing strategy.

Chart 2 – Cost Disparity for Birth Control

Our pricing strategy will therefore be a monthly fee for the service, along with a competitive consultation fee and prescription drug price fee.

Distribution Channels and Practices - Distribution channels or practices discussed with the rationale behind the decision.

As noted in the introduction, distribution channels will come from various sources. The most significant and reliable source will be our own customer base. AZ Hospital is unique in that in already has an established, well-documented, and loyal customer base. As a result, the company does not need to spend significant sums on advertising, marketing, and public relations as many of our competitors do. These savings can thus be used to lower consultation fees or monthly fees for consumers to make the pricing even more competitive. Therefore, our internal customer base will be our primary distribution channel initially. Once fully utilized, the company will then shift to other Telemedicine competitors who do not have a physical presence in the market. Here we can combine our unparalleled product depth and quality with competitor’s ability to generate leads through the telemedicine product offering. This could have improved our brand awareness and recognition, while also providing the telemedicine another revenue stream. Finally, our third distribution channel will be through major companies and other healthcare providers. Here, we will look to partner our telemedicine offering with other healthcare partners who may not have a strong offering or are unwilling to take on the costs to create and maintain the offering (Matthew, 2015) .

Promotion - Promotion plan includes types of promotion and frequency and associated costs.

As noted above, the promotion aspect will be primarily internal at first as we will leverage our own customer base to generate traffic. Afterwards, the firm will engage in limited advertising and promotion on social media, YouTube, google, and so forth. The initial promotion will be modest to gauge ROI and overall costumer generation. As the industry is relatively new, nearly all market participants are not entirely sure which promotional strategies generate the highest customer traffic and ROI. In addition, promotion through our distribution channels with telemedicine and other healthcare providers will help establish the brand.