A Reader Question – Pricing for Altruism vs. Profit.
An email from a reader:
Challenger Health (email@example.com) is a very early stage, non-medicinal consumer healthcare products startup; our core customers are physicians (Orthopaedic primarily) and physical therapy professionals. The most effective pricing model is something we have discussed at length, more specifically, if it makes sense strategically to price our products differently depending on whether the customer (doctor, in most cases) intends to resell to his/her patients or provide the products at no cost, wherein the former is charged more than the latter.
Thanks for your time Mark,
Thank you for the question Patrick. Although it’s hard for me to give you a definitive answer, I’m leaning heavily toward YES! you should charge different prices based on how the doctors will use your product.
The most important rule for setting prices is charge what your customers are willing to pay. It seems very likely to me that those who are making profit are willing to pay more than those who are giving it away. Doctors who give it away are absorbing the cost themselves. Those who are reselling it are passing those costs, plus a profit, on to their customers.
As to how to do this, consider setting your list prices at the highest price, the price you will sell to a doctor who is using this to make money. Then, you can put together “Good Samaritan” pricing levels, for anyone willing to offer your product for free to their clients. (Feel free to choose a better name.) That establishes the value at the higher price and justifies the lower price. Never lead with Good Samaritan pricing though.
You will then need to monitor your customers buying at Good Samaritan prices for compliance. Hopefully there is a way. One method might be to monitor the number of units they use per period. It is likely that people giving it away go through many more than those selling it.
All that under consideration, it seems unlikely that Good Samaritans will buy your product and give it away unless you can demonstrate how it helps them make or save money. Call me cynical, but people do things when it helps themselves. If you can’t clearly articulate how this helps the Good Samaritans, you can’t charge much or you won’t sell much to this segment.
Hope that helps. Feel free to post further clarification or questions in the comments and I’ll do my best to answer them.
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