Funeral Service PricingFuneral Service Pricing

IntroductionIntroduction

Objectives of PricingObjectives of Pricing

recover: merchandise costsrecover: merchandise costs

operating expensesoperating expenses profitprofit satisfaction for consumersatisfaction for consumer fair to consumerfair to consumer valuevalue understandable to the consumerunderstandable to the consumer choices choices

Factors That Influence Factors That Influence PricingPricing

Price DeterminationPrice Determination Price QuotationPrice Quotation

Both must comply with Both must comply with applicable federal and state law.applicable federal and state law.

Cash Advance ItemsCash Advance Items

““Any item or service or merchandise Any item or service or merchandise described to a purchaser as a cash described to a purchaser as a cash advance, accommodation, cash advance, accommodation, cash disbursement or similar term. Also, disbursement or similar term. Also, any item obtained from a third party any item obtained from a third party and paid for by the funeral provider and paid for by the funeral provider on the purchaser’s behalf.”on the purchaser’s behalf.”

Price DeterminationPrice Determination

““method used by management to method used by management to establish the selling price for services establish the selling price for services and merchandise”and merchandise”

Basic Services of the FD and StaffBasic Services of the FD and Staff EmbalmingEmbalming Transfer of RemainsTransfer of Remains Caskets: catalog vs. SR vs. computer Caskets: catalog vs. SR vs. computer

Methods of Price Methods of Price DeterminationDetermination

1) Markup1) Markup 2) Graduated Recovery2) Graduated Recovery 3) Sales Frequency3) Sales Frequency

Markdown: “a reduction of selling Markdown: “a reduction of selling price below the original selling price below the original selling price”price”

Consumer Value Index (CVI)Consumer Value Index (CVI)

““the percentage derived by dividing the percentage derived by dividing the wholesale cost of the merchandise the wholesale cost of the merchandise by the retail price of the merchandise”by the retail price of the merchandise”

CVI = CVI = Wholesale CostWholesale Cost Retail CostRetail Cost

CVI + Markup = 100%CVI + Markup = 100%

CVI (cont’d)CVI (cont’d)

If a casket retails for $2400 and has a If a casket retails for $2400 and has a wholesale cost of $600 what is the wholesale cost of $600 what is the CVI?CVI?

If the same casket retails for $1800, If the same casket retails for $1800, what is the CVI?what is the CVI?

If the same casket retails for $1200, If the same casket retails for $1200, what is the CVI?what is the CVI?

Merchandise Value Ratio Merchandise Value Ratio (MVR)(MVR)

““the relationship between the the relationship between the wholesale cost of the merchandise wholesale cost of the merchandise and the total cost (both of service and and the total cost (both of service and merchandise) to the consumer”merchandise) to the consumer”

MVR = MVR = Wholesale CostWholesale Cost

(Total of Merch. + Serv.)(Total of Merch. + Serv.)

MVR (cont’d)MVR (cont’d)

If ABC FH’s basic service charge for a traditional If ABC FH’s basic service charge for a traditional funeral is $3495; and the Jones family selects a funeral is $3495; and the Jones family selects a casket retailing for $2400 with a wholesale cost of casket retailing for $2400 with a wholesale cost of $827, what is the MVR?$827, what is the MVR?

827827 (3495 + 2400) = .14 MVR(3495 + 2400) = .14 MVR

What happens if the same casket had a retail price What happens if the same casket had a retail price of $1800?of $1800?

MarkupMarkup

(AKA: Gross Casket Margin, Margin)(AKA: Gross Casket Margin, Margin)

““the difference between merchandise the difference between merchandise cost and selling price”cost and selling price”

Retail PriceRetail Price Wholesale PriceWholesale Price

- Wholesale Price- Wholesale Price + Markup+ Markup

MarkupMarkup Retail PriceRetail Price

Markup (cont’d)Markup (cont’d)

If the wholesale price of the casket is If the wholesale price of the casket is $600, and the retail price is $1800, $600, and the retail price is $1800, what is the markup?what is the markup?

Value Progression: the more a Value Progression: the more a consumer spends, the more value consumer spends, the more value he/she should receivehe/she should receive

Types of MarkupTypes of Markup

1) Fixed Multiple or Times Factor1) Fixed Multiple or Times Factor

2) Percent2) Percent

3) Fixed Dollar Amount3) Fixed Dollar Amount

Fixed Multiple/Times FactorFixed Multiple/Times Factor

““the casket cost is multiplied by a the casket cost is multiplied by a constant factor”constant factor”

The multiple is usually 2-4.The multiple is usually 2-4. Every casket receives the same Every casket receives the same

markup factor.markup factor. As you move up the price ladder As you move up the price ladder

there is no improvement in the CVI.there is no improvement in the CVI.

PercentPercent

Markup is a percent of the selling price.Markup is a percent of the selling price.

If the wholesale price is $600 and the If the wholesale price is $600 and the retail price is $1800, the markup is retail price is $1800, the markup is $1200.$1200.

To calculate markup as a percent:To calculate markup as a percent:

12001200

1800 = 67%1800 = 67%

Fixed Dollar AmountFixed Dollar Amount

(Straight Line Model)(Straight Line Model)

add the same dollar amount to add the same dollar amount to wholesale cost if item of merchandisewholesale cost if item of merchandise

CVI increases with the value of the CVI increases with the value of the casketcasket

Graduated RecoveryGraduated Recovery

“ “ a pricing method where the markup a pricing method where the markup varies”varies”

Types:Types:1) Increasing Price Structure1) Increasing Price Structure2) Declining/Decreasing Price 2) Declining/Decreasing Price

StructureStructure 3) Modified Declining Price Structure3) Modified Declining Price Structure

Increasing Price StructureIncreasing Price Structure

There is a direct relationship between There is a direct relationship between the markup and the price of the the markup and the price of the casket.casket.

CVI tends to decrease with each step CVI tends to decrease with each step upward in the product assortmentupward in the product assortment

Advantages and DisadvantagesAdvantages and Disadvantages

Declining/Decreasing Price Declining/Decreasing Price StructureStructure

There is an inverse relationship There is an inverse relationship between the markup and the price of between the markup and the price of the casket.the casket.

Higher priced caskets are given a Higher priced caskets are given a lower markup.lower markup.

The markup is inversely proportional The markup is inversely proportional to the wholesale cost of the casket.to the wholesale cost of the casket.

Advantages and DisadvantagesAdvantages and Disadvantages

Modified Declining Price Modified Declining Price StructureStructure

Similar to the declining model except the Similar to the declining model except the lowest priced casket is less expensive.lowest priced casket is less expensive.

Entry-level offerings remain within the Entry-level offerings remain within the range of affordability for most consumers.range of affordability for most consumers.

A gradual improvement in CVI is evident A gradual improvement in CVI is evident as the consumer climbs the price ladder.as the consumer climbs the price ladder.

Advantages and DisadvantagesAdvantages and Disadvantages

Sales FrequencySales Frequency

““the number of times sales in a given the number of times sales in a given price bracket occur over a fixed price bracket occur over a fixed period of time”period of time”

What are the advantages of What are the advantages of recording and analyzing sales?recording and analyzing sales?

Terms for Analyzing DataTerms for Analyzing Data

Average (Mean)Average (Mean)

MedianMedian

Mode Mode

RangeRange

Price QuotationPrice Quotation

““method by which prices are method by which prices are explained to the consumer”explained to the consumer”

Methods: 1) itemizationMethods: 1) itemization

2) package pricing2) package pricing

3) unit pricing3) unit pricing

4) bi-unit pricing4) bi-unit pricing

5) functional pricing5) functional pricing

ItemizationItemization

““the method of price quotation by the method of price quotation by which each unit of service and/or which each unit of service and/or merchandise is priced separately”merchandise is priced separately”

Required by the FTCRequired by the FTC

16 required items for the GPL16 required items for the GPL

Considerations for Considerations for ItemizationItemization

importance of the activityimportance of the activity pay scale of employees who perform the taskpay scale of employees who perform the task percentage of building usedpercentage of building used time devoted to the tasktime devoted to the task frequency of use/selectionfrequency of use/selection known rate/scaleknown rate/scale competitive factorscompetitive factors ““position” of the firmposition” of the firm establish a reasonable markupestablish a reasonable markup don’t discount merchandise pricedon’t discount merchandise price

Package PricingPackage Pricing

““a pricing method which groups a pricing method which groups together selected services and/or together selected services and/or merchandise”merchandise”

allowed by the FTCallowed by the FTC

Unit PricingUnit Pricing

““a method of price quotation in a method of price quotation in which one price includes both service which one price includes both service and casket”and casket”

1960’s1960’s

Unit Pricing TechniqueUnit Pricing Technique

CasketCasket $_________$_________ Includes: services of FD & staffIncludes: services of FD & staff

embalming and other prep.embalming and other prep.

facilities, equip. & staff facilities, equip. & staff

transfer of remainstransfer of remains

hearse to cemeteryhearse to cemetery

limousine for familylimousine for family

flower carflower car

Bi-unit PricingBi-unit Pricing

““a method of price quotation showing a method of price quotation showing separately the price of the service to separately the price of the service to be rendered and the price of the be rendered and the price of the casket”casket”

service costservice cost

+casket cost+casket cost

total price of funeraltotal price of funeral

Bi-unit Pricing TechniqueBi-unit Pricing Technique

Casket $_________ Services $________Casket $_________ Services $________

Includes: services of FD & staffIncludes: services of FD & staff

embalming and other prep.embalming and other prep.

facilities, equip. and stafffacilities, equip. and staff

transfer of remainstransfer of remains

hearse to cemeteryhearse to cemetery

limousine for familylimousine for family

flower carflower car

Functional PricingFunctional Pricing

““a method of price quotation in which the a method of price quotation in which the charges are broken down into several major charges are broken down into several major component parts such as professional component parts such as professional services, facilities, automobile and services, facilities, automobile and merchandise”merchandise”

4 categories: professional services4 categories: professional services

facilitiesfacilities

transportationtransportation

casketcasket

Functional PricingFunctional Pricing

Casket $_______Casket $_______Services $_______Services $_______Facilities $_______Facilities $_______(includes staff & equip. for visitation & (includes staff & equip. for visitation &

funeral)funeral)Transportation $_______Transportation $_______(includes transfer of remains, hearse, (includes transfer of remains, hearse,

limousine and flower car)limousine and flower car)

NJSB Requirements for SFG&SS NJSB Requirements for SFG&SS CategoriesCategories

13:36-1.913:36-1.9 I Professional ServicesI Professional Services II Other Staff and Related FacilitiesII Other Staff and Related Facilities III TransportationIII Transportation IV MerchandiseIV Merchandise

Does this look familiar?Does this look familiar?

Pricing StrategiesPricing Strategies

Competitive Pricing: products sold Competitive Pricing: products sold will be priced about the same as will be priced about the same as those offered by competitorsthose offered by competitors

Penetration Pricing: products are Penetration Pricing: products are priced lower than those offered by priced lower than those offered by the competitorthe competitor

Prestige Pricing: setting relatively Prestige Pricing: setting relatively high prices for the producthigh prices for the product

Pricing Strategies (cont’d)Pricing Strategies (cont’d)

Skimming: charging a high price for the Skimming: charging a high price for the productproduct

Leader Pricing: price one or a few items at Leader Pricing: price one or a few items at very low prices to attract consumersvery low prices to attract consumers

Odd Number Pricing: avoid using round Odd Number Pricing: avoid using round numbers when pricing productsnumbers when pricing products

Opportunistic Pricing: (Price Gouging) Opportunistic Pricing: (Price Gouging) taking advantage of a situation when taking advantage of a situation when setting prices for productsetting prices for product

Selecting a VendorSelecting a Vendor

Considerations: Considerations: 1) product line1) product line

2) delivery2) delivery

3) terms: Trade Credit Terms 3) terms: Trade Credit Terms

(cash discount)(cash discount)

Trade Credit TermsTrade Credit Terms

2/10,Net 30 OR 2/10,n/302/10,Net 30 OR 2/10,n/30

MOMMOM EOMEOM CWOCWO CBDCBD CODCOD

Considerations (cont’d)Considerations (cont’d)

4) sales representatives4) sales representatives 5) point of sale materials5) point of sale materials 6) merchandising assistance6) merchandising assistance 7) reputation7) reputation

Accommodation Merchandise: Accommodation Merchandise: merchandise other than “regular” merchandise other than “regular” merchandisemerchandise

Price PointingPrice Pointing

Good/Better/BestGood/Better/Best Pricing caskets in a logical progression of Pricing caskets in a logical progression of

value to the consumer.value to the consumer. Caskets in the lowest (good) price line end Caskets in the lowest (good) price line end

in “95”.in “95”. Caskets in the middle (better) price line Caskets in the middle (better) price line

end in “25” or “75”.end in “25” or “75”. Caskets in the higher (best) price line end Caskets in the higher (best) price line end

in “00” or “50”.in “00” or “50”.