Membership: The Pricing and Value Challenge 
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Associations are slowly waking up to a new reality.
The use of the Internet and globalization are resulting in competition
from organizations beyond the normal turf. This is not strictly
a "for-profit" concern. Members of associations are
able to access information and knowledge from other organizations
and therefore have exposure to products and services of varying
degrees of quality, value and pricing. As a result, members know
what value the association is or isn't providing, and, they are
generally demanding more value for their membership dues and fees.
Members are concerned about value. It is ever present in their
minds - not just at annual renewal time. Of course, there are
different perceptions of value. In the view of one member, value
may be getting what they want from a specific product or service.
Another member may simply define value as a low price.
To improve the value proposition, associations have been changing
information into knowledge for members. This results in improved
value. It also increases costs resulting in new pricing arrangements.
It is important to know how many members value information or
refined knowledge and for what products and services. This can
help guide your packaging and pricing of dues and product and
service fees. It is therefore important to monitor what members
value and reassess pricing as those values change.
Is the value right?
How do you monitor member value to help guide your pricing and
quality decisions? Some of the more popular approaches include
personal contact with members and the conduct of surveys. Having
access to member value performance indicators for association
products and services will assist not only with pricing decisions,
but will help you determine when it might be appropriate to abandon
a product or service or bring in something new.
Donald Belfall, in his book "Creating Value for Members",
takes a look at member value in the association community and
finds that associations are all over the map when it comes to
matching pricing to value. His research suggests value ranks before
price, and that members will pay for what they really value. Members
will pay the price for products or services they value as long
as they receive the desired benefit. Constantly trying to reduce
or maintain dues or service fees can often result in a decrease
in quality and, in turn, value. This may well result in a reduction
of desired benefits and could result in a decrease in members.
Maximizing member relationships and activity has stepped up a
notch in the for-profit sector with a renewed focus on customer
relationship management. Will the not-for-profit sector be far
behind or do we think we have always had that focus?
Members are influenced by what they see in the for-profit world
and association managers must display much of the same knowledge
and skills as a for-profit manager in order to develop an effective
response. While there are many similarities between the for-profit
and not-for-profit sectors, there is a difference in the area
of pricing.
Is the price right?
Pricing philosophies for associations are different that those
in the public sector as associations are not out to generate revenue
for the sake of profits. Associations seek to break even or generate
a surplus that will allow them to more effectively carry out their
mandate, improve services, and enhance member satisfaction. All
of this adds to the complexity of any pricing decision.
Pricing, therefore, is not always straightforward. Some association
products or services may be:
- priced at or below cost in anticipation of a large volume
of sales;
- priced as a core service that must be available to all members
at a reasonable cost; or,
- subsidized because it will be of more value to the association
than the member.
On what basis do you set prices for dues and product
and service fees?
Price is based on three key costs: direct materials, labour and
overhead (facilities, and other general operating costs). There
are some obvious "numerical" variables that must be
considered in developing a price. Beyond the general rule, there
are other factors that need to be taken into consideration such
as marketing strategy, politics, legal concerns, cost, demand,
pricing objectives, competition, the product or service, delivery
systems and promotion. If you consider all of these factors, you
will be more likely to arrive at the appropriate price for your
product or service.
As a general rule, all products and services should be priced
at least at a level that covers both the fixed and variable costs
of delivery. In other words, the association should consider each
of its products and services as a "profit center" or
a contributor to a surplus. The extent of the level of contribution
to overhead and surplus will vary from association to association
and is based on a number of factors as listed.
One unwritten common policy has membership dues subsidizing services
even though not all members use them. Why send a product out to
all members when only 40 percent may use the product and the rest
throw it out? This problem is now being addressed. There is a
trend toward maintaining or reducing the level of membership dues
to cover core services and applying a user pay policy to value
added items.
A pricing policy to cover different arrangements for core services
and other value added services is required. There will be exceptions
to policy that may require some products and services to be subsidized
or bundled. Association mangers without policies should be able
to justify a decision to establish a given price. Remember that
all pricing decisions can be subject to criticism.
Many educational related services and other products and services
do not account for replacement or development costs. In cases
where there are substantial development or replacement costs,
the costs should be amortized over the estimated period. Pricing
should take this into account.
From Subsidization to User Fees
Responses from students in the Association Management Education
program indicate:
- There is a valiant effort to establish prices for products
and services on a breakeven basis and losses are still occurring.
- Not all financial staff are consulted on pricing decisions.
- Not all policies in place are simple. One organization has
a flexible discriminatory policy based on capacity to pay. Abuses
are noted, as there is some relish in getting something for
free.
- One association charges more in areas where they have a strong
membership and less in areas where membership is lower.
- There is a trend to low memberships where it is easy to become
a member but to charge market average for conferences and special
services.
- Despite attempts to include all costs in pricing decisions,
fixed costs are often neglected and the real cost of doing business
is often unknown.
- Some external funding conditions may prohibit revenue generation.
- Most report they have no formal pricing policies in place
and pricing is generally "hit and miss" in terms of
financial impact.
- Benchmarking for pricing is a rare practice.
- Allocations for contributions to overhead are in the 10 to
25 percent range.
Improvements in pricing policies, practices and product and service
value will reduce the challenges of finding the right price-value
balance for dues, and products and services and provide for longer-term
continuity. If you want to get off the short-term scramble and
gamble, I suggest you read Belfall's "Creating Value for
Members" and conduct some Internet research on pricing.
This column features innovation and practical solutions applied
to challenges, trends, issues, and opportunities for the association
community. Column editor Jim Pealow, MBA, CMA, CAE is a consultant
and the Association Management Education Program Lead Instructor/Coach
for CSAE. He can be reached at jim@amces.com.
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