Picking the right price is no easy task, and there is no one-size-fits-all answer. Several association professionals share the details and demands they've faced in making pricing decisions at their organizations.
After months of planning and developing products and services, the 800-pound gorilla in the room finally roars: What will you charge for your association's products, services, events, and membership?
Pricing, more than marketing's three other Ps—product, promotion, and place—causes most of us to squirm, procrastinate, even clean our offices before we decide to face it.
"Pricing is often held in the lowest esteem compared to the other marketing elements," says Tony Rossell, senior vice president at Marketing General Inc. "This is a mistake, because proper pricing has a huge influence on the viability and success of any product or service."
Across the board, associations tend to price their products and services too low, says Rossell. Instead of thinking low, he urges associations to consider the unique expertise they bring to their marketplaces.
"Don't forget: You control the price.
"Products and services for an association are typically industry specific and not easily duplicated. They cannot be purchased at the local Wal-Mart," he says. "That means there are usually opportunities to raise prices without a commensurate decline in sales."
Statistics back that up. According to the MGI Membership Dues Increase Study, 66 percent of associations raise dues only when necessary, while 18 percent raise dues annually. Virtually all associations that raised dues maintained their membership numbers after the rate hike. Armed with this information, associations can safely develop a more proactive pricing strategy.
Rossell identifies several traditional pricing strategies:
- Cost-plus: Covering costs plus a marginal profit;
- Market-oriented: Based on prices for similar products in the marketplace;
- Penetration: A low price to gain market share;
- Premium: A luxury price to convey high value;
- Psychological: Ending a price with a nine instead of a zero, for example.
"There is not one right pricing practice, but associations should have a pricing strategy that helps them accomplish organizational goals," Rossell says.
Experts agree that finding that delicate balance between a low price (affordability) and a high price (exclusivity) is more art than science. Many factors have to be considered, from competition and economic climate to specialization and market share, which means no pat formula will work for everyone.
"We all gravitate toward templates because they make life easier, but templates aren't a good way to go. It's best to treat each individual product individually," says Kevin Holland, division vice president of business operations and membership at the Air Conditioning Contractors of America. "At ACCA, for example, our conferences and events operate in a competitive environment, so maybe we can't charge as much as I'd like, though we still tend to be more expensive than others. Trying to be the low-cost provider in a competitive environment is a very difficult position for an association to maintain. But products and services that are highly specialized, even unique? Most associations can charge more than they think for those. My preference is to be the high-value provider, which often means you are the high-cost provider."
Let's take a closer look at how some associations are dealing with pricing issues in three major categories: membership dues; conferences; and products, publications, and education.
In the August 2010 issue of Associations Now, Andrej Suskavcevic, CEO of the Commercial Finance Association (CFA), shared how his association handled an expansion of its membership base this year. [See "Rethink Your Membership Structure."] In addition to its traditional base of lenders, CFA now welcomes nonlenders and service providers to the financial industry at the chapter level. During the restructuring, the executive committee also examined how the association charges for dues, which are CFA's second-biggest revenue generator.
"Our biggest challenge, besides the economy, was to make it equitable," Suskavcevic says. "Since we're a trade association, the dues had been based on the assets of the parent company. This was cost prohibitive for startup or bank-owned groups, so we were not converting prospective members. Now we base our dues on the volume of business they generate, regardless of who owns them. That has opened the door for smaller banks and bank-owned lenders. We made minor adjustments to the price, but most changes were to the dues structure."
Since January 1, the executive committee has been analyzing results, and the numbers look good. "We wanted to make sure that these changes didn't have a negative impact," Suskavcevic adds. "We played with the formula, and it's essentially revenue neutral. Next year, we may look at pricing, but right now we're sensitive to what our members are going through in this economy."
Products, Education, and Publications
Associations by their nature fund products and services that don't make money. They may provide advocacy with no individual market value, certain products and publications as member benefits, or other products or services so tied to their missions that lower profits (or even a loss) may be warranted. But often associations fail to value their expertise, and they undercharge. In a competitive marketplace and lean economy, tight budgets can squeeze the life out of that mission—and even the association itself.
"Low margins on things we sell are the worst sin we can commit," Holland says. "Too often, associations are focused on just making enough to cover costs plus a little extra. This cripples associations, giving them less money to fund their priorities."
At ACCA, products/publications and events/education are the primary and secondary revenue generators, respectively. (Dues bring in less than one third of the association's revenue.) Holland recommends a flexible pricing strategy rather than a standardized pricing formula. If an association creates products and services that are high value—something it specializes in or that's not available anywhere else—it should charge what they're worth, he says. On the other hand, if an association publishes a manual on business customer service, for example, it can't charge $70 when a dozen reasonable facsimiles are available on Amazon.com for $7 each.
On the other end of the spectrum, Holland warns about charging too little. "Prices below perceived value can actually work against you when customers begin to worry that there may be something wrong with the products," he says. "And the least valuable product is a free product."
Like many associations, the Association of Public-Safety Communications Officials International (APCO) relies on conference revenues for a large portion of its annual budget. In years past, it has raised fees incrementally, but lately prices are locked.
"We made a big splash about our price freeze and that we were able to secure a great room rate for attendees to our 2009 Las Vegas conference," says Barbara Myers, APCO's director of membership events and corporate outreach. "That was a great recipe to maintain and even grow our attendance."
APCO members have been hit particularly hard by the economy, but many are committed enough to pay out of pocket if necessary. "Because our member agencies have been subject to severe budget cuts, we've tried to be sensitive to their needs," Myers says. "We want to show them that we're working with them and understand they're going through a difficult time. That's why we try to make the conference as affordable as possible. Our goal is a solid attendee base."
APCO's executive director, George S. Rice, and its executive committee are ultimately responsible for setting prices, but Myers puts together the annual conference proposal, including pricing strategies. To keep prices lower for their members during the down economy, Myers and her team looked for ways to cut costs. For example, they eliminated a three-minute introductory video that saved thousands of dollars; they also cut back on the number of banners used throughout the conference.
"We got creative and went line by line. We asked ourselves, 'Is this essential to making this a valuable experience for attendees?'" Myers says. "We were able to focus on the more important aspects for the attendees."
The semiannual conferences for the Physical Therapy Association of Washington have a different focus—continuing education for therapists to maintain their licenses—so revenues from conferences don't fund operations. About 40 percent of its revenue comes from member dues, and a little less than that comes from advertising in newsletters and on the PTWA website.
Even so, PTWA works hard to make sure its conferences are well attended. To give numbers a boost, several years ago Executive Director Jackie Barry, CAE, implemented a group-pricing program that PTWA's education committee and board of directors developed. At first, groups of three or more members from a facility or organization could receive a discount. In 2007, they changed the criteria to allow any group of three members to qualify for the discounted rate.
"We did this at the request of a couple, both of whom were physical therapists wanting to attend our conferences," Barry says. "Then we said, 'Why don't we just say any three?' The only hard and fast rules are they have to be PTWA members and everyone in a group must submit registrations on the same day. We've found this discount works well for getting the numbers we want."
New Niches, Higher Prices
Opportunities exist for associations to serve new segments that may need products and services that no one is providing yet. Often, this group will be willing to pay higher prices to get their needs met.
"Associations don't have to be the same organization to all people," Holland says. "If you have a segment that values something and is willing to pay higher fees than others are willing to pay for the same service, there's nothing wrong with creating something for that group at the same time you continue to focus on your entire niche. You handcuff yourself if you make affordability your driving force. If people can't afford what you offer, they aren't your target market."
ACCA does offer member discounts on publications and occasionally puts publications and training materials on sale in keeping with standard practices of the book-retailing business. However, it no longer offers membership discounts on events and conferences, as part of an effort to expand its audience. "Ours are industry-wide events. We want to get away from the perception that if you're not an ACCA member, this event is not for you," Holland says.
Who Controls Price?
In the end, the best research for what works and what doesn't is whether or not members buy what you're selling. If you develop a conference they perceive as valuable, they'll sign up. If the standards manual is priced right, copies will fly off the shelves. And when you discover that the price is wrong, Rossell recommends making a change as fast as possible. "Don't forget: You control the price. The price does not control you," he adds.
Holland agrees, and he says pricing decisions belong with staff. He winces at that idea that the board would get involved.
"Setting prices for products is an operational activity that does not rise to the level of strategic engagement in which the board should focus," he says. "As with many associations, our board sets membership dues, but they do not involve themselves in other business activities such as product pricing. When it comes to pricing products and publications, we listen to our market, and that certainly includes members of our board but is not exclusive to them. Decisions are ultimately made by a small number of people on staff who are involved with the particular product in question, based on market research and experience."
After that initial market research, continue it by testing your prices to find the optimum level. For example, try offering membership at full price to one segment of your prospective members and at discounted price to a subgroup of prospects. Then wait and watch to see which price produces better returns. You can even dig deeper in your research to see which price level in subsequent years leads to better renewal rates.
"Smart associations know that pricing is a marketing strategy, just as important to the successful positioning of their products as messaging and promotion," says Del Baker Robertson, director of membership and marketing for the Electronic Transactions Association. "To make the best pricing decisions, you have to be an emotional thinker. You have to understand the underlying costs and investments, while simultaneously creating an emotional space through pricing that articulates the value of your product. It's all about finding the sweet spot."
Lynda McDaniel is a freelance writer and director of the Association for Creative Business Writing. Email: [email protected]