Business Management Concepts: Six Things You Should Know about Pricing of Educational Technology Products and Services

1. Pricing determines what an organization receives for its products and services.

“Pricing is the process of determining what a company will receive in exchange for its products” (Wikipedia) and services.  That is, pricing is a planning activity in which an organization establishes what it will charge for its services, or how it will change the price.

According to the Wikipedia, factors that affect pricing include:

  • Cost of producing the product or service (which includes the costs of developing the product or preparing to offer service, manufacturing the product or delivering the service, distributing the product or traveling to offer the service, and marketing the service).
  • The market, which refers to the physical or virtual location where the product or service is offered, the number of competitors, and other economic factors affecting the sale of the product or service
  • The position of the product or service in the market (that is, how the organization wants prospective customers to perceive the product or service in relation to its competitors: should people perceive this product or service as superior or better value for the price?)

Prices have these components:

  • Suggested price, which is the official “price” of the product or service.  Some organizations refer to this as the manufacturer’s “suggested” retail price because some products and services are never sold at the suggested price.
  • Discounts, which refer to reductions in the price.  Organizations offer discounts in a variety of instances:
    • To customers who purchase in large quantities (called a volume discount) or over a period of time (such as “buy nine, get the tenth free”)
    • To drive sales, such as discounts offer during a holiday promotion (usually called a sale)
    • To reduce inventory (when discontinuing a product or when a product is not selling as expected)
  • Premiums, which are incentives to encourage people to purchase the product.  Usually customers pay the suggested price but, in addition to receiving the product or service, also receive something additional.  For example, an organization might include a book as a premium for registering in a course.

2.  Educational technologists and technical communicators price three types of products and services—and each one is priced differently

  • Services, which refer to designing and developing content, conducting evaluations and usability tests, conducting needs assessments, advising on strategy, supporting technology, and managing these efforts
  • Content, which refer to courses, books, and paid-access websites
  • Software, which refer to applications for computers and mobile devices

3. Pricing looks different from different perspectives.

Educational technologists and technical communicators play the roles of consumers and producers. 

Consumers purchase products and services.  Educational technologists and technical communicators purchase professional services and products like these:

  • Labor (instructional designers, writers, editors, programmers, designers, illustrators, project managers)
  • Software (productivity, authoring tools, enterprise systems)
  • Hardware (computers, tablets, smart phones, gadgets)
  • Memberships and subscriptions
  • Conferences

Consumers want to get the best “value” for their money.  For some, that means the lowest price.  Often, price alone does not determine value.  For example, a less expensive product might not last as long as a costlier, but higher quality product.  Sometimes a higher cost in the short run might result in lower costs in the long run, such as a product that comes with a longer warranty. 

Consumers often know the prices of the products and services they regularly purchase.  But they don’t always know the prices of products and services they rarely purchase.  For example, most educational technologists and technical communicators are aware of the prices of laptop computers and office software.  

But most of us do not regularly purchase specialized authoring software like Adobe Creative Suite, nor enterprise technology like Learning Management Systems, nor outside services, like performance consulting. When we do not purchase a product or service regularly, we might have unrealistic expectations of the price for a service.  

As a result, educational technologists and technical communicators need to maintain an ongoing awareness of the prices for the primary products and services we consume in our professional life, and have a network of trusted colleagues whom we can contact when we need to purchase products and services we have little experience with. 

Producers who bring products and services to market and set the prices for products and services.  When doing so, educational technologists and technical communicators should establish prices that:

  • Cover costs
  • Provide for a surplus when needed (called profit in for-profit organizations)
  • Reinforce the identity you hope to establish with customers (a superior product or service (usually with a higher price) or a “value” product or service with a lower price)
  • Consumers can afford

At its most basic, that involves determining:

Cost of providing the product or service (for profit-making ventures—the complete cost; for cost-recovery (internal and nonprofit)—just the costs your sponsors won’t cover + Desired surplus (profit) = Desired cost
Number of units 

The rest of this discussion focuses on the role of educational technologists and technical communicators in establishing prices as producers.

4. Pricing is important to educational technology and technical communication groups.

Pricing is important to educational technology and technical communication groups because it determines our income.  Whether working internally on staff or externally as a consultant or contractor, the price that you charge determines the income you have to work with.  This income covers key expenditures, including salary, benefits, equipment, software, and professional development.

This point might seem obvious to those working externally but it is equally important to the majority of educational technologists and technical communicators who work internally.  Although most seemingly receive a set “budget,” that budget is the price of your services.

If those costs are higher than external providers, organizations might choose to outsource your work.  So when establishing salaries and other costs for a budget, make sure that they’re competitive so that you minimize the risk of being outsourced.

But even when internal salaries compete with external providers, the time needed to complete projects might differ or the overhead of the cost—that is, the costs of benefits and support services might be unusually high–and, as a result, drive up costs.  Those, too, could make your internal services uncompetitive with external ones.

So astute internal managers calculate their costs as if they were pricing these services as a contractor to make sure that their group can provide services competitively.

5. Educational technologists and technical communicators set prices on a variety of products and services.

Table 1 summarizes the types of products and services sold by educational technologists and technical communicators.  It identifies:

  • Key categories
  • Presents examples of the types of products and services sold in each category
  • States the unit of purchase—that is,  on what is the price established
  • Describes the strategies for establishing the price
  • Describes common discounts available

Table 1: Summary of Pricing Opportunities and Strategies in Educational Technology and Technical Communication

Hardware Software Classroom Courses Published content Services
Examples Instructional computers Authoring toolsEnterprise softwareApps Face-to-face and virtual classes e-LearningSubscription websitesUser assistanceBooks and guides Instruc-tional designTechnical communi-cationConsulting and strategy
Unit of purchase Device plus “options” (such as a computer plus additional memory and power adapters) Product or group of products Classroom: Per day per studentVirtual classroom: Per session per location (may be 1 or more students) Per course or subscription Contractor (hour, project)Consultant (hour, day, project, or retainer (flat fee per month for ongoing support))
Pricing options Cost to re-sellers (such as a Best Buy) plus markup
  • “License”(purchase)Lease
  • Software-as-service (per use)
  • Free/upgrade
  • Cost plus profit
  • Cost recovery
  • Cost plus extras (such as travel) plus profit
  • Cost recovery
Cost plus profit (surplus)
Discounts
  • Volume
  • Premiums (options included)
  • Volume
  • Premiums
Volume (varies by product, usually small, medium, and large) Volume (number of students or time on agreement, or both)
  • Volume (in hours or days)
  • “Thank you” discount for several contracts

6. Consider these issues when setting prices.

When establishing prices for educational technology products and services, consider these issues:

  • Make sure that the logic used to establish the price is sound.  In some cases, organizations have a weak or inappropriate business model, and might not have a good plan for generating revenue or the organization might not operate so that it supports efforts to generate revenue.  For example, most of the companies selling Massive Open Online Courses (MOOCs) only offer courses for free; they do not yet devised plans for generating enough revenue to cover their costs.  At some point, if they do not do so, they will not remain in business.

In other cases, organizations have not fully figured out the cost of offering a product or service and, as a result, set prices that are too low.  At some point, the organization might realize that it has not generated enough revenue to cover its costs but that might happen too late.  For example, some educational technology and technical communication organizations do not include the costs of research and development and marketing into their costs.

  • Maintain awareness of pricing within your industry so that you can knowledgably set prices and, as pricing changes in your industry, you can respond in a timely manner.
  • Disruptive technologies can disrupt pricing.  For example, the revenue generated by classified ads for  jobs, personals, used cars, and similar items sustained newspapers for year.  But services like the Monster Board made finding jobs easier and quicker, and employers significantly reduced their use of classified ads.  Services like Match.com made the process of finding a suitable date easier, quicker, and less expensive—and customers significantly reduced use of personals in newspapers.  Craig’s list did the same to advertising for used products. The Internet was a disruptive technology to newspaper classifieds and, in the end, replaced them.  Newspapers had an extremely difficult time replacing that revenue; some could not and went bankrupt.
  • Giving away sample chapters of published books and sample lessons from e-learning courses provides prospective customers with a more complete idea of what they are purchasing.  Product descriptions do not always provide a complete picture; a sample usually does.
  • In contrast, providing services for free in the hope of eventually landing paying work is not the same as a free sample.  In theory, the idea sounds good.  Offer a service to a high profile company for free, get a great resume credit and portfolio piece and that, in turn, might lead to future work—ideally with the company for whom the work was performed.

In some instances, workers only perform initial work on a project” hoping to land a paying contract to finish the job.  In many cases, however, the company chooses not to hire the worker, then uses and profits from the ideas without paying for them.

This type of work is called “spec work” and many professional associations label it unethical.  From the prospective employee’s perspective, it takes advantage of them and also discourages the company from paying for the service.  From the employer’s perspective, it often appears that they are skirting employment laws.

References

Wikipedia. Viewed at http://en.wikipedia.org/wiki/Pricing. Visited October 8, 2012.

© Copyright. Saul Carliner. All rights reserved.  If sharing or excerpting, should be properly cited.

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About idmodelsandprocesses

Exploring, reporting, teaching, and advising on learning and communication for the workplace and consumers. saulcarliner.wordpress.com
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