Harvard Case - Ekohealth: Developing Price Structures
"Ekohealth: Developing Price Structures" Harvard business case study is written by Neeraj Pandey, Gaganpreet Singh. It deals with the challenges in the field of Entrepreneurship. The case study is 13 page(s) long and it was first published on : Sep 26, 2014
At Fern Fort University, we recommend Ekohealth adopt a tiered pricing strategy for its telehealth services, incorporating a combination of fixed subscription fees and per-visit charges. This strategy will cater to diverse customer needs, optimize revenue streams, and position Ekohealth for sustainable growth.
2. Background
Ekohealth is a rapidly growing telehealth company offering a range of virtual healthcare services. The company faces the challenge of developing a pricing structure that balances affordability for patients with profitability for Ekohealth. The case study focuses on the decision-making process for pricing, considering various factors such as target market, competition, and operating costs.
The main protagonists are:
- Dr. Anya Sharma: Founder and CEO of Ekohealth, passionate about providing accessible healthcare.
- Mr. David Lee: CFO of Ekohealth, responsible for financial planning and strategy.
- Ms. Sarah Jones: Head of Marketing, responsible for customer acquisition and engagement.
3. Analysis of the Case Study
The case study highlights the need for a comprehensive financial analysis to inform Ekohealth?s pricing strategy. This analysis should include:
- Cost Analysis: Ekohealth needs to understand its operating costs for each service, including platform maintenance, physician salaries, and marketing expenses. Activity-based costing can be used to allocate costs accurately.
- Market Research: Understanding the target market?s willingness to pay is crucial. This involves analyzing competitor pricing, customer demographics, and the perceived value of telehealth services.
- Financial Modeling: Developing financial models to project revenue, profitability, and cash flow under different pricing scenarios. This allows for sensitivity analysis to assess the impact of various assumptions.
- Risk Assessment: Identifying potential risks associated with each pricing strategy, such as customer churn, competition, and regulatory changes.
Financial Frameworks:
- Return on Investment (ROI): Ekohealth should evaluate the ROI of different pricing models to ensure profitability.
- Break-Even Analysis: Determining the minimum volume of services required to cover costs and achieve profitability.
- Profitability Ratios: Analyzing key metrics like gross profit margin and net profit margin to assess the financial performance of the business.
4. Recommendations
Ekohealth should implement a tiered pricing strategy with the following components:
- Subscription-Based Model: Offer monthly or annual subscriptions for access to basic telehealth services, such as virtual consultations and medication refills. This provides a consistent revenue stream and incentivizes customer loyalty.
- Per-Visit Charges: Charge for specialized services, such as virtual therapy sessions, diagnostics, and complex consultations. This allows for flexibility in pricing based on the complexity and duration of the service.
- Value-Based Pricing: Offer tiered subscription packages with varying levels of benefits, such as unlimited consultations, discounts on services, and access to premium features. This caters to diverse customer needs and preferences.
5. Basis of Recommendations
This recommendation considers the following factors:
- Core Competencies and Consistency with Mission: A tiered pricing strategy aligns with Ekohealth?s mission to provide accessible and affordable healthcare. It allows for flexibility in pricing while ensuring profitability.
- External Customers and Internal Clients: The tiered approach caters to diverse customer needs and preferences, while also providing physicians with a clear understanding of their compensation structure.
- Competitors: Analyzing competitor pricing strategies provides valuable insights into market trends and customer expectations.
- Attractiveness - Quantitative Measures: Financial modeling and break-even analysis will be used to assess the profitability of each pricing tier and optimize revenue generation.
Assumptions:
- The demand for telehealth services will continue to grow.
- Ekohealth can effectively manage its costs and maintain a competitive pricing structure.
- The regulatory environment for telehealth will remain favorable.
6. Conclusion
Implementing a tiered pricing strategy will enable Ekohealth to optimize revenue streams, cater to diverse customer needs, and achieve sustainable growth. By carefully considering its costs, market dynamics, and customer preferences, Ekohealth can position itself as a leading provider of accessible and affordable telehealth services.
7. Discussion
Alternatives:
- Flat Fee Pricing: Charging a fixed fee for all services could be simpler to manage but may not be attractive to all customers.
- Pay-Per-Use Pricing: Charging for each service individually could lead to price sensitivity and lower customer engagement.
Risks:
- Customer Churn: Some customers may be price-sensitive and choose alternative providers.
- Competition: Aggressive pricing by competitors could erode Ekohealth?s market share.
- Regulatory Changes: Changes in regulations could impact the viability of telehealth services.
Key Assumptions:
- The demand for telehealth services will continue to grow.
- Ekohealth can effectively manage its costs and maintain a competitive pricing structure.
- The regulatory environment for telehealth will remain favorable.
8. Next Steps
- Conduct a thorough financial analysis to determine the optimal pricing for each service and tier.
- Develop a marketing strategy to effectively communicate the value proposition of each pricing tier to target customers.
- Implement a customer relationship management (CRM) system to track customer engagement and identify opportunities for improvement.
- Regularly monitor the performance of the pricing strategy and make adjustments as needed.
By taking these steps, Ekohealth can effectively implement a tiered pricing strategy that drives profitability and customer satisfaction.
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Case Description
Founded in 2011 in Mumbai, India, Ekohealth Management Consultants Private Limited helped its subscribing members by negotiating bulk discounts with hospitals for all planned surgeries and reducing their monthly bills by suggesting low-cost generic drugs rather than expensive brand names. It ensured ethical health care practices by removing the referral fees doctors routinely demanded from hospitals, pathology clinics, pharmaceutical companies and other medical professionals in exchange for directing patients to them. The company had entered fiscal year 2013/14 with a high momentum and envisioned recording revenue of INR28.3 million by the end of the year. The existing price metric involved a single price point: the annual membership fee of INR1,500 for up to five members of a family. The company has plans to move into other Indian cities by mid-2014. Is the single price metric appropriate for these new markets?
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