WMBA 6060 Week 5 Product and Pricing Analysis Example

$59 per Operatory per Month, Between a $26 Cost Floor and a Value Ceiling Near $100: Designing and Pricing an Uptime Plan for Multi-Dentist Practices Against Distributor Contracts at $45 to $60

Student Name

Walden University

WMBA 6060: Marketing for Competitiveness

Instructor Name

Month Day, Year

$59 per Operatory per Month, Between a $26 Cost Floor and a Value Ceiling Near $100: Designing and Pricing an Uptime Plan for Multi-Dentist Practices Against Distributor Contracts at $45 to $60

The Product Decisions

Kettle River, the fictional repair firm this course follows, has chosen independent practices with three or more dentists as its target and has positioned itself on a four-hour response promise. This paper designs the offer that carries that position, a preventive maintenance contract called the Uptime Plan, and sets its price.

Four product decisions shape the plan. First, coverage: quarterly preventive visits for every chair and delivery unit and for the shared equipment that stops an entire office when it fails, the compressor, vacuum pump and sterilizers. Second, response: the four-hour guarantee from Week 4, with a two-hour internal target for central equipment. Third, parts: a 15 percent discount on parts used in repairs, which rewards the practice for keeping service with one firm. Fourth, reporting: a quarterly report of every call, response time and repair, which gives office managers evidence for their own budgeting and makes the guarantee visible.

The plan deliberately excludes imaging equipment, which requires specialized licensing, and new equipment still under manufacturer warranty, where the distributors have the advantage.

The Unit of Price

Pricing per operatory per month ties the price to the size of the practice and to the work involved, since most preventive time is spent chair by chair. A five-operatory office, the typical size in the target segment, is used as the example below.

The Floor: What It Costs

Table 1

Annual Cost to Serve a Five-Operatory Office Under the Uptime Plan

Composite figures from Kettle River's job costing; parts are billed separately and excluded.

The floor is about $1,582 a year for a five-operatory office, or about $26 per operatory per month. Below that, every contract loses money before any repair is billed.

The Ceiling: What the Segment Will Pay

The ceiling is set by the value the plan creates for the buyer, measured in the buyer's own terms. In interviews, owners of multi-dentist practices estimated the production lost when a chair is down for a day at roughly $1,800 to $2,200, and when the whole office stops at several times that. Kettle River's records for its multi-dentist customers show about three lost chair-days a year from equipment failure and about one full day in which the whole office stopped, a combined exposure of roughly $16,000 a year for a typical office.

If preventive visits and faster response cut that exposure by 40 percent, a conservative figure given that most office-stopping failures involve compressors and sterilizers that preventive work addresses, the plan is worth about $6,400 a year to the practice, or about $107 per operatory per month. Nagle and Müller (2018) describe this as economic value to the customer: the price of the next best alternative plus the value of the differences. That figure is a ceiling, not a target, because buyers rarely pay for all the value they receive, and estimates of lost production are uncertain.

The Reference: What Rivals Charge

The distributors' service departments offer preventive contracts priced, according to bids Kettle River has seen, at about $45 to $60 per operatory per month. Their contracts include factory-trained technicians but not a response guarantee for out-of-warranty equipment. Solo technicians and most regional independents offer no contracts at all, so their customers pay only when something breaks.

The Chosen Position

Table 2

The Three Boundaries and the Chosen Price

Composite figures.

The price of $59 per operatory per month sits near the top of the distributors' range and well below the value ceiling. It earns a contribution of about $1,960 a year on a five-operatory office, more than doubling the cost of service. It leaves the practice with most of the value, roughly $2,860 a year by the estimate above, which matters because the practice must feel it is getting a good deal for a promise it cannot yet verify.

The price should not be lower. Pricing below the distributors would signal that Kettle River's service is a cheaper substitute rather than a better one, which contradicts the positioning. Zeithaml (1988) found that buyers often use price as a cue to quality when quality is hard to judge in advance, as service quality is.

The price should not be much higher yet. Above about $70, the plan would cost more than the distributors' top contracts by enough that office managers would need to justify it to owners, and Kettle River does not yet have the published response record that would make that justification easy.

Practices Larger and Smaller Than the Example

Pricing per operatory keeps the plan fair across practice sizes, but it is worth checking the extremes. An eight-operatory practice would pay $5,664 a year, and because shared equipment costs are spread over more chairs, Kettle River's cost to serve rises less than proportionally, so contribution per operatory improves. A three-operatory practice, the smallest in the target segment, would pay $2,124 a year, and the firm's margin is thinner because the compressor, vacuum and sterilizers still need the same attention. The plan therefore sets a minimum annual fee equal to four operatories, which protects margin on small offices without raising the price for typical ones.

How the Price Will Be Tested

For the first six months the plan will be offered at $59 to new multi-dentist customers and at $55 to existing ones as a loyalty rate. Acceptance rates at each price, and the share of practices that renew after the first year, will show whether the price is too high or leaves money uncaptured. Anderson et al. (2009) recommend that business suppliers revisit value-based prices once they can document delivered value, and the quarterly reports will supply that documentation.

References

Anderson, J. C., Narus, J. A., & Narayandas, D. (2009). Business market management: Understanding, creating, and delivering value (3rd ed.). Pearson Prentice Hall.

Nagle, T. T., & Müller, G. (2018). The strategy and tactics of pricing: A guide to growing more profitably (6th ed.). Routledge.

Zeithaml, V. A. (1988). Consumer perceptions of price, quality, and value: A means-end model and synthesis of evidence. Journal of Marketing, 52(3), 2-22. https://doi.org/10.1177/002224298805200302