Pricing for nonprofit organizations

Pricing decisions are particularly challenging for nonprofit organizations. They have a social rather than a for-profit objective function, they must obey a legal restriction not to distribute possible financial surpluses to those who control the organization's assets, and they have the opportunity to receive donations. While historically nonprofits have not developed their pricing capabilities as fully as they might have, pricing is becoming increasingly important, especially as many nonprofit organizations face declining support from government and are unable to increase private giving significantly. The goal of this chapter is to discuss pricing practice and pricing research in the nonprofit sector. We demonstrate how theoretical models of pricing strategies for nonprofits are different from those of for-profit businesses. Moreover, although only limited empirical data on nonprofit pricing are available, the data we do have suggest that nonprofits charge different (and usually lower) prices than similarly situated businesses. We survey the literature of nonprofit pricing to discuss important theoretical and empirical findings, and highlight the unique characteristics of nonprofits and the various modeling issues they generate for pricing research. We also discuss unresolved problems and potential research opportunities in nonprofit pricing.