The club probably wants leadership/experience , thus them wanting to keep Pritchard.
While Pritchard is passed his prime he wasn't terrible in the games he did play, he did ok, additionally he did have a broken leg which didn't help (not an aged injury either).
Folau could potentially turn into a top 17 forward, but we don't need to take a chance (or waste a spot) on that as we already have the following players for a edge spot Manu, Edward, Gower, Moeroa, Pritchard, Scott, niukore and potentially Stone. With Stone / niukore we already have two "development" players and Morris is also under contract.
Additionally he doesn't offer the experience/leadership of Pritchard.
Also Pritchard probably isn't costing that much more then Falou - just a guess Falou would cost at least $80-100k (minimum contract) and Pritchard probably $150-$200k.