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The Ohio State University

Fisher College of Business


Pricing Strategy and Tactics
M & L 851
Fall, 2011
Larry M. Robinson
Ph: 614-496-2119
Office Hours: call or email to set up appointment
Email: robinson_878@fisher.osu.edu

Course Objectives:
Develop understanding of principles managers follow to make effective pricing decisions
Learn how to do economic value estimation (EVE) for a product or service offered to a specific market or
for a specific use
Learn how to perform managerial price sensitivity analysis (MPSA) which identifies factors that
influence price sensitivity when making judgments about importance of price in a buyers purchase
decision
Recognize objective of price competition is not to win market share, but to maximize long-term
profitability
Learn to analyze pricing concepts related to: new products, pricing changes, bundling/versioning, yield
management/revenue management & price wars
Develop ability to integrate pricing decisions with product, promotion and channel management decisions

Textbooks and materials


The 1% Windfall: How Successful Companies Use Price to Profit and Grow, Rafi Mohammed,
HarperCollins Publishers, New York, NY 2010 ISBN#978-0-06-168432-6

Cases, readings, slides and guest presentations that apply to each class session: These materials are posted on
the Carmen course site.

Course web site: The course web site on Carmen has the syllabus, articles for outside reading, example projects,
PowerPoint slides for guest presentations, PowerPoint slides for each week, reading list of pricing resources,
article co-authored by your instructor on pricing articles published in marketing journals between 1980 and 2010
and links to additional resources about pricing.

Course Overview:
Professor Raymond Corey at Harvard Business School wrote in the 1960s that Pricing is the moment of truth---
all of marketing comes to focus in the pricing decision. This course is intended to provide knowledge required to
make the moment of truth a successful one for the firm. Our emphasis will be on strategies and tactics to set
initial prices for a product or service and to react to internal and external changes as the product or service goes
through its life cycle.

Strategic pricing is about much more than just setting and implementing prices. It is about targeting customer
segments that can be served profitably, communicating information that justifies price levels and managing
pricing processes and systems to keep prices aligned with value seen, acknowledged and received by customers
and potential customers.

Pricing is a multidisciplinary and multifunctional subject. Financial, economic, operational, marketing and legal
considerations are involved in setting and executing pricing strategies and tactics. Senior management has the
responsibility to ensure pricing policies and procedures achieve optimal revenues and profits for the organization.

There are many issues which require attention in developing and executing a repeatable process for pricing
strategy and tactics for a company. Few business managers who participate in setting and implementing pricing
strategies have formal training in this important business activity. Many business schools offer courses in pricing.
As of 2011, 35 of the 50 United States business schools ever ranked in the top 30 by Business Week, USNews &
World Report or Financial Times offer pricing as an elective in MBA programs. This number is up from 17 of
the top 50 MBA programs which had a pricing elective in 2003.

A growing number of companies have functions for strategic pricing and tactical measures for implementing
prices. Pricing departments are common in such industries as pharmaceuticals, chemicals, airlines, hotels, car
rentals, computer software, distribution and waste removal markets. Technology to enable and support pricing
decisions is available from such publicly traded firms as Zilliant and Demandtec and privately owned companies
such as PROS and Manugistics. Pricing consulting is a major area of consulting engagements at McKinsey,
Deloitte, The Monitor Group and other major consultancies. A list of pricing consultants and pricing software
companies can be found at www.pricingsociety.com.

The professional practice of pricing management is supported by several organizations and publications. The
major industry association is The Professional Pricing Society in Roswell, Georgia (www.pricingsociety.com).
The Pricing Institute founded in 1987 as a division of International Institutes of Research is a firm which
specializes in conferences for executives in various functions and industries. The Pricing Institute has an annual
PriceX conference as a mechanism for encouraging new thinking about pricing and for addressing new ideas
about pricing issues. Also, in 2000, the INFORMS Section on Revenue Management and Pricing began an annual
conference co-sponsored by Georgia Tech and Revenue Analytics, a software consulting firm. See
www.revenuemanagementconference.com for the current years conference agenda. The INFORMS section
also sponsors The Journal of Revenue and Pricing Management which is published by Palgrave Publishing.

The Professional Pricing Society is an excellent source of information and access to experts, conferences,
webinars, blogs, white papers, books, article reviews, quarterly Journal of Professional Pricing and monthly
The Pricing Advisor newsletter. The Professional Pricing Society sponsors three major conferences each year,
and has developed the CPP (Certified Pricing Professional) designation. See www.pricingsociety.com for info
about the conferences, access to pricing blogs, webinars, white papers, corporate members, job board, surveys of
pricing professionals, and search function which accesses pricing knowledge accumulated over the 20 years of
this professional organizations history.
Journals that focus on pricing strategy and management include: Journal of Professional Pricing, The Journal
of Revenue and Pricing Management, Journal of Product and Brand Management, Marketing Science,
Journal of Marketing, Journal of Marketing Research, Marketing Research, Harvard Business Review,
McKinsey Quarterly, Across the Board, Marketing Management Magazine, Management Science,
International Journal of Research in Marketing, Journal of Business, and Journal of Business Research.
Another source of pricing research and information exchange is The Pricing Center at Fordham University
which sponsors conferences and provides financial support for doctoral student research on pricing. These
organizations and journals provide evidence that pricing is a business discipline with a body of knowledge and
practice worthy of management attention in any organization.

Your professor is co-author of an article forthcoming this fall in the Journal of Business Research on A
Citation and Profiling Analysis of Pricing Research from 1980 to 2010. The article is posted on this course
website.

Pricing blogs are also a source of current information about pricing strategies. Two of the most popular pricing
blogs are: Pricing for Profit by Rafi Mohammed, CEO of Culture of Profit LLC. Rafis blog can be accessed
and subscribed to at: www.pricingforprofit.com. The second highly popular pricing blog is: Dollars and Sense:
The Pricing Blog by Reuben Swartz, President of Mimiran, which is a pricing consulting and software firm.
Reubens blog can be accessed and subscribed to at http://blog.mimiran.com . Both bloggers post a new entry at
least weekly, often more frequently. Both have been doing pricing blogs since 2006. Other pricing blogs include:
http://bestpracticepricing.blogspot.com/, http://pricingandvaluestrategies.blogspot.com/ and
http://professionalpricingsociety.blogspot.com/. These blogs provide commentary on pricing subjects which
can be accessed by subscribing to the blogs for daily updates, by visiting www.pricingsociety.com (click on
Resources to find the URLs for several active pricing blogs) and by searching blogs for pricing subjects. A
simple way to access current blogs about pricing is to sign up for daily alerts on pricing and/or pricing
strategy at www.google.com/alerts. Google Alerts provides 10 items daily on any selected search term.

Yet another source of current information about pricing is the Network of Pricing Champions (NOPC) discussion
group on LinkedIn. As of August 31, 2011 this discussion group had 2,283 members up from 1,328 members one
year earlier. Join (NOPC) at www.linkedin.com/groups where registration is free and the discussions and
networking opportunities are great.

There are numerous books on pricing strategies and tactics, many of which have been published or updated since
2000. A widely used pricing text book is by Nagle, Hogan and Zale, The Strategy and Tactics of Pricing, 5th
edition; a second widely used text is by Marn, Zawada and Baker, The Price Advantage, 2nd edition. Other
popular pricing texts include: Monroe, Pricing: Making Profitable Decisions, 3rd edition; and Dolan and Simon,
Power Pricing: How Managing Price Transforms the Bottom Line. The text for this course is by: Rafi
Mohammed, The 1% Windfall: How Successful Companies Use Price to Profit and Grow. Other excellent
pricing strategy books are included in a pricing reading list posted on the course web site.

Subject matter content and process for the course:

Pricing is about value, including concepts of: perceived value, value differentiation, value equivalence, value
delivery, and value communication. This course provides a framework for developing economic value estimation
(EVE) for a product or service. EVE (also referred to as True Economic Value or TEV) compares a product
to the most readily available substitute. The value differentiations between the EVE and next best alternative to
the product or service being priced (also called reference product) can be examined to determine opportunities
to identify and quantify value differentiations, communicate value and deliver perceived value to customers.

The EVE represents the increment of value over and above the value of the reference product. A managerial price
sensitivity analysis (MPSA) helps determine which factors most influence the purchase decision. The MPSA
leads to development of an implementation strategy for value capture (sometimes referred to as value
extraction) which is the maximum amount a seller can expect to gain from a customer who is fully informed and
economically rational about the product/service alternatives available to solve a problem. The implementation
strategy includes a communications/education plan to increase a potential customers willingness to pay (WTP)
for economic value received.

This course applies principles which impact effective pricing management from MBA courses on Managerial
Economics, Cost Accounting and Negotiations. Each session focuses on pricing concepts and issues presented for
that week. Each week includes a chapter from the course text, outside reading, case study and a guest speaker
related to the concepts and issues for the week. The guest speakers provide additional perspective beyond text,
articles and case studies based on knowledge and experience as pricing executives and consultants.

Each student participates in a team project to develop a pricing strategy for a specific product or service marketed
to two or more customer segments, each segment of which gains a different economic value from use of the
product or service. Instructions for this assignment are posted on the course web site. Examples of previous team
projects are posted on the course web site to provide templates for review by each team. Additional example
projects are available for student review from the instructor. Instructions for this group project are posted.

Beginning this year (2011), the team project can be a pricing analytics project using one of several data sets
available from the instructor. The data sets are from completed assignments with actual companies who have
given permission for this type of student project.

Each student also does an individual project. The Pricing Audit individual project analyzes pricing strategy and
tactics for an organization of the students choice. The analysis includes a description of the pricing situation for
the organization and ratings on ten factors influencing the pricing effectiveness of the organization. The Pricing
Audit report includes recommendations to achieve higher levels of pricing excellence. Instructions for this
assignment are posted on the course web site.

Teaching methods:

Class discussion, using PowerPoint slides posted on the course web site in advance of each class session

Text chapter each week and at least one outside reading about the principles and practices described in the
text chapter and slides.

Case study each week which focuses on pricing principles and issues related to the readings and slides.

Guest speakers--- consultants and executives who are experts in pricing strategy and tactics:

1. Eric V. Roegner, President, Alcoa Forgings and Extrusions (October 4)


2. Ralph Zuponcic, Senior Partner & Founder, PricPoint Partners, Hudson, Ohio (October 11)
3. Bart Robinson, Senior Product Manager, IBM (October 18)
4. Harold Peck, VP of Strategic Pricing, Cardinal Health, (October 25)
5. George E. Cressman, Jr., Founder & President of World Class Pricing, Inc. (November 1)
6. Richard Braun, VP, Corporate Strategic Pricing, Parker-Hannifin Corp. (November 8)

Assignments to develop skills in analyzing pricing opportunities and issues (Individual Pricing
Audit and Group Project for a Pricing Strategy for Two Segments OR analysis of a transactional
pricing data base from a real company to determine opportunity for profit improvement through
better pricing)

Grading:

Pricing Audit - Individual Project (25 points): Each student reviews the pricing
strategy and tactics of an organization of his/her choice, including description and analysis of
transactional, competitive, and industry level dynamics. The student analyzes the pricing strategy and
tactics based on questions asked in Robert J. Dolans article: How Do You Know When the Price Is
Right to give the organization a report card on current pricing processes and policies. Audits
completed by students in previous pricing classes taught by the instructor are posted on the course web
site as examples. Additional examples are available for review.

Pricing Strategy - Group Project (25 points): Students form a team to analyze the
pricing strategy for a product/service. The analysis determines a pricing strategy for two market
segments which may be thought of as two uses of a product/service. The pricing strategy will include a
Price Blossom using some of the 50 pricing approaches cited by our text (The 1% Windfall). The
instructions for this project are posted on the course web site. Projects completed by teams in previous
pricing classes taught by the instructor are posted on the course web site as examples. Additional
examples are available for review. Beginning with the course in 2011, a group may decide their group
project will be to do analysis of a transaction data base to determine opportunities for pricing changes
to increase profitability.

Final Exam: (50 points) in class, open book, open notes. The exam includes questions that
apply concepts from the course. A case study will be part of the exam.

Class Contribution: (25 points): Students are expected to contribute constructively to


class discussion. Class contribution is measured by the instructor for each session. The scoring for
each class session is:

-1-- Absent without notice


0-- Present for class, no contribution
1-- Present for class, constructive contribution
2-- Provided insight that: built on discussion, contrasted or extended earlier discussion,
and/or showed application of concepts from the readings for the session.
There are 125 total points available for your grade in this course. Your highest 100 points will determine
your grade. That is, the grade that is lowest will not be included in your grade computation. If the final
exam is the lowest grade, 50% of the final exam points will not be included in your grade.

Grade cutoffs:
A = 93 or higher point out of top 100
A- = 90 to 92
B+= 87 to 89.99
B = 83 to 86.99
B- = 78 to 82.99
C = <78

Class Schedule: Topics, Readings, Cases, Guest Speakers


Week 1 Strategic Pricing: Introduction September 27 for Tuesday 6:00 pm
to 9:48 pm section; September, 22, 27, and 29 for Tuesday and Thursday
10:30 am to 12:18 pm section

1. Formulating a profit-driven pricing strategy


2. Role in a pricing strategy of Costs, Customers, Competition, Capacity and Communication
3. Leverage of 1% improvement in prices
4. Intro to course assignments (group project, individual project)

Text: Introduction The 1% Windfall (pp xi-xxix)

Article: Laura Preslan, Building the Business Case for Price Management, The Pricing Advisor, June,
2006, pp 4-5.

Article: Robert J. Dolan, How Do You Know When the Price Is Right?
Harvard Business Review, Sept-Oct 1995, pp 4-11

Week 2: The Foundation of Pricing: Value-Based Pricing October 4 for 6:00


pm section, October 4 & 6 for 10:30 am section

1. Better pricing involves setting prices that capture the value of a product or service
2. Value-based prices for selling one product to a customer and for selling one product to
multiple customers
3. Process for one-on-one pricing
4. Characteristics that differentiate products
5. Why some customers are willing to pay more than others
6. Process for multiple customers pricing
7. Profit maximize analysis to select prices associated with highest profits
8. Methods to develop demand curves
9. Variables that change value-based prices
Text: Chapter 1: Capture Value by Thinking Like a Customer

Article: Elisabeth A. Sullivan, Value Pricing, Marketing News, January 15, 2008, 8.

Article: Robert J. Dolan and John T. Gourville, Pricing Principles, Harvard Business Note
9-506-021, January 12, 2006

Case: Atlantic Computer: A Bundle of Pricing Options

Guest Speaker: Eric V. Roegner, President, ALCOA Extrusions and Forgings. Eric is co-author of:
The Price Advantage. Eric is President of the Aluminum Company of America (ALCOA) division which
produces forgings and engineered hard alloy products to multiple markets from manufacturing plants
around the world. His division has over $1 billion of annual revenues. Eric will speak to us about Pricing
Reflections which is about his experience as a pricing consultant and as a pricer for a major
manufacturing company. Eric will include in his session a case for our discussion. The case is about how
to price a new product category being developed by his company.

Week 3: The Strategy of Pricing and Pick A Plan, October 18 for 6:00
pm section, October 18 and 20 for 10:30 am section
1. Pick-a-plan offers new pricing plans that activate dormant customers interested in a product but
who do not want the pricing approach offered for the product
2. Customer differences: desire a different pricing plan; have unique needs; value a product
differently
3. Different pricing strategies for each key customer difference: pick a plan, versioning,
differential pricing---this week focuses on pick a plan
4. Pick a plan strategy activates dormant customers who wont buy under the basic pricing plan
5. Tactics include: ownership alternatives, uncertain value, price assurance and financial and
other constraints
6. Ownership alternatives recognize some customers dont want to own the product
7. Uncertain-value tactics reduce risk for customers
8. Price certainty options allow customers to reduce/eliminate swings in price
9. Plans that address financial constraints allow customers to spread out payments

Text: Part Two intro The Strategy of Pricing (pp 27-32) and Chapter 2 Pick a Plan

Article: Vince Gennaro, Value-Based Ticket Pricing, Indians 2009 Annual, pp 69-75. The article sub-
title is: After over 100 years, the Indians are the first team to do something serious about ticket prices.

Case: The Springfield Noreasters: Maximizing Revenue in the Minor Leagues Case 2510 (discussion
questions at end of syllabus)

Guest Speaker: Ralph Zuponcic: Founder & Managing Director. PricePoint Partners. Ralph is a
value-based pricing strategy consultant in the B2B space. His specialty is gaining price increases for
products sold by a dedicated sales force. Ralph will provide an overview of his consulting practice, with
examples of processes his firm uses and of results they have helped clients achieve.

Week 4: Versioning October 11 for 6:00 pm section, October 11 & 13 for


10:30 am section

1. Modifications can attract new customers or entice existing buyers to trade up to earn higher
profits
2. Versioning tactics: premium attributes, stripped-down basic products, unique customer needs
3. Premium attributes: higher quality, guaranteed access, priority access, faster product, better
coverage
4. Stripped-down tactics: lower quality, more restrictions, unbundling, off-peak, private label,
lower benefits
5. Unique customer needs: packaging, warranties, clubs, bundling, platforms, usage purpose

Text: Chapter 3 Versioning

Article: Carl Shapiro and Hal Varian, Versioning: the Smart Way to Sell Information, Harvard
Business Review, November-December, 1998, pp 106-114

Case: Trilogy Corporation: Customer Value-Based Pricing

Guest Speaker: Bart Robinson, Senior Product Manager, IBM. Bart will speak to us about pricing in
the software industry. He is Senior Product Manager at his company for a product suite that has many
versions. IBM is the industry leader in software suites for government, banking and commercial
applications for product ordering, purchase and fulfillment functions.

Week 5: Differential Pricing, October 25 for 6:00 pm section, October 25


and 27 for 10:30 am section

1. Price customization for customers who are willing to pay more and for customers who are
willing to pay less than the one fixed price
2. Differential pricing is strategy for selling same product at different prices to different
customers
3. Differential tactics: hurdles, customer characteristics, selling characteristics, selling techniques
4. Hurdles: rebates, periodic discounts, coupons, price-match guarantee, distribution options, time
in sales cycle with lower prices over time for a product
5. Customer characteristics: geography, readily identifiable traits, club status, customer history
6. Selling characteristics: quantity, mixed bundling, next-best alternative
7. Selling strategy: negotiation, two-part pricing, metering, dynamic pricing
8. The McKinsey Pricing Framework: Transactional, Product/Market and Industry Level

Text: Chapter 4: Differential Pricing


Article: Michael V. Marn and Robert L. Rosiello, Managing Price, Gaining Profit, Harvard Business
Review, Sept-Oct, 1992, pp 84-94. This article provides the pricing analysis framework developed by
McKinsey, which is the basis for The Price Advantage text which is a popular text for MBA pricing
strategy courses.

Case: The Monarch Battery case in The Price Advantage, pp 220-236. This case is available on the
internet. It is posted on the course site for your reading and preparation for class discussion for this
session.

Week 6: Implementation: Use Price to Profit and GrowOffensive


Pricing: Create a Pricing Blossom Strategy, November 1 for 6 pm section
and November 1 and 3 for 10:30 am section.

1. A pricing blossom strategy is a set of publicly known prices and plans composed of a value-
based price, pricing plans to attract new customers, product variations that meet unique
customer needs and higher/lower prices for specific customer groups
2. Seven steps to create a retail pricing blossom strategy:
a. Always set a value-based price
b. Sometimes offer pick-a-plan tactics
c. Usually offer good, better, best versions
d. Sometimes offer one or two product versions that meet some customers needs
e. Always offer two or three differential prices
f. Set prices for each tactic of a pricing blossom strategy
g. Conduct a cannibalization check
3. Avoid cannibalization which is when full paying customers take advantage of discounts not
intended for them
4. Pricing tactic templates for professional services, other services, retailers
5. A B2B wholesale pricing blossom strategy has two phases: for end users and for retailers
6. A Marco Polo pricing is the beginning step of a pricing blossom: listening to customer needs
and responding with tactics to best serve them
7. A pricing blossom strategy is important for non profits to invest in improving services

Text: Intro to Part 3: Implementation: Use Price to Profit and Grow (p113) and Chapter 5, Offensive
Pricing: Create a Pricing Blossom Strategy

Article: Frederick H. deB. Harris and Peter Peacock, Hold My Place Please, Marketing Management,
Fall, 1995, pp 34-46.

Article: Anne Kadet, Price Profiling, Smart Money, May, 2008, 80-5

Case: Avari Ramada Hotel: Pricing Hotel Rooms Ivey case: 314-PDF-ENG

Guest Speaker: George E. Cressman, Jr., Founder and President, World Class Pricing, Woodbine,
Georgia
George will speak to the class about why pricing strategies fail. He holds two degrees from The Ohio State
University and has a distinguished career as a Pricing executive at DuPont, Monsanto, and Union Carbide
and as a consultant and author. Prior to founding World Class Pricing he was a consultant with the
Strategic Pricing Group and with The Monitor Group. He is the author of numerous articles on pricing
strategies, several of which are assigned readings for this course and others are included in the pricing
literature list compiled by your instructor. He has guest lectured on pricing strategies and tactics at The
Ohio State University, University of Minnesota, Purdue University, University of Chicago, Columbia
University and Penn State University. He is an adjunct professor at Drexel University and University of
Delaware and was a visiting scholar at the University of Virginia. His company web site is at:
www.WorldClassPricing.net.

Week 7: Implementation: Use Price to Profit and GrowOffensive


Pricing: Create a Pricing Blossom Strategy-Pricing New Products, Pricing
Over the Product Life Cycle, Negotiations Strategy for Offensive Pricing
November 8 for 6:00 pm section and November 8 and 10 for 10:30 am
section
1. New Product Pricing: Me-Too, Innovative, Revolutionary
2. Steps in determining price for a new product/service offering
3. Pricing issues for each stage of the product life cycle
4. Negotiations strategy for five types of customer

Text: Intro to Part 3: Implementation: Use Price to Profit and Grow (p113) and Chapter 5, Offensive
Pricing: Create a Pricing Blossom Strategy

Article: Michael V. Marn, Eric V. Roegner, Craig C. Zawada, New product Pricing, McKinsey
Quarterly, 2003, Issue 3, pp 40-8

Article: Timothy Aeppel , Changing the Formula: Seeking Perfect Prices, CEO Tears Up the Rule Wall
Street Journal, March 27, 2007, pp A1, A16.

Article: Tim Matanovich, Staying Out of Trouble with Innovation, Marketing Management, March-
April, 2004, pp14-15

Case: Keurig At Home: Managing a New Product Launch

Guest Speaker: Richard Braun, VP, Corporate Strategic Pricing, Parker Hannifin Corporation,
Cleveland, Ohio. Dick will speak about the pricing excellence journey at Parker Hannifin as reported in
the March 27, 2007 Wall Street Journal article assigned for reading in preparation for this class session.

Week 8: Defensive Pricing: 1st half of this week: Recession, Inflation and
New Competitors November 15 for 6:00 section, 10:30 am November 15
and 17 for 10:30 am section
1. Market changes that require companies to reset pricing strategy: recession, inflation and entry
of a new competitor
2. Recession may lead to trading away: maintain price and create a decreased-demand pricing
blossom strategy with discounts
3. Recession may lead to trading down: temper increases and crate an increased-demand
pricing blossom strategy to increase margins
4. Inflation can be demand-pull: when prices of inputs rise which reduce marginsraise value-
based price, offer higher quality versions, scale back differential pricing tactics
5. Inflation can be cost-push: create a decreased demand pricing blossom strategy
6. New rival: maintain value-based price, establish and communicate relative value, create a new-
competitor pricing blossom that provides discount opportunities, locks in customer demand
and attracts new customers.

Text: Chapter 6: Defensive Pricing: Recession, Inflation and New Competitors

Article: Akshay R. Rao, Mark E. Bergen and Scott Davis, How to Fight a Price War Harvard Business
Review March-April 2000, pp 107-16

Note: George E. Cressman, Jr. Dealing with Dumb Competitors, The Pricing Advisor, A
Professional Pricing Society Publication, April, 2003, pp 1-2.

Case: Chembright, Inc.:

Week 8, 2nd half of this week: Create a Culture of Profit: A Company


Environment That Promotes Profits and Growth, November 15 for evening
section, 8:00 to 9:48 and at 10:30 am to 12:18 for the morning section on
November 17

1. A culture of profit is a business environment that supports and encourages all associates to
price for profit and growth
2. A culture of profit involves implementing 13 principles in corporate philosophy, foundations
and ongoing initiatives
3. Six principles for corporate pricing philosophy:
a. Set prices to capture value customers place on a product
b. It is possible to achieve both market share gains and higher profits
c. High-volume customers do not have to get the lowest prices
d. A discount today does NOT guarantee a premium tomorrow
e. Higher operating margins are NOT a sign of better pricing
f. An across-the-board discount is NOT the best response to reduced sales volume
4. Two principles for foundation confidence in the product(s) of the company:
a. Create a value statement to encourage employees to highlight and capture value
b. Reinforce that it is ok to earn higher profits
5. Five principles for ongoing initiatives:
a. Speak and sell in terms of net prices
b. Organize and collect competitive information
c. Monitor the value of products as perceived by customers of the product category
d. Incorporate profitability into compensation packages to align incentives
e. Host periodic pricing roundtables to focus attention on pricing and profitability

Text: Chapter 7: Create a Culture of Profit

Article: George E. Cressman, Jr., Why Pricing Strategies Fail, Journal of Professional Pricing, Second
Quarter, 2009, pp 18-22.

Week 9: Making a Pricing Action Plan, November 22 for 6:00 pm to 7:30


pm evening section, November 22 for 10:30 am section. No class on
Thursday, November 24 (Thanksgiving Day Holiday)

1. Phase 1: Develop a mind-set that encourages pricing for profits and growth
2. Phase 2: Set a value-based price
3. Phase 3: Implement a differential pricing by offering a range of prices
4. Phase 4: Create product versions
5. Phase 5: Provide pick-a-plan options
6. Phase 6: Continue better pricing with ongoing initiatives
7. Result of the six phases: a pricing blossom strategy and a culture of profit

Text: Chapter 8: Make a Pricing Action Plan

Article: James C. Anderson and James A. Narus, Business Marketing: Understand What Customers
Value Harvard Business Review, November-December, 1998, pp 5-14

Article: John E. Hogan and Jamie Rappoport, Pricing in the New Market Reality, Pricing Advisor
Newsletter, 3rd Qtr, 2010

Week 10 Pricing Project Presentations, November 29 for 6:00 pm section,


November 29 and December 1 for 10:30 am section

Each team will give a presentation summarizing the analysis and recommendations from their course
project on pricing strategy for a product/service sold to two market segments.

Week 11 Final exam:


December 6 for 6:00 pm section and December 6 for 10:30 am section: In-Class, Open Book, Open Notes.
Any student may take the exam at either time. There will be two versions of the exam. Both versions
cover the material we studied in this course.
Cases in M&L 851 fall, 2011:

Week 2: Atlantic Computer: A Bundle of Pricing Options: Business to business, marketing, pricing,
pricing strategy.

Atlantic Computer, a leading player in the high-end server market, has detected a marketplace opportunity
in the basic server segment. They have developed a new server, the Tronn, to meet the needs of this
segment. In addition, they have created a software tool, called the "Performance Enhancing Server
Accelerator," or PESA, that allows the Tronn to perform up to four times faster than its standard speed.
The central question revolves around how to price the Tronn and PESA. Although cost-plus, competition-
based, and status-quo pricing are the most common means by which firms establish prices for their
offerings, these approaches may prevent firms from fully realizing the benefits that are due to them.
Provides an opportunity to optimize value capture for the firm by utilizing value-in-use pricing (i.e.,
examining the value that a firm's offering creates for the customer, and using the savings generated as the
basis for developing prices). Also allows for the exploration of the challenges surrounding the
implementation of a value-in-use pricing strategy. These include the reactions of competitors, customers,
and stakeholders within the firm.

This case allows contrast of a customer-focused approach to pricing (value-in-use) with company-centric
(cost-plus), competitor-based (competition-based), and status-quo approaches. The case also provides an
opportunity to calculate the price of a new offering utilizing the traditional approaches to pricing as well
as value-in-use pricing, and then evaluate the respective approaches to see which yields optimal value
capture for the firm. Also you can consider how other important stakeholders (competitors, customers,
internal managers, and the sales force) potentially impact implementation of pricing strategy.

For our discussion:


1. Quantify the pricing options Jason Jowers is considering as listed on page 6 of the case: status quo,
competitive, cost plus, and value-in-use.
2. What price should Jason Jowers recommend for the sale of two Tronn computers plus the PESA
software tool to the exemplary customer DayTraderJournal.com?
3. Approximately how much money would be left on the table if Atlantic Computer were to give away
the PESA software tool (which was the industry practice for new software tools) for the years 2001-
2003?
4. How might Chris Matzer likely react to Jasons recommended pricing?
5. How might Cadenas sales force react to Jasons recommended pricing?
6. How might prospective customers in the basic server market segment react to Jasons recommended
pricing?
7. How might Ontario Zinks senior management react to Jasons recommended pricing?
8. What should Atlantic Computer do to mitigate the likely reactions from questions 4 through 7?

Week 3: Springfield NorEasters: Maximizing Revenue in the Minor Leagues 2510-PDF-ENG


The marketing director of a new minor-league baseball team must design, conduct, and then interpret
survey research to determine optimal ticket pricing that will yield large attendance figures and contribute
to the owner's goal of breaking even in the first year of play. The pricing assignment becomes more
challenging when other variables like concessions revenue are considered. Students are asked to complete
a quantitative assignment as part of case analysis, but they must grapple with less quantifiable factors as
well.

Learning Objectives:
1. Discuss the design, implementation, and interpretation of research surveys.
2. Learn to use quantitative analysis methods to develop a "scaled" pricing strategy.
3. Help students to understand the sometimes subtle relationships between pricing and the possible impact
on sales of auxiliary products.

Discussion questions:

1. Critique the work done to identify prices for this baseball team. What would you have done to identify
value of the Springfield Nor-easters baseball experience from a fans perspective?
2. Design a Pick A Plan pricing strategy for the Springfield Noreasters based on what you have read
about Pick A Plan pricing strategies in the text and with the Cleveland Indians pricing study.
3. With your Pick A Plan strategy and with Buckinghams assumptions about concession sales, will the
team break even in the first year of operations?

Week 4: Trilogy Corporation: Customer Value-Based Pricing:

1. What is gain-sharing pricing?


2. Why would Trilogy consider use of gain-sharing pricing?
3. What customer types, products, or IT projects would provide the most appropriate circumstances for
Trilogy and its customers to enter into gain-sharing arrangements?
4. How might Trilogy use gain-sharing to win customers who would not buy using traditional pricing
models?
5. What risks would Trilogy have if they begin to use gain-sharing pricing?

Week 5: Monarch Battery: Using Value-Based Pricing for Profitable Growth (posted on course site
from internet download)

This case is included in The Price Advantage text book used in this course from 2004-2009. The case
shows how the McKinsey framework can be used to gain the 1% improvement in pricing results. The
case starts with a description of an industry that has suffered for many years no growth in profits. The
replacement auto battery industry has three major competitors, each with its own product lines and
distribution systems. The case presents the situation at three levels of pricing management: transaction
level (the price for each unit sold to any customer through any distribution system), the product/market
level (the relative price/value/benefits of each product item marketed by each of the three competitors) and
the industry level which is about behaviors that promote or inhibit the revenues and profits of the market
for replacement auto batteries. We get to see the before and after from actions taken by management
to get the 1% improvement (advantage).
Discussion questions: (the answers to these questions will be posted on the course web site prior to class).
Our discussion will be about how to generalize the issues and actions taken to other situations you might
encounter as an internal consultant at your next company or as an external consultant working for a
consulting firm with a client who needs pricing improvement.

What issues were identified at the transaction level of pricing excellence? What actions were taken to
address the transaction level issues?
1. What issues were identified at the productmarket level of pricing excellence? What actions were
taken to address the productmarket level issues?
2. What issues were identified at the industry level of pricing excellence? What actions were taken to
address the industry level issues?

Week 6: Keurig At Home: Managing a New Product Launch

1. How will partners (roasters, Keurig Authorized Distributors (KADs), Office Managers) be impacted
by Keurig At Home?
2. How much value will be created by Keurig At Home?
3. Keurig At Home is a two-product sale (brewer and K-Cups) of complementary products. What price
should Keurig charge for the brewer and what price should Keurig charge for the K-Cups?
4. When in the product development process should Keurig have determined the prices for the brewer and
the K-Cups?
4. Who should Keurig define as being in the target market for Keurig At Home

Week 7: Avari Ramada Hotel: Pricing Hotel Rooms M314-PDF-ENG

In December 1988, Mr. Tahir Raza Mian, assistant sales and marketing manager at the Avari Lahore
Ramada Renaissance Hotel (Avari), was concerned about the average room rate at the hotel. For the first
time since operations began in Lahore, Avari's average room rate had fallen below that of its main
competitor, Pearl Continental Hotel. Tahir felt that he needed to re-evaluate Avari's current pricing policy
in order to develop a plan to remedy the situation before the beginning of the new year.

Learning Objective:
This case study is focused on pricing a service with high fixed costs and low variable costs. Principles of
yield management are important considerations. A reading assigned for this week on Hold My Seat.
Will help understand an approach Mr. Tahir Raza Mians could use to solve his problem in 2011. We know
though it would not have been possible for him to use the approach fully in 1988, so our discussion will be
about what he could have done using a Price Blossom Strategy.

Discussion questions:

1. What are the pros and cons of focusing success on occupancy rates and/or on average room rate?
2. Design a Pricing Blossom strategy for Avari which will use price to increase profits for the coming
year and beyond.

Week 8: ChemBright, Inc:


1. Why was R.J. Poulson lowering the price for bleach, ammonia, and softener to New England
grocery chains?
1. What options does Steve Vitale have to respond to the pricing announced by R.J. Poulson?
2. What actions should ChemBright take to end the price war?