MKTG 4390: Pricing

Spring 2018

Contact details:

Professor:Promothesh ChatterjeeClass Room: CRCC 210

Office:SFEBB 7240Day: Monday & Wednesday

Phone:801-581-7733Time: 12:25 p.m. – 1:45 p.m.

E-Mail:Office Hours: After class &

by appointment (e-mail times you are available

Required Text: No text book required except the HBR Coursepack

HBR Coursepack: http://cb.hbsp.harvard.edu/cbmp/access/72405222

Supplementary Text

Nagle, Thomas T., John E. Hogan, and Joseph Zale (2011), The Strategy and Tactics of Pricing: A Guide to Growing More Profitably, Fifth Edition. Prentice Hall, Englewood Cliffs, New Jersey

Dolan, Robert J. and Hermann Simon (1996), Power Pricing: How Managing Price Transforms the Bottom Line, Free Press, New York: NY.

Course Objective

This course focuses on business pricing strategy and tactics from both theoretical and applied managerial contexts. Substantial content of the course concentrates on how firms attempt to capture value, as well as profits, in the revenues that they earn. Additional focus will be made on pricing dynamics and the reaction to and by competitors at the firm and product level. The materials used in the course are intended to provide you with a comprehensive exposure to making managerial pricing decisions. You will be expected to understand theoretical pricing concepts and, more importantly, apply them to a variety of applied marketing scenarios. The course will cover pricing examples from a number of different industries.

Course Learning Objectives and Expected Outcomes

1. Develop an understanding of the theory and techniques of firm‐level pricing.

2. Acquire the managerial skills that will enable you to effectively develop, implement, and monitor pricing strategies and tactics.

3. Develop the ability to communicate a pricing strategy based on sound pricing theory.

General Instructions

Students are expected to be fully committed to preparing for each class and attending all class sessions for the entire class period. Late arrivals and early departures are extremely disruptive to class operation and are an abuse of common courtesy that will result in negative participation grades. Absences must be arranged in advance and will be reflected in the final grade for the course. If you miss a class, submit the whatever is due that day to me in hard copy prior to class, or have a teammate hand it in.

  • Late entrances to class are unprofessional, disruptive to class and rude to the students who made the effort (sometime significant effort) to make it to class on time. Don’t be late! Assignments turned in after the start of class will not be accepted.
  • Display your name tent and sit in your assigned seat.
  • Read the assigned material before class. As classes consist either of discussions based on understanding the assigned material in the book or in the case, not reading the assigned material carefully and thoroughly will negatively impact your ability to participate effectively – which will negative impact your grade.
  • Cell phones and other electronic interactive devices are to be turned off during class. You should be fully engaged in the discussion, just as you would in a meeting at work!
  • You may not use your laptops in class for either the lectures or case discussions.
  • Take notes the old fashioned way: When you read, take notes by hand. When we discuss in class, take notes by hand. When you make simulation decisions, take notes by hand. In our fast paced world, valuable insights and ideas can be lost – Capture them!
  • The classroom is not a lunch room. Do not bring food/snacks to class.
  • A word to the wise: While some of the cases are set in recent times, some are “classics.” All business cases are history by the time we get them and are not intended to be a substitute for today’s Wall Street Journal. In addition, the actual decisions taken by the managers profiled in the cases are irrelevant to the learning experience.

Course Requirements

It will be assumed that each student has completed all assigned readings prior to each lecture session. Class discussions will be based primarily on the assigned reading and examples that are reflective of the assigned reading.

Grading : Students will be evaluated on the following criteria (class will not be grade‐curved):

Individual work

Pricing Simulation 10 percent

Quizzes & Assignments 10 percent

Exam I 15 percent

Exam II 15 percent

Class Participation 10 percent

Team-based work

Coca Cola Case 5 percent

Portland Trailblazers Case 5 percent

Project 30 percent

Grades:

A: 90% and above

B: 80% – 89.9%

C: 70% – 79.9%

D: 60% – 69.9%

F: Less than 60%

The assignments will not be accepted after their stated due dates – absolutely no exceptions. If you know that you will not be able to attend class on the day that an assignment is due, then you should make an attempt to hand in your assignment beforehand.

Course Schedule:

The schedule is tentative as we may spend more/less time than specified depending upon how much we are ahead/behind schedule.

Marketing 4390-Course Outline

Readings and Assignments

#1 (Monday, January 8) ‒ Introduction and "Kickoff”

  1. Buy: Course pack from Harvard (from Harvard, see link above).
  2. Read: 1. How Apple built a digital media juggernaut 2. What is strategic pricing (Canvas)
  3. Quiz on these readings next class (January 10)
  4. Class
  5. Introduction
  6. Syllabus Review
  7. Class Expectations
  8. Overview of pricing
  9. Meet Teammates: Select Secretary and Team Name, email information to Professor Chatterjee before 4 pm ()

#2 (Wednesday, January 10) ‒ Strategic or Economic Value Added Approach

  1. Quiz 1 on Monday’s class and prescribed readings
  2. Project details
  3. Pricing Simulation
  4. Class: Strategic Pricing
  5. Purchase: Access to Harvard course pack. Failure to do so will result in the loss of points equivalent to 1 case grade.
  6. Next class: Check assigned readings

# 3 (Wednesday, January 17) Strategic or Economic Value Added Approach

  1. Read: Pricing Strategy (Core Curriculum HBR) pages 1-12 + How Pfizer set price of its new drug (Canvas) + Epipen case (Canvas)
  2. Class: Strategic Pricing & Discussion on the readings
  3. Updates on Project
  4. For next class: 1) Group Assignment 1-Miracle Shield Auto Finish

2) Quiz on Strategic or Economic Value Added Approach

3) Assigned readings

# 4 (Monday, January 22) ‒ Cost based approach

  1. Hand in: Assignment 1- Miracle Shield Auto Finish
  2. Quiz on Strategic or Economic Value Added Approach
  3. Read and be prepared to discuss: Pricing Strategy (Core Curriculum HBR) pages 24-29 (section 2.4)
  4. Class: Cost-based approach & Discussion
  5. For next class: Solve practice questions on cost-based approach (canvas)

# 5 (Wednesday, January 24) ‒ Cost based approach

  1. Hand in at start of class: Practice questions on cost-based approach
  2. Class: Practice questions + Healthy Spring Water Case
  3. For next class: 1. Group Assignment- Calibrated Manufacturing Case (canvas).

2. Quiz on cost based approach

3. Assigned readings for next class

# 6 (Monday, January 29) ‒ Customer Based Approach

  1. Hand in at start of class: Calibrated Manufacturing Case
  2. Quiz: Cost based approach
  3. Read and be prepared to discuss: 1.Conjoint Analysis: Online Tutorial 2. Conjoint Analysis: A DIY guide (HBR)
  4. Class: Customer based approach
  5. For next class: check the readings assigned for next class

# 7 (Wednesday, January 31) ‒ Customer Based Approach

  1. Read and be prepared to discuss: 1. Conjoint and Discrete Choice Designs for Pricing Research (Canvas) 2. Market simulators for conjoint studies (canvas)
  2. Class: Customer based approach
  3. For next class: a) Prepare for quiz on Customer based approach

b) Analyze Portland Trailblazers Case (HBR) and be ready with

a powerpoint presentation & the writeup (For guidelines, read Learning from cases (canvas)

# 8 (Monday, February 5) ‒ Customer Based Approach

  1. Hand in at start of class: a) Write up of Portland Trailblazers Case b) Hardcopy

of powerpoint presentation

  1. Class: Group Presentations of Trailblazers Case

# 9 (Wednesday, February 7) ‒ Preparation for Exam 1

  1. Review for Exam 1

# 10 (Monday, February 12) ‒ Exam 1

  1. Exam 1
  2. For next class: check readings

# 11 (Wednesday, February 14) ‒ Competition based Approach

  1. Read and be prepared to discuss: a) Principles of Microeconomics for Strategists (HBR) b) Price Simulation (HBR)
  2. Class: Competition based approach
  3. Hand in at start of class: Write up on project updates

# 12 (Wednesday, February 21) – Competition based Approach

  1. Read and be prepared to discuss: a) Field Testing, Slice by Slice (canvas) b) With Doubled Fees, Tennis Court Permit Sales Plunge (canvas) c) Pricing Strategy (Core Curriculum HBR) pages 15-21
  2. Class: Competition based approach
  3. For next class: a) Read and prepare one page write up on Measuring Price Promotion Effects (HBR) b) Prepare for quiz on competition based approach

# 13 (Monday, February 26) ‒ Competition based approach

  1. Quiz on Competition based approach
  2. Class: Measuring Price Promotion effects
  3. For next class: Read a note on behavioral pricing (HBR)

# 14 (Wednesday, February 28) ‒ Psychology of Pricing

  1. Read and be prepared to discuss: 1) A note on behavioral pricing (HBR) 2) Psychology of Pricing (canvas)
  2. Class: Psychology of pricing
  3. For next class: Individual updates on pricing simulation (1 page write up) and group updates on project (1 page write up)

# 15 (Monday, March 5) ‒ Psychology of Pricing

  1. Hand in at start of class: 1-page case write-up of pricing simulation update (individual) and 1 page write up of project updates (group)
  2. Class: Behavioral psychology of Netflix
  3. For next class: 1) Prepare powerpoint slides and write-up for Coca-cola case 2) prepare for quiz on Psychology of pricing

# 16 (Wednesday, March 7) – Psychology of Pricing

  1. Quiz: Psychology of pricing
  2. Hand in at start of class: Coca Cola case write up and presentation slides
  3. Coca Cola Case presentation
  4. For next class: Read a) Pricing it right (HBR) b) Sharper Tools for price discrimination (canvas)

# 17 (Monday, March 12) – Price Discrimination and other issues

  1. Class: Price Discrimination and other issues
  2. Read and be prepared to discuss: a) Pricing it right (HBR) b) Sharper Tools for price discrimination (canvas)
  3. For next class: Read The Great Rebate Runaround (canvas) & The Dirty Secret of Black Friday 'Discounts' (canvas)

# 18 (Wednesday, March 14) ‒ Price Discrimination and other issues

  1. Read and be prepared to discuss: The Great Rebate Runaround (canvas) & The Dirty Secret of Black Friday 'Discounts' (canvas)
  2. Class: Price Discrimination and other issues

# 19 (Monday, March 26) – Price Discrimination and other issues

  1. Hand in at start of class: 1-page case write-up of pricing simulation update (individual) and 1 page write up of project updates (group)
  2. Class: Price Discrimination and other issues
  3. For next Class: Prepare for quiz on Price Discrimination

# 20 (Wednesday, March 28) – Price Discrimination and other issues

  1. Class: Price Discrimination and other issues
  2. Quiz: Price Discrimination and other issues

# 21 (Monday, April 2) ‒ Preparation for Exam 2

  1. Review for Exam 2

# 22 (Wednesday, April 4) – Exam 2

  1. Exam 2

# 23 (Monday, April 9) ‒ Project work

1. Group project work

# 24 (Wednesday, April 11) – Project work

  1. Group project work

# 25 (Monday, April 16) ‒ Simulation

  1. Work on Pricing Simulation
  2. For next class: Turn in written project report + presentation slides+ Peer Evaluations

# 27 (Monday, April 18) – Project Presentations

  1. Hand in at Start of Class: Written project report + presentation slides+ Peer Evaluations
  2. Project presentation

# 28 (Wednesday, April 20) ‒ Project Presentations

  1. Hand in at start of class: Pricing simulation report
  2. Project presentation

RETAIL PRICING SIMULATION GAME: Universal Rental Car. This web-based simulation presents an engaging context in which students develop their knowledge of pricing by managing a rental car operation (Universal) in Florida and improve regional performance by developing a pricing strategy. The simulation involves three regions--Orlando, Tampa, and Miami--which vary in size, market dynamics, and customer mix. The focus is competition between two car rental companies with players inputting decisions for Universal. The simulation lasts up to 12 simulated months.

DETAILS ON THE SIMULATION EXERCISE

The purpose of the simulation is to apply pricing concepts to a real-world scenario that involves making multi-period pricing decisions. The concepts explored in the simulation are: nature and dynamics of consumer response to price (i.e., price elasticities); importance of understanding differences across customer segments; importance of understanding differences across geographic markets (heterogeneity of demand); importance of accounting for competitive response; impact of price on overall marketplace demand; impact of general economic conditions on the demand function; economics of pricing decisions; and the role of pricing in managing product inventory (e.g., managing excess demand and stock-outs).

The web-based (asynchronous) simulation presents a context in which you develop a pricing strategy for improving performance of a rental car operation in Florida. The simulation involves three regions--Orlando, Tampa, and Miami--which vary in size, market dynamics, and customer mix. The focus is competition between two car rental companies. The simulation lasts up to 12 simulated months. You set weekday and weekend rental prices for each region for each period (a simulated month) and make fleet capacity decisions at several points throughout the simulation.

You are free to use your own format in writing the simulation report. A suggested length would be 6-8 pages.

Six Specific Questions to be Answered in the Written Report:

a) Describe the pricing strategy you used during Scenario C of the Simulation Exercise.

b) What was your highest cumulative profit level attained during Scenario C?

c) How would you characterize the behavior of each type of customer’s (business/leisure)

responses to changes in price?

d) What differences did you identify between the three markets -- Orlando, Miami, and Tampa?

e) What differences did you notice between weekdays vs. weekend demand?

f) What did you think the competition was doing?

PROJECT DETAILS: RECOMMENDATIONS CONCERNING A REAL COMPANY’S PRICING POLICY

In this group project, the class will preferably be divided into groups of 3 people each. There are 2 components of this project: a) 1 hour presentation followed by 15 minutes of question-answer session, b) written project report. Each of the components has equal weight in calculation of group grade. Please ensure you fill up the peer evaluation report otherwise you will not receive any grade for project.

In the project, you are to make recommendations concerning a real company’s pricing policies and justify your recommendations. Pricing decisions you may consider include: 1) the possibility of re-pricing an existing product (good and/or service) or product line, or 2) designing and pricing a new product or product line. Students will come up with different project ideas and one idea for the project will selected for the entire class. There are 5 major components of the pricing project:

a) Cost-based pricing

b) Customer based pricing

c) Econ-based approach

d) Strategic pricing approach

e) Pricing Implementation Issues

You should include the following in your write-up:

- A summary of the pricing decision you are going to address. This should include a brief company overview, the company’s strategic positioning and how the product(s) you are considering fit(s) in with the company’s objectives.

- Identify and summarize the current pricing practices (i.e. how prices are currently set) and existing data that can be used to make help an effective pricing policy.

- Recommend the next steps that should be taken given the available data. Recommendations could include interim price changes, data to be collected (both specific market research and data to be collected on an ongoing basis) and how that data should be analyzed, and processes that will be implemented to review and implement price changes.

- Provide support for your recommendations. Explain why your recommendations will improve on current practices. Technical details of the analysis (e.g. data sources, marketing models used, assumptions, etc.) are probably best presented in an appendix.

UNIVERSITY OF UTAH POLICIES

  1. The class schedule for the semester, including holidays and final exam schedule, and withdrawal policy are published in the University Class schedule and will be followed in the course.
  2. The University of Utah seeks to provide equal access to its programs, services and activities for people with disabilities. In order to establish the existence of a disability and/or request reasonable accommodation for this class, you should contact the Center for Disabled Student Services in 160 Olpin Union Building at 581-5020, voice or TDD. Accommodations can then be made with reasonable prior notice to the instructor. See the University Class Schedule for information, also available in alternative format with prior notification.
  3. The Student Code is spelled out in the University Class schedule. Students have specific rights in the classroom as detailed in Article III of the code. The code also specifies proscribed conduct (Article XI) that involves cheating on tests, plagiarism, and/or collusion, as well as fraud, theft, etc. Students should read the Code carefully to become aware of these issues. Students may receive sanctions for violating one or more of these proscriptions. The instructor of this class will enforce the Code in the course; cheating and plagiarism will result in appropriate penalties, such as a failing grade on a specific exam or in the course and/or expulsion from the course. Students have the right to appeal such action to the Student Behavior Committee.
  4. As a student of the University, you are entitled to participate in University programs and activities free of sexual harassment and other forms of discrimination, based on race, color, national origin, sex, sexual orientation, age or status as a person with a disability.

David Eccles School of Business

Statement of Professional and Ethical Conduct

Because of the importance of professional and ethical behavior in business, and its emphasis in our program, professional or academic misconduct is not tolerated in the David Eccles School of Business. Students are expected to adhere to the standards of behavior outlined in the University of Utah Code of Student Rights and Responsibilities (Policy 6-400). Students engaging in behavioral misconduct could be subject to suspension or dismissal from the University. Students involved in any form of academic misconduct, including but not limited to cheating on tests, plagiarism and collusion may, at the instructor's discretion, receive a failing grade in the course, examination, or academic assignment. In addition to or instead of this sanction, the instructor may refer the case to the Student Behavior Committee for hearing. If the instructor chooses not to do so, the Associate Dean for Academic Affairs, after appropriate investigation, may do so along with a recommendation to dismiss the student from the Business School. If, after hearing the evidence, the Committee determines that the student in question is guilty of the misconduct charged, the Committee may impose sanctions in addition to those taken by the professor. If the academic dishonesty is not proven, the instructor must rescind any sanctions imposed and will be required to evaluate the student's performance with the assumption that there has been no misconduct. The School will treat the student likewise. If a student suspects another student of academic misconduct, he/she should refer the incident to the instructor, the appropriate department, the Associate Dean for Academic Affairs, or the Student Behavior Committee, administered by the Associate Dean of Students, 270 Union.