Jaypee Business School

A Constituent of Jaypee Institute of Information Technology University A-10, Sector 62 NOIDA, 201 307 India

MBA PROGRAM Batch 2012-14 Term-IV July to September - 2013

12M4EMM23: Pricing Strategy

(Marketing Elective-Advance Marketing)

Learning Facilitator: Faculty Office: Walk-in Hours: Phone: Email ID:

Dr. Nripednra Singh

Arya Bhatt Bhawan II, Fourth Floor Only by appointment 0120 2400974 Extn - 481 nripendra.singh@jiit.ac.in

COURSE OUTLINE PRICING STRATEGY (12M4EMM23)

INTRODUCTION Pricing is one of the most important functions for marketing. It is important because pricing is the basis on which most of the consumers perceive the product and also take decision whether to go in for the purchase of the product or not? Managers on the other hand do not realize the importance of pricing or avoid it considering the complexity involved in dealing with this issue. They follow a general rule in practice that is, calculate the cost of the product, add a markup and finalize the price of the product. Research on the other hand proves that 1% change in the price can bring an overall 11.1% change in the profit margin of the company keeping the sales volume constant (Donald, 1991), where as 1% change in the volume will bring in only around 3.3% change in the profitability of the company. It is in this light of facts that this course becomes relevant for all the management students in MBA program. It is expected that the students will be able to understand the relevance of pricing and will be able to assess and appreciate the pricing issues. By the end of this course the students are expected to know about the pricing strategies practiced in Indian companies and what is its impact on the consumers. They should be able to design a pricing structure for a company by the end of the course. Most PGDM / MBA programs do not offer an elective course on pricing strategy and students have to depend on what they learnt in the core economics courses or in basic marketing course while approaching pricing decisions. This course on Pricing Strategy aims to fill the gap by providing participants with a sound foundation of pricing knowledge based on the stream of pricing related research published in the top tier marketing journals. The course is targeted to marketing practitioners, consultants and management students who are curious about the company practices and can learn how to derive significant benefits from sound pricing decisions. LEARNING OBJECTIVES: To provide participants with an understanding of the important role price structuring has in organizations profitability. To provide an exposure to key concepts, theories and research findings in pricing and to illustrate their applicability in tackling the challenges in business To highlight the major types of pricing decisions and to suggest analytical frameworks and approaches that will aid decision making By the end of the course the student is expected to learn how to develop pricing strategy, estimate economic value, price sensitivity and price, and should be able to design price structure for a company.

Pedagogy and Evaluation

The teaching pedagogy will be case based. Cases/Readings given with the topics in the course outline will provide different perspectives in the area of pricing strategy. Students are expected to read the case in advance and come prepared in the class for discussions. This exercise will be graded. Industry Interface will also be an integral part of the pedagogy. Professionals from the corporate sector will be invited to share their experiences. These lectures will be in addition to the normal course work, but attendance in these lectures will be COMPULSORY and students' Participation is essential. Assignments (Project work in groups) will be an essential and regular part of the course work. The objective is to make the student understand and relate the concepts to the contemporary practices. Each student is required to work individually, but as a part of group, which will be responsible to work on a specific sector. Each group will make presentations on their project/case, and evaluator may ask any one or more of the students to present or to reply to questions. Details will be discussed in the class. The major components of evaluation process will include: Case Analysis Test/Quiz Mid-Term Exam (Short Answer Types) End-Term Exam (Descriptive and Case based) 15% 15% 30% 40%

Text Book: Thomas T. Nagle and John E. Hogan (2009) The Strategy and Tactics of Pricing A guide to growing more profitably, 4th Ed. Pearson Education Supplementary Books: Andrew Gregson (2009) Pricing Strategies. Jaico Publishing Dolan, Robert, J and Herbert Simon. (1996) Power Pricing. New York: Free Press Marlene Jensen. (2004) The Tao of Pricing. Amazon.com Marlene Jensen. (2004) Pricing Psychology Report. Amazon.com Marlene Jensen. (2005) 46 Ways to Raise Prices -- Without Losing Sales. Marn, Roegner and Zawada. (2004) The Price Advantage. Amazon.com Philip Kotler and Kevin L. Keller (2005) Marketing Management. PHI

SESSION PLAN
Session 1 Topic: Introduction to the course Contents The introductory session will provide the perspective of studying Pricing Strategy. It will cover the importance of pricing strategy in todays business, the prevailing ideas and practices in pricing. Pedagogy and course content of pricing strategy. Readings: Philip Kotler and Kevin L. Keller (2005) Marketing Management. Whirlpool Duet, Chapter 14, Pg. 431- 432. Learning: At the end of this session the students must understand the relevance of the course in MBA program. Session 2 & 3 Topic: Basic Pricing Strategies/Methods Contents This session presents a foundation for understanding pricing. It starts with the differences between traditional pricing and modern day pricing. The objective is to make the students understand the problems with conventional pricing and the relevance of using pricing as a strategic tool for competitive advantage. Text: Chapter 14, Pg. 432-436 (Kotler & Keller) Readings: Koutons Retail India-Fashion @ affordable Price http://www.koutonsparivar.com/press.php Question for discussion: Comment on the pricing strategy of Koutons Retail India Ltd. Marketing Insight Internet and Pricing Effects on Sellers and Buyers. Pg. 433 (Kotler and Keller). Exercise: Brainstorming in small groups on the current pricing practices, sector-wise discussion. Learning: At the end of this session the students should be able to draw a line of difference between traditional pricing methods and modern-day pricing strategies. Session 4 & 5 Topic: Dynamic Pricing Contents This session develops an understanding of the Dynamic Pricing methods. It also delves into the questions like whether these methods are appropriate or not? The conditions and situations under which it needs a change in thinking. Text: Chapter 1 (Nagle and Hogan)

Readings: Arvind Sahay (2007) How to Reap Higher Profits with Dynamic Pricing. MIT Sloan Management Review (Summer). Learning: At the end of this session the students should be able to assess the Dynamic pricing method as used by the companies. Session 6 & 7 Topic: Pricing Pyramid Contents This session presents a foundation for a comprehensive pricing strategy through the strategic pricing pyramid. Starting with value creation, it touches on the major levels of the pyramid including price structure, price and value communication, pricing policy and price level. Text: Chapter 2 (Nagle and Hogan) Exercise: To develop pricing pyramid for different companies in groups. Learning: At the end of this session the students should be able to develop a frame work (pricing pyramid) for developing pricing strategy for any company. Session 8 & 9 Topic: Value Creation Contents Many pricing decisions are made which do not thoroughly capitalize on the value that consumers are capable of realizing and in turn, paying for. This session discusses value and how customers determine value. It then lays the groundwork for effective pricing by helping the marketer understand this value, how it differs within segments, and how to price effectively to capture this value. Text: Chapter 3 (Nagle and Hogan) Readings: Anderson and Narus, Business Marketing: Understand What Customers Value, Harvard Business Review, November-December 1998, pp. 53-65. Case: Miracle Shield Auto Finish Question: Develop an EVE for Miracle Shield Auto Finish. Learning: Students are expected to be able to estimate Economic Value (EVE) for firms, and develop value based segmentation, at the end of this session. Session 10 & 11 Topic: Price Structure Contents This session focuses on strategy to set price for each customer segment. The concept of price metrics and fences will be covered. Through the use of price metrics and

segmentation fences, the marketer can understand how to effectively vary price to these segments. Realize the importance of metrics and the difficulty of performance based pricing and the need to create good metrics. Text: Chapter 4 (Nagle and Hogan) Readings: Marn and Rosiello, Managing Price, Gaining Profit, Harvard Business Review, September-October 1992, pp. 84-94 Case: Pricing At Genvet Pharmaceuticals Question: How would you segment the market and price the Genvet product to maximize profitability? Learning: The students will learn how to segment the customers based on pricing fences at the end of this session. Session 12 & 13 Topic: Price and value communication Contents This session examines the challenging task of communicating value to the customer so they will realize the worth of the benefits of product and be willing to pay a price that is justified by that worth. A value communication framework will be introduced based on relative cost of search and the type of benefits buyers seek (economic vs. psychological). Text: Chapter 5 (Nagle and Hogan) Readings: Anderson and Simester, Minding your Pricing Cues, Harvard Business Review, September 2003, pp. 97-103. Exercise: Analyze the companies on the basis of different pricing communication strategies in India. Learning: At the end of this session students should be able to assess whether the communication strategy used by the company has used reference pricing, perceived fairness, gain-loss framing or any model for developing it. Session 14 & 15 Topic: Pricing Policy Contents This session stresses the importance of establishing pricing policy. Many pricing issues deal not only with the customers perceived value but also with their expectations of their willingness to pay. Impulse-driven discounts and promotions train buyers to believe that the best way to get lower prices is to fight for them. Through sound policies a companys sales reps can reward the appropriate consumer behaviors with discounts while still maintaining profitability. This session discusses how to organize for policy and develop policy within the company, and presents tools to manage pricing activities so they comply with pricing policy.

Text: Chapter 6 (Nagle and Hogan) Case: Science Library, Inc. Question: Identify the various attributes of a subscription that could be unbundled and make a judgment about the relative value of that attribute to each segment, to critically evaluate the pricing policy of Science Library Inc. Learning: At the end of this session the students should be able to diagnose the problem of price banding or price waterfall in the pricing policy of any company. Session 16 & 17 Topic: Price Levels Contents This session brings the students through a three step process in setting the right price for each segment. By integrating data on the customer, competition and cost, a company can apply the process to most businesses. Starting with economic value, preliminary prices can be set. The second step of the process, price optimization, is an iterative process to maximize profits by analyzing the trade off between preliminary price, volume and cost through an examination of strategic objectives, estimated responses by customers to the price changes and the final setting of price. Text: Chapter 7 (Nagle and Hogan) Exercise: Diagnose price banding or price waterfalls in a hypothetical company. Learning: At the end of this session the students should be able to develop a price setting framework for any company. Session 18 & 19 Topic: Pricing Models Contents This session will discuss the relevant pricing models like New Product Introduction and Product Life Cycle as per the current market trends and applicability in different industries, especially in India. Text: Chapter 8 (Andrew Gregson) Exercise: Brainstorming session to identify different companies (sector-wise) using different pricing models in India, in small groups. Learning: At the end of this session the students should be able to assess the pricing model used by the company with respect to its overall strategy. Session 20: Course Review & Summary