Pricing Policies

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TEACHING PLAN FOR

• PRICING POLICIES

1. Basic description of the course

Name of the course: Pricing Policies

Profile: Marketing Market Research

Academic year: 2013-2014

Term: 1st

Degree / Course: Bachelor’s Degree in International Business and Marketing

Code: 40114

Number of credits: 4

Total number of hours committed: 100

Teaching language: English

Lecturer: Tomislav Rimac

Timetable:

GROUP 1 (Plenary Session)

Mondays, 13.00 – 15.15

GROUP 1A (Seminar Session)

Thursdays, 13:00 – 13:55

OFFICE HOURS: Mondays, 12:00 – 13:00 and by appointment

2. Presentation of the course

“Pricing is the moment of truth – all of marketing comes to focus in the pricing

decision.” (Raymond Corey)

Price setting is probably the most crucial of all marketing mix decisions. It involves

an understanding of both supply side factors (e.g. costs) and demand side factors

(e.g. consumer willingness to pay). While traditional approaches to pricing theory

have revolved around an economic and financial framework, a broader and more

pragmatic view entails a comprehensive understanding of the demand side; both at

the level of individual customer values, and the more aggregate level of price

sensitivities of the market. In this course, we will approach the pricing decision as

an intersection of economic, strategic and behavioral considerations. Using

industries as diverse as wireless communication, pharmaceutical, medical services,

industrial products and consumer packaged goods, we will study economic and

behavioral approaches to pricing, dynamic of pricing, value pricing, price

customization, price bundling and multi-part tariffs, menu costs and price

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stickiness, price presentation strategies, sales promotions, and the effect of pricing

formats on consumption and customer value.

The prerequisites for this course are solid knowledge of basic marketing,

microeconomics, managerial accounting, and managerial finance concepts acquired

in the Business Marketing and Microeconomics courses or in equivalent courses.

Students are expected to be familiar with topics such as laws of demand and

supply, fixed and variable costs, price elasticity, net present value, etc. Although

many of these topics will not be officially discussed during the class, students will

be provided with refresher power point slides that they can review in the

preparation for the classes. Familiarity with some advanced managerial finance

(e.g., options) and competitive strategy (e.g., game theory) concepts is beneficial,

though not obligatory.

Although this course has a significant QUANTITATIVE component, required

mathematical skills do not go beyond basic calculus (e.g., derivative of a linear

function). However, solid control of the basic algebra is mandatory. Fluency in use

of EXCEL software application is mandatory. Students MUST bring their

laptops to every class.

3. Competences to be achieved in the course

General competences:

Instrumental competences

G.I.2. Ability to relate concepts and

knowledge from different areas.

G.I.3. Ability to organize and plan.

G.I.5. Ability to take decisions in complex

and changing situations.

G.I.8. Oral and written competence in

communicating in English.

General personal competences

G.P.1. Ability to adapt and work in and

lead international, multicultural,

interdisciplinary, competitive, changing

and complex groups.

Generic systemic competences

G.S.4. Entrepreneurial ability.

G.S.7. Promotion of and respect toward

multicultural values: respect, equality,

solidarity, commitment.

G.S.8. Promotion and respect for gender,

environmental and safety at work issues.

Specific competences:

Disciplinary competences

E.D.8. Analyze the organization of

businesses based on economic

principles that make it possible to

identify the most determining factors in

results.

Professional competences

E.P.2. Ability to analyze economic and

market indicators when taking

decisions within the organization.

E.P.5. Ability to take strategic business

decisions that take into account

economic, cultural, social, and political

determinants specific to each area.

E.P.7. Illustrate the reality of business

by using activities such as visits and

lectures given by executives or by

preparing case studies.

E.P.8. Be able to take functional

decisions within an organization with

international activity.

E.P.17. Be able to express oneself and

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Competences for applicability

G.A.4. Ability to understand and apply

the network concept.

understand spoken and written

communication in English at an

advanced level to apply it to the

international business area.

The above abilities interrelated with the basic abilities set out in Royal Decree

1393/2007, namely:

a. Competence to understand knowledge, on the basis of general secondary

education

b. Competence to apply knowledge to day-to-day work in international

management and marketing, in particular, the ability to develop and defend

arguments and to solve problems

c. Competence to gather and interpret relevant data, making it possible to

issue reflective judgments on economic and social reality

d. Competence to communicate and transmit information (ideas, problems,

solutions) to a specialized and non-specialized public

e. Competence to develop learning activities in a relatively autonomous

manner.

Thus, the competences developed in the subject are structured into those that are

seen as a development or specification of basic competences and those that define

the professional profile of the graduate, with respect to general and specific

competences.

Basic competence: understanding of knowledge

General competence: G.I.3

Specific competences: E.D.8

Basic competence: application of knowledge

General competences: E.P.2

Basic competence: communicate and transform information

General competences: G.I.8

Specific competences: E.P.17

Basic competences: develop learning activities

General competences: G.I.3

Competences that define the professional profile which are not included under basic

competences

In general, these competences combine the following key elements for

professionalizing students in the area of international business and marketing:

a. Provide students with the capacity to adapt to dynamic teams and environments

b. Provide students with the capacity to create their own integral vision of the

operation of a business or international marketing project

c. Provide students with the capacity to take complex decisions and carry out

negotiation processes

General competences: G.I.5, G.P.1, G.S.4, G.S.7, G.S.8, G.A.4

Specific competences: E.P.5, E.P.7, E.P. 8

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Own competences of the subject

Understanding the fundamentals of how prices are set and the relationship of

pricing process with other functional business activities.

4. Contents

1. Costs

2. CVP Analysis

3. Markets and willingness to pay

4. Pricing discrimination

5. Pricing strategies

6. Value and pricing

7. Pricing psychology

8. Pricing over the product lifecycle

9. Competitive pricing

10. Ethical and legal issues in pricing

5. Assessment

Regular Term Evaluation

During the regular term you will be evaluated as indicated in the table below.

Assessm

ent element

s

Frequency

Type of

assessment Assessment agent

Type of activity

Grouping Weight (%)

Obligatory

Optional

Lecturer

Self 360◦ Individu

al

Group (#)

CONTINUOUS EVALUATION (Minimum 5.0 on simulation and 4.0 on overall continuous evaluation grade required to be allowed to take the final exam)

Quizzes 2 X X

Application

Overall understanding

X 20%

Simulati

on 1

X

(min.

50%)

X X X

Application

Concept

ual

Overall understanding

X 3/group 20%

Seminar preparation and

participation

9 X X X X

Analysis

Application

Conceptual

Overall understanding

X 20%

FINAL EXAM (Minimum 4.0 required to pass the course)

Final

exam 1

x

(min.

40%

)

X

Applica

tion

and

synthe

X 40%

5

sis

BONUS EVALUATION (default 0.0 maximum 1.0)

Participation

bonus grade

Ongoin

g X X X X

Analysis and

application

X

≤10%

bonus

a. Each assessment element (the first column) is scored with a grade between 0

and 10 with one decimal point precision. Zero is the lowest grade and ten is the

highest grade.

b. The final grade for the course is calculated by adding grades obtained in each

element multiplied by their assigned weights (the last column).

c. The final grade of the course is reported on the scale from 0 to 10 with one

decimal point precision. The course will be considered as “passed” if the final

grade is equal to or greater than 5.0.

d. In addition to numeric final grades, you are also given descriptive grades:

No presentat

0.0 – 4.9 Suspens

5.0 – 6.9 Aprovat

7.0 – 8.9 Notable

9.0 – 10.0 Excel.lent

e. Frequency column in the table indicates the number of times assessment

element is evaluated during the term.

f. The assessment elements that have “x” in the “Obligatory” column must be

completed with the grade that is equal or greater to indicated grade in order to

obtain a passing course grade. The assessment elements that have “x” in the

“Optional” column don’t require a minimum passing grade in order to obtain a

passing final grade. Nevertheless, those “Optional” assessment elements that

are not completed still count towards your final course grade.

g. International students: Please DO NOT BOOK tickets for your flights home in

December before the dates for the final exams are announced (usually at the

end of the week 5). Even if you have a ticket and a valid reason, ESCI will NOT

PROVIDE ALTERNATIVE DATES for the final exam.

h. To be allowed to take the final exam your continuous evaluation grade (quizzes

+ simulation + seminar preparation and participation) must be 4.0 or greater

AND your simulation grade must be 5.0 or greater. If any on these two

conditions is not met, you will not be allowed to take the final exam and the

lower of the two grades becomes the final course grade.

i. In order to pass the course, you must take the final exam. If you do not take

the final exam, your final course grade will be “No presentat” (“No show”),

irrespective of your grades in other evaluation elements.

j. To obtain a passing course grade, you must obtain the final exam grade that is

equal to or greater than 4.0. If the final exam grade is less than 4.0, the final

exam grade becomes the course final grade irrespective of other grades.

k. The final exam is cumulative – it covers all material covered during the term.

Quiz 1 includes only material covered before the Quiz 1. Quiz 2 includes only

material covered between Quiz 1 and Quiz 2.

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l. Seminar preparation and participation grading element evaluates your

preparation for the seminars. In addition to quality of your deliverables it

evaluates the level of your preparation. Missing seminars or coming unprepared

to classes will lower your grade for this evaluation element. Each student is

entitled to one “joker seminar” when a student is allowed to miss the class or

attend the class unprepared, AS LONG AS I am informed in writing about this

ahead of the class. The first time you come to a seminar class unprepared

without prior notification or you do this after using your “joker seminar” the

maximum grade for the seminar preparation and participation element will be

lowered by 25%; the 2nd time by 50%, and zero thereafter. Thus, if your actual

grade for this evaluation element is 7 and I determine that in addition to one

“joker seminar” you came to 2 seminars unprepared or that you came to 2

seminars unprepared without claiming in writing your “joker seminar,” your

recorded grade for this evaluation element will be 20*0.5*0.7 = 7.

m. If you fail to submit any of your assignments by the given deadline, and you are

late between 0 and 24 hours, your maximum assignment grade will be reduced

by 20%. If you are late more than 24 hours, the assignment will not be

accepted and your grade will be zero. For instance, if you submit your

assignment 10 hours late, your maximum possible assignment grade becomes

8. Thus, if your actual assignment grade is 7, your recorded assignment grade

is 0.7*8 = 5.6.

n. There will be neither individual make-up work nor extra credit work assigned if

you fail any of obligatory grading elements, you are unable to attend the final

exam or quizzes, or if you obtain a grade below your expectations.

o. All students in a group receive the same grade for any group work. However,

during the final exam, you will have to perform 360-degree evaluation that will

be used to adjust group grades for individuals who have contributed more than

their fair share of work (their grades will be higher than the grade given to the

rest of the group members) and those who didn’t contribute their fair share of

work (their grades will be lower than the grade given to the rest of the group

members).

p. Participation in this course is evaluated as an extra credit that can contribute up

to 10% of your final grade (default is zero). If you don’t say a word during the

classes or you have irregular attendance (below 80%), your participation grade

will be zero. However, you still may obtain a maximum final course grade.

Participation grade is based exclusively on your CONTRIBUTION during class

discussions. My experience is that in the courses that are evaluated on the

continuous basis like this one, it is hard to fail but it is also hard to obtain a very

high mark. So, if you are concerned with your average grade, take this element

seriously as it can compensate for losses of grades in other elements.

Furthermore, do not think of this grade as an entitlement or a gift – it has to be

EARNED. Finally, do not confuse attendance with participation.

q. A student can have a perfect attendance record and still have zero participation

mark. Some of the behaviors that contribute to effective class participation are

captured in the questions that follow:

1. Is the participant a good listener?

2. Are the points that are made relevant to the discussion? Are they linked to

the comments of others?

3. Do the comments add to our understanding of the situation?

4. Do the comments show evidence of analysis of the case?

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5. Does the participant distinguish among different kinds of data (that is, facts,

opinions, beliefs, concepts, etc.)?

6. Is there a willingness to share?

7. Is there a willingness to test new ideas, or are all comments "safe"? (For

example, repetition of case facts without analysis and conclusions or a

comment already made by a colleague.)

8. Is the participant willing to interact with other class members?

9. Do comments clarify and highlight the important aspects of earlier

comments and lead to a clearer statement of the concepts being covered?

The questions above deal with both the process of class participation and (of

equal or greater concern) the content of what you say. Please trust that both

quality and frequency are important, but that quantity never can make up for

low quality.

Supplementary Evaluation

For those students who were allowed to take the final exam and during the regular

term evaluation have obtained a final grade below 5.0, there will be a

supplementary evaluation according to the ESCI calendar and academic

regulations.

Only final exam can be retaken during this session. All other grades stay unchanged

and cannot be compensated by extra work. To pass the supplementary evaluation

exam, a student must obtain supplementary exam grade that is equal or greater

than 4.0. If a student obtains a passing supplementary exam evaluation grade, the

final grade will be determined using the regular course assessment rules as outlined

above. If a student obtains the supplementary exam grade below 4.0, the

supplementary exam grade becomes the final course grade. Bonus participation

grade is set to zero if a student has to take supplementary evaluation.

Evaluation of the competences:

G.I.2. G.I.3. G.I.8. E.D.8. E.P.2. E.P.17. Profile

Class

Participation X X X X X X

Simulation X X X X X X X

Seminar

preparation

&

participation

X X X X X X X

Quizzes X X X X X

Final exam X X X X X

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6. Bibliography and teaching resources

• Basic bibliography

o Nagle T., Hogan, J., and Zale, J. (2010). “The Strategy and Tactics of

Pricing: A Guide to Growing More Profitably” (5th Ed.) Upper Saddle

River, NJ: Prentice Hall

• Supplementary bibliography

o Baker, R. J. (2006). “Pricing on Purpose: Creating and Capturing

Value.” Hoboken, New Jersey: John Wiley & Sons

o Dolan, R. and Simon H. (1997). “Power Pricing: How Managing Price

Transforms the Bottom Line.” New York, NY: The Free Press [Dolan &

Simon]

o Wilson R. (1997). “Nonlinear Pricing.” New York, NY: Oxford

University

• Teaching resources:

Posted on the course Intranet site:

o Supplementary teaching cases

o Power point slides

o Supplementary articles

Other:

o Supplementary video cases (web link provided when possible)

o Pricing simulation software (web link provided)

Students are required to read all assigned cases and articles. Although the course

will loosely follow Nagle and Holden’s book listed in the bibliography section, there

is no required text book for this course. Above, listed are some of the books that

you might want to refer to during the course or after for further reading on the

topics covered during the class. Nevertheless, you will not need to buy or borrow

any of these books to successfully complete the course.

7. Methodology

The course is composed of a mixture of lectures, tutorials, seminars, simulations

and case discussions. The purpose of the lectures is to present and discuss

theories, concepts, analytical techniques and empirical findings. We will supplement

lectures with tutorials that will allow us to practice the analytical techniques

introduced during the lectures. Furthermore, we will discuss a number of

comprehensive business cases. The goal of the case discussion is to apply the

concepts to the context provided by the case and to make decisions based on both

qualitative and quantitative analysis.

These teaching methods require intensive students’ involvement and therefore it is

important that students read the assigned material prior to each class. As the class

is offered in English, all reading material will be provided in English only. Students

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will be provided with the cases, readings, exercises and power point presentations

either before or after the class via the Intranet site (“Aula”).

Face-to-face

(in the classroom)

Directed

(outside the

classroom)

Independent

(outside the

classroom)

Professor

- Lectures

- Tutorials

- Discussion of cases and

articles

- Prepare classes

- Prepare tutorials

- Prepare cases and

articles

Student

- Participation in

discussions

- Quizzes

- Final exam

- Prepare seminars

- Prepare cases and

articles

- Play simulation

- Class preparation and

readings

- Independent study

- Exam preparation

MY EXPECTATIONS:

Class Preparation: I expect you to come to classes prepared. This includes

reading of the assigned cases, articles, reviewing of the power point slides and

exercises. Your preparation will make a significant part of your marks in

participation and seminar preparation and participation evaluation elements. While

participation during the classes is predominantly voluntary, I also practice “cold

calling”. This means that anyone can be asked to answer any question. Fear of

public speaking will not be accepted as an excuse.

Punctuality and Deadlines: I expect you to be on time for classes. I understand

that due to unforeseen circumstances, you may be occasionally late. If possible,

please let me know in advance if you are going to be late. Being habitually late is a

good way of losing goodwill. Deadlines will always be strictly enforced and no

exceptions of any kind will be made without prior approval.

Attendance: I expect you to attend classes regularly. I understand that due to

unforeseen circumstances, you may be occasionally absent. If possible, please let

me know in advance if you are going to be absent. Being habitually absent and/or

being absent without a valid reason is a good way of losing goodwill. Being absent

does not excuse you from the deadlines. It is your responsibility to ensure that I

receive required material by the given deadline, in the specified format, even if you

are not present. If your attendance is below 80% (more than 4 absences), your

bonus participation mark is set to zero independent of your actual participation.

Class Discipline: It is of utmost importance that you respect your classmates and

the professor by allowing them to work and study in a professional environment.

Private conversations among students during the class will not be tolerated.

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According to ESCI rules, the professor may ask student(s) to leave the classroom.

If you are asked to leave the classroom, your attendance sheet will be marked as

‘expelled’ (counts as two unjustified absences) and you will be asked to meet with

the program coordinator.

Intranet (“Aula”): It is students’ responsibility to ensure timely access to the

Aula.1 International students: please talk to exchange program coordinators at your

school and at ESCI in order to obtain Aula access as soon as possible. Until you

obtain the access please ask one of your local classmates for the access to print or

copy the class materials. Not having the access to the Aula will not be accepted as

an excuse for not doing required course work.

Internet Enabled Devices: Students MUST bring some type of Internet Enabled

Device (e.g., laptop, tablet, or smart phone) to the class when instructed. Class

materials (cases, articles, and PP slides), quizzes and the simulation will be

available exclusively on-line. For the remainder of the class use of any of these

devices is allowed ONLY for the class related activities (e.g., taking notes). If you

are found to use these devices for any other purpose, especially for activities that

distract your classmates, you may be asked to leave the classroom.

YOUR EXPECTATIONS:

Responsiveness and Feedback: You should expect that questions and concerns

that you raise with me would be answered, addressed and responded to. Besides

formal feedback mechanisms, feel free to jot me an e-mail with any question or

feedback. I will try my best to respond as speedily as I possibly can.

If you need to talk to me, you can send me an e-mail requesting to meet during the

office hour or at other time. I will schedule time to sit and talk to you. Although I

am usually available before and after the class for impromptu questions and

consultations, unless you previously request to meet, you need to be prepared for

the possibility that I may ask you to postpone the conversation for another day due

to my previously scheduled obligations.

Punctuality: You should expect me to start and finish classes on time. If we need

extra time to cover materials, or need to organize an extra session, I will only do so

if the majority of the class agrees.

Preparation and Rigor: You should expect the most up-to-date and rigorous

materials to be covered in class.

Guidelines and Expectations: For all assignments, exams and other course

materials, I will state my expectations as clearly as possible.

If either of us finds that the other party has been violating expectations, it is our

duty to inform the other party as promptly, and in as fair a manner as possible.

1 https://aula.esci.upf.edu/login/index.php?lang=en

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8. Scheduling activities

Note: Seminars are starting on Thursday, October 03, 2013

Week

Hours Sessions Date Class

Preparation Time In Class Time After Class Time

Week 0 0

Lecture 0

Monday,

Sep. 23 NA 0 No class 0 NA 0

Seminar

0

Thursday,

Sep. 26 NA 0 No class 0 NA 0

Week 1 5

Lecture 1 Monday,

Sep. 30 NA 0

Presentation 1: Course

introduction

Lecture 1: Costs

2

Review PP slides

Review your

notes

Independent

study

1

Seminar

1

Thursday,

Oct. 03

Read and

prepare the case 0.5

Case 1: Beauregard Textile

Company (HBS 191-058)

- Cost contribution analysis

- Competitive pricing

1

Review your

notes

Independent

study

0.5

Week 2 7.5 Lecture 2 Monday,

Oct. 07

Review PP slides

Read tutorial

questions

1

Lecture 2: CVP Analysis

Tutorial 1

2

Review PP slides

Review your

notes

Independent

study

1

12

Seminar

2

Thursday,

Oct. 10

Read and

prepare the case 2

Case 2: Heinz Ketchup -

Pricing the product line

(UV5142)

- Margins (regular and

promoted manufacturer

margins, regular and

promoted retail margins)

- Consumption-adjusted

margin

- Retail pass-through

1

Review your

notes

Independent

study

0.5

Week 3 7

Lecture 3 Monday,

Oct. 14

Review PP slides

Read tutorial

questions

1

Tutorial 2

2

Review your

notes

Independent

study

1

Seminar

3

Thursday,

Oct. 17

Read and

prepare the case 1.5

Case 3: Metabical - Pricing,

packaging, and demand

forecasting for a new weight-

loss drug (HBS Brief Case

4183)

- Pricing approaches (cost-

based pricing, demand-

oriented pricing,

competitive-oriented

pricing, target return

pricing)

- Product packaging

alternatives, fit with

consumer data, and possible

pricing strategies

1

Review your

notes

Independent

study

0.5

13

- Product pricing and

packaging decisions for a

new product when demand

and consumer behavior are

uncertain

- Forecasting demand of a

new product and estimating

profitability

Week 4 7

Lecture 4 Monday,

Oct. 21

Review PP slides

Read tutorial

questions

1 Tutorial 3 2

Review your

notes

Independent

study

1

Seminar

4

Thursday,

Oct. 24

Read and

prepare the case 1.5

Case 4: Culinarian Cookware:

Pondering price promotion

(HBS Brief Case 4057)

- Risks and opportunities of

price promotion as a

strategic and tactical

marketing tool

- Valuating the financial

impact of a price promotion

using different cost and

sales assumptions

- Developing price promotion

policy consistent with

overall marketing objectives

1

Review your

notes

Independent

study

0.5

Week 5 8.5 Lecture 5 Monday,

Oct. 28

Review PP slides

Read tutorial

questions

1

Lecture 3: Market and

willingness to pay: Demand,

supply, and elasticity

2

Review PP slides

Review your

notes

2

14

Tutorial 4

Independent

study

Familiarize

yourself with the

simulation

Seminar

5

Thursday,

Oct. 31

Read and

prepare the case 2

Case 5: Pepita Disco PPM –

Margins and elasticity

(KEL692)

- Calculating and explaining

changes in net margin

- Calculating price and

volume changes for a given

price elasticity

1

Review your

notes

Independent

study

0.5

Week 6 15

Lecture 6 Monday,

Nov. 04

Prepare for the

quiz

Review PP slides

6

Quiz 1

Lecture 4: Pricing

discrimination

2

Review PP slides

Review your

notes

Independent

study

Play the

simulation

4

Seminar

6

Thursday,

Nov. 07

Read and

prepare the case 1.5

Case 6: The Springfield

Nor’easters: Maximizing

Revenues in the Minor

Leagues (HBS Brief case

2510)

- Design, implementation,

and interpretation of

research surveys

1

Review your

notes

Independent

study

0.5

15

- Using quantitative analysis

methods to develop a

“scaled” pricing strategy for

a perishable service

- Impact on sales of auxiliary

products

Week 7 11

Lecture 7 Monday,

Nov. 11

Review PP slides

Read tutorial

questions

1 Tutorial 5

Lecture 5: Pricing strategies 2

Review PP slides

Review your

notes

Independent

study

Play the

simulation

4

Seminar

7

Thursday,

Nov. 14

Read and

prepare the case 2.5

Case 7: Virgin Mobile USA -

Pricing for the very first time

(HBS 504-028)

- Pricing when entering new

markets

- Pricing and customer

relationship management

(CRM)

1

Review your

notes

Independent

study

0.5

Week 8 8 Lecture 8 Monday,

Nov. 18 Review PP slides 1

Lecture 5: Pricing strategies

Lecture 6: Value and pricing 2

Review PP slides

Review your

notes

Independent

study

Write simulation

report

2

16

Seminar

8

Thursday,

Nov. 21

Read and

prepare the case 1.5

Case 8: Atlantic Computer –

A bundle of pricing options

(HBS Brief Case 2078)

- Value-in-use pricing

1

Review your

notes

Independent

study

0.5

Week 9 8

Lecture 9 Monday,

Nov. 25 Review PP slides 1

Lecture 7: Pricing psychology

Lecture 8: Pricing and

product lifecycle

2

Review PP slides

Review your

notes

Independent

study

1

Seminar

9

Thursday,

Nov. 28

Read and

prepare the case 2.5

Case 9: XM Satellite Radio A

(HBS 504-009)

- Skimming vs. penetrating

pricing

- Pricing complementary

products

- Reacting to competitive

pricing

- Price promotions

1

Review your

notes

Independent

study

0.5

Week

10 11

Lecture

10

Monday,

Dec. 02

Prepare for the

quiz

Review PP slides

Read and

prepare the case

8

Quiz 2

Lecture 9: Auctions

Case 10: Biopure Corporation

(HBS 599-094)

Going to market

- Relative market potential

- Reference pricing

2

Review PP slides

Review your

notes

Independent

study

1

NA NA NA 0 NA 0 NA 0

17

Exam

Week 12 Exam TBD

Prepare for the

final exam

10 Exam 2 NA 0

Total

Hours 100 46.5

31

22.5

Last updated: August 11, 2013

9. Case preparation questions

Below you may find a list of cases with matching preparation questions. Once you read the case use these questions for seminar

preparation that you can do either individually or in groups of three. Unless explicitly indicated before the seminar class you don-t have to

submit anything in writing.

Case 1: Beauregard Textile Company (HBS 191-058)

1. Should BTC announce a price of $3.00 or $4.00 per yard for T-30? Why? Calculate it!

To answer this question you will have to perform relevant cost analysis and demand analysis from the BTC’s and C&P’s perspective.

Please follow the instructions:

a) of the costs identified in the case decide which ones are relevant

b) do the analysis for the following pricing scenarios – prices, production quantity in yards, relevant costs, contribution margin per

yard, and profit (these should be rows in your table)

Cas

e

BTC @

$4.00

BTC @

$3.00

BTC

when

both @

$4.00

C&P @

$3.00

C&P

when

both @

$4.00

C&P

when

both @

$3.00

2. C&P is presumably showing a loss at $3.00. Why it is not increasing price?

3. How can BTC persuade C&P to raise its price without violating the antitrust laws which prohibit collusion on pricing between

competitors?

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Case 2: Heinz Ketchup - Pricing the product line (UV5142)

1. How profitable are the current SKUs in the product line for both Heinz and for retailers? Consider the profitability of both regular and

promotional prices on a dollar and percentage basis.

2. What is the current retail pass-through for Heinz’s 24- and 36-oz. sizes? Do these numbers surprise you? (“Retail pass-

through” is a measure of how the dollars that manufacturers allocate for trade promotions are converted into retail promotional

dollars. This measure is often expressed as a percentage of trade promotional dollars. For example, if a manufacturer reduces

the unit price of an item by $1.00 during a trade promotion, and the retailer then reduces its price by $0.50 during the promotional

period, “retail pass-through” is said to be 50%.)

3. What are the consumption-adjusted margins, both for Heinz and for retailers, of the SKUs currently offered? Consider both regular

and promotional prices. (Consumption-adjusted margins are dollar margins that reflect the fact that different package sizes of the same

product may influence the rate at which customers consume the product. A natural question that arises from this phenomenon is how

product managers should adjust their understanding of product profitability to reflect this possibility. Here is one simple way: Suppose a

manufacturer makes $0.20 on a 10-oz. can of soup and $0.40 on a 20-oz. can of soup. In either case, the manufacturer makes $0.02

per ounce. But in this case, the larger size causes consumers to increase their consumption of soup by 30%, so the consumption-

adjusted margins per ounce of the 20-oz. size can be calculated as ($0.40 × 1.3) ÷ 20 = $0.026, where the term in parentheses adjusts

the dollar margin up to reflect the consumption expansion, and then that adjusted margin is divided by the number of ounces in the

package size. This per-ounce margin is now directly comparable to the per-ounce margin of the 10-oz. size: $0.02. In this case, Heinz is

making more money on the larger package size.)

4. How did consideration of consumption expansion inform your pricing and promotional plan? (A natural thing to do is to consider what

we would need to do in terms of trade dealing to make customer purchases of larger sizes make sense for retailers and make sense

for Heinz. Start by considering the 46-oz. size. What level of trade dealing would be best given your beliefs about retail pass-through

and an analysis of the margins and consumption-adjusted margins for Heinz as well as for retailers? What about the 64-oz.

size?)

5. Are there other sizes we should consider promoting?

6. Are there SKUs we should consider adding or removing from the current ketchup product line?

7. Beyond price, how would you promote this new pricing and product mix strategy to retailers and to consumers?

Case 3: Metabical - Pricing, packaging, and demand forecasting for a new weight-loss drug (HBS Brief Case 4183)

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1. How does Metabical compare to current weight-loss options?

2. What are the pros and cons of the forecasting methods presented by Printup? If you had to estimate demand for

this product, how would you go about it? What would your demand (unit) forecast look like for the first five years?

3. What considerations should be taken into account when making decisions about the package count? What package size

would you recommend?

4. What pricing strategy approaches would you suggest Printup explore? What are the advantages and

disadvantages of each strategy? What price would you recommend?

5. What impact does your pricing decision have on profitability? What is the ROI over the first five years for each of the

pricing strategies identified?

Case 4: Culinarian Cookware: Pondering price promotion (HBS Brief Case 4057)

1. Describe consumer behavior in the cookware market. How is cookware bought? How is it sold? What are the

implications for Culinarian’s marketing strategy?

2. What are Culinarian’s strengths and weaknesses? Why has the company been successful?

3. Was the 2004 promotion profitable? Calculate the profitability using Brown’s logic and then calculate profitability using the

consultant’s model. How would you calculate profitability?

4. Should Culinarian run a 2007 price promotion? If so, what should be the specifics of such a promotion (e.g., product

scope, discount rate, timing, communication)? If a price promotion is not suitable, think about another type of sales

promotion (e.g., manufacturer rebate program, gift with purchase, sweepstakes, product placement, etc.) to recommend.

Case 5: Pepita Disco PPM – Margins and elasticity (KEL692)

1. What would be the absolute and percentage changes in net margin if Pepita Disco were to:

a) Reduce research and development 10%?

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b) Reduce marketing and advertising 10%?

c) Reduce all fixed costs 10%?

d) Reduce all variable costs 10%?

e) Get its salespeople to sell 10% more?

f) Raise its price 10%?

g) Lower its price 10%?

h) Reduce research and development 10% and, as a result, unit sales decreased 5%?

i) Reduce marketing and advertising 10% and, as a result, unit sales decreased 5%?

j) Reduce variable costs per unit 10% and, as a result, unit sales decreased 10%?

k) Motivate its manufacturing staff and salespeople by paying them 10% more and, as a result, unit sales increased 10%?

l) Raise its price 10% with an elasticity of -1.7?

m) Lower its price 10% with an elasticity of -1.7?

2. What would be the absolute and percentage effect on net margin if Yuckles were to:

a) Raise its price 10% with an elasticity of -1.7?

b) Lower its price 10% with an elasticity of -1.7?

Case 6: The Springfield Nor’easters: Maximizing Revenues in the Minor Leagues (HBS Brief case 2510)

1. Evaluate the research survey undertaken by the League Sports Association and by Larry Buckingham, Nor’easters’

marketing director. Consider each step in the process that led to the findings of the survey.

2. What do you consider to be the key findings of the research survey? Comment on what Buckingham learned

about a prospective customer profile, pricing, and single-ticket versus season-ticket packages.

3. What considerations should the Nor’easters take into account in establishing a pricing policy?

4. Design a ticket pricing plan for the Nor’easters’ first season. Be very specific, and be prepared to explain the

assumptions—especially assumptions of cause and effect—that underlie your strategy. Should Buckingham offer

more than one type of season package? How, if at all, should ticket pricing vary by package type? How, if at all, can

Buckingham take advantage of consumer interest in grandstand seating?

5. Using the pricing plan you have designed and given Buckingham’s assumptions about concession sales, will the

team reach breakeven in the first year? If not, what options does Buckingham have to reach his target?

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Case 7: Virgin Mobile USA - Pricing for the very first time (HBS 504-028)

1. Which of the offered pricing options would you chose and why? You need to use numbers from the case in the calculations below in

order to justify your answer.

a) How big is industry’s annual churn rate with and without contract?

b) What are the components of the industry’s acquisition cost and how big they are?

c) How big is industry’s ARPU?

d) Assuming that the industry’s acquisition cost is $740, how long does it take to break even?

e) What is industry customer’s LTV with and without contract assuming that interest rate is 10%? Exhibit 11 gives you the formula

you need to use. Use acquisition cost of $185. Other numbers you need you may find in the case.

2. What would be the industry’s break even time and LTV with and without contract if the hidden costs would be eliminated?

3. What is Virgin’s most likely acquisition cost and customer LTV (assume interest rate 5% and monthly revenue and monthly cost to

serve equal to its competitors)?

4. There is very little loyalty in the cellular industry. What do you think is the source of this dissatisfaction? Why haven’t the big carriers

responded more aggressively to customer dissatisfaction?

5. How do major carriers make money in this industry? Is there a financial logic underlying their pricing strategy?

6. What do you think of Virgin Mobile’s value proposition (the VirginXtras, etc.)?

7. What do you think of its channels and merchandising strategy?

8. Do you agree with Virgin Mobile’s target market selection? What are the risks associated with targeting this segment? Why have the

major carriers been slow to target this segment?

9. What price per minute should Virgin charge? What assumptions you need to make to answer this question?

Case 8: Atlantic Computer – A bundle of pricing options (HBS Brief Case 2078)

1. What price should Jowers charge DayTraderJournal.com for the Atlantic Bundle (i.e., Tronn servers+PESA software tool)?

2. Think broadly about the top-line revenue implications from each of the four alternative pricing strategies. Approximately how much

money over the next three years will be “left on the table” if the firm were to give away the software tool away for free (i.e., status

quo pricing) versus utilizing one of the other pricing approaches?

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3. How is Matzer likely to react to your recommendation?

a) How is Cadena’s sales force likely to react to your recommendation?

b) What can Jowers recommend to get Cadena’s hardware-oriented sales force to understand and sell the value of the

PESA software effectively?

4. How are customers in your target market likely to react to your recommended pricing strategy? What response can be

provided to overcome any objections?

5. How is Ontario Zink’s senior management team likely to react to the Atlantic Bundle?

Case 9: XM Satellite Radio A (HBS 504-009)

1. What is the vale proposition of XM to different consumer segments? Who should be the primary target market for XM?

2. What aspects need to be considered in pricing the radio receiver and subscription fee? What is the optimal price for monthly

subscription? Assume a five-year lifetime for a customer. How would you answer change if the lifetime was longer or shorter?

3. How should the price of the service change over time? Should you price high initially and then decrease it over time? Should you price

low initially and then increase it over time?

4. What aspects need to be considered in allowing advertising to run on XM’s service? How does the fact that the firm could also earn

money on advertising affect the optimal subscription price?

5. What are the implications of the expected launch plans for XM’s rival Sirius?

6. What revenue models should Robert Acker recommend that XM pursue to capture value from satellite radio?

7. Given the business model selected, what should the marketing plan for launching the XM service be? (Communication strategy,

channel design, pricing and incentives).

Case 10: Biopure Corporation (HBS 599-094)

1. What would you do? Give at least three reasons for launching and three for not launching Oxyglobin now.

2. Estimate the size of animal market potential (in units and in dollars). Calculations are expected.

3. Assuming that the Biopure decides to launch the Oxyglobin immediately, what price would you suggest and why? Calculations are

expected.