NATIONAL UNIVERSITY OF SINGAPORE NUS Business School Department of Marketing MKT4413: Pricing Models and Strategy LECTURER: Dr. Lim Wei Shi (weishi@nus.edu.sg) Associate Professor OFFICE: 8‐13 SESSION: Term II 2009/2010 COURSE OBJECTIVES: This short course is designed to introduce you to the concepts, techniques, and latest thinking on pricing issues, with an emphasis on ways in which you can help a firm to improve its pricing. The overall emphasis is not about the theory but the practice of pricing. We will take a close look at how firms go about setting their prices and how one may improve firms’ current practices to increase their profitability. Summary of Course Content The course covers the fundamental analytical tools, theories and conceptual frameworks needed to formulate pricing strategies. Pricing decisions are affected by economic, marketing, organizational, and psychological factors. Each of these presents an interesting aspect of the pricing problem. The course revolves around understanding how one may go about formulating pricing strategies while keeping in mind these factors. This course is less about the mechanics of setting a price – it is more about understanding the process of formulating pricing strategies and making pricing decisions. There is a substantial amount of quantitative analysis. As this is the second time this module is offered, the material is still under development. One should therefore expect frequent changes and updates to the course outline. The course will use a combination of lectures and case discussions. Assignments will be in the form of readings from the text and supplementary readings, case preparation for class discussion and case write‐ups. PREREQUISITE All students must have taken MKT2401 Asian Markets and Marketing Management. 1
REFERENCES The basic textbook used in this course is The Strategy and Tactics of Pricing by T. Nagle and R. Holden (2006), 4th edition. ASSESSMENT METHODS Case Analysis ‐ 40% (20% + 20%) Class Participation ‐ 10% Quizzes ‐ 50% (2 X 25%) CASE ANALYSIS (20% + 20%): Students have to do a case analysis on a group basis. The case analysis constitutes 20% of the total assessment. The deadline of the written report (to be submitted by the group responsible and is restricted to no more than FIVE pages) is the Monday before the class by 1700 hours. The group will submit a hard copy of the report to my office as well as upload a soft copy onto the IVLE. Each group should also prepare to do a presentation on the case that they are responsible for. Each group is also required to submit questions regarding the case analyses/reports done by other groups latest by Friday 0900 hours. These questions are also to be uploaded onto the workbin at IVLE. All these questions constitute another 20% of the total assessment. CLASS PARTICIPATION (10%): This course will be taught in a seminar format, with interaction and discussion among the students. Participation marks will be given based on each student’s contribution in class. Specifically, students are expected to be committed to the “4 Ps” of the student involvement in case discussions – Preparation, Presence, Promptness, Participation. Students in this course are expected to accept and maintain ownership of the case discussions. QUIZZES (2 X 25%): Two quizzes are scheduled on Week 6 (26 February 2010) and Week 13 (16 April 2010) respectively. They constitute a total of 50% of the overall assessment. All submissions must adhere strictly to the deadline. Marks for any submissions made after the deadline will be discounted based on a daily discount rate of 10%. 2
Detailed Course Outline Week 1 (15 January 2010) Introduction: Pricing Strategies – the Good, the Bad and the Ugly Readings: 1. Nagle Chapters 1, 2 2. Luecke, Richard. “Pricing it right: strategies and pitfalls.” In Marketer’s Toolkit: The 10 strategies you need to succeed. Boston, MA: HBSP, 2006. Week 2 (22 January 2010) Maximizing Economic Value to the Customer Readings: 1. Nagle Chapter 3 2. Dolan, Robert J. “Pricing a Value‐Based Approach.” HBS Case. Boston, MA: HBSP. Case: 9‐500‐071. December 21, 1999. Case 1 – Cumberland Metal Industries Case Questions:  What price would you charge for the Cumberland curled metal cushion pad and why?  What factors should you include in deciding this price?  What do you think is an appropriate distribution system to take the pad to market? Week 3 (29 January 2010) The Role of Cost in Pricing Decision Readings: 1. Nagle Chapter 8 Case 2: Catawba Industrial Company Case Questions:  Is the company correct in its practice of not manufacturing standard model compressors on Sundays because of the accounting loss of each unit? 3
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If Marge McPhee decides to manufacture ten lightweight compressors each weak and to sell them at the price of $8,000, how much better or worse off financially would Catawba be? 
What weekly production plan for standard and light weight compressors would result in the highest financial return for Catawba? Week 4 (5 February 2010) The Basic Theory of Segmentation I Readings: Nagle Chapters 3 (45‐50), 4 (60‐78), 7 Case 3 – Virgin Mobile USA Case Questions:  Given Virgin Mobile’s targeted market (14 to 24‐year olds), how should it structure its pricing? The case lays out three pricing options. Which option would you choose and why?  How confident are you that the plan you have designed will be profitable? Provide evidence of the financial viability of your pricing strategy.  The cellular industry is notorious for high customer dissatisfaction. Despite the existence of service contracts, the big carriers churn roughly 24% of their customers each year. Clearly, there is very little loyalty. What is the source of all of this dissatisfaction? How have the various pricing variables (contracts, pricing buckets, hidden fees, off‐peak hours, etc.) affected the customer experience? Why haven’t the big carriers responded more aggressively to customer dissatisfaction? Week 5 (12 February 2010) The Basic Theory of Segmentation II Readings: Nagle Chapters 3 (45‐50), 4 (60‐78), 7 Case 4 – Cambridge Software Corporation Case Questions:  If Cambridge Software Corporation were to offer only one version of Modeler, which version should it offer? At what price?  How many different versions of the Modeler should CSC offer? At what price? 4
Mid term Break (15 February 2010 – 21 February 2010) Week 6 (26 February 2010) Quiz I Week 7 (5 March 2010) How to Price to Best your Competitors – Part I? Readings: 1. Nagle Chapter 10 2. Rao, Ashkay R., Mark E. Bergen, and Scott Davis. “How to fight a price war.” HBR, March 1, 2000. Case 5 – American Airlines, Inc Case Questions:  What are American’s major strategic and tactical decisions? What quantitative tools might the airline employ to support these decisions?  Refer to the discussion of the Chicago‐West Coast pricing decision in the case. Should American counter Continental’s $159 fare with a relatively‐unrestricted discount fare on the nonstop Chicago‐West Coast flights?  Refer to the discussion of the New York‐San Juan pricing decision in the case. What additional information should Doug Santoni collect to decide on a response to Eastern’s pricing initiative?  Consider the example on Page 5 of the case. An aircraft has 100 seats, and there are two types of fares: full ($499) and discount ($99). While there is unlimited demand for the discount fares, demand for full fares is estimated to be anywhere between 10 and 30. How many seats should be protected for full‐fare passengers? Week 8 (12 March 2010) How to Price to Best your Competitors – Part II? Readings: 1. Besanko, Dranove & Shanley, Economics of Strategy, Chapter 10. Case 6: Beauregard Textile Company Case Questions: 5
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Should Beauregard Textile Company announce a price of $3.00 or $4.00 per yard for Triaxx‐30? Week 9 (19 March 2010) How to Price to Best your Competitors – Part III? Readings: 1. Zhang Z. J. and Zhoou D. (2009) The art of price war: A perspective from China. 2. Heil O. and Helsen K. (2001) “Towards an understanding of price wars: Their nature and how they erupt”, International Journal of Research in Marketing, vol. 18, 83‐98. Case 7 – Keurig Case Questions:  How attractive is the Keurig system to each of the following participants in the Office Coffee market? o The typical Office Coffee Distributor o The Coffee Roaster (use Green Mountain as typical) o Keurig o A typical Office Manager o The Coffee Drinking Employee  What advice do you have for Nick Lazaris concerning his dealings with MTS, the current vendor for the packaging line, and the other potential vendors? Be specific: What price goal would you have for the negotiation and what would your negotiating strategy be?  What actions should Keurig take to penetrate the Office Coffee Service market? Be specific: How should they price the brewing machine to the OCS distributors? How rapidly should they plan to grow and what should they do to avoid constraints on this growth plan? Week 10 (26 March 2010) Advanced Topics: Auction Theory I Readings: To be assigned Case 8 – Tweeter Case Questions: 6
 Should Tweeter continue to offer the price matching guarantee? And why? Week 11 (2 April 2010) – Good Friday Week 12 (9 April 2010) Advanced Topics: Auction Theory II Readings: To be assigned Week 13 (16 April 2010) Quiz II 23 November 2009 7