MARSHALL SCHOOL OF BUSINESS

MKT 536 – PRICING

FALL 2016
Instructor: Professor Shantanu Dutta
Office: HOH 602
Fax: (213) 740 7828
Email: sdutta@marshall.usc.edu
TA: Rini Mukherjee: Contact: rinimukh@usc.edu

Class Time: Monday: 6:30 – 9:30 P.M.

Office Hours: By appointment
Web Site: Please check Blackboard’s course page

COURSE DESCRIPTION AND OBJECTIVES

The course will cover key pricing concepts and pricing strategies.

The objectives for this course are:

1. To familiarize you with the concepts, theory and latest thinking on key pricing issues. This will be
done primarily through lectures, cases, class discussion, assigned readings and guest speakers.

2. To provide you with an opportunity, through extensive case analyses, individual and group
exercises to apply concepts and theory to the solution of pricing problems in marketing settings.

3. Ability to use data and make data driven business decisions is extremely important and valued by
companies. Pricing decisions often rely on analyzing data to provide managerial insights. In this
class a number of assignments are designed to give you a hands on experience. When writing these
reports keep in mind that you are writing for senior management so the focus has to be on
managerial insights from the analysis.

4. To provide you with an opportunity, through the group project, to make an independent assessment
of the pricing strategy or tactics used by a company or industry of your own choosing. This is the
group project that is due end of the semester.

5. To provide you with a forum, both written and oral, in which you may further develop your
business communication skills and receive feedback from your peers and the instructor.

Course Materials

1. Course Reader: MKT 536 Cases and Readings.

2. Required Text: Thomas T. Nagle, John E. Hogan, Joseph Hale, The Strategy and Tactics of
Pricing: A Guide to Growing Profitably, 5th edition, Pearson.

COURSE ORGANIZATION AND FORMAT

Study Groups

Students will need to form study groups early in the semester, this is intended for handing in group
assignments and the course project. Groups should be of four or five members. Study Group
composition is due on September 12.

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Class Format
Lecture/Discussions: These sessions are devoted to the presentation and discussion of theories,
concepts, analytical techniques, and empirical findings useful for pricing strategy and tactics.

The lecture/discussion sessions are often accompanied by assigned readings from the course packet
and the assigned text book. Lectures are not designed to summarize the readings, although important
concepts will be consolidated and extended. The readings are considered an integral part of the
course and students will be held responsible for their content during discussion and in their case
analyses.

Case Discussions. The assigned case studies have been selected to fit the objectives of the course and to
cover a cross section of interesting industries.

All students are expected to come to class ready to discuss each case, regardless of whether or not a
written assignment has been prepared. Students may be called upon at any time (a.k.a. cold called) to
provide specific recommendations and analysis. At a minimum, you should be able to (i) state clearly
what management should do and (ii) provide a specific, logically consistent rationale for your
recommendations, backed by your analysis. Even if you do not contribute to a specific case discussion
by speaking, make sure that you are comfortable with what you would have done in the management
situation described in the case and why.

BASIS FOR GRADING

I believe in allowing many evaluation moments during the semester of different types. Though the
course might become very intensive and demanding, the high number and diversity of evaluation tools
also reduces the impact of any one assignment on the final grade (which in turn reduces the risk for
students). Each student's overall course grade will be based upon the following:

Individual Exam 30%

Group Course Project 25%
Individual Assignment 5%
Four Group Assignments 30%
Class Participation 10%

The overall grade is 45% individual performance (exam, class participation, individual assignment, and
case analyses) and 55% group performance (four group assignments and one group project). Final
grades are curved following school regulations.

Individual Exam: October 24th

Group Course Project: Due November 28th
Individual Assignment: Due August 29th
Four Group Assignments: Due (Sept 19th, Oct 3rd, Oct 17th, Nov 7th)

Exam

There will be one in-class individual exam (October 24th). The exam will cover lectures, case
discussions, and readings. There will be a review session before the exam.

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Course Group Project
The project is intended for your group to study a pricing topic that is of interest to you. For instance,
groups may elect to pursue an in-depth study of a firm’s pricing strategy applying the concepts and
framework covered in class. Groups may also study a specific pricing practice (e.g., dynamic pricing,
pricing software as service, price promotions, quantity discounts, dynamic pricing, etc.) within a firm or
across firms or industries. Data analysis is encouraged but not a requirement.

Groups will be required to submit a written report (not to exceed 3000 words) at the conclusion of the
semester and present their analysis to the class during the last session of the class. Please submit the
names of your team members, topic and a two-page progress report providing a brief outline of the
project and its status due on October 31st. A hard copy of the presentation slides is due before the
project presentation, and the final written report of the project is due at the beginning of class on
November 28th.

When writing the group project report and preparing for the presentation, try to address the following
questions.

 Who is the target customer for the company? What is the value that the company offers to this target
customer(s)? What is their pricing strategy? Is it a value pricing strategy?
 Is their pricing strategy consistent with their other marketing and strategy initiatives? In other words
is there consistency between their value creation and value extraction strategies.
 Can the company deliver better value to this target customer than competition? Does the company
have the resources and capability to create and deliver a value pricing strategy to extract value that
is consistent with their value creation strategy?
 Would you recommend any change in their pricing strategy?
 Is the company communicating the pricing value to its target customers as well as they could?

It is intended that each student will receive the group grade for the group assignment. Therefore, it is
important to divide the work equitably. The grade will be based on the quality of the logic provided to
justify the pricing recommendation/ pricing strategy, the creativity and quality of the presentation, and
how the group handles questions.

Written Assignments: Case Analyses and Exercises

Students must also turn in one individual assignment. This assignment will be part of case analysis.

In addition to the individual assignment, there will be a group project and there will be four written
group assignments.

One of the group assignment is a case analysis. The remaining three involve data analysis: one of them
is analysis of a company data to estimate price elasticity, the second is analyzing google data to
recommend bidding for google Adwords and the third is Amazon pricing of product. Please do not wait
to start on the data assignments the day before – you will not be able to complete it on time! I will
provide further details in class on the nature of these group assignments.

Hard copy versions of all assignments are due at the beginning of class on the day that either the case is
discussed or the assignment is due.

Class Participation

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Grading class participation is necessarily subjective. Some of my criteria for evaluating effective class
participation include:

1. Is the participant prepared? Do comments show evidence of analysis of the case? Do comments
add to our understanding of the situation? Does the participant go beyond simple repetition of case
facts, adding analysis and conclusions? Do comments show an understanding of theories, concepts,
and analytical tools presented in class lectures or reading materials?

2. Is the participant a good listener? Are the points made relevant to the discussion? Are they linked
to the comments of others? Is the participant willing to interact with other class members?

3. Is the participant an effective communicator? Are concepts presented in a concise and convincing
fashion?

Your grade for class participation is not a direct function of the amount of "air time" you take up. In
general, I will evaluate you on how well you respond to my questions and on how effectively you take
into account the comments and analyses of your classmates. In situations where multiple students have
raised their hands to speak, I will try to call on the student with the least cumulative air time to that date.
This procedure, carried out over the course of the semester, should help to ensure that everyone who is
well prepared and wants to contribute will have the opportunity to do so.

Absences from class may result in a failing grade for class participation. Attendance will be
mandatory for all days of project presentation and questions/comments during presentations are
highly valued.

Students with Disabilities: Any student requesting academic accommodations based on a disability is
required to register with Disability Services and Programs (DSP). A letter of verification for approved
accommodations can be obtained from DSP.

Academic Conduct: USC seeks to maintain an optimal learning environment. General principles of
academic honesty include the concept of respect for the intellectual property of others, the expectation
that individual work will be submitted unless otherwise allowed by an instructor, and the obligations
both to protect one’s own academic work from misuse by others as well as to avoid using another’s
work as one’s own. Plagiarism – presenting someone else’s ideas as your own, either verbatim or recast
in your own words – is a serious academic offense with serious consequences. Please familiarize
yourself with the discussion of plagiarism in SCampus in Section 11, Behavior Violating University
Standards https://scampus.usc.edu/1100-behavior-violating-university-standards-and-appropriate-
sanctions. Other forms of academic dishonesty are equally unacceptable. See additional information in
SCampus and university policies on scientific misconduct, http://policy.usc.edu/scientific-misconduct.
Students will be referred to the Office of Student Judicial Affairs and Community Standards for further
review, should there be any suspicion of academic dishonesty. The Review process can be found at:
http://www.usc.edu/student-affairs/SJACS/ . Failure to adhere to the academic conduct standards set
forth by these guidelines and our programs will not be tolerated by the USC Marshall community and
can lead to dismissal.

No recording and copyright notice: It is a violation of USC’s Academic Integrity Policies to share
course materials with others without permission from the instructor. No student may record any
lecture, class discussion or meeting with me without my prior express written permission. The word
“record” or the act of recording includes, but is not limited to, any and all means by which sound or
visual images can be stored, duplicated or retransmitted whether by an electro-mechanical, analog,
digital, wire, electronic or other device or any other means of signal encoding. I reserve all rights,
including copyright, to my lectures, course syllabi and related materials, including summaries,
PowerPoints, prior exams, answer keys, and all supplementary course materials available to the students

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enrolled in my class whether posted on Blackboard or otherwise. They may not be reproduced,
distributed, copied, or disseminated in any media or in any form, including but not limited to all course
note-sharing websites. Exceptions are made for students who have made prior arrangements with DSP
and me.

SPECIAL NOTES

1. Students are required to check the course Web page on Blackboard.

2. The only email I will be using is: sdutta@marshall.usc.edu.

COMPLETE CLASS SCHEDULE AND ASSIGNMENTS

Week 1-August 22th

TOPIC: Course Introduction

TOPIC: Key Principles in Pricing: Price Strategy Framework & Value Analysis

LECTURE & DISCUSSION:

A brief introductory lecture will provide a course overview and coverage of administrative matters. We
will then begin our discussion of pricing strategy with the key principles. We will use the NY Times
paywall case to highlight the pricing strategy framework. We will also discuss pricing at value. We will
also introduce the customer value-in-use (also known as economic value to the customer or EVC) as a
means to guide pricing strategy, particularly for new industrial products.

CASE: The NY Times paywall case will high light the value pricing challenges that many companies
are dealing with.

New York Times Paywall Case: When reading and preparing the case, please address the following
questions.

o Who is the target customer for pay wall? What is the value that paywall offers to their
target customer(s)?
o Can NYT deliver better value to this target customer than competition? Why or why
not?
o How can NYT use digital media to create new value and extract that value from their
target customers?
o What pricing strategy do you recommend for NYT paywall? How should they price
their digital content?

READINGS:

1. Nagle et al. Chapters 1 -2.

2. New Times Paywall Case.

WEEK 2 –August 29

TOPIC: Estimating Price elasticity

We will also discuss quantitative methods for assessing price response and estimating elasticities. We
will turn our attention on how to determine price elasticities from historical data on actual sales. We
will discuss how to use regression analysis and illustrate the approach with data for consumer products.
Our discussion will touch on the growing use of individual-level transaction data and how to estimate

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price elasticity with this type of historical information. Both own and cross price elasticity. This
discussion will form the basis for the class group assignment 1 which is due September 19th. The data
for the first group assignment will be posted on Blackboard.

Install JMP on your laptops. The three group assignments that will require analysis of company data,
require use of this software. Download details will be provided on Blackboard.

TOPIC: Medicines Company Case

ASSIGNMENT: Individual Assignment 1, is based on the Medicines case, it is due at the beginning of
class. Provide answers to the case questions below.

CASE DISCUSSION: The Medicines Company

Please read the “The Medicines Company” case and answer the questions below. This individual
assignment is due at the beginning of the second class. Please state clearly your computations and your
assumptions and keep a copy to refer to during our discussion. Please post your assignment on
blackboard. If you are having a problem, then please email them to the TA.

1. What is the economic value or value-in-use of Angiomax to a hospital? Be specific in your

analysis and assumptions. Are they different across different customer segments?

2. Evaluate hospitals’ likely “willingness to pay.” If it is different from the value-in-use analysis
above, then provide a rationale for their “willingness to pay”.
3. What price would you recommend the company charge for Angiomax at launch?

READINGS:

1. The Medicines Company Case

2. Nagle et. al Chapter 12

WEEK 3-September 12

LECTURE AND DISCUSSION: Cost, Break-even analysis and Pricing: The topics will include: (1)
cost-plus pricing and (2) iso-profit analysis and the elasticity-markup relation.

CASE: We will use the Southwest Airlines case to build insights on how companies can develop a
competitive advantage to compete on price. How Southwest developed its value creation and value
capturing capabilities.

CASE DISCUSSION: Southwest Airlines

o Who is the target customer for Southwest? What is the value that Southwest offers to
their target customer(s)?
o What are the capabilities of Southwest airlines that enable them to compete on price?
o Can Southwest deliver better value to this target customer than competition? Why or
why not?

READINGS:

1. Case: Southwest Airlines

2. Dutta, et al.: Pricing as a Capability; MIT Sloan Reprint 433

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3. Nagle et al. Chapters 8, 9 and 10.

WEEK 4-September 19 (Guest Speaker: James C. Guszcza- Chief Data Scientist, Deloitte
Consulting)

TOPIC: Big Data and Innovation and Pricing-Guest Speaker from Deloitte Consulting

TOPIC: Improving Returns from Search Engine Marketing Using Google AdWords

We will discuss how companies can improve their returns from sponsored search by using data
provided by Google. The material is based on the note posted on Blackboard. This discussion will form
the basis for the class group assignment 3 which is due October 17th . This will also provide the
background for the JMP class on September 26th that will be led by Professor Ansari. The data on
sponsored Ad will be posted on Blackboard.

READINGS:

1. The Personalized and the Personal: Socially Responsible Innovation Through Big Data, James Guszcza,
David Schweidel and Shantanu Dutta, (Deloitte Review 2014).
2. Case: Improving Returns from Search Engine Marketing Using Google AdWords (Shijie Lu,
Shantanu Dutta and Arif Ansari)

[ASSIGNMENT: Group Assignment One Due: Estimating Own and Cross Price Elasticity

WEEK 5-September 26
TOPIC: JMP to Analyze Marketing Data

LECTURE AND DISCUSSION: In this session Professor Ansari and I will cover the Google Adwords
assignment using software package JMP to discuss different models that will be required for the group
marketing assignment.

The Google Adwords data for the assignments will be posted on blackboard.

READING:
1. Case: Improving Returns from Search Engine Marketing Using Google AdWords (Shijie Lu,
Shantanu Dutta and Arif Ansari)

WEEK 6-October 3

[Guest Speaker: Georg Muller Principal Deloitte Consulting and one of the authors of the next
edition of the Nagle et. al Pricing textbook]

ASSIGNMENT: Group assignment 2 due. Please answer the Altius Golf case questions below for the
group assignment.

TOPIC: The Guest speaker will share his experiences on pricing through case examples he has worked.

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 Altius Case discussion during second half will highlight: Managing Price Competition

LECTURE & DISCUSSION: In this session we will discuss managing price competition using the
Altius case. We will also discuss current issues related to pricing on the Internet.

CASE DISCUSSION: Altius Golf

Altius Golf was the clear market leader in the golf ball market, its share of units sold had declined from
nearly 40% to 35%. Furthermore, the overall gold industry had been experiencing a long-term decline of
interest in the sport and had not yet fully recovered from the drop in sales after the financial crisis. The
U.S. Golf Association (USGA) and some equipment manufacturers believed that ensuring a strong
future for golf required making the sport more affordable and accessible. Altius’s own research
suggested that its market leadership was based on a “loyalist” customer segment-serious golfers who
accepted a high price point-that was unlikely to grow. Altius believed that the Elevate line would be an
entry-point brand to attract new or less serious golfers and would help it regain lost share in the “off-
course” retail channel.

Case Assignment Questions:

1. Why has Altius Golf lost market share? What will happen if Altius maintains the status quo?

2. What should Altius’s objectives be? What trade-offs must it manage?

3. Analyze the economics of Altius’s overall golf ball business compared to its competitors and for
the three proposed Altius product lines. What are the implications of this for the advisability of
introducing Elevate?
A. What is Altius’s and its competitors’ 2012 revenue and gross profit?
B. What is the value of a point of market share for Altius?
C. What are the implications for Elevate, considering its unit contribution and gross margins
compared to Victor TX and Victor?

4. Should Altius implement the Elevate strategy?

A. If so, what are the risks to the brand and how can they be managed? What sales result would
you expect for each item in the line if Elevate is introduced?
B. If not, what are the alternatives, assuming the board expects growth in the profit contribution
from the golf ball line? How would these restore Altius’s market and financial position, and what are
their advantages and disadvantages?

READINGS:

1. Nagle et al., Chapters 3, 7.

2. Altius Golf Case
3. How to Fight A Price War (HBR R00208) March-April 2000. Akshay R. Rao, Mark E.
Bergen and Scott Davis

4. Nagle et. al Chapters 8 & 11: Competition

WEEK 7 October 10

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TOPIC: Psychology and Price Perception: We will discuss how consumer perceptions of price are
formed. How consumer perceptions of price fairness are formed.

Digital Marketing and Pricing

READINGS:

1. Nagle et al., Chapter 12

2. Case: Netflix Public Relations Flop.
3. Note on Behavioral Pricing John Gourville (HBS: 9-599-114)
4. Nagle et al. Chapter 4
5. Versioning: The Smart Way to Sell Information Carl Shapiro and Hal R. Varian (HBR 4789;
1998)

WEEK 8-October 17

Google Adwords assignment is Due Before Class

TOPIC: Pricing and the Internet

Review of the Exam

LECTURE/DISCUSSION: In this session we will discuss current issues related to pricing on the
Internet.

This session will also review concepts and topics covered in preparation for the exam.

CASE: NetFlix The Public Relations Flop

Case: When reading and preparing for the Netflix case please address the following questions.

1. From a consumer perspective, identify why a Netflix subscriber would be upset with the
recently announced changes?
2. What value did Netflix previously add for customers in the entertainment rental industry
before the announced changes?
3. Who are the fifteen stakeholders that Netflix management needs to consider in developing a
communication response? Identify what is important to each of them.
4. How should Netflix handle the negative situation with the “@Qwikster” Twitter handle?
5. Moving forward, what further business actions might Netflix management consider?

READING:
1. Netflix The Public Relations Flop
2. Versioning: The Smart Way to Sell Information Carl Shapiro and Hal R. Varian (HBR 4789; 1998)
3. The Personalized and the Personal: Socially Responsible Innovation Through Big Data, James
Guszcza, David Schweidel and Shantanu Dutta, (Deloitte Review 2014).
4. Case: Improving Returns from Search Engine Marketing Using Google AdWords (Shijie Lu,
Shantanu Dutta and Arif Ansari)

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WEEK 9-October 24 (In Class Exam)

In Class Individual Exam

TOPIC: The second half of the class. The TA will provide an overview of the group assignment four:
Analyzing Demand and Pricing for Samsung Tablet. The TA will go over the JMP code for
the assignment.

WEEK 10- October 31

ASSIGNMENT: Each Team will discuss their idea for the group project that is due end of the semester.
A two-page summary of the project is due before the class.

LECTURE & DISCUSSION: This session will discuss key concepts in price negotiation. We will also
discuss the framework for analyzing the Group 4 assignment: Understanding Demand and Pricing For
Samsung Tablet from Amazon data.

READING:

1. Pricing Analytics Case: Samsung Tablet: Analyzing Data of Customer Behavior To Improve Pricing and
Product Marketing Strategy (Rini Mukherjee, Shantanu Dutta and Arif Ansari)
2. Nagle and Holden, Chapter 5.
3. Horacio Falcao: Chapter 12: Value Claiming Textbook: Value Negotiation How to Finally Get The
Win-win Right” Publisher: Pearson

WEEK 11- November 7

ASSIGNMENT: Group Assignment 4 due.

TOPIC: Pricing of Services: Business Models

LECTURE and DISCUSSION:

TOPIC: Amazon Digital Distribution And Pricing To Businesses: Amazon Video

In this session we will discuss the marketing strategy that Amazon is following and how it impacts
businesses that depend on the Amazon platform to reach customers. We will also discuss other service
business models.

READING:
1. Pricing of Software As A Service
2. Pricing Analytics Case: Samsung Tablet: Analyzing Data of Customer Behavior To Improve Pricing
and Product Marketing Strategy (Rini Mukherjee, Shantanu Dutta and Arif Ansari)

WEEK 12-November 14

TOPIC: Pricing challenges across different markets. The Uber example will highlight the key pricing
issues that companies face as they introduce products in different countries including emerging markets.

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The Kraft case will highlight the challenges of multinational companies when they enter other markets.
When multinational companies enter emerging markets, they often fail to adapt to the market so that
customers perceive benefits from the product or service. We will use Kraft’s entry into China with Oreo
biscuit’s to highlight the key marketing strategy issues. Oreo’s initial entry into China was not a success
till they changed their marketing strategy.

READINGS:

1. Case: The Oreo in China Time to Get It Right or Get To Out SMU-12-0020
2. The Battle for China’s Good Enough Market HBR RO709E
3. Kraft Changed its Biscuits for China (Financial Times June 2013)
4. Uber Going Global: Look at articles about Uber’s global marketing and pricing strategy

Case Preparation Questions for Class Discussion:

1. What are the key reasons for the lack of success of Oreo in China?
2. Is there a large market opportunity for Oreo in China? Is it worthwhile to pursue it?
3. What should Warren do?
4. Develop a plan to revive Oreo in China.

WEEK 13 –November 21

TOPIC: Pricing of Services and Products with Social Mission

READINGS:
1. Case: HBS Case: Better World Books (9-511-057)

When reading and preparing the case please address the following questions.

1. What is Better World Books’ value proposition? How compelling is it? How valuable is Better
World Books’ social mission to its customers – both donors and buyers? How do you know?
2. Why isn’t Better World Books realizing a price premium for its social mission? What should
they do to achieve this goal? Are they communicating their value to their target customers? If
not how do you think they can better communicate their value ?
3. How does Amazon’s pricing impact Better World Books’ pricing strategy? How does Better
World Books’ choice of distribution channels impact its pricing strategy?
4. Which market segment(s) should Better World Books target as customers for purchasing its
books? Which segment(s) should Better World Books target as donors for its book inventory?
How does the price sensitivity of the market segment vary?
5. How can Better World Books better “complete the full circle” with its constituents?
6. What should the relative role of new and used books be in Better World Books’ business
strategy?
7. Should Better World Books adjust its model for providing funds to its non-profit partners? What
are the ramifications of such changes?

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 8. How does Better World Books’ “not just for profit” mission and business model both enable
and constrain its potential? Looking ahead to the future, should Better World Books retain its
status as a for-profit social venture?

Summary and Overview

WEEK 14- November 28

TOPIC: Project presentation & Summary and Overview

*Attendance will be mandatory for the Project presentation day.

ASSIGNMENT: Group Project report due at the beginning of class.

WEEK 15- December 5

TOPIC: Project presentation

*Attendance will be mandatory for the Project presentation day.

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