PRICING STRATEGY

In this Specialization, we show you techniques to increase price realization and maximize profits.
Learn from Boston Consulting Group's global pricing experts and University of Virginia Darden
School of Business faculty, who share the frameworks, tips and tools we use in our business and
research environments.

We will look at pricing through BCG's proprietary and time-tested three “lenses”—cost and
economics, customer value, and competition—to build your understanding of the strategic power
of pricing. You’ll leave the Specialization with a portfolio-building presentation that demonstrates
your ability to price strategically.

Utilizing the concepts, tools and techniques taught in each course—from basic techniques of
economics to knowledge of customer segments, willingness to pay, and customer decision
making to analysis of market prices, share, and industry dynamics—you will practice setting profit
maximizing prices to improve price realization in a variety of real-world scenarios.

COST AND ECONOMICS IN PRICING STRATEGY

How much should you charge for your products and services? Traditionally, businesses have
answered this question based on the cost to produce or provide their goods and services. This
course shows you the economic factors behind pricing based on cost and the pros and cons of a
cost-based pricing approach.

Developed at the Darden School of Business at the University of Virginia, and led by top-ranked
Darden faculty and Boston Consulting Group global pricing experts, the course provides the
practical and research-based models and methods you need to set prices that maximize your
profits.

Pricing Fundamentals

Welcome to the first week of Cost and Economics in Pricing Strategy course! We'll begin our
study of pricing by looking at some basic economic principles relevant to pricing, such as cost and
cost variations and what that implies about the supply curve. Then we'll take a closer look at one
pricing mechanism: auctions. You will never look at eBay the same!

Price Discrimination

This week we'll tackle three areas that will help you improve the effectiveness of your pricing
strategy. First, we'll take a look at price discrimination and how to set prices for different customer
segments to maximize profits. You'll learn about the price and margin waterfall and how creating
one for your business can help identify "leaks" that you can prevent.

Then we'll examine volume-based pricing, or pricing differently for different volumes to encourage
consumption, of a consumer product: Heinz Ketchup. When we're done, you'll be very aware of
the impact package size has on your own consumption--and how to use this knowledge to price
products.

Common Pricing Metrics: Elasticities

This week we'll dive deep into the world of demand modeling. We'll start with a brief overview of
regressions--what they are, why they're useful and how to calculate them using Excel. Then you'll
get a chance to use regressions as you learn about three types of elasticities--relationships
between demand and price or other factors--and the drivers of these elasticities.

We'll finish with a price optimization based on demand models--a truly useful method for pricing
based on economic factors. By the end of this week, you'll be able to impress your colleagues and
friends with your knowledge of mathematical models and how to use them to inform your pricing
strategy!

Channel and Direct-to-Consumer Pricing

Welcome to our final week together in this course! We'll finish by discussing key concepts related
to channel pricing--or pricing through the supply chain. You'll learn about double-marginalization,
time value of money, and customer lifetime value (CLV)--not only what they are, but how to use
them to improve pricing decisions.

Then we'll show you three different pricing techniques that you can use to improve direct-to-
consumer pricing. You'll finish with a real-world case analysis of Retail Relay, an online grocery
ordering and delivery service. You'll be able to recommend a viable approach to their pricing
dilemma based on knowledge from this course. Enjoy!

CUSTOMER VALUE IN PRICING STRATEGY

The traditional approach to pricing based on costs works to pay the bills, but it leaves revenue on
the table. You can, in fact, price your products in a way that increases sales--if you know what
your customers are willing to pay and can leverage psychology to create better deal and discount
plans. In this course, we'll show you how to price a product based on how your customers value it
and the psychology behind their purchase decisions.
Developed at the Darden School of Business at the University of Virginia, and led by top-ranked
Darden faculty and Boston Consulting Group global pricing experts, this course provides an in-
depth understanding of value-based pricing and how to use it to capture more revenue.

Understanding Customer Value

Welcome to Week 1! We kick off the week with an overview of the course so that you'll know what
to expect with an optional review of the specialization and three pricing lenses (watch these if you
want a refresher). Then we'll dive into the content! This week, you'll learn about customer value--
what it is and its relevance to pricing.

You'll see how consumers make decisions--and why knowing consumers' willingness to pay is so
important when setting a product's price. Next, we'll take a look at customer value in developing
economies and how and why companies succeed (or not!) with value-based pricing in these
markets. You'll finish the week with a solid understanding of "customer value" and how that
impacts pricing strategy.

Implementing Value-based Pricing

Now that you have an understanding of customer value, let's dive into value-based pricing in
greater depth. This week, we'll show you how to price to the demand curve using three tools: the
price piano, the price ladder, and incentive curves.

We'll take a look at customer value drivers in a B2B context and walk through a process to price a
new product. Then Ron and Thomas will show you how price elasticity plays into value-based
pricing. Implementing value-based pricing requires detailed analysis. Let's get started!

Measuring Customer Preferences

As you learned in Week 1, understanding customer willingness to pay (WTP) is critical for
effective pricing. This week, we'll show you two ways to measure willingness to pay: surveys and
conjoint analysis. You'll see how one company, Adios Junk Mail, used surveys to better
understand WTP.

Conjoint is a terrific tool, and we'll walk you through how it's used to determine product
preferences and prices. You'll finish the week with a solid understanding of how to measure
customer preferences and use this information in your pricing strategy.

Considering the Human Nature of Customers

Last week you considered pricing using a rational utility model. But humans are not always
rational beings--and your pricing strategy needs to consider other behavioral drivers. We'll look at
the psychology behind consumer purchase decisions and the mental accounting that impacts
those decisions.

Next we'll consider consumer price perceptions and ways to frame prices and create better deals
and discount plans that work for both the consumer and the seller. Then, we'll take a look at two
real-world cases, the Portland Trailblazers and Fidelity Investments so that you can practice using
tools from throughout the course in a real-world case. You'll finish the course with fresh insights
into value-based pricing and its applications.

MARKET AND COMPETITION IN PRICING STRATEGY

If you haven’t considered what the competition is charging, you may not be maximizing your
revenue. Spend time analyzing the market and you can influence price and improve margins. In
this course, we'll show you how to implement competitive pricing and avoid common legal pitfalls
of market-based pricing.

You will also learn how to predict, influence and respond to competitors’ pricing moves.
Developed at the Darden School of Business at the University of Virginia, and led by top-ranked
Darden faculty and Boston Consulting Group global pricing experts, this course provides an in-
depth understanding of market-based pricing and how to use it to capture more revenue.

Understanding the Playing Field

Welcome! Competitive pricing is all about setting prices based on what companies with similar
products and services charge. To use this approach effectively, you have to understand the
playing field. In particular, you need to know general legal parameters that guide competition in
the market place.

In this module, you'll get basic background knowledge so that you can use market knowledge in
your pricing strategy and still stay on the right side of antitrust law. Then Thomas will join you to
introduce the competitive pricing framework, which you can use to assess pricing options,
anticipate your competitors' pricing strategy, and determine whether to price to competition or to
elasticity.

Predicting Competitive Reactions

Now that you know more about the playing field, let's take a look at how to predict competitive
reactions. Thomas will show you value mapping, a tool that yields valuable insights into the value-
price relationship relative to your competitors, and how to apply it in a real-world example. Then
you'll dive into game theory, a field with many applications. Here, you'll use it anticipate and
respond to price competition so that you can cooperate and compete without colluding.

Disrupting Markets and Engaging in "Coopetition"

Disrupting competition and engaging in "coopetition" can benefit all players in the market--but not
all the time. Using knowledge from game theory and pricing models can help you understand
when this strategy can be beneficial.

Thomas will introduce two competitor pricing models--price moves and price wars--and show you
how to use these models to predict and respond to competitors. Then Ron will show you various
strategies to optimize prices through the four phases of the product life cycle, from disruptive to
declining products. Then you will use the SmartOps case to apply your knowledge of "coopetition"
to analyze a real-world pricing decision.

Implementing Price Discrimination in Competitive Markets

Price discrimination -- selling the same product to different market segments at different prices --
allows companies to optimize profits, even in competitive markets. It begins with customer
segmentation, and Ron will show you practical segmentation strategies for both B2B and B2C
contexts. Then you'll learn how to apply the Weber-Fechner Law, which sounds complicated, but
is actually quite intuitive and useful when pricing quality-differentiated product lines. Finally, you'll
learn the basics of bundle pricing and how to create economically sound bundles.

PRICING STRATEGY IN PRACTICE

In this project-centered course, Darden's Ron Wilcox and BCG's Thomas Kohler will walk you
through a real-world case, from problem statement to detailed analyses. You'll use all three lenses
(cost, customer value, and competition) to recommend an optimal price—and then adjust to
market disruptions.

Utilizing the concepts, tools and techniques taught in previous Specialization courses—from basic
techniques of economics to knowledge of customer segments, willingness to pay, and customer
decision making to analysis of market prices, share, and industry dynamics—you will practice
setting profit maximizing prices to improve price realization. You'll finish the course with a
portfolio-building project that demonstrates your pricing prowess from this Darden School of
Business at the University of Virginia and Boston Consulting Group course.
Retail Market Dynamics

Welcome to the course! We'll kick off the week with an overview of the project, which centers
around Philips introduction of an eco-friendly light bulb. Once you've read the case, Thomas and
Ron will guide you as you apply the cost lens to analyze the economics of the LED light bulb
Philips has introduced to the market.

After you've analyzed the economics of the case, Ron and Thomas will debrief to make sure you
are on the right track. You will also hear from BCG pricing experts, who will share their lessons
and tips gleaned from years of helping clients in multiple industries optimize their prices and
improve the bottom line.

Customer Value and Conjoint Analysis

This week, we will dig deeper into customer value using conjoint analysis to determine the price
sensitivity of consumers and businesses. Thomas and Ron will show you how to graph the
conjoint data to easily compare these two markets--and you'll do additional analysis of the conjoint
data to learn more about what consumers value. Using your analysis, you'll hone your pricing
recommendation.

Price Recommendation

This week, you will pull everything together to make a pricing recommendation for Philips. You will
recommend which markets they should serve (B2B, B2C, or both) and how they should price their
LED bulbs. You'll learn how to lay out your thought process and rationale in a tightly edited slide
deck that presents your recommendations in a compelling way.

Curveball

This week, you will respond to new developments in the LED light bulb market: a new competitor
and new regulations. Just like in real life, you'll need to adjust your strategy when the competitive
landscape changes and new regulations emerge and reconsider the retail marketplace and
reevaluate the B2B market.

You'll also head out into your own "real world" and do some detective work about the LED bulb
market in your area and relate those finding to the case. We'll finish the course with BCG pricing
experts sharing their insights into what makes pricing such a rewarding field.