Week 1 Introduction To Pricing

16/01/2024
“Principles of Pricing”
MG4J3
Dr Simos Chari Department: Management
Dr Simos Chari
Associate Professor in Marketing Management & Strategy
Module Coordinator: MG4J3 & MG403

Email: s.chari2@lse.ac.uk
simos.chari@manchester.ac.uk
Office hours: Online (email for appointment)
Google Scholar Profile:

https://scholar.google.co.uk/citations?user=vXttiuEAAAAJ&hl=en&oi=sra
AMBS Profile:
https://www.research.manchester.ac.uk/portal/simos.chari.html
Department: Management
16/01/2024
L1: “Introduction to Pricing”
Module Overview: MG4J3

 Lecture & Workshops:
 Thursdays (3-6pm) – MAR 2.10 - Marshall Building
 ‘Research-led’ & ‘seminar-oriented’ lectures
 Expectations & Ground Rules

 Student and Lecturer expectations
 Learning opportunities
 Podcasting / Lecture Recordings
 Attendance & Punctuality
© Dr Simos Chari Department: Management
Core Text
Nagle, Thomas T., and Reed K. Holden. The strategy and tactics of
pricing. 5th Edition. Englewood Cliffs, NJ: Prentice Hall, 2016.

16/01/2024
Course Unit’s Objective
“To equip you with the concepts, techniques, and the

latest thinking on formulating and implementing
pricing strategies. To learn the process of making
pricing decisions and explore alternative
approaches for setting and managing prices and
pricing strategies for profitability”
My Approach:
1. Fundamentals of Pricing:
 Analytical tools, conceptual frameworks, and theories (e.g.,
economics and marketing) for price strategy formulation
 The role of price in the firm’s value proposition
 Determination of customer response to price
 Role of competition in pricing strategy formulation
2. Pricing Tactics, Promotions, and Customization:

 Pricing tactics, opportunities for achieving price customization, and
price management
 Customer-specific or segment-specific pricing decisions
 Price promotions, reference prices, and customer lifetime value.

16/01/2024
Learning Outcomes
1. To familiarize with the concepts, theory and latest thinking
bearing on the key issues in pricing, taking the perspective of the
marketing manager.
2. To provide you with an opportunity, through extensive case

analyses, to apply concepts and theory to the solution of pricing
problems in marketing settings.
3. To provide you with an opportunity, through the course project, to

make an independent assessment of the pricing strategy or tactics
used by a company or industry of your own choosing.
Teaching Schedule
W1: 18th of January
W2: 25th of January
W3: 1st of February
W4: 8th of February
W5: 15th of February
W6: 22nd of February
W8: 7thth of March
W9: 14th of March
W10: 21st of March
W11: 28th of March

16/01/2024
Syllabus / Themes
 Introduction to Pricing
 Capturing value in pricing
 Measuring Economic Value of Pricing
 Demand & Price Elasticity
 Analyzing Customer Reactions: Price Sensitivity & WTP
 Costs, Drivers of Profitability in Pricing & BEV Analysis
 Price Competition
 Specialized Pricing Strategies
 Ethics in Pricing
“Introduction to MG4J3”
Case – Study Teaching
 Place you in the role of the decision maker – applying theory

to practice
 Abstract basic principles from complex examples
 Learn new cognitive skills, as well as improving problem-

solving, analysis and evaluation skills and decision-making
abilities
 Gain the opportunity to learn through the diverse ideas and

perspectives of classmates.

16/01/2024
“Introduction to MG403”
Module Assessment
1. Quiz 15%
2. Individual Take-home Assignment 45%
3. Group Project (Presentation & Report) 40%

16/01/2024
Quiz (15%)
 MCQs
 Test key theoretical concepts taught between W1-W6
 W7 (29th of February) – Online
 Duration 75 minutes
Individual Assignment (45%)

 CASE STUDY ANALYSIS: analyse & review and
make recommendations
 Deadlines, Length Limitations and Deliverables
 29th of February (W7):

 Introduction to the individual assignment
 Presentation on the case study
 Discuss and raise the key questions
 Tuesday 9th of April (SB):

 Submit individual assignment (1500 words)
16/01/2024
Group Project (40%) - Ctn

 Group Allocation (W3)
 Topic: Create a pricing policy for a new product, or
evaluate the pricing policy of a company, in a setting
of your own choosing.
 Report Format and Organization
• Description of context
• Methodology and findings
• Recommendations

 Deadlines, Length Limitations and Deliverables
 8th of February (W4):
 Outline 2 topics of interest (Option A & B)
 1 paragraph for each alternative option.
 Email Simos for (feasibility) feedback.
 29th of February (W7)
 1st round of peer assessment
 21st of March (W10):
 In person presentations
 20 minutes (15 minutes Presentation and 5 mins Q&A)
 9th of April (SB):
 Submit project report.
 Peer evaluation No2
16/01/2024

EVALUATION CRITERIA / REPORT:
Substantive criteria:
1. Appropriate application of key concepts and theories
2. Demonstration of insight into the unique pricing strategy and
tactical issues for the product or service you have selected
3. Originality in devising both actionable and appropriate
recommendations.
Stylistic criteria:
1. Appropriate format and organization
2. Clarity of exposition
3. Overall effectiveness at communicating ideas

EVALUATION CRITERIA / PRESENTATION:
1. Argument and structure: Well-organised, clear and logical
presentation of information, arguments are coherent, focused and
relevant to the question(s)
2. Content: Demonstrates understanding and critical reflection upon

the issues
3. Use of sources: Well-informed answer(s) that demonstrate

reading beyond the course material
4. Presentation and language: Clearly presented with effective

use of language, including correct spelling, syntax and grammar
5. Ability to Answer Questions

16/01/2024
Teaching Schedule & Key Dates

W1: 18th of January
W2: 25th of January
W3: 1st of February – Group allocation / Group Assignment
W4: 8th of February
W6: 22nd of February – READING WEEK
W7: 29th of February – Online Quiz & Individual assignment & Peer
Review Assessment 1
W8: 7thth of March
W9: 14th of March
W10: 21st of March – Group Presentations
W11: 28th of March – Revision & Group Project Feedback
Spring Break: 9th of April – Submitting Group and Individual Reports &
Peer Review Assessment 2
Feedback throughout the Semester

 Formative
 Informal advice and discussion during lectures and seminars
 Responses to queries via email
 Written comments
 Summative
 Results of the group assignment
 Generic feedback regarding overall group and individual

performance (Moodle)

16/01/2024
Introduction to Pricing
Learning Objective
PART I
 Understand key concepts of pricing
 Identify and assess the internal and external parameters

affecting pricing decisions.

16/01/2024
PRICE L1: “Introduction to Pricing”
Marketing Strategy
“Integrated pattern of decisions that specify its crucial choices

concerning markets to serve and market segments to target,
marketing activities to perform and the manner of
performance of these activities, and the allocation of
marketing resources among markets, market segments and
marketing activities toward the creation, communication and/or
delivery of a product that offers value to customers”
Varadarajan (2010)
Course Unit’s Objective
“To equip you with the concepts, techniques, and the

latest thinking on formulating and implementing
pricing strategies. To learn the process of making
pricing decisions and explore alternative
approaches for setting and managing prices and
pricing strategies for profitability”

16/01/2024
Morgan et al., (2018)

Concerns “doing it” . Translating these
Involves managers making explicit broad “what” marketing strategy decisions
“what” decisions regarding goals and the into a set of detailed and integrated
broad means by which they are to be marketing tactics and accompanying these
accomplished in terms of target market with appropriate actions and resource
selection, required value offerings and deployments to enact them
desired positioning, timing, etc.
Morgan et al., (2018)
Concerns the specific strategic decisions (e.g., what Concerns the organizational mechanisms leading
and how many segments to target, the firm’s value to these marketing strategy decisions (e.g., situation
proposition) and integrated tactical marketing assessment, goal-setting, strategic planning process,
program decisions (e.g., pricing, channel selection etc.) and those used to make and realize / enact
and merchandizing platform design, marketing decisions (e.g., budgeting, internal communication,
communication media selection, etc.) made. organization re-design, performance monitoring etc.).
16/01/2024
Price
“The amount of money charged for a product/service, or
the sum of the values that consumers exchange for the
benefits of having or using the product/service”
Kotler & Keller (2016)
 Marketing Mix: Generates Revenues / Flexible ‘P’
Strategic Pricing
“Making pricing decisions (e.g., demand / pricing
balance, creating and communicating value, price
segments, manage customers' expectations etc.)
thoughtfully and implementing them effectively to
maximize profitability”
Nagle & Holden (2016)
 Importance: Profitability & Future Growth

16/01/2024
PRICING DECISIONS: Internal & External Factors

INTERNAL
1. Pricing Objectives
2. Marketing Mix
3. Costs
4. Organisation / Strategy
STRATEGIC
PRICING
DECISIONS
EXTERNAL
1. Competition
2. Customers / Consumers
3. Legal & Regulatory
4. Nature of Market & Demand
Internal Factors

16/01/2024
Internal Factors (1)

PRICING OBJECTIVES
Examples:
 Survival
 Current Profit Maximization
 Market Share Maximization
 Product / Quality Leadership

MARKETING MIX
 Coordination
 Target Costing

16/01/2024

COSTS
 Fixed costs £
 Variable costs Variable Costs
Fixed Costs
Units
COSTS:
Different Levels of Production
Total Costs
AC = Production (quantity)
16/01/2024
COSTS:
Function of Production Experience
ORGANISATION / STRATEGY
 Who? Involved?
 Small companies: CEO or top management
 Large companies: Divisional or product line managers
 Compliment business level strategies

16/01/2024
External Factors
External Factors (1a)

COMPETITORS / STRUCTURE OF MARKET
 Pure Competition
 Monopolistic Competition
 Oligopolistic Competition
 Pure Monopoly

16/01/2024
External Factors (1b)

 Consider competitors’:
 Costs
 Prices
 Possible reactions
 Pricing strategy & competition

 Pricing -low-margin strategies inhibit competition
 Pricing -high-margin strategies attract competition
External Factors (2)

CUSTOMERS / CONSUMERS

16/01/2024

CUSTOMERS / CONSUMERS
Highest Ceiling
Price
Range
Lower Ceiling

LEGAL / REGULATORY
EXAMPLES:
 Price fixing
 Deceptive pricing
 Price discrimination
 Predatory pricing

16/01/2024
DEMAND:
“Shows the quantity of goods or services that customers are
willing and able to buy in a market during a period of time at
various prices if all other factors remain the same”

NATURE OF MARKET / DEMAND:
Classic Demand Curve / Normal Products
P2
P1
Q2 Q1 Q

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External Factors (4b)

PRICE SENSITIVITY:
“Price sensitivity is the degree to which the price of a product
affects consumers' purchasing behaviours”
PRICE ELASTICITY OF DEMAND:

“It measures the responsiveness of demand after a change in a
product's own price”
% change in Q
E=
% change in P
External Factors (4c)

Elastic Demand Curve
P2
E>1
P1
Q2 Q1 Q

16/01/2024
External Factors (4d)

Inelastic Demand Curve
P2
E<1
P1
Q2 Q1 Q
External Factors (4e)

Demand Curve for Prestige Products
P1
P2
P3
Q1 Q2 Q

16/01/2024
Setting a Pricing Strategy
Pricing Strategy
VALUE
CASCADE

16/01/2024
VALUE CREATION GAP

CONCERNED:
 Customer Perceived Value
 Value Based Pricing
 Customer Value Management
VALUE COMMUNICATION GAP

CONCERNED:
 Communicating monetary and psychological value
 Price and value communications messages
 Consumers behaviors / reactions and price evaluation
 Strategies to influence willingness-to-pay

16/01/2024
PRICE STRUCTURE GAP
CONCERNED:
 Market Segmentation pricing
 Pricing differently across customer segments
 Offering differentiated value to customers
 Segmented price structure: configurations, price metrics,

and price fences.
PRICE POLICY GAP

CONCERNED:
 Price policies and expectations
 Price negotiations
 Responding to price objections
 Managing price increases
 Pricing in economic downturns
 Promotional pricing

16/01/2024
PRICE SETTING GAP

CONCERNED:
 The price-setting process: 5 STEPS

STEP 1: Set Pricing Objectives
STEP 2: Define the Viable Price Range
STEP 3: Make Strategic Pricing Choices
STEP 4: Assess Break Even Sales Changes
STEP 5: Determine Price Sensitivity
STEP 6: Communicating Prices to the Market
PRICE COMPETITION GAP

CONCERNED:
 Monitor, collect, evaluate and manage competitive

information
 Reacting to competition
 Price cuts
 Price increases

16/01/2024
MODULE Syllabus
Revolves: the 3 Cs of Pricing
CUSTOMERS
PRICE
COSTS COMPETITORS
Customers
Concepts:
• Customer perceived value

• Customer value management (i.e., accountable marketing)
• Value in pricing (i.e., reference and differentiation value and how to
estimate)
• Economic Value to the customer (EVC)
• Demand & price elasticity
• Customer reactions to prices (i.e., WTP, price sensitivity)

16/01/2024
Costs
Financial Analysis of Pricing
• Costs
• Drivers of profitability
• BEV analysis
Competitors
Concepts:
 Price Competition
 Strategic behaviours in monopolistic competition markets
 Tactics and price changes

 initiating vs responding to price cuts
 initiating price increases

16/01/2024
STRATEGIC PRICING CAPABILITY
Source: Vorhies et al., (2009) Department: Management
STRATEGIC PRICING CAPABILITY
Source: Morgan (2012) Department: Management

16/01/2024
PRICING CAPABILITY &

SUCCESSFUL PRICING STRATEGY
THREE PILLARS:
1. Effective organization - structure
2. Timely and accurate information
3. Motivated management
Q&A
Key Take Aways

16/01/2024
Next Week…
Case Study Analysis: “Apple Watch Launch”
Lecture:
Customer ‘C’ of Pricing
Perceived Value
Value in Pricing
Reading - References
CORE TEXT
Chapter 1: Strategic Pricing
Recommended Further Reading:

• Morgan, N. A. (2012). Marketing and business performance. Journal of the
Academy of Marketing Science, 40 (1), 102-119.
• Morgan, N. A., Whitler, K. A., Feng, H., & Chari, S. (2018). Research in
marketing strategy. Journal of the Academy of Marketing Science, 47 (1), 4-29.
• Morgan, N. A., Vorhies, D. W., & Mason, C. H. (2009). Market orientation,
marketing capabilities, and firm performance. Strategic management
journal, 30 (8), 909-920.
• Varadarajan, R. (2010). Strategic marketing and marketing strategy: domain,
definition, fundamental issues and foundational premises. Journal of the
Academy of Marketing Science, 38 (2), 119-140.

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16/01/2024

Associate Professor in Marketing Management & Strategy

Module Coordinator: MG4J3 & MG403

Google Scholar Profile:

L1: “Introduction to Pricing”

Module Overview: MG4J3

 Expectations & Ground Rules

© Dr Simos Chari Department: Management

L1: “Introduction to Pricing”

© Dr Simos Chari Department: Management

L1: “Introduction to Pricing”

Course Unit’s Objective

“To equip you with the concepts, techniques, and the

© Dr Simos Chari Department: Management

L1: “Introduction to Pricing”

2. Pricing Tactics, Promotions, and Customization:

© Dr Simos Chari Department: Management

L1: “Introduction to Pricing”

2. To provide you with an opportunity, through extensive case

3. To provide you with an opportunity, through the course project, to

© Dr Simos Chari Department: Management

L1: “Introduction to Pricing”

© Dr Simos Chari Department: Management

L1: “Introduction to Pricing”

© Dr Simos Chari Department: Management

Case – Study Teaching

 Place you in the role of the decision maker – applying theory

 Abstract basic principles from complex examples

 Learn new cognitive skills, as well as improving problem-

 Gain the opportunity to learn through the diverse ideas and

© Dr Simos Chari Department: Management

© Dr Simos Chari Department: Management

L1: “Introduction to Pricing”

2. Individual Take-home Assignment 45%

3. Group Project (Presentation & Report) 40%

© Dr Simos Chari Department: Management

L1: “Introduction to Pricing”

 Test key theoretical concepts taught between W1-W6

 W7 (29th of February) – Online

© Dr Simos Chari Department: Management

L1: “Introduction to Pricing”

Individual Assignment (45%)

 Deadlines, Length Limitations and Deliverables

 29th of February (W7):

 Tuesday 9th of April (SB):

L1: “Introduction to Pricing”

Group Project (40%) - Ctn

© Dr Simos Chari Department: Management

L1: “Introduction to Pricing”

Group Project (40%) - Ctn

L1: “Introduction to Pricing”

Group Project (45%) - Ctn

© Dr Simos Chari Department: Management

L1: “Introduction to Pricing”

Group Project (45%) - Ctn

2. Content: Demonstrates understanding and critical reflection upon

3. Use of sources: Well-informed answer(s) that demonstrate

4. Presentation and language: Clearly presented with effective

5. Ability to Answer Questions

L1: “Introduction to Pricing”

Teaching Schedule & Key Dates

© Dr Simos Chari Department: Management

L1: “Introduction to Pricing”