PRICING Syllabus

Course Information Course: MKT 6336.501 - Pricing Meeting: Tuesday 7 9:45 pm, Fall 2011 Classroom: SOM 2.801

Professor Contact Information

Instructor: Prof. Ashutosh Prasad Tel: (972) 883-2027 E-mail: aprasad@utdallas.edu Office: SOM 3.221 Office Hours: Thursday 2-5 pm or by appointment

TA: Tel. E-mail: Office: Office hours

FYI, please use the above and not eLearning for sending us email.

Course Pre-requisites, Co-requisites, and/or Other Restrictions MKT 6301 or permission of the instructor

Course Description Pricing is the element of the marketing mix that determines revenues and profitability. Nevertheless, even large firms frequently make suboptimal pricing decisions. This course will examine microeconomic, strategic and psychological considerations for determining the correct pricing of products and services. It will cover price-setting techniques in various monopoly and competitive situations. There are many different pricing strategies - skimming, bundling, versioning, auctions etc. - that will be covered, together with the circumstances under which they should be applied. The course uses a combination of lectures, discussions, cases and exercises to achieve its objectives. It is an essential course for marketing managers and consultants.

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Student Learning Objectives/Outcomes - Students will understand and appreciate the role of pricing in the marketing mix. Assessed by exam questions. - Students will learn methods for pricing goods and services contingent on product and market characteristics, to increase the profitability of the firm. Assessed by exam questions. - Student will learn to incorporate quantitative methodologies to solving marketing problems. Assessed by exam questions.

Required Textbooks and Materials Textbook Pricing Strategy by Tim Smith. Publisher: South-Western Cengage Learning 2012. Cases The case packet should be available from the UTD bookstore or Off-Campus Books. The HBS cases contained are: 1. 2. 3. 4. Atlantic Computer: A Bundle of Pricing Options Cambridge Software Corporation Virgin Mobile USA: Pricing for the Very First Time Radiohead Music at your own Price

Overheads PowerPoint slides can be downloaded from the eLearning page for the class. If the slides are zipped, the tools to unzip it should be on your computer. If not, try 7-zip (www.7zip.org). If the files are password protected, the password will be provided in class. Content Management System The university provides eLearning for secure communication of grades. We will use it for the grade book and discussion functionality.

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Assignments & Academic Calendar Date Session 1 Tue, Aug 30 Session 2 Tue, Sep 6 Topics Introduction to pricing, Syllabus review Cost analysis, Break-even analysis Excel & CAS tutorial (CAS is for calculus by computer. We describe Maxima maxima.sourceforge.net) Excel requires a Solver add-in.) Pricing and the Law Demand curve, elasticity Monopoly pricing Readings / HW Due Ch. 1

Ch. 17

Session 3 Tue, Sep 13 Session 4 Tue, Sep 20 Session 5 Tue, Sep 27 Session 6 Tue, Oct 4

Ch. 2

Case: Atlantic Computer. Group 1 presents Add-ons/Accessories/Complements Competitive pricing Game theory Case: Radiohead Music. Group 2 presents Conjoint analysis

Case report due Ch. 10 Ch. 15

Case report due Ch. 3, Conjoint handout incl. with syllabus Ch. 5

Session 7 Tue, Oct 11 Session 8 Tue, Oct 18 Session 9 Tue, Oct 25 Session 10 Tue, Nov 1

Psychological influences Review

Midterm Exam Price segmentation Price structures Versioning Ch. 6 Ch. 9, 11

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Session 11 Tue, Nov 8

Case: Cambridge Software. Group 3 presents Bundling Price promotions Discount management Case: Virgin Mobile USA. Group 4 presents PLC pricing Yield management Guest lecture Synopsis and Review

Case report due Ch. 12 Ch. 7, 8

Session 12 Tue, Nov 15 Session 13 Tue, Nov 22 Session 14 Tue, Nov 29 Session 15 Tue, Dec 6 Session 16 Tue, Dec 12

Case report due Ch. 16 Ch. 14 Peer evaluation

Final Exam

Grading Policy Activity Case reports (4) Case presentation (1) Peer evaluation Midterm exam Final exam Attendance & CP Score 30% 10% 10% 20% 20% 10%

Grading scale: A (90 and above), B (80 to 89), C (70 to 79), D (60 to 69) and F (less than 60). Any grade dispute should be submitted in writing within one week of the assignment of the grade.

Course & Instructor Policies Exams: Exams will consist of short answer and essay questions. Some may have a numerical component. If the exam is missed due to emergency, a make-up exam will be scheduled if a written request with documentary evidence is provided and approved. But to deter unnecessary absence, note that make-up exams can be more difficult.

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Case analysis: Case reports are due on the dates shown on the schedule, at the beginning of class. Late submissions will not be accepted. The case reports and case presentation are group exercises. Please submit one printed case report per group and also email a copy to the instructor. The report should be a maximum of 10 double spaced pages. For case analysis, first identify the decision problem then examine the issues involving: Company objectives and cost structures; Customers and market demand; Competitors and Channel members. Then propose alternative strategies (sometimes the case provides these, but there may be additional possibilities). Evaluate the alternatives for their economic, qualitative and marketing implications. Finally, make a decision. Recommend the plan of action, spell out the details, and conclude. (Note that all steps may not be relevant to all cases and steps not listed above may be relevant.). Your viewpoint should be that of the decision maker in the case because an important purpose of case analysis is to give students the opportunity to make decisions with serious consequences. As such, one would not expect to see in the report spelling or grammatical errors, inconsistency of logic or restatement of case facts without analyzing them. It may be useful for your understanding to organize data into a table or Excel chart. See if the case relates to any principle covered in class or if the case is similar to another in some ways. Presentation: The presenting team will get half an hour to convince the class of their analysis. This includes 5-10 minutes for taking questions. Formal attire is not required, but a smart appearance, good content and business like tone are desirable. Practice will ensure a smooth performance. Each group member should have some opportunity to speak. Peer Evaluation: On the last day of class, please turn in a folded or sealed peer evaluation sheet that should be like this: Scale 0 to 10 where 10 means contributed a lot and 0 means contributed nothing. Group members 1. Lisa (me) 2. Leon 3. Mona Peer Evaluation 7/10 10/10 8/10 Explain Missed meetings

The peer evaluation score for each person will be the average of their scores from each group member, including themselves. Please let me know during the semester if there are problems within the group; a remedy might include splitting the group. Attendance & CP: Students are expected to attend all sessions and to have read and reflected on the material to be covered in class. Regarding attendance, three absences are allowed without penalty on days when there is no guest lecture. Else, subtract a point for each absence. Class participation points will be noted from the quality of
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questions, response and during in-class activities. Please avoid negative participation, e.g., distracting other students by surfing the web on your laptop.
Student Conduct & Discipline The University of Texas System and The University of Texas at Dallas have rules and regulations for the orderly and efficient conduct of their business. It is the responsibility of each student and each student organization to be knowledgeable about the rules and regulations which govern student conduct and activities. General information on student conduct and discipline is contained in the UTD publication, A to Z Guide, which is provided to all registered students each academic year. The University of Texas at Dallas administers student discipline within the procedures of recognized and established due process. Procedures are defined and described in the Rules and Regulations, Series 50000, Board of Regents, The University of Texas System, and in Title V, Rules on Student Services and Activities of the universitys Handbook of Operating Procedures. Copies of these rules and regulations are available to students in the Office of the Dean of Students, where staff members are available to assist students in interpreting the rules and regulations (SU 1.602, 972/883-6391) and online at http://www.utdallas.edu/judicialaffairs /UTDJudicialAffairs-HOPV.html. A student at the university neither loses the rights nor escapes the responsibilities of citizenship. He or she is expected to obey federal, state, and local laws as well as the Regents Rules, university regulations, and administrative rules. Students are subject to discipline for violating the standards of conduct whether such conduct takes place on or off campus, or whether civil or criminal penalties are also imposed for such conduct. Academic Integrity The faculty expects from its students a high level of responsibility and academic honesty. Because the value of an academic degree depends upon the absolute integrity of the work done by the student for that degree, it is imperative that a student demonstrate a high standard of individual honor in his or her scholastic work. Scholastic dishonesty includes, but is not limited to, statements, acts or omissions related to applications for enrollment or the award of a degree, and/or the submission as ones own work or material that is not ones own. As a general rule, scholastic dishonesty involves one of the following acts: cheating, plagiarism, collusion and/or falsifying academic records. Students suspected of academic dishonesty are subject to disciplinary proceedings. Plagiarism, especially from the web, from portions of papers for other classes, and from any other source is unacceptable and will be dealt with under the universitys policy on plagiarism (see general catalog for details). This course will use the resources of turnitin.com, which searches the web for possible plagiarism and is over 90% effective. Copyright Notice The copyright law of the United States (Title 17, United States Code) governs the making of photocopies or other reproductions of copyrighted materials, including music and software. Copying, displaying, reproducing, or distributing copyrighted works may infringe the copyright owners rights and such infringement is subject to appropriate disciplinary action as well as

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criminal penalties provided by federal law. Usage of such material is only appropriate when that usage constitutes fair use under the Copyright Act. As a UT Dallas student, you are required to follow the institutions copyright policy (Policy Memorandum 84-I.3-46). For more information about fair use, see http://www.utsystem.edu/ogc/intellectualproperty/copypol2.htm Email Use The University of Texas at Dallas recognizes the value and efficiency of communication between faculty/staff and students through electronic mail. At the same time, email raises some issues concerning security and the identity of each individual in an email exchange. The university encourages all official student email correspondence be sent only to a students U.T. Dallas email address and that faculty and staff consider email from students official only if it originates from a UTD student account. This allows the university to maintain a high degree of confidence in the identity of all individual corresponding and the security of the transmitted information. UTD furnishes each student with a free email account that is to be used in all communication with university personnel. The Department of Information Resources at U.T. Dallas provides a method for students to have their U.T. Dallas mail forwarded to other accounts. Withdrawal from Class The administration of this institution has set deadlines for withdrawal of any college-level courses. These dates and times are published in that semester's course catalog. Administration procedures must be followed. It is the student's responsibility to handle withdrawal requirements from any class. In other words, I cannot drop or withdraw any student. You must do the proper paperwork to ensure that you will not receive a final grade of "F" in a course if you choose not to attend the class once you are enrolled. Student Grievance Procedures Procedures for student grievances are found in Title V, Rules on Student Services and Activities, of the universitys Handbook of Operating Procedures. In attempting to resolve any student grievance regarding grades, evaluations, or other fulfillments of academic responsibility, it is the obligation of the student first to make a serious effort to resolve the matter with the instructor, supervisor, administrator, or committee with whom the grievance originates (hereafter called the respondent). Individual faculty members retain primary responsibility for assigning grades and evaluations. If the matter cannot be resolved at that level, the grievance must be submitted in writing to the respondent with a copy of the respondents School Dean. If the matter is not resolved by the written response provided by the respondent, the student may submit a written appeal to the School Dean. If the grievance is not resolved by the School Deans decision, the student may make a written appeal to the Dean of Graduate or Undergraduate Education, and the deal will appoint and convene an Academic Appeals Panel. The decision of the Academic Appeals Panel is final. The results of the academic appeals process will be distributed to all involved parties. Copies of these rules and regulations are available to students in the Office of the Dean of Students, where staff members are available to assist students in interpreting the rules and regulations.

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Incomplete Grade Policy As per university policy, incomplete grades will be granted only for work unavoidably missed at the semesters end and only if 70% of the course work has been completed. An incomplete grade must be resolved within eight (8) weeks from the first day of the subsequent long semester. If the required work to complete the course and to remove the incomplete grade is not submitted by the specified deadline, the incomplete grade is changed automatically to a grade of F. Disability Services The goal of Student AccessAbility Services is to provide students with disabilities equal educational opportunities. Student AccessAbility Services provides students with a documented letter to present to the faculty members to verify that the student has a disability and needs accommodations. This letter should be presented to the instructor in each course at the beginning of the semester and accommodations needed should be discussed at that time. It is the students responsibility to notify his or her professors of the need for accommodation. If accommodations are granted for testing accommodations, the student should remind the instructor five days before the exam of any testing accommodations that will be needed. Student AccessAbility Services is located in the Student Services Building, room 3.200. Office hours are Monday Thursday, 8:30 a.m. to 6:30 p.m., and Friday 8:30 a.m. to 5:00 p.m. You may reach Student AccessAbility Services at (972) 883-2098. Guidelines for documentation are located on the Student AccessAbility Services website at http://www.utdallas.edu/studentaccess/documentation/ Religious Holy Days The University of Texas at Dallas will excuse a student from class or other required activities for the travel to and observance of a religious holy day for a religion whose places of worship are exempt from property tax under Section 11.20, Tax Code, Texas Code Annotated. The student is encouraged to notify the instructor or activity sponsor as soon as possible regarding the absence, preferably in advance of the assignment. The student, so excused, will be allowed to take the exam or complete the assignment within a reasonable time after the absence: a period equal to the length of the absence, up to a maximum of one week. A student who notifies the instructor and completes any missed exam or assignment may not be penalized for the absence. A student who fails to complete the exam or assignment within the prescribed period may receive a failing grade for that exam or assignment. If a student or an instructor disagrees about the nature of the absence [i.e., for the purpose of observing a religious holy day] or if there is similar disagreement about whether the student has been given a reasonable time to complete any missed assignments or examinations, either the student or the instructor may request a ruling from the chief executive officer of the institution, or his or her designee. The chief executive officer or designee must take into account the legislative intent of TEC 51.911(b), and the student and instructor will abide by the decision of the chief executive officer or designee. These descriptions and timelines are subject to change at the discretion of the Professor.

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Conjoint Handout We are looking at a product, which is to have a small food cart near an office building. A focus group of target market customers (employees at the office) has identified that the two key attributes are the food item and its price. Further research boils things down to the following options. Attribute Food item Levels Pasta and meat sauce Turkey and Ham Sandwiches Sausages and toast $5.00 $4.00 $3.00 Marginal cost $2.50 $2.00 $1.50

Price

Your task is to determine the best product (combination of food and price). There are two ways to do it. We look at the simple way first.

Self-Explication A representative employee, Alexa, gave the following importance weights when asked to allocate 100 points over the two attributes and then assign those points to levels within the attributes, called part-worths. Attribute Food item 40 points Price 60 points Total 100 points (Note that given the part-worths, one can reconstruct the importance weights on the attributes, and find out which is more important and by how much. This is useful for conjoint where we get the part-worths first and then find the importance weights.) Now, answer the following questions: Q1. What is the most important attribute for Alexa? ______ Q2. How many product combinations are possible? ______ Q3. What is the most profitable product for us to offer Alexa? ______
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Levels Pasta and meat sauce Turkey and Ham Sandwiches Sausages and toast $5.00 $4.00 $3.00

Part worths 40 20 0 0 30 60

Q4. Assume that Alexa has the choice of going to a nearby caf and getting Turkey & Ham sandwiches for $5.00. What then is the best product to offer Alexa ? (Decide on a choice rule and find the probability of purchase and profitability.) Q5. We might assume that Alexas tastes are representative of all the employees. However, this is unlikely to be the case. What is needed to be modified in our methodology if we interview 10 instead of just one employee?

Conjoint Experiment On another employee, Jeonwen, we did a conjoint study. Here is his rating of the different product combinations on a 9-point scale (sorted by his rating). Product Pasta and meat sauce, $3.00 Pasta and meat sauce, $4.00 Turkey and Ham Sandwiches, $3.00 Sausages and toast, $3.00 Pasta and meat sauce, $5.00 Turkey and Ham Sandwiches, $4.00 Turkey and Ham Sandwiches, $5.00 Sausages and toast, $4.00 Sausages and toast, $5.00 Rating 9 8 7 6 5 4 3 2 1

Analysis Here is a dummy variable coding scheme. Food levels Pasta and meat sauce Turkey and Ham Sandwiches Sausages and toast Price levels $5.00 $4.00 $3.00 D3 1 0 0 D1 0 0 1 D4 0 1 0 D2 0 1 0

We perform a regression and obtain the following results.

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Product Rating D1 Pasta and meat sauce, $3.00 9 Pasta and meat sauce, $4.00 8 Turkey and Ham Sandwiches, $3.00 7 Sausages and toast, $3.00 6 Pasta and meat sauce, $5.00 5 Turkey and Ham Sandwiches, $4.00 4 Turkey and Ham Sandwiches, $5.00 3 Sausages and toast, $4.00 2 Sausages and toast, $5.00 1
SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df Regression Residual Total

D2 0 0 0 1 0 0 0 1 1 0 0 1 0 0 1 1 0 0

D3 0 0 0 0 1 0 1 0 1

D4 0 1 0 0 0 1 0 1 0

0.977525 0.955556 0.911111 0.816497 9

SS MS 4 57.33333 14.33333 4 2.666667 0.666667 8 60

Significance F 21.5 0.00575

Intercept D1 D2 D3 D4

Coefficients Standard Error t Stat P-value Lower 95%Upper 95% Lower 95.0% Upper 95.0% 9.666667 0.608581 15.88395 9.18E-05 7.976972 11.35636 7.976972 11.35636 -4.33333 0.666667 -6.5 0.00289 -6.1843 -2.48237 -6.1843 -2.48237 -2.66667 0.666667 -4 0.01613 -4.51763 -0.8157 -4.51763 -0.8157 -4.33333 0.666667 -6.5 0.00289 -6.1843 -2.48237 -6.1843 -2.48237 -2.66667 0.666667 -4 0.01613 -4.51763 -0.8157 -4.51763 -0.8157

Now, answer the following questions: Q1. Obtain the part-worths. Q2. Which is the most important attribute for Jeonwen? By how much? Q3. The same as Q.3 for Alexa, above. Q4. The same as Q. 4 for Alexa, above. Q5. Repeat the above analysis by doing a different dummy variable coding and verify that you get the same answer.

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