Pricing for Profitability in the Information Age
Program Details
Day 1
Classic Pricing Frameworks
Session 1: Introduction and Economic Value to Customers
Teck Ho, PhD, MA, MSc
The Economic Value to the customer (EVC) is the maximum amount a customer should be willing to pay, assuming that s/he is fully informed about the benefits of the product and the offering of competitors. This session provides several case studies of EVC calculations for various products. By the end of this session, you will be able to complete an EVC analysis for your product(s). This skill enables you to determine the best price for your products (both new and old) and capture the highest profit.
Session 2: How Cost Affects Price
Teck Ho, PhD, MA, MSc
Not all costs matter in determining the optimal, profit-maximizing price. In this session, we will show you which costs are the most relevant for pricing. In addition, you will learn to use a powerful tool that shows the role of relevant costs in setting the best price. This tool can also be used to quantify the likely profit impact of a planned price change.
Session 3: Price War Simulation
Teck Ho, PhD, MA, MSc
Let the games begin! This session lets you put into practice what you have learned about costs and customers, and starts you thinking about competitors. In the price war simulation game your goal will be to use (constantly evolving) information about the 3 C’s (costs, customers, competitors) of pricing in order to maximize your cumulative profits. You will work in teams and play against others in the room. The team that comes away with the highest profit will not only have clearly understood what it takes to win a price war, they will also win a prize.
Session 4: How to Beat the Competition
Teck Ho, PhD, MA, MSc
In this session, we will review the results of your price war to determine what worked and what didn’t work. You will learn how to win your next (perhaps more important) price war. Using many real examples, we will show how firms compete through clever non-price or price-related actions. This session also teaches you to think strategically in competitive situations.
Day 2
More Classic Pricing Frameworks
Sessions 1 and 2: Understanding Customer Price Sensitivity
Randy Bucklin, MA, PhD
Making profit-maximizing pricing decisions requires that companies understand how their customers respond to changes in price. This session provides a comprehensive treatment of the tools available to managers to rigorously understand how sensitive their customers are to price. You will learn how to use and apply survey methods to gauge price sensitivity, including direct questions and conjoint analysis. You will also find out how to analyze the results from price tests and price experiments. Finally, the session offers an in-depth treatment of how to analyze historical data – often hidden in your own files -- to assess how customers will respond to pricing. Tools will be illustrated with numerous examples, cases, and a break-out exercise.
Session 3: Price Contract Negotiation Exercise
Teck Ho, PhD, MA, MSc
Game number two! How will your contract negotiation influence your profitability? As you negotiate and change details of your contract in order to conclude a deal, you will be changing your profit outcome. In this session, you will learn how to increase the total pie in a B2B channel negotiation and gain a sizable portion of the pie for yourself.
Session 4: Case Study with local CEO: Strategic Pricing in a Downturn
Kim Lopez, CEO, Remedy Interactive
How do you price your products and services when your customers are nervous about their businesses or their jobs? If you lower prices, will you ever be able to raise them again? If you keep prices the same, will you be able to sell anything? CEO Kim Lopez will walk us through potential scenarios for pricing in a downturn, using her successful software company as an example.
Day 3
Innovative Pricing Strategies: Perfecting the Price
Session 1: Product Line Pricing and Bundling
Teck Ho, PhD, MA, MSc
How do you price to maximize your total profit across a line of products? Consumer Products companies such as Proctor and Gamble have extremely complex and effective models to make this determination. How you price your products affects the sales of other products in the line. Your products might cannibalize each others’ sales or they might complement each other. As part of this session, you will learn if and how to choose a loss leader. After this session, you will know how to manage your product portfolio to maximize total profitability.
Related to Product Lines, markets are also full of products sold in bundles: IT solutions combine software and hardware or product and after sales service packages. Bundling is a great tool for selling slow-moving items and improving profits for the entire product portfolio. In this part of the session, you will learn whether bundling makes senses for your business, and if it does, how to apply it.
Session 2: Versioning Strategy and Subscription Models
Mark Ziegenhagen
Possibly the most popular strategy to make more money in high-tech industries is to simultaneously offer multiple versions of a product or service. In a case study, we show how a software firm exploits this strategy to dramatically increase its profits. We will also show how the same principles can be used in hardware, services, and other industries. This session will also demonstrate how subscription models can be an effective way to price in many industries, especially in a difficult economic climate.
Session 3: Creative Pricing
Terry Taylor, PhD
This session will explore how creative pricing and contracting can be used to create value for firms engaged in business to business transactions. In a case study, we will explore how one creative pricing technique, revenue sharing, transformed an industry. More generally, we will explore a variety of creative price-contracting approaches, examining how the approach that should be employed depends on the characteristics of the product/service.
Session 4: Revenue Management Pricing Simulation
Terry Taylor, PhD
Time for another game! This time, you will employ a pricing technique known as “revenue management.” Revenue management is a powerful tool to generate the maximum revenue from a given capacity by intelligently differentiating amongst discrete customer segments, extracting maximal revenue from each. As we will discuss through examples, proper use of revenue management techniques have been critical to the success of companies in many industries. The inability to appropriately respond to competitors’ use of these techniques has bankrupted multi-million dollar companies. Although the stakes will be smaller in our simulation, the winning team will still win a prize.
Day 4
More Innovative Pricing Strategies and Wrap-Up
Session 1: Measuring Willingness to Pay Using Auctions
Teck Ho, PhD, MA, MSc
Auctions are becoming popular for selling both business and consumer products. Auctions are also one of the most prevalent pricing formats in government and large company procurement. In this session, we will run a common auction on the Internet to demonstrate two powerful pricing principles. In addition, we will show how the auction mechanism can be used to measure a buyer’s willingness to pay in practice.
Session 2: Revenue Model Design and Wrap-up
Teck Ho, PhD, MA, MSc
Now that you have learned everything you need to know about pricing, this session will provide you the information you need to manage your overall revenue model. In this session, everything that came before will be put together so that you can leave this program with an ability to determine the optimal pricing strategy for your products and company.
