MKTG 754

Pricing Policy
Fall 2017
Preliminary Draft

Professor Aviv Nevo

George A. Weiss and Lydia Bravo Weiss University Professor
Professor of Marketing, Professor of Economics

Contact info: JMHH 773; [email protected]; (215) 898-0232

Office Hours: TBD or by appointment via email

Class time and place: TuTh 10:30-11:50; TBD

Teaching Assistant: TBD

The course will draw on a mixture of analytic marketing techniques, marketing strategy, and
economic theory to describe approaches that are useful for optimal pricing decisions. Some examples
of questions we will address in the course: How does a firm determine the price for a new product?
How does a firm assess whether the current price is appropriate? What is value pricing? Which price
segmentation strategy is optimal? How to price in a competitive environment and within the legal
framework?

This course prepares students to address strategic and tactical pricing issues and to identify profit-
boosting changes in pricing practices across a range of professional contexts – as management
consultants, product managers, entrepreneurs, business unit managers, and M&A advisors.

We will cover the fundamental economic analytical tools, theories and conceptual frameworks
needed for formulating pricing strategies. The course will use a mix of lectures and case discussions.
Mini-cases and problems will also be employed to make students apply their learning to practical
situations. We will also discuss empirical methods that allow you to use data to inform and guide
pricing decisions. We will discuss practical examples of commonly-used pricing tactics that will help
you gain insights into successful pricing strategies in various industries and discuss how to improve a
firm’s pricing through a sophisticated pricing structure.

The course will be rigorous and fairly technical, so come prepared. I will assume background with
basic economic, computational, computer and statistical tools, such as regression analysis. I will
assume that you have covered the required economic, computational, computer and statistical tools in
other classes. Our focus will be on applying these methods. Feel me to contact me if you are unsure
about you level of comfort you should have with the background material.

Reading Materials

The course has a mixture of reading assignments in the form of articles and cases. I will assume that
students have done the required reading for each class, have analyzed assigned case materials, and are
prepared to discuss them.
None of the current textbooks cover the quantitative material as I will cover it in class. Therefore,
class participation and note taking during class is essential.

There are several textbooks that can complement the lectures. For example,

The Strategy and Tactics of Pricing by Thomas T. Nagle et al (NJ: Prentice Hall, 5th ed.). Available
here. Very practical but somewhat less quantitative.

Principles of Pricing: An Analytical Approach, by Rakesh V. Vohra and Lakshman Krishnamurthi.

Available here. More analytic in its approach.

The above books above would serve as a good second source of course material, and you might enjoy
them as a reference later in your career, but it is not necessary for the course. The following books are
mentioned solely as supplemental reading:

• Nonlinear Pricing, R. Wilson, Oxford University Press, 1993.

• Pricing and Revenue Optimization, R. Phillips, Stanford Business Books, 2005.
• Pricing: Making Profitable Decisions, K. Monroe, 2nd Edition, Amacon, NY 1990.

Course Materials and Website

Course materials will be available on the course Canvas site. The Canvas site will also act as the
course website. Please bookmark this website and check it as often as necessary. This site will
contain copies of class handouts, and other general information about the course.

Classroom Policies

Class Participation. Class participation is an important part of this class and will be part of your
evaluation (see below).

Assigned Seating. Starting from the 3rd class you should choose a seat and sit in it for the remaining
lectures. This will facilitate grading class participation

Class Attendance and Participation. Attendance in class is expected. We will spend a great deal of
time engaged in class discussion, which means that by missing class you will miss an important part of
the learning experience. Attendance will not be recorded, but you will be graded on class participation,
which is hard to do if you are not in class.

You are invited to actively participate in class by asking questions and contributing to the discussion.
Particularly helpful would be to highlight insightful linkages between class material and your past
experience as a professional and a consumer, to raise challenging questions and issues related to the
pricing topics being reviewed, and to participate actively in discussion of problems and cases. It will
be assumed that students have read and analyzed the case materials and problems assigned to each class
and are prepared to discuss them.

Pricing Policy Prof. Aviv Nevo 2

Students find in-class discussions a valuable part of the course, and effective discussions are only
possible if everyone is prepared. You should come to class prepared to defend your analysis. To create
incentives to do this, I may randomly select (i.e. cold call) students to answer questions. You should
view class participation both as an opportunity to ask questions to enhance your understanding as well
as an opportunity to demonstrate your critical analysis of the material. Your task is to enhance my
memory for you as an intellectual and relevant contributor.

Conflicts. If you have documentable special circumstances such as time conflicts between multiple
exams, illness, or grave personal difficulties such as a death in the family, you should petition the MBA
Program Office, which will work with me in appropriate cases to find a resolution. The MBA Program
Office will require documentation of your conflict.

If you find yourself with a conflict due to your career search or recruiting activity, you should work
with the MBA Career Management Office to find a resolution. Employers cannot require a student, as
a condition of his or her employment candidacy, to participate in recruiting-related activities at a time
that conflicts with his or her academic schedule. An employer’s inflexibility on this issue is considered
a violation of Wharton’s recruiting policies. A time conflict due to a job interview, a career pursuit or
travel is not an appropriate reason to request accommodation on an academic commitment.

Policy on Laptops, Cell phones, and Other Devices. Laptop computers or other electronic devices
(phones, tablets, etc.) may not be used during class unless specifically permitted by the instructor. In
particular, laptops should be closed and are not permitted on your desks.

Student Teams Students are asked to form teams of 3 - 4 students to work on the final project. You
should form a group as quickly as possible. If you need help in forming a team, let me know in a timely
manner so I can facilitate communication with others. Groups with more than four students are not
permitted (no exceptions).

Note that team members will have the opportunity to evaluate all team members’ contributions (for the
course project) using peer evaluation forms at the end of the term.

Grading and Course Assignments

Grades will be based on three areas:

1. Class participation: 20%

2. Five assignments: 10% each, total = 50%
3. Course Project (team): 30%
TOTAL 100%

Each of these components is described in detail below. Each student’s contribution to his/her team’s
course project is going to be weighted using peer evaluation forms (see below).

Grading Class Participation. Points on participation are not lost they are gained: each time you make
a positive contribution you gain points. Grading class participation is necessarily subjective. During,
and following, each class I will take notes on your participation. These notes will be the base for my
grading, which will be based on the totality of your contribution during the term. Some of my criteria

Pricing Policy Prof. Aviv Nevo 3

for evaluating effective class participation include the following. Do your 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? Are the comments linked to comments from
others? Is the participant an effective communicator, with comments presented in a concise and
convincing fashion?

Note that your participation grade 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 airtime to that date.
This procedure, carried out over the course of the term, should help to ensure that everyone who is well
prepared and wants to contribute will have the opportunity to do so.

Assignments/Problem Sets. There are five assignments in the course. All are to be done individually.
These assignments will be made available later in the course on the course website. The due dates are
listed in the detailed Class Schedule below. The assignments will include case write-ups, analytic
problems related to the material we cover and at least one assignment including regression analysis.
Case write-ups will proceed the class discussion of the case. Analytic and empirical questions might
also be given ahead of class discussion and used to facilitate a discussion.

For the assignments involving full case write-ups, your write-up must not exceed three pages (12-point
Times New Roman, single-spaced, one-inch margins). This limit does not include exhibits such as
tables or graphs. If you use more than three pages, then you are probably including too much
information in your solution. Assume the reader is familiar with the case; do not summarize or restate
more of the case than necessary. Do not omit the obvious, but omit needless words.

The questions for each case will be provided as part of the written assignment. You only need to answer
these questions in the case write-up. In addressing the questions, please restrict your focus to
information in the case. There are often multiple ways to answer a question. Do not be concerned with
getting the “right” answer, but whichever answer you choose should be adequately supported by the
facts of the case and any further assumptions you make (which should be made clear to the reader).

Course Project. Your team (i.e. you may not work alone) will complete a course project. The goal of
the project is to apply the concepts from the course to a real pricing problem by applying the ideas
covered in class. Each team should select an interesting problem and analyze the pricing decision faced
by a firm. The pricing problem could be one currently or previously faced at work.

Do not simply present case analysis profiling an industry and its players. I want you to either use data
to analyze a pricing problem or to provide an analysis of an original pricing problem. I will be primarily
interested in your analysis. As you apply your results to analyze the pricing problem, you need to
indicate how your recommendations are justified by the analysis (i.e. data etc.).

More details on the evaluation of the project are provided below.

The timelines for the project are as follows. A one-page proposal (12-point Times New Roman, double-
spaced, 1-inch margins) describing the topic, specific goals, and proposed project plan is due on
November 2, 2017. The goal of the proposal is to help ensure that you choose an appropriate problem

Pricing Policy Prof. Aviv Nevo 4

for the project. The outline should specifically address why this is an interesting problem (see below).
The outline is completely for your benefit. I will provide feedback to projects, especially those that
appear to be in trouble.

The final deliverables are due at the beginning of one of the last two classes depending on when you
are scheduled to present. I will randomly assign the order of presentation, after the proposals are
submitted.

The final deliverables are in the form of PowerPoint slides and an in-class presentation. There is no
formal project write-up. That is, all your motivation, analysis, and recommendations must be contained
within the presentation. The presentation should be approximately 10 minutes long and we will try to
allocate an additional few minutes for questions and comments from the class. The exact time for the
presentation will vary depending on the number of groups. I strongly encourage you to include
additional supporting charts, data, or analysis in an Appendix. The Appendix may contain details that
are unnecessary to discuss in the presentation but which are important for me to consider in evaluating
the project.

Team Evaluations. At the end of the term, each student will be asked to submit a peer evaluation form.
This is your opportunity to provide me with confidential feedback on your team. I am particularly
interested in how your team experience either lent to or detracted from the success of your course
project. This is an opportunity for you to identify free-riding by other group members as well as to
recognize particular individuals in your group for exemplary performance. Each group member is asked
to submit an “effort” rating (0-100%) for all members of his/her group. The average rating across all
members will be taken as the final “effort” rating for a group member. A 90% rating implies that the
group member will get 90% of the group grades. If no “effort” rating is turned in, a default rating of
100% will be used. These ratings are due back no later than 7:00 PM ET on December 7, 2017. You
can hand them to me in person or email them by the deadline.

Pricing Policy Prof. Aviv Nevo 5

 Schedule Overview

Lecture Topic Cases Discussed Due

1 – Oct 19 Course Introduction
2 – Oct 24 Economic Value and Pricing Curled Metals Problem Set 1
3 – Oct 26 Pricing to Maximize Profits
4 – Oct 31 The Role of Costs Colonial Homes Problem Set 2
5 – Nov 2 Measuring Willingness to Pay Project proposal
6 – Nov 7 Pricing a New Product Airbnb min-case Problem Set 3
7 – Nov 9 Multi product pricing
8 – Nov 14 Segmentation & Product Line Pricing Cambridge Software Problem Set 4
9 – Nov 16 Segmentation in Practice
10 – Nov 21 Pricing over Time XM radio
Nov 23 Thanksgiving: no class
11 – Nov 28 Competition and Pricing Tweeter Problem Set 5
12 – Nov 30 Pricing and the Law
13 – Dec 5 Project Presentations Project Presentations
14 – Dec 7 Project Presentations Project Presentations
and Course Wrap-up Team Evaluations

Detailed Class Schedule

TBA

More Detail on Project Evaluation

TBA

Pricing Policy Prof. Aviv Nevo 6