Table of Contents
Session 1: Introduction......................................................................................................... 3
1.1 Marketing perspective from the consumer................................................................... 3
1.2 The Marketing Framework........................................................................................... 3
1.3 Price as a tool to divide value between consumers and sellers................................... 4
1.4 Key takeaways............................................................................................................. 5
Session 2: Customer preferences........................................................................................ 6
2.1 Issues in measuring consumer preference.................................................................. 6
2.2 Sample conjoint survey................................................................................................ 8
2.3 Optimal conjoint design issues.....................................................................................9
2.4 Putting it all together...................................................................................................10
2.5 Key takeaways........................................................................................................... 11
Session 3: Value based pricing.......................................................................................... 12
3.1 Medicines Company Case......................................................................................... 12
3.2 Economic Value to the Consumer (CLV), what is the range of feasible prices?........ 12
3.3 Key takeaways........................................................................................................... 14
Session 4: Pricing based on demand functions............................................................... 15
4.1 Recap previous chapter............................................................................................. 15
4.2 Representing consumers’ economic value.................................................................15
4.3 Demand analysis and profit maximization..................................................................15
4.4 The role of cost...........................................................................................................17
4.5 Key takeaways........................................................................................................... 18
Session 5: The psychology of pricing............................................................................... 19
5.1 Recap from the last session....................................................................................... 19
5.2 Uber surge pricing...................................................................................................... 19
5.3 Consumer rationality?................................................................................................ 19
5.4 Reference dependence.............................................................................................. 20
5.5 Quality signaling: pricing ending in 9..........................................................................22
Session 6: Price discrimination..........................................................................................23
6.1 ZipRecruiter................................................................................................................23
6.2 Different degrees of price discrimination.................................................................... 23
6.3 Implementation...........................................................................................................24
6.4 Going too far?.............................................................................................................25
6.5 Key takeaways........................................................................................................... 25
Session 7: Bundling and product line pricing...................................................................26
7.1 Product line pricing.....................................................................................................26
7.2 Bundling..................................................................................................................... 27
7.3 Product line pricing in practice................................................................................... 29
7.4 Key takeaways........................................................................................................... 33
Session 8: Metered pricing................................................................................................. 34
8.1 Metered pricing introduction....................................................................................... 34
8.2 Stylized example: printers & ink................................................................................. 34
8.3 Discussion on metered pricing................................................................................... 35
8.4 Drip pricing................................................................................................................. 37
, 8.5 Key takeaways........................................................................................................... 38
Session 9: Pricing ethics and sustainability..................................................................... 40
9.1 Price ethics.................................................................................................................40
9.2 Sustainable and socially responsible pricing policies.................................................41
9.3 Key takeaways (of sustainable/True Pricing)............................................................. 44
Session 10: Pricing dynamics............................................................................................ 45
10.1 Dynamic pricing........................................................................................................45
10.2 Pricing and customer loyalty.................................................................................... 45
10.3 Pricing and acquiring customers - CLV.................................................................... 46
10.4 Pricing and differences in adoption timing................................................................47
10.5 Pricing and temporary price promotions...................................................................49
10.6 Key takeaways......................................................................................................... 50
Session 11: Price experiments, platform pricing, auctions............................................. 51
11.1 Price experiments.....................................................................................................51
11.2 Randomized controlled experiments........................................................................ 52
11.3 Natural experiments................................................................................................. 52
11.4 Pros and cons of experiments.................................................................................. 53
11.5 Platform pricing models............................................................................................ 53
11.6 Two-sided markets................................................................................................... 54
11.7 Auctions....................................................................................................................55
Practice Exam:..................................................................................................................... 57
,Session 1: Introduction
Price is the value that is created by a company. It can be measured by ‘what are the
consumers willing to pay’ and subtracting the ‘cost to create the product’. Some of that value
stays in the company as profit, some value goes to customers as surplus/good feeling
(happiness).
1.1 Marketing perspective from the consumer
Marketing from the perspective of the consumer is:
● A way to make products and services conveniently available (Peter Drucker)
● A method to change preferences and willingness to pay (J. Kenneth Galbraith)
Peter Drucker wrote about the importance of marketing in creating a customer, i.e., in the
sense of making demand and supply meet somehow. J. Kenneth Galbraith wrote about the
problems that lead times (between product idea and product launch) cause in selling
products that were created based on information (during the ideation phase) in a market that
no longer exists (at the commercialization stage).
According to Hal Varian, Chief Economist at Google, marketing is the new finance. Now,
we’re getting a lot of really good data, we have tools, we have methods, and we have smart
people working on it. So his view is the quants are going to move from Wall Street to
Madison Avenue.
1.2 The Marketing
Framework
The Marketing Framework describes a
general process of marketing strategy
development. Here, it’s about looking
for the point (the sweet point) where
the three C’s come together
– the company has a strength, the customer has a need, and the competition doesn’t
provide it.
, Here two blocks are important to understand the structure of the market.
1. What is information that I have about my customers, my own cost function, where’s
my company good and bad at, and what allows the competition me to do?
2. What are the clear differences between my customers? You need to declare what
your customers look like (wants and needs) and do something different from the
competition.
Note that preferences can differ a lot, even when the demographics are really similar.
Therefore, determine the segments, and how you’re going to communicate to each of them.
Here, many categories can be made.
For example, value vs. availability
● Product & price
● Place/Channels & Promotion
Or strategic vs. tactical (flexible)
● Price is seen as a fast instrument, it can change on a daily basis, and responses
from the marketing are immediate.
● Product is slow to change (other half of the spectrum), e.g., Apple iPads.
○ Think about product lifecycles (e.g., iPads 7+ lifecycles).
■ Innovators, early adaptors, early majority, late majority, laggards.
● Decisions can be made daily, weekly, monthly, quarterly (place/channels), and
annually (product).
Therefore, pricing can help to continue the organization financially.
Marketing is an applied field that takes from lots of places:
1. Build on economics
2. Add in psychology
3. But always in conversation with practical marketing ‘insights’
1.3 Price as a tool to divide value between consumers and
sellers
Ultimatum Game
1. Two persons, encountering one another once;
2. Person A proposes to person B how to divide an amount of money;
3. Person B can say yes or no
a. Yes: A and B divide the money as proposed.
b. No: the money disappears and is gone forever.
