The Ohio State University Fisher College of Business
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Fisher College of Business Pricing Strategy and Tactics BUSML 7207 January 7, February 24, 2014 Class meets MW 10:15 am to 11:45 am Larry M. Robinson Ph: 614-496-2119 Office Hours: call or email to set up appointment Email: robinson.878@osu.edu Personal email : lrobin6656@aol.com Course Objectives: Develop understanding of principles managers follow to make effective pricing decisions Learn how to do economic value estimation (EVE) for a product or service offered to a specific market or for a specific use Learn how to perform managerial price sensitivity analysis (MPSA) which identifies factors that influence price sensitivity when making judgments about importance of price in a buyer’s purchase decision Recognize objective of price competition is not to win market share, but to maximize long-term profitability Learn to analyze pricing concepts related to: new products, pricing changes, bundling/versioning, yield management/revenue management & price wars Develop ability to integrate pricing decisions with product, promotion and channel management decisions Textbooks and materials The 1% Windfall: How Successful Companies Use Price to Profit and Grow, Rafi Mohammed, HarperCollins Publishers, New York, NY 2010 ISBN#978-0-06-168432-6 Cases, readings, slides and guest presentations that apply to each class session: These materials will be posted on the Carmen course site. Course web site: The course web site on Carmen has the syllabus, articles for outside reading, example projects, PowerPoint slides for guest presentations, PowerPoint slides for each week, reading list of pricing resources, article co-authored by your instructor on pricing articles published in marketing journals between 1980 and 2010 and links to additional resources about pricing. Course Overview: Professor Raymond Corey at Harvard Business School wrote in the 1960s that “Pricing is the moment of truth---all of marketing comes to focus in the pricing decision”. This course is intended to provide knowledge required to make the “moment of truth” a successful one for the firm. Our emphasis will be on strategies and tactics to set initial prices for a product or service and to react to internal and external changes as the product or service goes through its life cycle. Strategic pricing is about much more than just setting and implementing prices. It is about targeting customer segments that can be served profitably, communicating information that justifies price levels and managing pricing processes and systems to keep prices aligned with value seen, acknowledged and received by customers and potential customers. Pricing is a multidisciplinary and multifunctional subject. Financial, economic, operations, marketing and legal considerations are involved in setting and executing pricing strategies and tactics. Senior management has the responsibility to ensure pricing policies and procedures achieve optimal revenues and profits for the organization. There are many issues which require attention in developing and executing a repeatable process for pricing strategy and tactics for a company. Few business managers who participate in setting and implementing pricing strategies have formal training in this important business activity. Many business schools offer courses in pricing. As of 2013, 40 of the 50 United States business schools ever ranked in the top 30 by Business Week, USNews & World Report or Financial Times offer pricing as an elective in MBA programs. This number is up from 17 of the top 50 MBA programs which had a pricing elective in 2003. A growing number of companies have functions for strategic pricing and tactical measures for implementing prices. Pricing departments are common in such industries as pharmaceuticals, chemicals, airlines, hotels, car rentals, computer software, distribution and waste removal markets. Technology to enable and support pricing decisions is available from such publicly traded firms as Zilliant and Demandtec and privately owned companies such as PROS and Manugistics. Pricing consulting is a major area of consulting engagements at McKinsey, Deloitte, The Monitor Group and other major consultancies. A list of pricing consultants and pricing software companies can be found at www.pricingsociety.com. The professional practice of pricing management is supported by several organizations and publications. The major industry association is The Professional Pricing Society in Roswell, Georgia (www.pricingsociety.com). The Pricing Institute founded in 1987 as a division of International Institutes of Research is a firm which specializes in conferences for executives in various functions and industries. The Pricing Institute has an annual PriceX conference as a mechanism for encouraging new thinking about pricing and for addressing new ideas about pricing issues. Also, in 2000, the INFORMS Section on Revenue Management and Pricing began an annual conference co-sponsored by Georgia Tech and Revenue Analytics, a software consulting firm. See www.revenuemanagementconference.com for the current year’s conference agenda. The INFORMS section also sponsors The Journal of Revenue and Pricing Management which is published by Palgrave Publishing. The Professional Pricing Society is an excellent source of information and access to experts, conferences, webinars, blogs, white papers, books, article reviews, quarterly Journal of Professional Pricing and monthly The Pricing Advisor newsletter. The Professional Pricing Society sponsors three major conferences each year, and has developed the CPP (Certified Pricing Professional) designation. See www.pricingsociety.com for info about the conferences, access to pricing blogs, webinars, white papers, corporate members, job board, surveys of pricing professionals, and search function which accesses pricing knowledge accumulated over the 25 years of this professional organization’s history. Journals that focus on pricing strategy and management include: Journal of Professional Pricing, The Journal of Revenue and Pricing Management, Journal of Product and Brand Management, Marketing Science, Journal of Marketing, Journal of Marketing Research, Marketing Research, Harvard Business Review, McKinsey Quarterly, Across the Board, Marketing Management Magazine, Management Science, International Journal of Research in Marketing, Journal of Business, and Journal of Business Research. Another source of pricing research and information exchange is The Pricing Center at Fordham University which sponsors conferences and provides financial support for doctoral student research on pricing. These organizations and journals provide evidence that pricing is a business discipline with a body of knowledge and practice worthy of management attention in any organization. Your professor is co-author of an article published in 2011 in the Journal of Business Research on “A Citation and Profiling Analysis of Pricing Research from 1980 to 2010”. The article is posted on the course website. Pricing blogs are also a source of current information about pricing strategies. Two of the most popular pricing blogs are: “Pricing for Profit” by Rafi Mohammed, CEO of Culture of Profit LLC. Rafi’s blog can be accessed and subscribed to at: www.pricingforprofit.com. The second highly popular pricing blog is: “Dollars and Sense: The Pricing Blog” by Reuben Swartz, President of Mimiran, which is a pricing consulting and software firm. Reuben’s blog can be accessed and subscribed to at http://blog.mimiran.com . Both bloggers post a new entry at least weekly, often more frequently. Both have been doing pricing blogs since 2006. Other pricing blogs include: http://bestpracticepricing.blogspot.com/, http://pricingandvaluestrategies.blogspot.com/ and http://professionalpricingsociety.blogspot.com/. These blogs provide commentary on pricing subjects which can be accessed by subscribing to the blogs for daily updates, by visiting www.pricingsociety.com (click on “Resources” to find the URLs for several active pricing blogs) and by searching blogs for pricing subjects. A simple way to access current blogs about pricing is to sign up for daily alerts on “pricing” and/or “pricing strategy” at www.google.com/alerts. Google Alerts provides 10 items daily on any selected search term. Yet another source of current information about pricing is the Network of Pricing Champions (NOPC) discussion group on LinkedIn. As of November, 2013 this discussion group had 4,123 members. Join (NOPC) at www.linkedin.com/groups where registration is free and the discussions and networking opportunities are excellent. There are numerous books on pricing strategies and tactics, many of which have been published or updated since 2000. A widely used pricing text book is by Nagle, Hogan and Zale, The Strategy and Tactics of Pricing, 5th edition; a second widely used text is by Marn, Zawada and Baker, The Price Advantage, 2nd edition. Other popular pricing texts include: Monroe, Pricing: Making Profitable Decisions, 3rd edition; and Dolan and Simon, Power Pricing: How Managing Price Transforms the Bottom Line. The text for this course is by: Rafi Mohammed, The 1% Windfall: How Successful Companies Use Price to Profit and Grow. Other excellent pricing strategy books are included in a pricing reading list posted on the course web site. Subject matter content and process for the course: Pricing is about value, including concepts of: perceived value, value differentiation, value equivalence, value delivery, and value communication. This course provides a framework for developing economic value estimation (EVE) for a product or service. EVE (also referred to as “True Economic Value” or “TEV”) compares a product to the most readily available substitute. The value differentiations between the EVE and “next best alternative” to the product or service being priced (also called “reference product”) can be examined to determine opportunities to identify and quantify value differentiations, communicate value and deliver perceived value to customers. The EVE represents the increment of value over and above the value of the reference product. A managerial price sensitivity analysis (MPSA) helps determine which factors most influence the purchase decision. The MPSA leads to development of an implementation strategy for value capture (sometimes referred to as “value extraction”) which is the maximum amount a seller can expect to gain from a customer who is fully informed and economically rational about the product/service alternatives available to solve a problem. The implementation strategy includes a communications/education plan to increase a potential customer’s willingness to pay (WTP) for economic value received. This course applies principles which impact effective pricing management from MBA courses on Managerial Economics, Cost Accounting and Negotiations. Each session focuses on pricing concepts and issues presented for that session. Each week includes a chapter from the course text, outside reading from pricing experts and a case . Each student participates in a team project to develop a pricing strategy for a specific product or service marketed to two or more customer segments, each segment of which gains a different economic value from use of the product or service. Instructions for this assignment are posted on the course web site. Examples of previous team projects are posted on the course web site to provide templates for review by each team. Additional example projects are available for student review from the instructor. Instructions for this group project are posted. The team project can be a pricing analytics project using one of several data sets available from the instructor. The data sets are from completed assignments with actual companies who have given permission for this type of student project. Each student also does an individual project. The Pricing Audit individual project analyzes pricing strategy and tactics for an organization of the student’s choice. The analysis includes a description of the pricing situation for the organization and ratings on ten factors influencing the pricing effectiveness of the organization. The Pricing Audit report includes recommendations to achieve higher levels of pricing excellence. Instructions for this assignment are posted on the course web site. Teaching methods: Class discussion, using PowerPoint slides posted on the course web site in advance of each class session. Most slides are from consulting assignments done by PricePoint Partners where the course instructor is a full time consultant for over two years during which he has worked on nine projects for a wide variety of companies. Text chapter each week and at least one outside reading about the principles and practices described in the text chapter and slides. Case study each week which focuses on pricing principles and issues related to the readings and slides. Guest speakers--- consultants and executives who are experts in pricing strategy and tactics: There are two assignments to develop skills in analyzing pricing opportunities and issues. The assignments will be explained in our first class session. Individual project which can be a Pricing Audit or individual analysis of research done on a specific pricing related subject Group Project. for a Pricing Strategy for Two Segments OR analysis of a transactional pricing data base from a real company to determine opportunity for profit improvement through better pricing) Grading:
Pricing Strategy - Group Project (25 points): Students form a team to analyze the pricing strategy for a product/service. The analysis determines a pricing strategy for two market segments which may be thought of as two uses of a product/service. The pricing strategy will include a “Price Blossom” using some of the 50 pricing approaches described by our text (The 1% Windfall). The instructions for this project are posted on the course web site. Projects completed by teams in previous pricing classes taught by the instructor are posted on the course web site as examples. Additional examples are available for review. A group may decide their group project will be to do analysis of a transaction data base to determine opportunities for pricing changes to increase profitability. Final Exam: (50 points) in class, open book, open notes. The exam includes questions that apply concepts from the course. A case study will be part of the exam. Class Contribution: (25 points): Students are expected to contribute constructively to class discussion. Class contribution is measured by the instructor for each session. The scoring for each class session is: -1-- Absent without notice 0-- Present for class, no contribution 1-- Present for class, constructive contribution 2-- Provided insight that: built on discussion, contrasted or extended earlier discussion, and/or showed application of concepts from the readings for the session. There are 125 total points available for your grade in this course. Your highest 100 points will determine your grade. That is, the grade that is lowest will not be included in your grade computation. If the final exam is the lowest grade, 50% of the final exam points will not be included in your grade. Grade cutoffs: A = 93 or higher point out of top 100 = 90 to 92 B+= 87 to 89.99 B = 83 to 86.99 B- = 78 to 82.99 C = <78
Strategic Pricing: January 9, January 14 Formulating a profit-driven pricing strategy 2. Role in a pricing strategy of Costs, Customers, Competition, Capacity and Communication 3. Leverage of 1% improvement in prices 4. Intro to course assignments (group project, individual project) Text: Introduction The 1% Windfall (pp xi-xxix) January 16, January 17: The Foundation of Pricing: Value-Based Pricing Better pricing involves setting prices that capture the value of a product or service Value-based prices for selling one product to a customer and for selling one product to multiple customers Process for one-on-one pricing Characteristics that differentiate products Why some customers are willing to pay more than others Process for multiple customers pricing Profit maximize analysis to select prices associated with highest profits Methods to develop demand curves Variables that change value-based prices Text: Chapter 1: Capture Value by Thinking Like a Customer Article: Elisabeth A. Sullivan, “Value Pricing”, Marketing News, January 15, 2008, 8. Article: Robert J. Dolan and John T. Gourville, “Pricing Principles”, Harvard Business Note 9-506-021, January 12, 2006 Case: Atlantic Computer: A Bundle of Pricing Options January 21 Discussion of term projects Article: Robert J. Dolan, “How Do You Know When the Price Is Right?” Harvard Business Review, Sept-Oct 1995, pp 4-11 January 23: Versioning Modifications can attract new customers or entice existing buyers to trade up to earn higher profits Versioning tactics: premium attributes, stripped-down basic products, unique customer needs Premium attributes: higher quality, guaranteed access, priority access, faster product, better coverage Stripped-down tactics: lower quality, more restrictions, unbundling, off-peak, private label, lower benefits Unique customer needs: packaging, warranties, clubs, bundling, platforms, usage purpose Text: Chapter 3 Versioning Article: Carl Shapiro and Hal Varian, “Versioning: the Smart Way to Sell Information”, Harvard Business Review, November-December, 1998, pp 106-114 January 28, The Strategy of Pricing and “Pick A Plan”, Pick-a-plan offers new pricing plans that activate dormant customers interested in a product but who do not want the pricing approach offered for the product Customer differences include: desire a different pricing plan; have unique needs; value a product differently Different pricing strategies for each key customer difference: pick a plan, versioning, differential pricing---this week focuses on pick a plan Pick a plan strategy activates dormant customers who won’t buy under the basic pricing plan Tactics include: ownership alternatives, uncertain value, price assurance and financial and other constraints Ownership alternatives recognize some customers don’t want to own the product Uncertain-value tactics reduce risk for customers Price certainty options allow customers to reduce/eliminate swings in price Plans that address financial constraints allow customers to spread out payments Text: Part Two intro The Strategy of Pricing (pp 27-32) and Chapter 2 “Pick a Plan” January 30, Differential Pricing, Price customization for customers who are willing to pay more and for customers who are willing to pay less than the one fixed price Differential pricing is strategy for selling same product at different prices to different customers Differential tactics: hurdles, customer characteristics, selling characteristics, selling techniques Hurdles: rebates, periodic discounts, coupons, price-match guarantee, distribution options, time in sales cycle with lower prices over time for a product Customer characteristics: geography, readily identifiable traits, club status, customer history Selling characteristics: quantity, mixed bundling, next-best alternative Selling strategy: negotiation, two-part pricing, metering, dynamic pricing The McKinsey Pricing Framework: Transactional, Product/Market and Industry Level Text: Chapter 4: Differential Pricing Article: Michael V. Marn and Robert L. Rosiello, “Managing Price, Gaining Profit”, Harvard Business Review, Sept-Oct, 1992, pp 84-94. This article provides the pricing analysis framework developed by McKinsey, which is the basis for The Price Advantage text which is a popular text for MBA pricing strategy courses. Case: The Monarch Battery case in The Price Advantage, pp 220-236. This case is available on the internet. It is posted on the course site for your reading and preparation for class discussion for this session. February 4, Implementation: Use Price to Profit and Grow—Offensive Pricing: Create a Pricing Blossom Strategy, A pricing blossom strategy is a set of publicly known prices and plans composed of a value-based price, pricing plans to attract new customers, product variations that meet unique customer needs and higher/lower prices for specific customer groups Seven steps to create a retail pricing blossom strategy: Always set a value-based price Sometimes offer pick-a-plan tactics Usually offer “good, better, best” versions Sometimes offer one or two product versions that meet some customer’s needs Always offer two or three differential prices Set prices for each tactic of a pricing blossom strategy Conduct a cannibalization check Avoid cannibalization which is when full paying customers take advantage of discounts not intended for them Pricing tactic templates for professional services, other services, retailers A B2B wholesale pricing blossom strategy has two phases: for end users and for retailers A “Marco Polo” pricing is the beginning step of a pricing blossom: listening to customer needs and responding with tactics to best serve them A pricing blossom strategy is important for non profits to invest in improving services Text: Intro to Part 3: Implementation: Use Price to Profit and Grow (p113) and Chapter 5, Offensive Pricing: Create a Pricing Blossom Strategy Article: Frederick H. deB. Harris and Peter Peacock, “Hold My Place Please”, Marketing Management, Fall, 1995, pp 34-46. Article: Timothy Aeppel , “Changing the Formula: Seeking Perfect Prices, CEO Tears Up the Rule Wall Street Journal, March 27, 2007, pp A1, A16. Case: Avari Ramada Hotel: Pricing Hotel Rooms Ivey case: 314-PDF-ENG February 6: Implementation: Use Price to Profit and Grow—Offensive Pricing: Create a Pricing Blossom Strategy-Pricing New Products, Pricing Over the Product Life Cycle, Negotiations Strategy for Offensive Pricing 1. New Product Pricing: Me-Too, Innovative, Revolutionary Steps in determining price for a new product/service offering Pricing issues for each stage of the product life cycle 4. Negotiations strategy for five types of customer Text: Intro to Part 3: Implementation: Use Price to Profit and Grow (p113) and Chapter 5, Offensive Pricing: Create a Pricing Blossom Strategy Article: Michael V. Marn, Eric V. Roegner, Craig C. Zawada, “New product Pricing”, McKinsey Quarterly, 2003, Issue 3, pp 40-8 Article: Tim Matanovich, “Staying Out of Trouble with Innovation”, Marketing Management, March-April, 2004, pp14-15 Case: Keurig At Home: Managing a New Product Launch February 11: Defensive Pricing: Recession, Inflation and New Competitors Market changes that require companies to reset pricing strategy: recession, inflation and entry of a new competitor Recession may lead to “trading away”: maintain price and create a decreased-demand pricing blossom strategy with discounts Recession may lead to “trading down”: temper increases and crate an increased-demand pricing blossom strategy to increase margins Inflation can be “demand-pull”: when prices of inputs rise which reduce margins—raise value-based price, offer higher quality versions, scale back differential pricing tactics Inflation can be “cost-push”: create a decreased demand pricing blossom strategy New rival: maintain value-based price, establish and communicate relative value, create a new-competitor pricing blossom that provides discount opportunities, locks in customer demand and attracts new customers. Text: Chapter 6: Defensive Pricing: Recession, Inflation and New Competitors Article: Akshay R. Rao, Mark E. Bergen and Scott Davis, “How to Fight a Price War” Harvard Business Review March-April 2000, pp 107-16 Note: George E. Cressman, Jr. “Dealing with “Dumb” Competitors”, The Pricing Advisor, A Professional Pricing Society Publication, April, 2003, pp 1-2. Case: Chembright, Inc.: February 13, Create a Culture of Profit: A Company Environment That Promotes Profits and Growth, Making a Pricing Action Plan Phase 1: Develop a mind-set that encourages pricing for profits and growth Phase 2: Set a value-based price Phase 3: Implement a differential pricing by offering a range of prices Phase 4: Create product versions A culture of profit is a business environment that supports and encourages all associates to price for profit and growth A culture of profit involves implementing 13 principles in corporate philosophy, foundations and ongoing initiatives Six principles for corporate pricing philosophy: Set prices to capture value customers place on a product It is possible to achieve both market share gains and higher profits High-volume customers do not have to get the lowest prices A discount today does NOT guarantee a premium tomorrow Higher operating margins are NOT a sign of better pricing An across-the-board discount is NOT the best response to reduced sales volume Two principles for foundation confidence in the product(s) of the company: Create a value statement to encourage employees to highlight and capture value Reinforce that it is ok to earn higher profits Five principles for ongoing initiatives: Speak and sell in terms of net prices Organize and collect competitive information Monitor the value of products as perceived by customers of the product category Incorporate profitability into compensation packages to align incentives Host periodic pricing roundtables to focus attention on pricing and profitability Phase 5: Provide pick-a-plan options Phase 6: Continue better pricing with ongoing initiatives Result of the six phases: a pricing blossom strategy and a culture of profit Text: Chapter 7: Create a Culture of Profit Article: George E. Cressman, Jr., “Why Pricing Strategies Fail”, Journal of Professional Pricing, Second Quarter, 2009, pp 18-22. Text: Chapter 8: Make a Pricing Action Plan Article: James C. Anderson and James A. Narus, “Business Marketing: Understand What Customers Value” Harvard Business Review, November-December, 1998, pp 5-14 Article: John E. Hogan and Jamie Rappoport, “Pricing in the New Market Reality, Pricing Advisor Newsletter, 3rd Qtr, 2010 February 18, February 20, Pricing Project Presentations, Each team will give a presentation summarizing the analysis and recommendations from their course group project on pricing strategy for a product/service sold to two market segments or for data analysis of a company’s pricing for all transactions for a year. February 24 Final exam: Take home exam, open book, open notes. Cases in BUSML7207, Spring, 2014: Atlantic Computer: A Bundle of Pricing Options: Business to business, marketing, pricing, pricing strategy. Atlantic Computer, a leading player in the high-end server market, has detected a marketplace opportunity in the basic server segment. They have developed a new server, the Tronn, to meet the needs of this segment. In addition, they have created a software tool, called the "Performance Enhancing Server Accelerator," or PESA, that allows the Tronn to perform up to four times faster than its standard speed. The central question revolves around how to price the Tronn and PESA. Although cost-plus, competition-based, and status-quo pricing are the most common means by which firms establish prices for their offerings, these approaches may prevent firms from fully realizing the benefits that are due to them. Provides an opportunity to optimize value capture for the firm by utilizing value-in-use pricing (i.e., examining the value that a firm's offering creates for the customer, and using the savings generated as the basis for developing prices). Also allows for the exploration of the challenges surrounding the implementation of a value-in-use pricing strategy. These include the reactions of competitors, customers, and stakeholders within the firm. This case allows contrast of a customer-focused approach to pricing (value-in-use) with company-centric (cost-plus), competitor-based (competition-based), and status-quo approaches. The case also provides an opportunity to calculate the price of a new offering utilizing the traditional approaches to pricing as well as value-in-use pricing, and then evaluate the respective approaches to see which yields optimal value capture for the firm. Also you can consider how other important stakeholders (competitors, customers, internal managers, and the sales force) potentially impact implementation of pricing strategy. Discussion questions: Quantify the pricing options Jason Jowers is considering as listed on page 6 of the case: status quo, competitive, cost plus, and value-in-use. What price should Jason Jowers recommend for the sale of two Tronn computers plus the PESA software tool to the exemplary customer DayTraderJournal.com? Approximately how much money would be “left on the table” if Atlantic Computer were to give away the PESA software tool (which was the industry practice for new software tools) for the years 2001-2003? How might Chris Matzer likely react to Jason’s recommended pricing? How might Cadena’s sales force react to Jason’s recommended pricing? How might prospective customers in the “basic server” market segment react to Jason’s recommended pricing? How might Ontario Zink’s senior management react to Jason’s recommended pricing? What should Atlantic Computer do to mitigate the likely reactions from questions 4 through 7? Monarch Battery: Using Value-Based Pricing for Profitable Growth (posted on course site from internet download) This case is included in The Price Advantage text book used in this course from 2004-2009. The case shows how the McKinsey framework can be used to gain the “1% improvement in pricing results. The case starts with a description of an industry that has suffered for many years no growth in profits. The replacement auto battery industry has three major competitors, each with its own product lines and distribution systems. The case presents the situation at three levels of pricing management: transaction level (the price for each unit sold to any customer through any distribution system), the product/market level (the relative price/value/benefits of each product item marketed by each of the three competitors) and the industry level which is about behaviors that promote or inhibit the revenues and profits of the market for replacement auto batteries. We get to see the “before” and “after” from actions taken by management to get the “1%” improvement (“advantage”). Discussion questions:. What issues were identified at the transaction level of pricing excellence? What actions were taken to address the transaction level issues? What issues were identified at the product—market level of pricing excellence? What actions were taken to address the product—market level issues? What issues were identified at the industry level of pricing excellence? What actions were taken to address the industry level issues? The answers to these questions will be posted on the course web site prior to class. Our discussion will be about how to generalize the issues and actions taken to other situations you might encounter as an internal consultant at your company or as an external consultant working for a consulting firm with a client who needs pricing improvement Keurig At Home: Managing a New Product Launch 1. How will partners (roasters, Keurig Authorized Distributors (KADs), Office Managers) be impacted by Keurig At Home? 2. How much value will be created by Keurig At Home? 3. Keurig At Home is a two-product sale (brewer and K-Cups) of complementary products. What price should Keurig charge for the brewer and what price should Keurig charge for the K-Cups? 4. When in the product development process should Keurig have determined the prices for the brewer and the K-Cups? 4. Who should Keurig define as being in the target market for Keurig At Home Avari Ramada Hotel: Pricing Hotel Rooms In December 1988, Mr. Tahir Raza Mian, assistant sales and marketing manager at the Avari Lahore Ramada Renaissance Hotel (Avari), was concerned about the average room rate at the hotel. For the first time since operations began in Lahore, Avari's average room rate had fallen below that of its main competitor, Pearl Continental Hotel. Tahir felt that he needed to re-evaluate Avari's current pricing policy in order to develop a plan to remedy the situation before the beginning of the new year. Learning Objective: This case study is focused on pricing a service with high fixed costs and low variable costs. Principles of yield management are important considerations. A reading assigned for this week on “Hold My Seat….” Will help understand an approach Mr. Tahir Raza Mian’s could use to solve his problem in 2011. We know though it would not have been possible for him to use the approach fully in 1988, so our discussion will be about what he could have done using a “Price Blossom Strategy”. Discussion questions: What are the pros and cons of focusing success on occupancy rates and/or on average room rate? Design a Pricing Blossom strategy for Avari which will use price to increase profits for the coming year and beyond. ChemBright, Inc: Why was R.J. Poulson lowering the price for bleach, ammonia, and softener to New England grocery chains? What options does Steve Vitale have to respond to the pricing announced by R.J. Poulson? What actions should ChemBright take to end the price war? 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