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Product Line Pricing: Paper Towels

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Cost and Economics in Pricing Strategy

弗吉尼亚大学

4.8（331 个评分） | 11K 名学生已注册

课程 1（共 4 门，Pricing Strategy Optimization 专项课程）

How much should you charge for your products and services? Traditionally, businesses have answered this question based on the cost to produce or provide their goods and services. This course shows you the economic factors behind pricing based on cost and the pros and cons of a cost-based pricing approach. Led by Darden faculty and Boston Consulting Group global pricing experts, the course provides the practical and research-based models and methods you need to set prices that maximize your profits. By the end of this course, you’ll be able to: --Apply knowledge of basic economics to make better pricing decisions --Recognize opportunities for price discrimination—selling the same product at different prices to different buyers—and recommend strategies to maximize sales and profits --Calculate three types of price elasticities to determine the impact of price on demand --Analyze and apply different pricing models -Cost-plus pricing -Marginal cost-plus pricing -Peak-load pricing -Index-based pricing --Evaluate the impact of channel intermediaries and customer lifetime value on pricing

查看授课大纲

您将学习的技能

Cost-Based Pricing, Channel and Direct-to-Consumer Pricing, Pricing Strategies, Price Discrimination, Price Elasticity Of Demand

审阅

4.8（331 个评分）

5 stars
272 ratings
4 stars
54 ratings
3 stars
5 ratings

MK

Jul 22, 2019

Excellent introduction to the mathematics behind cost and pricing strategies. This course gave me a lot of good information that I've already started putting into practice at work.

IC

Nov 25, 2019

Amazing! price has been most of the time an uncertainty . This course gives you the learning you need for allocating pricing strategies to the right business scenario

从本节课中

Price Discrimination

This week we'll tackle three areas that will help you improve the effectiveness of your pricing strategy. First, we'll take a look at price discrimination and how to set prices for different customer segments to maximize profits. You'll learn about the price and margin waterfall and how creating one for your business can help identify "leaks" that you can prevent. Then we'll examine volume-based pricing, or pricing differently for different volumes to encourage consumption, of a consumer product: Heinz Ketchup. When we're done, you'll be very aware of the impact package size has on your own consumption--and how to use this knowledge to price products.

Product Line Pricing Principles4:22

Product Line Pricing: Paper Towels6:16

Product Line Pricing: Ketchup5:01

Product Line Pricing: Principle 31:16

Other Incentives That Lower Costs3:01

Field Trip to Kroger's Ketchup Aisle: The Heinz Case1:55

Heinz Case Debrief1:20

教学方

Jean Manuel Izaret
Senior Partner and Managing Director, Leader of BCG’s Global Pricing Practice
Thomas Kohler
Associate Director, Pricing
Ronald T. Wilcox
NewMarket Corporation Professor of Business Administration & Senior Associate Dean for Degree Programs

脚本

The second principle is that the size of the per-unit price discount should be greater if people consume more of the item when they have a larger quantity on hand. Now, to understand this principle in detail, I'm going to have to define a new pricing metric. In particular, it's a new margin metric, and I'm going to do that now. I want to introduce an idea to you called consumption adjusted margins. I know you all know what margins are, but what are these things? What is this word sitting out front, consumption adjusted, what does it mean? Well, it means that sometimes that we have to adjust the margins to take into account a very common human behavior. And the human behavior is that a lot of times when we have more of something, we just consume more of it. Whether it's cookies, if you have the big bag of cookies, you just naturally want to eat another cookie. Or maybe it's laundry detergent, and you have a big box and you scoop a little more out of it. And you think, well does that really happen in the real world? Actually it happens all the time. In many product categories, the more you have on hand, the more you are likely to consume. So, we need to take that behavior into account when we figure out prices and margins, and how much we are really making on one size package versus another size of the same product that we are selling. So, to fix your intuition on this, let's think about an exciting product category. Let's do paper towels, okay. And let's assume that we are selling 2 sizes of paper towels. One is a 4-pack, and another is an 8-pack. And on these paper towels, we are making margins, okay. And let's assume that we're making $1 on the 4-size pack and $2 dollars on the 8-size pack. Now, where am I getting these numbers? Well, I'm sort of getting them out of the air, but they're a nice baseline. You couldn't really be making, for example, a lot more on the 8-pack than you are on the 4-pack, because if you raised the price of the 8-pack very high, then people would just buy 2 4-packs. So, this is a very nice baseline to be thinking about. So, you're making $1 on this, $2 on another, and if you want to think about this in unit margins, that's fine. That would be $1 divided by 4, and that is 0.25 per unit. And the other one, of course, is $2 divided by 8, and of course, that's going to be equivalent, it's $0.25 per unit. Okay, so it looks when we do the unit margin calculations like you're making the same amount of money per unit on either one of these 2 sizes. But, is that really true? Maybe it's not. What if when you buy the 8-pack, your consumption goes up by 20%, okay? You just have more paper towels on hand, and when you see that spill happen on you counter, you're just more likely to pull 3 paper towels instead of 2 paper towels per se, all right? So, that can easily happen a lot in these kind of markets. How do we take that into account? Well, we take that into account through consumption-adjusted margins. And the way we calculate these, and we can think about these as unit margins. So CA, that's consumption-adjusted unit margins. If we use the 4-pack as a baseline, and we know that the margin on the 4-pack is equal to $0.25 per unit. Now, what's the consumption-adjusted margins on the 8-pack, taking into account this 20% consumption expansion we know occurs? The way you do that is for the 8-pack, you take the $0.25, which is the standard unit margin that we calculated before, and you multiply that by 1 + 0.2. Where's that 0.2 coming from? It's coming from that 20% expansion. If you that, what you'll get here is, and you can check my math, you'll get a $0.30 margin per unit on that. Now, what do you do with that number? You can do a lot of different things with that number and we'll see some things in the Heinz case that we can do with that number. But, one quick thing that you can do is determine how aggressively you can promote the 8-pack, and still make as much money as you were on a 4-pack? You might reasonably believe that, look we're making more money on the 8-pack because of the consumption expansion, maybe we ought to be a little bit more aggressive in our marketing and promotion on that. So, the way we would do that, you can think about this as a break-even analysis. So, a break-even. As you ask yourself, okay, if what is the margin per unit on that 8-pack size that we could charge, and make just as much money as we're making on the 4-pack? Well, let's call that margin x. And I know that 1.2x and 2 is coming from that 20% expansion again. Whatever that number is, that has to equal 0.25. Of course, that x is going to be lower than 0.25, right? Because we can depress that price and still make that money on the consumption expansion. If you do this mathematics, you're going to get about $0.21. I'm rounding a little bit. That's not precisely correct, but it's pretty close to correct. And that's the per unit margin. What that implies is, if there's 8 units, I can charge $0.21 per unit, and what does that equal? That equals $1.68. That means I can charge not, I can make a $1.68 rather than $2 on the 8-pack size, and be making just as much money as if I sold 2 4-packs.

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