The Big Guys’ Case View as slide show Is market share a good objective? Adapted from AdPrin.com1

What decision would you make given Expected profits over five years Low-Price Strategy ?$40 million High-Price Strategy ?$80 million 2Adapted from AdPrin.com

Results: No mention about competitor % Less Profitable Decision(n) Product Not Specified17.6(17) Perfume6.7(15) Technical Product15.2(33) Weighted Average14 3Adapted from AdPrin.com

Subjects given opportunity to beat others Expected Profits Over Five Years Low Price StrategyHigh Price Strategy Big Guys (Us)$40 million$80 million Other Guys$20 million$160 million 4Adapted from AdPrin.com

Effects of information about competitors on the pricing decision Information Provided about Competitor? Type of Information Total Decisions Percent Choosing Less Profit No--65 YesBeat60 5 What percentage of people chose less profit when they were not provided information about a competitor? What percentage when they were provided information about a competitor? Once you have written your predictions, click for the answers Adapted from AdPrin.com

Further assessment of pricing decision 20-year version reduced percentage of low-profit decisions by 11%. Still, one-third of the 97 subjects selected the less profitable decision. 6Adapted from AdPrin.com

Beat others: HarmBeat Pricing33.9 (127)60.0 (24) Ex Post Pricing39.5(76)50.7 (69) “Two comparable but independent geographic regions” “Over past five years... Harry charged a high price Louis charged a low price” Same profit matrices used Results (n=sample size) 7Adapted from AdPrin.com

Effects of management training Exposure to Formal Management Training Less Profitable Decisions (n) Low Moderate High 8 Does management training help people focus on profit rather than competition? What percentage of people with the following levels of management training chose less profitable decisions? Click for the answer. 37.7%(236) 46.3%(227) 54.5%(88) Adapted from AdPrin.com

Follow-up questionnaire Of those who mentioned their competitor, 83% selected the less profitable decision. 9Adapted from AdPrin.com

Effects of Information on decisions When only information about the profits of their own company is given, most people select the high price, as economic theory would predict. Low PriceHigh Price Your Profit$40 Million$80 Million Competitor’s Profit Low PriceHigh Price Your Profit$40 Million$80 Million Competitor’s Profit $20 Million$160 Million When information about a competitor’s profit is added, most people select the low price, in order to win. 10Adapted from AdPrin.com

Based on this exercise, write a small application step for yourself, and set a deadline, preferably within one week. If you are working with someone else, share your application plan and the results of your application. Adapted from AdPrin.com For example, examine your firm’s strategy to make sure the focus is on profit instead of beating competitors (or gaining market share). 11