Signaling Games

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Del curso dictado por University of Virginia

Pricing Strategy in Practice

69 calificaciones

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University of Virginia

Pricing Strategy in Practice

69 calificaciones

Curso 4 de 4 en SpecializationPricing Strategy Optimization

In this project-centered course, Darden's Ron Wilcox and BCG's Thomas Kohler will walk you through a real-world case, from problem statement to detailed analyses. You'll use all three lenses (cost, customer value, and competition) to recommend an optimal price—and then adjust to market disruptions. Utilizing the concepts, tools and techniques taught in previous Specialization courses—from basic techniques of economics to knowledge of customer segments, willingness to pay, and customer decision making to analysis of market prices, share, and industry dynamics—you will practice setting profit maximizing prices to improve price realization. You'll finish the course with a portfolio-building project that demonstrates your pricing prowess.

De la lección

Curveball

This week, you will respond to new developments in the LED light bulb market: a new competitor and new regulations. Just like in real life, you'll need to adjust your strategy when the competitive landscape changes and new regulations emerge and reconsider the retail marketplace and reevaluate the B2B market. You'll also head out into your own "real world" and do some detective work about the LED bulb market in your area and relate those finding to the case. We'll finish the course with BCG pricing experts sharing their insights into what makes pricing such a rewarding field.

Signaling Games4:24

Extensive Form Signaling Games7:26

Gas Wars and Takeaways4:37

Competitor Pricing Models3:13

Competitive Price Moves: Understand Competitive Dynamics9:11

Competitive Price Moves: Assess Your Options6:15

Competitive Price Moves: Choose and Execute Best Move4:11

Conoce a los instructores

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

So, now I want to talk to you about signaling games.

Now, signaling games are a particular type of sequential game.

What is a sequential game mean?

It means that one of the players gets to move first.

And the other player observes what they do before they make their own decision.

So signaling really involves the selective communication of

information to potential rivals to influence their belief and

change behavior and it does so through a series of commitments.

Here is the way you want to think about this.

In a signaling game, I go before the world and I say,

here I am, I have done this thing that is very difficult.

And if I weren't who I say I am,

I would have not been able to do this difficult thing.

It would have just been way too hard, so

because you see me do it, you should believe exactly what I say about me.

For example, people like to signal to the world that they're smart,

what's one way to do that?

You can get an MBA, that is a signaling mechanism, why?

Because in order to get an MBA from the Darton school,

you have to come to the Darton school for almost two years.

You have to work very hard, you have to spend a certain amount of money.

And what the individuals that come to Darton say is,

look, I have gone through this difficult process.

I have learned all of this material.

I've passed my classes.

I've paid my money.

And I'm making a bet on myself that I can go out into the world and do great things.

And you should believe me because I went and got my MBA.

And if I wasn't that bright, if I wasn't that capable,

there's no way I would have been able to go do this.

So people like to signal that they're smart.

Some people also like to signal that they're wealthy.

They may go buy very expensive jewelry.

This looks like a very expensive piece of jewelry.

And what they're telling the world is, if I was poor, there is no way

I could get enough money to buy this beautiful diamond ring sitting right here.

So the fact that I'm wearing this beautiful diamond ring means to you,

I'm wealthy.

This is a credible view,

a credible commitment to the signal to you that I'm wealthy.

So, signaling is very common in nature.

I just gave you a couple of human examples, but some of you may know this.

Animals signal all the time.

Look at this peacock.

What is this peacock saying?

It's got the beautiful tail feathers.

It's saying, here I am, I'm big, I'm beautiful, I'm strong,

I'd make a great mate.

That's what that peacock is saying.

This kind of competition in mating behavior happens in the animal kingdom all

the time and

generally it happens through signaling, not fighting between animals but

animals doing things that are difficult for weaker less beautiful animals to do.

And in so doing that, they send a credible signal to their mate that,

yes, I am indeed good mate material.

Now, signaling happens in the pricing world as well, and

that's really what we're interested in.

So let's think about this basic signaling game.

One, we have an incumbent and an entrant.

An incumbent means you've been in the market for a while,

you kind of know what's going on in the market.

And then an entrant means you're new, right,

you haven't been doing business in this space.

An incumbent business sets a price before another business enters the market.

That's realistic.

An entering firm is going to be able to see an incumbent firm's

price that they have out there.

The incumbent knows when they set the price whether the market conditions

are good or bad, you can think about this as being,

the incumbent knows what the demand conditions are, right?

We've talked about demand conditions in the course, sometimes it's hard for

an entrant to know what those demand conditions are, but

an incumbent is going to have a much better idea.

The entrant just is more ignorant.

However, what the entrant does see is it sees the price set by the incumbent.

The incumbent chooses a price and then the entrant decides,

based on that price which might have some information in it,

whether they're really going to decide to enter the market or not.

And in the next module coming up,

I'm going to show a very formal example of just this type of game.

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