978-0136074892 Solution Manual Chapter 09 Part 2

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·Periodic discounting

·Flat-rate versus variable-rate or per-use pricing

·Other pricing mechanisms

4. Competing against private labels

·Ways to defend brands against private labels include:

·Add value in ways discussed earlier in this chapter

·Develop new market segments that are less price sensitive

·Build stronger relationships with the channels of distribution

·Prune product lines of sizes or flavors that are not generating

profits for the retainer

·Raise the barriers to entry for private labels by investing in

better customer databases and retention programs

(information technology)

H. Pricing and the Internet

1. Allows quick price comparisons between websites

2. Companies that have both online and offline businesses give

inducements to shop online (lower costs of order processing and ability

to instantly integrate information into corporate information systems

3. Companies are underestimating their ability to build online brands and

charge higher prices

4. Auctions have become a popular market pricing mechanism

I. Global Pricing Issues

1. Consistent global pricing policy is different to implement because of

fluctuations in exchange rates, tariffs, and other taxes that are added onto

imported goods, and price-quality effects of the country of origin.

2. Table 9.4 Page 275 Export Strategies under Varying Currency

Conditions Shows different pricing and other policies under different

currency conditions.

Teaching Tips and Strategies from Barbara S. Faries, MBA

The purpose of this chapter is to introduce the concepts involved with strategic

price setting.

Key Terms and Concepts Introduced Include:

·Customer value

·Price discrimination

·Price bands or tiers

·Reservation price

·Pricing elasticity of demand

·Value-in-use

·Dollarmetric measurement

·Conjoint analysis

·Field experiments

·Penetration pricing

·Market share pricing

·Skimming

·Prestige pricing

·Return on sales pricing

·Investment pricing

·Competitive pricing

·Reference price

·Price bundling

·Product-line pricing

·Complementary pricing

·Value pricing

·Periodic discounting

·Flat-rate vs. variable rate pricing

Note: Two recurring themes in this Instructor’s Manual are the first two items:

·Link theory to practice.

·Engage students to link work experience to the concepts demonstrated in

the text.

·Instructors are encouraged to link theory to practice by finding current examples

in the business environment that demonstrate the key concepts above.

·If your class contains those already working in the field, have them describe how

the concepts in theory match those in the actual workplace.

I always find teaching pricing interesting, as some students will know very little,

while others have been actively participated in pricing situations. This chapter clearly

divides situations and settings where certain pricing practices and strategies are used.

I always encourage discussions regarding the connection between the marketing

strategy(ies) and pricing policies. What have been their observations in the marketplace? In

their workplace? If they’ve observed disconnects, how could have this been remedied or

mitigated?

Often, students automatically think that the best market strategy is to be the low

cost seller. (I term this a “WalMart mentality.”) This is a good topic for students to discuss

as it relates to various levels of goods and services.

Another discussion that I find helpful is to talk about pricing practices at various

stages of the product life cycle. If they have current business examples, I have them

analyze them.

Last, I often ask them to discuss the way the reality of price setting in the

workplace. (As an executive, I have found very high profile companies not think through

their pricing or connection to their strategy. Or, I simply see them use a cost-plus

methodology.)

Suggested Supplemental Reading

A recent article from The McKinsey Quarterly (August 2010), “Building Better

Pricing,” can offer additional background in construction of pricing strategies. According to

the article, “Well-managed companies already recognize the critical role pricing plays in

driving performance. A foundation that underpins excellence in pricing is the key to

realizing its potential.”

Instructors may want to read it for background or share with students. Link to the article is:

https://www.mckinseyquarterly.com/Building_a_better_pricing_structure_2652

Review Questions

1. Why is the marketing strategy so important to the pricing decision? Can you think of

some examples in which the strategy and the price appear to be inconsistent?

2. Find other illustrations of companies that have set prices lower than customer value.

Do you think they were set that way intentionally? If so, why?

3. Suppose your company had just developed a new TV set that had TiVo (the digital video

recorder) built into it. What steps would you go through to determine how much more

you would charge (if anything) for such a TV over the stand-alone price?

4. What other products and services exhibit a strong correlation between price and

perceived quality? Are marketing strategies different for such products than for those

for which there is no such natural relationship?

5. What are the implications for consumer welfare (i.e., privacy, safety) of the

proliferation of auction sites on the Web? Are there any regulatory implications?

6. Develop arguments pro and con with respect to customized pricing. What are the

differences in implementing the policy across different product types, e.g., B-to-B,

consumer durable, consumer frequently purchased, and services?

This may be an excellent question to use as an in-class exercise or as a separate project.

In short, customized pricing like customized products have been enabled by advances in

information technology. This can enlarge certain companies’ markets giving them the

ability to achieve greater volumes of sales, customizing products by region or by culture,

etc.

Exercises, Activities, and Projects

Purpose: To help students link theory to real life.

To demonstrate the important implications of pricing issues.

·Have the students engage in a discussion regarding “real-life” pricing situations

in which they may have been involved.

·Have the students research various companies’ pricing strategies and policies.

(Companies of their own choosing or that instructor chooses.)

·Have the students discuss “The WalMart” approach to pricing. When does it pay

to be the low cost seller? How cans this work against a company? How does this

affect positioning and differentiation?