978-0077729028 Chapter 15 Answers To End Of Chapter

Type

Solution Manual

Book Title

Marketing 5th Edition

ISBN 13

978-0077729028

April 8, 2019

Chapter 15 - Strategic Pricing Methods Marketing 5th

Answers To End Of Chapter Learning Aids

Marketing Applications

1 Suppose you have been hired as the pricing manager for a drugstore chain that

typically adds a fixed percentage onto the cost of each product to arrive at the retail

price. Evaluate this technique. What would you do differently?

The benefit of this type of cost-based pricing is that it is relatively simple to use and

2 Some high fashion retailers, notably H&M and Zara, sell what some call “disposable

fashion”—apparel priced so reasonably low that it can be disposed of after just a few

wearings. Here is your dilemma: You have an important job interview and need a new

suit. You can buy the suit at one of these stores for $129 or at Brooks Brothers for

$500. Of course, the Brooks Brothers suit is of higher quality and will therefore last

longer. How would you use the two value-based approaches described in this chapter

to determine which suit to buy?

The two value-based approaches are improvement value and cost of ownership method.

Improvement value represents an estimate of how much more or less consumers are

3 A phone manufacturer is determining a price for its product using a cost-based pricing

strategy. The fixed costs are $100,000, and the variable costs are $50,000. If 1000

units are produced and the company wants to have a 30 percent markup, what is the

price of the phone?

If the company wants to have a 30% markup, they should charge $195 per phone. In

4 Identify two stores at which you shop, one of which uses everyday low pricing and

another that uses a high/low pricing strategy. Do you believe that each store’s chosen

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Chapter 15 - Strategic Pricing Methods Marketing 5th

strategy is appropriate for the type of merchandise it sells and the market of

customers to whom it is appealing? Justify your answer that customers

Student’s answers may vary. Stores like Walmart offer customers an EDLP strategy.

Many department stores like Dillard’s, Kohl’s, and sometimes even Target, offer a

5 As the product manager for Whirlpool’s line of washing machines, you are in charge

of pricing new products. Your product team has developed a revolutionary new

washing machine that relies on radically new technology and requires very little water

to get clothes clean. This technology will likely be difficult for your competition to

copy. Should you adopt a skimming or a penetration pricing strategy? Justify your

answer.

Price skimming is a strategy of selling a new product or service at a high price that

innovators and early adopters are willing to pay in order to obtain it. After the

6 What is the difference between a cumulative and a noncumulative quantity discount?

A cumulative quantity discount is a pricing tactic that offers a discount based on the

7 If you worked for a manufacturing firm located in Oregon and shipped merchandise

all over the United States, which would be more advantageous, a zone or a uniform

delivered pricing policy? Why? What if your firm were located in Kansas—would it

make a difference?

With a uniform delivered pricing tactic, the shipper charges one rate, no matter where

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Chapter 15 - Strategic Pricing Methods Marketing 5th

8 Coupons and rebates benefit different distribution channel members. Which would

you prefer if you were a manufacturer, a retailer, and a consumer? Why?

Coupons offer a discount on the price of a specific item when the item is purchased.

Coupons can be issued by manufacturers and retailers.

9 Suppose the president of your university got together with the presidents of all the

universities in your athletic conference for lunch. They discussed what each

university was going to charge for tuition the following year. Are they in violation of

federal laws? Explain your answer.

Horizontal price fixing occurs when competitors that produce and sell competing

products collude, or work together, to control prices, effectively taking price out of the

10 Imagine that you are the newly hired brand manager for a restaurant that is about to

open. Both the local newspaper and a gourmet food magazine recently ran articles

about your new head chef, calling her one of the best young chefs in the country. In

response to these positive reviews, the company wants to position its brand as a

premium, gourmet restaurant. Your boss asks what price you should charge for the

chef’s signature filet mignon dish. Other restaurants in the area charge around $40 for

their own filet offerings. What steps might you undertake to determine what the new

price should be?

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Chapter 15 - Strategic Pricing Methods Marketing 5th

This question asks students to consider the importance of marketing research in setting.

The brand manager should conduct focus groups to determine what prices consumers

11 You have been hired by a regional supermarket chain as the candy and snack buyer.

Your shelves are dominated by national firms, like Wrigley’s and Nabisco. The chain

imposes a substantial slotting fee to allow new items to be added to their stock

selection. Management reasons that it costs a lot to add and delete items, and besides,

these slotting fees are a good source of revenue. A small, minority-operated, local

firm produces several potentially interesting snack crackers and a line of gummy

candy, all with natural ingredients, added vitamins, reduced sugar, and a competitive

price—and they also happen to taste great. You’d love to give the firm a chance, but

its managers claim the slotting fee is too high. Should your firm charge slotting fees?

Are slotting fees fair to the relevant shareholders—customers, stockholders, vendors?

Slotting allowances are fees paid to retailers simply to get new products into stores or to

gain more or better shelf space for their products. Firms that demand large slotting

Net Savvy

1 Go to www.coupons.com. In which product categories does this website offer

coupons? Choose a product from each category.

• How effective are coupons for selling these types of products? Why?

• Do any sellers offer rebates through this website? Why or why not?

• What are the benefits to the seller of using Coupons.com instead of offering

coupons in a newspaper?

• How do you think coupons.com makes money? For example, consider what

companies are advertising on the site. Do the same companies who advertise on

their site offer coupons?

Students answers will vary based on the product category they choose. Ask students if

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Chapter 15 - Strategic Pricing Methods Marketing 5th

12 Visit the website for Bag, Borrow, or Steal (www.bagborroworsteal.com) and select

handbags. Click on the “Handbags,” then choose,”Gucci,” in the Designer category

on the left column, and then “Sort by” Price. What is the difference between Gucci’s

highest and lowest priced bags? Notice that if a product says “Waitlist,” it has already

been borrowed, but if it says “Borrow,” then it is available for you to borrow. Are the

bags that are waitlisted the highest priced or the lowest priced? How would you

determine the price it charges to rent a bag?

Students’ answers may vary depending on the assortment that Gucci is offering at the

time. The lowest priced item on Bag, Borrow, or Steal for Gucci is $45.00 per month for

Chapter Case Study: Price Wars In The Cellular Market

1 Who are the key players in this industry?

13 If a price war will reduce margins, as the case suggests, why would any company

embrace this strategy?

Because there are low barriers to exit for customers, mobile companies cannot increase

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Chapter 15 - Strategic Pricing Methods Marketing 5th

14 On what other strategy elements could the wireless companies compete?

Companies now are competing on data plans and other phone options. Companies can

15 What pricing tactics could Verizon use to target consumer customers?

16 What pricing tactics could Verizon use to target business customers?

Additional Teaching Tips

This chapter focuses on pricing strategies, pricing tactics, and ethics of pricing. Students

are introduced to the idea of tying marketing strategy to pricing strategy to achieve a

desired outcome (gain market share, become a brand name, market bundled products,

etc.). What is important for students to learn is that the pricing must not only considered

fixed cost, variable costs, and break-even-point, but it also must take into

consideration the marketing goal of the company for that product , the current dynamics

of the market place, and a focus on what their target market will pay.

Instructors should spend some time relating the pricing strategies to the marketing goal

using Exhibit 15.1 below. Students may be under the false impression that all that pricing

has to do with is maximizing profit margin. That is true in some cases but not in other

cases. As the Apple vs. Amazon.com case points out, profit can be won through

economies of scale with pricing less per unit but selling more in volume. It’s important

to point out how value and perception affects the pricing strategy as well. The Net Savvy

on the purses points this out as well. Why pay three times as much for a specific brand

name when there are comparable products on the market. The consumer is willing to pay

for the brand name because they perceive added value and are willing to pay for that

(whether it be in image, quality, or scarcity).

The majority of the chapter focuses on the many pricing strategies listed in the Key

Terms. Instructors may want to use the following critical thinking exercise for students.

Divide the class into teams of 4 or 5. Give each team a note card in which the instructor

has written down 5 or 6 of the pricing terms. Teams are equipped with half-sheet

transparencies and markers. They are to keep their list of pricing strategies confidential.

The students work in a team to create one story problem per transparency for each of the

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Chapter 15 - Strategic Pricing Methods Marketing 5th

words. The problems must be enough that the students who will evaluate the pricing

strategy are able to determine the price. Instructors can visit each team and assist with

the creation of the story problems and/or review their story problems for presentation.

Have students include the answer at the bottom of the transparency but have students

cover the answer up when they present the problems to the rest of the class in a

game/competition. One member of team 1 presents each of the story problem, teams 2,

3, 4 each compete to determine the correct pricing strategy, and either the instructor or a

volunteer keeps score. 1 point for correct answer but teams can also lose a point for

determining the wrong answer. The team with the most points wins. Perhaps they receive

2 points on the next quiz.

Example:

I am the makers of Wii and have come out with a brand new skateboard game new to the

market that comes with an imitation board. No one else has this type of technology and

the game is in high demand. My goal is to maximize profits. What type of pricing

strategy would I use?

Answer: Prestige pricing (not revealed until the other teams have had an opportunity to

answer)

NOTE: This exercise will take some time but it does make the students critically think

and apply the pricing strategies. The instructor may want to allow the class to use their

books in deciphering which pricing strategy is being presented though they should have

pre-read the chapter and have a general knowledge of pricing strategies before being

assigned this exercise.

On-line Tip: Assign each student (in confidence) a pricing strategy. Have the student

develop a story problem. Meet on the synchronous platform to present the challenge

game using the same outline as above. Have each student present their word while the

other students try to evaluate what the pricing strategy is. Instructors can also make this a

team game in synchronous mode by first assigning a group of pricing strategies to each

group then competing in teams.

Remember to review the Newsletter for Instructors and its accompanied PowerPoint

presentation, which integrates examples and discussion from the newsletter. Each

newsletter contains over ten article abstracts on hot topics, plus a selection of current

commercials and videos for you to use with your class. The newsletter also includes a

guide that explains where the articles, commercials, and videos best fit in your Marketing

course.

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