978-0077861049 Chapter 1 Solution Manual

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Part IV

CHAPTER 1: MARKETING’S VALUE TO CONSUMERS,

FIRMS, AND SOCIETY

CHAPTER 1 – COMMENTS ON QUESTIONS AND PROBLEMS

1- 1. This question is intended to stimulate the same kind of thinking that is prompted by the

introduction to the chapter. The point is to encourage students to take a more personal view of

marketing – and how it affects their lives. Clearly, different students will provide different types

more depth about the thrust of the chapter – and they will deal with a broader set of activities

and marketing influences.

in the context of an important new technology. Even so, it deals with the question of whether it

is “enough” just to develop a good new product that serves an important need. It is certainly

possible that web–surfing consumers – on their own initiative – are able to use the Internet to

the Internet, few consumers are likely to stumble across information that they need. There are

software tools that make it efficient to find information that they know they want, but if they

don’t know they want it, they won’t look.

the micro view of marketing is concerned with how individual firms do and/or should operate. In

a market–directed economy, the actions of individual firms and consumers pretty much

only part of the macro–marketing system, and that their role and apparent efficiency may be

affected by others – including consumers and the government; i.e., consumers acting through

1- 4. Answers to this question will vary from student to student. The point of the question is to

prompt the student to think more deeply about the concepts of separation of information and

separation of time between consumers and producers. Take a look at Exhibit 1-1 in the text.

Separation of time results because consumers may not want to consume goods at the time

Separation of information occurs because producers do not know who needs what, where,

when and at what price. Consumers do not know what is available from whom, where, when

If the instructor wishes, this question can be used to preview the special problems that

sometimes arise in “service” firms as they try to overcome these separations. For example,

difficulties in achieving economies of scale, and problems in balancing supply and demand.

These topics are developed in more detail in Chapter 8 of the text.

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IV-1-2 Perreault, Cannon, & McCarthy

gone into providing products that they might encounter at a convenient or suitable store. A few

minutes should be spent developing the idea that there is some order and rationale to the

1- 6. See section “Macro–Marketing” in the text.

1- 7. There is no doubt that growth of the Internet has opened up new marketing opportunities. Are

we just seeing the tip of the iceberg? Perhaps, over the longer run, we will see online services

taking over for some types of retailers and wholesalers. Clearly, the present focus of the

Internet (and other similar network systems) is on fast, interactive communication. In the past,

The Internet can help to overcome separation in time and information. It might also be possible

to create diverse “virtual” assortments of products that are practical because they are available

transporting and storing functions and perhaps standardization and grading.

While the person or company that sells over the Internet may not take the form of a retail store,

it’s useful to remind students that firms that sell out of a catalog are already using the basic

1- 8. A small producer might want an independent marketing research firm to take over some of its

information gathering activities if the research specialists can do the job more effectively (i.e.,

with greater accuracy) or more efficiently (i.e., at lower cost) than the firm could do it. The

focus here should be on the possibilities of capturing the advantages (skill, experience) of

contribute to a better overall research effort. Even if the small producer could afford to hire a

few marketing research specialists, a full team of specialists with different skills probably would

not make sense – or be affordable. Of course, the disadvantage of outsiders is that they may

advertising.

1- 9. In a command economy, government officials decide what and how much is to be produced

and distributed by whom, when, and to whom. In a market–directed economy, on the other

hand, producers and consumers make their own economic decisions. That is, the producers

that relies on many micro level decisions by individual producers and consumers. Each

decision may be small, but together they determine the macro level decisions for the whole

1-10. The evolution of wholesaling and retailing, as we have traced it, is the result of enterprising

businesses attempting to satisfy consumers more efficiently. Some organizations started with

government support, but most of our business organizations were formed to make a profit

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serving consumers. In contrast, in a command economy, some consumer–oriented, but not

necessarily profit–oriented, government official created the marketing system. Consumer

satisfaction – especially of every whim – might be played down, yet the government official

would have to satisfy consumers or expect complaints or even revolution. Some government

official would have to decide what was to be produced, who was to produce it, and who was to

receive the fruits of production. Further, all the marketing functions would have to be provided

Some good students have difficulty visualizing the development of a wholesaling and retailing

system under a command economy. They can see the possibility of operating a simple

agrarian community, where everyone shares according to his needs; but as these economies

grow, they have difficulty seeing how such a system can expand (i.e., what or who directs the

(and this may only raise the price!).

1-11. Students will give many different examples here. The basic point is that a market–directed

system encourages innovation because there is incentive (profit) to find a better way to meet

customers’ needs. Competition is also a related issue. As one new idea is developed and

breakthroughs and successes become today’s “old” product.

1-12. In the text, the marketing concept is defined in the section “What Does the Marketing Concept

Mean.” ” A firm must have some objective to guide its efforts – and a profit orientation provides

such an objective. But the marketing concept says that an organization should have more than

just profit as its objective. It should attempt to satisfy some customers and make a profit. Profit

products or services! ! Adding profit in the definition, however, would preclude such a move. In

other words, the marketing concept insists on some balance between fully satisfying some

target customers and meeting a firm‘s own objectives.

Applying it to the local situation can be illuminating, especially if there has been much

discussion of the role of the student in college affairs. Substantial change might be indicated in

some circumstances. At the same time, it should be seen that “all” students’ views (not just

considered. By considering the problem of balancing conflicting long– and short–run objectives

of different groups, they may come to see that applying the marketing concept is not easy –

and they may better understand why it is not as widely accepted (or at least well implemented)

1-14. Distinguishing between a “production orientation” and a “marketing orientation” is not always

easy because the differences may not be readily observable – that is, they may be more in the

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to think more deeply about the difference between buyer–seller exchange and the opportunities

that exist for more enduring relationships, especially when a customer is likely to have the

same need (or a similar need) again in the future.

One good way to prompt discussion of this question is to ask students to write down a couple

of the most important things that the seller could do to strengthen the relationship. Next, call on

a few students to explain the relationship they had in mind. Then, ask a few students to read

their suggestions without going into much detail on the particulars of the purchase situation.

customers.

1-19. High performance cars are fun, and their popularity is enduring. At the same time, as accident

statistics show, people driving high performance cars are more likely to be in accidents. High

performance cars also tend to use more fuel and to spew more fumes into the atmosphere.

These side effects influence consumers who are not interested in owning or driving a high

performance car. Over time there has been discussion of regulations to limit the top speed or

horsepower of cars offered for sale. After all, the speed limit is still 55 on most highways, but in

many places, it is 65 or even 75. Ultimately, there seems to be very little popular support for

the idea of limiting the choices that individual consumers can make in this product area.

Nuclear power is an emotional issue. Many people object to the use of nuclear power because

of the risks involved. As the Three Mile Island incident and similar accidents show, the risks

are real. Yet, in some areas, there are no cost–effective alternatives to nuclear power. Thus,

using other sources of power might sometimes force people who do object to the risk of

nuclear power to pay a higher price for energy. Here, what different individuals want may vary,

yet in the event of an accident, everyone might be affected.

Many consumers like the convenience of bank credit cards. They don’t like to carry cash, but

want to be able to make purchases when the need arises. On the other hand, critics argue that

“instant credit” encourages many people (especially the poor) to spend money they don‘t have.

Some economists also argue that “too–easy” credit has had serious economic effects because

many Americans do not save as they once did. Another issue here is the cost of providing

credit services. Banks take a percent of the revenue from credit card purchases – and there is

a cost of “bad debt” that is included in the cost of using cards. Some critics argue that all

consumers (not just those who use credit cards) have to pay higher prices because of this. Of

course, some firms offer two prices – one for credit card purchases and one for cash.

For a number of people, the use of pesticides represents a dilemma. On the one hand, the use

of pesticides improves the quantity and quality of agricultural yields and thus increases the

availability and reduces the cost of many types of farm products. This presumably increases

the quality of life and leaves more time/money for purchases that are not necessities. On the

other hand, there are some undesirable side effects related to the use of pesticides. For

example, run–off of pesticides from fields into lakes, streams, and rivers (or into groundwater in

other ways) has the potential to contaminate drinking water. Some people think that the use of

pesticides leaves toxic residue in or on crops, and that there is a serious hazard, over time, of

eating food that has been treated with pesticides. Other critics argue that the use of pesticides

results in the development of more robust (mutated) strains of insects – ones that require even

stronger pesticides because they become resilient to current products in use. In highly

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developed economies, where, in general, people are adequately fed, it is understandable that

much attention might be focused on higher order needs related to the use or misuse of

pesticides. However, in third–world agricultural economies where production and distribution of

food are still major problems, there is not likely to be much attention to – or concern about –

the potential negative effects of pesticides. In that context, the benefits seem to clearly

outweigh the costs. In other words, how one views a micro–macro dilemma may depend in

large part on the severity of the different needs that might be involved, and the likelihood of the

negative outcomes that might occur.

DISCUSSION OF COMPUTER-AIDED PROBLEM 1: REVENUE, COST, AND PROFIT

RELATIONSHIPS

This is a simple “practice” problem to introduce students to the software, to sensitivity analysis, and to

revenue, cost, and profit relationships – a recurring theme in later problems.

The spreadsheet for this problem involves only a few rows. The focus of the questions is on making

certain that the student knows how to “read” the spreadsheet. The various questions involved also lead

the student through the steps of using the various features in the PLUS software.

The PLUS software is easy to use – and most students will “get up to speed” with it very quickly. But, for

some students, working with the PLUS software will be their first experience with microcomputers, with

spreadsheet concepts, and more generally in working with marketing numbers. These students may have

concerns about their own ability to handle such material. Working this problem will help these students

develop confidence – as well as a base of skills to build upon in later problems.

If the instructor decides not to schedule this “practice” problem as a required first assignment, it might be

good to encourage students – especially those who do not have previous experience with

microcomputers or spreadsheets – to spend a few minutes with this problem before moving on to the

substantive problems that follow. The focus of later problems is on the marketing concepts related to a

manager’s decisions. It is important for students to see that the software is just a tool to facilitate the

marketing analysis – that “getting the numbers” is not an end in itself. This practice problem will help to

cultivate this point of view.

This is the initial spreadsheet for this problem:

P L U S – Spreadsheet

Calendar

Notebook

Selling Price

5.00

2.00

Quantity Sold

2700

6000

Revenue (Price x Quantity)

13500.00

12000.00

Total Cost

11500.00

9000.00

Profit or Loss (Revenue – Total Cost)

2000.00

3000.00

Answers to Computer–Aided Problem 1:

a. This question just encourages the student to study the spreadsheet layout and understand the

numbers on the screen. The answers, as can be seen from the initial spreadsheet display above, are

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as follows:

Revenue from Calendars

$13,500

Revenue from Notebooks

$12,000

Profit from Calendars

$ 2,000

Profit from Notebooks

$ 3,000

b. If Quantity Sold remains 2,700 and the price of calendars is increased to $6.00, then

Revenue from Calendars

$16,200

Profit from Calendars

$ 4,700

This question encourages students to do their own “checking” of numbers from the spreadsheet. The

objective here is not just to get them to do arithmetic; rather, it is to make them realize that in this

spreadsheet (and all the others that follow!), they can “follow” how the numbers on the spreadsheet

are computed by studying the labels on the spreadsheet. In the event of any remaining uncertainty,

students can do a few simple calculations themselves – as a check. You may want to emphasize this

point – as it will help eliminate uncertainty later when they get to problems that are more detailed. If

they see from the start that they can always study the “flow” of the spreadsheet display and figure out

how numbers are being calculated, it will be less confusing for them. With very few exceptions (noted

in this manual), the calculations on the spreadsheet are very straightforward. The spreadsheets are

set up so that the “intermediate” steps in calculations are easy to follow. This helps the student

develop skill in seeing how to organize and analyze problems.

The spreadsheet from which the answers for this problem are reported will look like this:

P L U S – Spreadsheet

Calendar

Notebook

Selling Price

6.00

2.00

Quantity Sold

2700

6000

Revenue (Price x Quantity)

16200.00

12000.00

Total Cost

11500.00

9000.00

Profit or Loss (Revenue – Total Cost)

4700.00

3000.00

The calculations are straightforward:

Revenue = Price x Quantity = $6.00 x 2,700 units = $16,200

Total cost = $11,500 (directly from the problem description and the spreadsheet)

Profit = Revenue – Total Cost = $16,200 – $11,500 = $4,700.

c. This question simply introduces the student to the PLUS program What If capability. The What If data

display for this result is given below.

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P L U S – What If Data Display

–Notebook–

Selling Price

Revenue

Profit or loss

1.60

9600.00

600.00

1.68

10080.00

1080.00

1.76

10560.00

1560.00

1.84

11040.00

2040.00

1.92

11520.00

2520.00

2.00

12000.00

3000.00

2.08

12480.00

3480.00

2.16

12960.00

3960.00

2.24

13440.00

4440.00

2.32

13920.00

4920.00

2.40

14400.00

5400.00

The correct answers are underlined in the Display. Profit reaches $5,400 at a price of $2.40 and is

$1,080 when the price is $1.68.

CHAPTER 1 – COMMENTS ON USE OF SUGGESTED CASES WITH THIS

CHAPTER

Case 1: McDonald’s “Seniors” Restaurant

This case can be used to illustrate what marketing and business are all about – anticipating the material

in Chapter 2 (on market–oriented strategy planning) without introducing the technical words that are

customers and actually have visited some “seniors” in the hospital. Now they are considering offering

bingo. See case discussion in Part V.

Case 2: Golden Valley Foods, Inc.

This case can be used to illustrate a production–oriented company. It also shows the need for target

marketing to escape from the low profits that usually result from selling “commodities” against many other

This video summarizes the marketing strategy of Chick–fil–A®, the second largest quick–service chicken

restaurant chain in the United States based on sales ($1.975 billion in 2005). It operates over 1,250

restaurants in 37 states and Washington, D.C. Its 2005 performance marks the 38th consecutive year of

system–wide sales gain. The case provides a nice overview of the micro–marketing concept. For more

details, see the Video Instructor’s Manual on the Instructor’s Resource CD or the Instructor Side of the

Part IV

Situation: A customer purchases a Canon digital camera that comes with a 90–day manufacturer’s

warranty on parts and labor. The salesperson suggests that the customer consider the store’s three–year

extended service to cover any problems with the camera. The customer replies, “I’m getting a Canon

because it’s a reputable brand—and at $98 the service agreement is one–third the cost of the camera.”

Four months later, the customer returns to the store and complains that the camera no longer takes

pictures and that “the store needs to make it right.” If you were the store manager, what would you say?

This situation allows for discussion of a variety of topics. One concerns the extent to which customers are

responsible for the choices they make. The customer was offered the extended warranty – and made the

decision, on her own, to not purchase it. The customer also decided to purchase the Canon rather than

some other brand that might have had a longer manufacturer’s warranty. The store might be able to get

Canon to honor the warranty, but we don’t know here if that is possible or if the store manager would

want to try. Manufacturers worry that retailers sometimes misrepresent when problems with a product

One aspect of this situation that may be worth additional consideration: some well–known companies,

including Canon, intentionally place relatively short warranty periods on their products, even though their

products may be priced at a premium relative to other brands. Other firms, like Samsung or Panasonic,

might offer a 6–months or 1–year warranty on the same type project. Students may think about this

situation differently if they realize that the combination of Canon’s powerful brand name and shorter

warranty period gives retailers a greater opportunity to sell the extended warranty and make extra profit

against buying extended service agreements on just about any product—because they are not a good

value. Most problems arise within the warranty period anyway. Some students may argue that it is not

ethical to sell service agreements. If other students don’t counter-argue, it may be useful to ask whether

consumers are required to buy the agreement and, further, whether it’s ok to let consumers (who don’t

want the risk) decide if it’s worth the price.