978-0134728391 Chapter 12 Part 2

12–12

strategy calls for pricing products below cost to increase foreign market share; this practice is

called dumping and is illegal in the United States.

KEY TEACHING TIPS

 Students often confuse these terms: With price skimming, price is initially set high to

cover costs and generate a profit; with penetration pricing, price is initially set low to

establish a new product in the market.

 Reinforce that price lining offers all items in certain categories at a limited number of

prices at price points, whereas odd-even pricing is based on the theory that customers

prefer prices that are not stated in even dollar amounts, such as $.99 and $1.99.

QUICK QUESTIONS

 How has dynamic pricing benefited Web users over traditional fixed pricing strategies?

 When might sellers resort to using discounts?

Use In-Class Activity 2: Getting a Stimulus Boost with Pricing

Time Limit: 30 minutes

Learning Catalytics is a “bring your own device” student engagement, assessment,

and classroom intelligence system. It allows instructors to engage students in class

with realtime diagnostics. Students can use any modern, web-enabled device

(smartphone, tablet, or laptop) to access it. For more information on using

Learning Catalytics in your course, contact your Pearson Representative.

IN-CLASS ACTIVITIES

In-Class Activity 1: Ice-Breaker: Why Do They Charge More?

Activity Overview:

This activity asks students to consider pricing strategies behind some well-known competing

products.

Time Limit: 30 minutes

What to Do:

1. Divide the class into small groups and ask each group to come up with four sets of competing

2. Ask students to discuss the “average” price of each product and be able to explain the

reasoning for one brand’s price being higher than the competing brand. (10 minutes)

3. Reassemble the class as a whole and ask for each group’s input. (10 minutes)

Don’t Forget:

Students will come up with a variety of reasons for differing products’ prices. Some will be more

In-Class Activity 2: Up for Debate: Getting a Stimulus Boost with Pricing

Activity Overview:

This activity asks students to discuss how firms are changing their pricing messages during

economic downtimes.

Time Limit: 30 minutes

What to Do:

1. Ask students to read the Managing in Turbulent Times feature of the textbook, making a list

2. Divide the class into small groups to discuss their pros and cons of price discounts and surge

pricing. Do the pros outweigh the cons? For whom? (10 minutes)

3. Reassemble the class to debate the pros and cons as a group. Do the pros outweigh the cons?

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ANSWERS FOR END OF CHAPTER ACTIVITIES

QUESTIONS FOR REVIEW

12-1. How does breakeven analysis help managers measure the potential impact of prices?

12-2. Discuss the goal of price skimming and penetration pricing.

Price skimming allows marketers to recoup development costs and/or earn high profits early

12-3. What are the various classifications of consumer and industrial products? Give an

example of a good and a service for each category other than those discussed in the text.

The various classifications of consumer and organizational products include:

 Consumer products—any product made for the end user to purchase and use

 Convenience goods and services—candy, ATM services, take-out ice cream

 Shopping goods and services—clothing, car repair, furniture

12-4. How is the concept of the value package useful in marketing to consumers and industrial

customers?

Answers will vary, but students should focus on the benefits versus costs, since a value

package is a combination of all the product features and benefits—all bundled together—that

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perceives the benefits derived from the purchase to be greater than its costs. (Learning

Objective 1 – AACSB – application of knowledge)

QUESTIONS FOR ANALYSIS

12-5. Describe the four stages of the product life cycle and the marketing mix that is used in

each. Provide at least one example of a product in each stage other than those provided in the

text.

1. Introduction Stage, prices are high, there are few models, little competition, sales and

profits are at their lowest, and companies focus on consumer awareness.

2. Growth Stage, prices drop, competition, sales and profit increase.

12-6. Some companies have very narrow product mixes, producing just one or two products,

while others have many different products. What are the advantages of each approach?

A narrow product mix permits a company to focus its efforts on a core product and one or

12-7. Suppose that a small publisher selling to book distributors has fixed operating costs of

$600,000 each year and variable costs of $3.00 per book. How many books must the firm sell

to break even if the selling price is $6.00?

12-8. Describe price skimming and penetration pricing. What types of new products would be

best suited to price skimming? What types of products will be most successful with

penetration pricing?

Price skimming is entering the market at a high price and gradually lowering it. This

APPLICATION EXERCISES

12-9. For this exercise, select a car or truck that interests you and identify the target market.

Once you’ve identified the target market, describe the features of the vehicle that appeal

specifically to the target market.

12-10. Select a product and analyze pricing objectives for it. What information would you want

if you were to adopt a profit–maximizing objective or a market share objective?

Answers will vary, but may include profit–maximizing (a great deal of competitive

BUILDING A BUSINESS: CONTINUING TEAM EXERCISE 12-11 TO 12-15

(Learning Objectives 2, 4, 5 – AACSB – interpersonal relations and teamwork, analytical

and reflective thinking, application of knowledge)

Depending on the type of business venture, teams’ product mix and pricing strategies will vary

widely. Teams should be able to justify that their strategies are consistent with the needs and

wants of the target market. They should know where in the Product Life Cycle their product(s)

will be, and how many steps of the new product development process they might need to go

through.

TEAM EXERCISE: THE PRICE IS RIGHT 12-16 TO 12-20

(Learning Objectives 4 and 5 – AACSB – interpersonal relations and teamwork, analytical

and reflective thinking, application of knowledge)

After completing the Action Steps, students will better understand the impact of pricing

strategies, what pricing strategies are available to marketers, and the objectives companies try to

achieve through pricing.

12-18. Using the information provided in the case, identify the fixed and variable costs.

12-19. Using the amounts calculated in Step 2, calculate the breakeven point at a sales price of

$15, $20, $25, and $30. Based on these answers as well as your assessment about likely

monthly sales, decide on the best price for the phone cases.

Formula is Breakeven Point in units = Total Fixed Cost/Price – Variable Cost

EXERCISING YOUR ETHICS: DRIVING A LEGITIMATE BARGAIN

(Learning Objective 1 – AACSB – ethical understanding and reasoning, reflective

thinking)

12-21. How would you characterize the particular ethical issues in this situation?

The key ethical issues are integrity and communication. Matt has invested enormous effort in

12-22. From an ethical standpoint, what are the obligations of the sales representative and the

sales manager regarding the pricing of the product in this situation?

12-23. If you were Angela, the sales manager, how would you defend your actions?

12-24. If you were responsible for maintaining good customer relations at the dealership, how

would you handle this matter, considering the interests of both the consumer and the

business?

Answers will vary. Students will want to consider the negative impact on the local

CASES:

SINGING A DIFFERENT TUNE

(Learning Objectives 4 and 5 – AACSB – analytical and reflective thinking, application of

knowledge)

12-25. How would you describe the value package of your school?

12-26. What is the target market of your college? Do you think it is evolving or is it static?

Answers will vary. Students should examine data regarding the makeup of the student

12-27. If you were a private college administrator in New York or any other state where free

tuition threatened your current enrollment, what kinds of responses and reactions could you

formulate?

The administrator must examine the school’s mission, vision, and values in order to best

12-28. How do you think your college sets prices, including discounts?

Answers will vary. Students should investigate tuition rates, financial aid and scholarship

12-29. Based on the answers to the previous questions, develop an overall response strategy for

dealing with the issue of free tuition for public institutions.

Reviewing the institution’s mission, vision, and values lead to marketing the quality of the

education, the outcomes students can expect from attending the institution. The institution

CHANGING PRICING TACTICS CAN COST A PRETTY PENNEY

(Learning Objectives 4 and 5 – AACSB – analytical and reflective thinking, application of

knowledge)

12-30. Describe the target market for JCPenney and Apple. How are they similar or different?

How does the target market each influence their pricing strategy?

JCPenney target customers are more likely middle aged and older females motivated by the

“thrill” of the “hunt,” the excitement of a sale where everyone is trying to purchase the same

12-31. How are the products and product lines offered for JCPenney and Apple similar and

different? What types of pricing strategies will be most effective for the product strategy of

each company?

The differences in the product offerings clearly impact the pricing strategies. Apple offers a

narrow product line, a few products with a few different models of each. Apple products are

12-32. Consider the place (distribution) where customers go to purchase JCPenney products.

Next, consider where Apple customers go to purchase Apple products. How do you suppose

differences in the companies’ distribution methods may result in differences in their pricing

strategies?

Many Apple products are sold online and in multiple electronic retailers, Best Buy, etc. with

12-33. After the demise of everyday low pricing, a pair of earrings once sold at a list price of

$200 was marked up to $450. Although the newly revived deep discounts and coupons will

considerably lower the actual price to consumers, the actual cost to the average consumer

will be higher than $200. Do you think that this is ethical or unethical? Why?