978-1259709074 Chapter 15 Solutions Manual

Unlock access to all the studying documents.

View Full Document

Chapter 15 – Strategic Pricing Methods Marketing 6th

Answers to End of Chapter Learning Aids

Marketing Digitally

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 they believe these

coupons are effective for selling these types of products. With the economic recession, coupons have

increased in popularity, including television shows that promote extreme couponing. The coupons on

coupon.com are probably very effective at helping to sell consumer packaged goods.

1 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 a $300 ‘Joy’ Mini Boston Handbag.

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 assumes that costs

McGraw-Hill Education. 1

Chapter 15 – Strategic Pricing Methods Marketing 6th

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 willing to pay for a product

relative to other comparable products. If a student is buying a suit, he/she might consider the

improvement value of the suit. Would buying a $500.00 suit guarantee that the student might get the job?

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 1,000 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 percent markup, they should charge $195 per phone. To cover the

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 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

Students’ answers may vary. Stores like Walmart offer customers an EDLP strategy. Many department

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 high-price market segment becomes saturated

McGraw-Hill Education. 2

Chapter 15 – Strategic Pricing Methods Marketing 6th

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 amount purchased

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 the buyer is

located. Zone pricing sets different prices depending on a geographical division of the delivery area. For

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

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

McGraw-Hill Education. 3

Chapter 15 – Strategic Pricing Methods Marketing 6th

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?

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

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

shelves are dominated by national firms such as 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

Quiz Yourself

1 A(n) _____ strategy is attractive because it attracts two distinct market segments: customers who

are not price-sensitive customers and customers who are price sensitive.

a. cost-based pricing

b. high/low pricing

c. predatory pricing

d. EDLP

e. competitor-based pricing

12 When using a market penetration strategy, as sales continue to grow, the costs continue to drop,

allowing even further reductions in the price. This is due to

a. markdowns.

b. price lining.

c. seasonal discounts.

d. improvement value.

e. experience curve effects.

Chapter Case Study: Pizza Players, Pizza Prices

McGraw-Hill Education. 4

Chapter 15 – Strategic Pricing Methods Marketing 6th

1 Which pricing tactics does each company utilize? Evaluate the effectiveness of each one of these

tactics for the particular pizza chain.

Papa John’s (allows company to keep pace with competitors’ pricing)

Quantity Discounts: order one large pizza at the regular price, get a second for just $.50.

13 How might the current price wars change the pricing tactics used by the major pizza chains?

As the price wars continue, the major chains must turn their attention from the small restaurants to each

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. 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 others. As the Apple vs. Amazon 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 affect the pricing strategy 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

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.

McGraw-Hill Education. 5

Chapter 15 – Strategic Pricing Methods Marketing 6th

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 the 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?

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.

Online 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.

Connect Activities

Activity Type Learning Objectives 15-

01 02 03 04 05 06

Deceptive or Illegal Pricing Click and Drag X

Deceptive or Illegal Pricing

Activity Type: Click and Drag

Learning Objectives: 15-06

Difficulty: Hard

Activity Summary: Students are asked to classify five deceptive or illegal pricing actions according

to the category it represents.

McGraw-Hill Education. 6

Chapter 15 – Strategic Pricing Methods Marketing 6th

Activity

Introduction: Firms use many pricing tactics to try to improve their market share. Some are perfectly

Concept Review: Prices tend to fluctuate naturally and respond to varying market conditions.

Follow-Up Activity

Role playing: In pairs or small groups, students develop a short role-playing vignette demonstrating the

unethical pricing practices listed in the activity. The vignette can show a salesperson interacting with a

Verizon, AT&T, Sprint, and T-Mobile Go to War

Activity Type: Case Analysis

Learning Objectives: 15-01, 15-03, 15-04, 15-06

Difficulty: Hard

Activity Summary: This case discusses competitive pricing strategies and tactics used by the major

cellular service providers. Students answer questions applying chapter concepts to the case.

Activity

Introduction: Cell phone companies may already have all the available customers. Cellular

Concept Review: Firms employ pricing strategies that seem best for the particular set of

circumstances in which they find themselves. Even a single firm needs different strategies across its

McGraw-Hill Education. 7

Chapter 15 – Strategic Pricing Methods Marketing 6th

Follow-Up Activity

U.S. mobile providers have settled on a pricing model that is vastly different from the ones used in other

Pizza Players, Pizza Prices

Activity Type: Case Analysis

Learning Objectives: 15-01, 15-02, 15-04, 15-06

Difficulty: Medium

Activity Summary: This case discusses pricing strategies for the major pizza retailers in the US.

Students are asked questions requiring them to apply chapter concepts to the case material.

Activity

Introduction: Pizza is big business in the US; customers have plenty of options for obtaining pizza.

Follow-Up Activity

As an individual activity out of class, or as a small group in-class activity, have students visit the website

McGraw-Hill Education. 8