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16 Chapter 19 ♦ Pricing Concepts
2. If Amazon sells a product below cost, a Best Buy store located in a state with an unfair trade practice act could match
Amazon’s price on that product.
3. Price matching is a form of flexible pricing.
4. If it brings customers into the store instead of shopping online, there’s no such thing as pricing products too low.
5. If customers find Best Buy’s price matching policy too tedious or confusing, the retailer could still endeavor to keep
prices low by paring down suppliers or keeping the pressure on existing ones.
MULTIPLE CHOICE
1. Which of the following statements suggests that Target uses penetration pricing?
a.
Target charges as high a price as possible for new video games and consumer electronics because there
is high customer demand.
b.
Target matches Walmart’s prices on groceries and common household products.
c.
Target charges a relatively low price for its athletic clothing so it can capture a large share of the
market.
d.
Target positions a $300 coffee maker next to a $75 one to make the latter model look cheap by
comparison. Target positions a $300 coffee maker next to a $75 one to make the latter model look
cheap by comparison.
e.
Target sells a wide variety of framed posters, but charges the same price for all of them.
2. Suppose administrators of Amazon’s grocery section realize that a small town buys its milk from a small mom and pop
grocery store for three dollars a gallon. Amazon advertises a sale in the town, offering milk for one dollar a gallon with
free delivery. After the mom and pop shop goes out of business, Amazon raises its price of milk to four dollars a gallon.
What illegal practice does this example illustrate?
a.
Unfair pricing.
b.
Price discrimination.
c.
Predatory pricing.
d.
Price fixing.
e.
None of these.
3. Suppose that Best Buy’s price matching program proved unsuccessful. To encourage customer loyalty during the frenetic
holiday period, Best Buy instituted a new policy whereby customers would receive two percent off all their purchases
(up to 50 percent off) for every item they bought between November 25 and December 25. This exemplifies a:
a.
Cash discount.
b.
Seasonal discount.
c.
Functional discount.
d.
Cumulative quantity discount.
e.
Noncumulative quantity discount.
4. Suppose that Target wants to attract new customers to its stores by price lining its Archer Farms grocery items. Which of
the following advertisements illustrates this new tactic?
a.
“Try our basic cereals for $1.99, deluxe cereals for 2.99, and ultimate cereals for $4.99!”
b.
“Buy 10 cartons of orange juice and get the 11th one for free!”
c.
“Spend $15 on coffee and receive a $5 rebate!”
d.
“For a limited time, all of our fruit is just $1.00 per pound!”
e.
“Buy any two deli meat packages and a loaf of bread for one low price!”
5. Best Buy’s low pricing strategy leads to a large number of products with low profit margins, meaning that this cost-
oriented tactic is particularly useful during a period of inflation:
a.
Price shading.
b.
Delayed-quotation pricing.
c.
Elevator pricing.
d.
Escalator pricing.
e.
Culling products with a low profit margin.
18 Chapter 19 ♦ Pricing Concepts
GREAT IDEAS FOR TEACHING CHAPTER 19
Philip R. Kemp, DePaul University
SURVIVAL BARTER EXERCISE
Survival is a group exercise in which student teams must use the barter system to gather the necessary items in order to
survive. Each group is given a list of six items on a sheet of paper or index card with the amounts of each item they must
gather to survive (see Table 1). As seen in Table 1, a team may have the exact amount, a shortage, or an excess of goods
in a category of what they need to survive. A team with an excess of goods in a particular category can use these excess
goods to barter for other goods.
The ideal size of each student team is five or six students; one member of the team is assigned the task of bookkeeper,
and another is assigned the task of observer. At the end of the exercise, the bookkeepers report what their teams have
accumulated through the barter of excess goods. The observers report on the dynamics that took place within the groups
during the exercise One or two students should be asked to report on the dynamics of the whole exercise as it occurs. As
shown in Table 1, each team must gather the exact same items and the same amount of each of these items.
After the teams have been formed and the roles of bookkeeper, group observer, and overall observer have been assigned,
the class is instructed that they have 20 minutes to complete the exercise. No additional assistance is provided by the
instructor. After about 20–25 minutes, the exercise tends to end on its own. Hint: Move the class to an open area or
arrange the room so that desks are at one side of the room. This will eliminate any physical barriers from interfering with
the exercise.
After the exercise is over, ask each bookkeeper to give an account of the items and amounts of each item his or her team
has gathered. A matrix with teams on the top and items on the side serves as an excellent visual aid to show the national
accounts (see Table 1). The class is informed that the only way a team can win is under the following conditions: first
they must have gathered all the necessary items in the amounts necessary to survive (excess goods are acceptable), no
goods at the macro level can have been lost or created. Teams have been able to gather the necessary goods in the correct
amounts, but there is always some loss or gain of goods when the national accounts are totaled.
After the national accounts have been shown, ask this question of the class: What would have helped you to accomplish
your teams’ survival in this exercise? The usual answers to this question are:
• better communications
• currency or money
• knowing the value of one item in relationship to other items
• a central market
• (in some rare cases) a middleman
All of these responses then can lead into a discussion of the exchange function, central markets, the function of money
within an economy, and how middlemen can assist in increasing the efficiency of the marketplace. When the discussions
of a central market or middlemen are introduced ask the team observers and the overall exercise observers to describe the
dynamics of what occurred in the groups and exercise as a whole. Every time I’ve done the exercise, the same dynamic
emerges.
The overall exercise dynamic usually runs as follows: Team members gather in their respective groups, then one member
of the team goes to other teams to determine what they have to trade (excess products). They soon realize that sending
out one person is too slow a process. They then decide to send out other members to talk to different groups to barter
their excess goods. (This is the time when goods are created and lost at the Marco level.)
Chapter 19 ♦ Pricing Concepts 19
When more than one team member is sent out of the group, typically a central market forms (all the teams gather in a
section of the room, which looks like the trading floor of a commodities exchange pit). Finally, the central marketplace
disbands and the teams then reform. Using diagrams on the blackboard with circles as the groups and lines with arrows
as the traders, one can show the exchange process that takes place in a barter market. Then add to the diagram the other
“runners” coming from each group. This diagram shows the formation of the central market; one can just use a large
circle around all six groups on the board. I have become so bold as to draw these diagrams on a flip chart and just turn
the pages as the observers describe the dynamics of the exercise. These diagrams are useful to introduce and discuss the
topics of communication (promotion), central markets, and functions of middlemen. The exercise has benefits beyond
instruction:
• It an excellent icebreaker for the first class meeting.
• It is an icebreaker for students to introduce themselves to one another.
• If class discussion is important to you, it sets the tone for the rest of the term.
• It is far superior to just passing out the syllabus and starting to lecture on a topic when the students have not
had the opportunity to read the textbook.
Table 1
TEAM 1
YOU NEED THE FOLLOWING
YOU NOW HAVE THE FOLLOWING
3 CORDS OF WOOD
1 CORD OF WOOD (–2)
200 LBS. OF MEAT
350 LBS. OF MEAT (+150)
6 PAIRS OF BOOTS
4 PAIRS OF BOOTS (–2)
100 BUSHELS OF WHEAT
150 BUSHELS OF WHEAT (+50)
250 LBS. OF VEGETABLES
200 LBS. OF VEGETABLES (–50)
1 COOK STOVE
2 COOK STOVES (+1)
TEAM 2
YOU NEED THE FOLLOWING
YOU NOW HAVE THE FOLLOWING
3 CORDS OF WOOD
1 CORD OF WOOD (–2)
200 LBS. OF MEAT
50 LBS. OF MEAT (–150)
6 PAIRS OF BOOTS
7 PAIRS OF BOOTS (+1)
100 BUSHELS OF WHEAT
200 BUSHELS OF WHEAT (+100)
250 LBS. OF VEGETABLES
200 LBS. OF VEGETABLES (–50)
1 COOK STOVE
1 COOK STOVE
TEAM 3
YOU NEED THE FOLLOWING
YOU NOW HAVE THE FOLLOWING
3 CORDS OF WOOD
2 CORDS OF WOOD (–1)
200 LBS. OF MEAT
250 LBS. OF MEAT (+50)
6 PAIRS OF BOOTS
7 PAIRS OF BOOTS (+1)
100 BUSHELS OF WHEAT
50 BUSHELS OF WHEAT (–50)
250 LBS. OF VEGETABLES
200 LBS. OF VEGETABLES (–50)
1 COOK STOVE
1 COOK STOVE
TEAM 4
YOU NEED THE FOLLOWING
YOU NOW HAVE THE FOLLOWING
3 CORDS OF WOOD
5 CORDS OF WOOD (+2)
200 LBS. OF MEAT
400 LBS. OF MEAT (+200)
6 PAIRS OF BOOTS
5 PAIRS OF BOOTS (–1)
100 BUSHELS OF WHEAT
50 BUSHELS OF WHEAT (–50)
250 LBS. OF VEGETABLES
200 LBS. OF VEGETABLES (–50)
20 Chapter 19 ♦ Pricing Concepts
1 COOK STOVE
0 COOK STOVE (–1)
TEAM 5
YOU NEED THE FOLLOWING
YOU NOW HAVE THE FOLLOWING
3 CORDS OF WOOD
3 CORDS OF WOOD (+1)
200 LBS. OF MEAT
50 LBS. OF MEAT (–150)
6 PAIRS OF BOOTS
9 PAIRS OF BOOTS (+3)
100 BUSHELS OF WHEAT
0 BUSHELS OF WHEAT (–100)
250 LBS. OF VEGETABLES
350 LBS. OF VEGETABLES (+10)
1 COOK STOVE
2 COOK STOVES (+1)
TEAM 6
YOU NEED THE FOLLOWING
YOU NOW HAVE THE FOLLOWING
3 CORDS OF WOOD
5 CORDS OF WOOD (+2)
200 LBS. OF MEAT
100 LBS. OF MEAT (–100)
6 PAIRS OF BOOTS
4 PAIRS OF BOOTS (–2)
100 BUSHELS OF WHEAT
150 BUSHELS OF WHEAT (+50)
250 LBS. OF VEGETABLES
350 LBS. OF VEGETABLES (+100)
1 COOK STOVE
0 COOK STOVE (–1)
NATIONAL ACCOUNTS (KEY)
TEAM 1
TEAM 2
TEAM 3
TEAM 4
TEAM 5
TEAM 6
TOTAL
WOOD
3
3
3
3
3
3
18
MEAT
200
200
200
200
200
200
1200
BOOTS
6
6
6
6
6
6
36
WHEAT
100
100
100
100
100
100
600
VEG.
250
250
250
250
250
250
1500
OVEN
1
1
1
1
1
1
6
Laura Balus, Central Community College
PRICING: AN ART OR A MATHEMATICAL FORMULA?
To introduce pricing, I gather various products from my home and office. Some of these products include grocery items,
toys, office equipment, and computer software. Various products were ordered through a mail-order catalog and others
were beauty items purchased through a home party. All of these items are arranged on a long table at the front of the
classroom. All price tags have been removed. In preparation for this activity, I completed small recipe cards that
individually listed specifics on each product and the purchase price.
I announce to the class that I am conducting a silent auction of sorts. Each student is asked to file by the table of products
and write down what each believes to be the purchase price of each product. When the students have returned to their
seats, I divide the class into two teams. I explain that we will play a version of the popular television game show, The
Price Is Right.
Members of each team take turns at being either the game show host or the contestant. The game show host selects one
product from the table and the accompanying recipe card of information and orally presents a brief description of the
product and its many uses and benefits. Then the price guessing begins. The contestant is given 30 seconds to randomly
call out prices, with the game show host responding with “higher” or “lower” until the correct price is announced.
Chapter 19 ♦ Pricing Concepts 21
The excitement increases with each round of price guessing until all of the products are used. Guessing the correct price
within 30 seconds earns each team a point. Points are tallied, and the losing team (the team with fewer points) is asked to
bring treats for the whole class.
The activity proceeds with an explanation of how pricing is indeed a game in itself. I refer to our study of the consumer’s
“black box” and how research and creativity go hand-in-hand when establishing price. Indeed, mathematical pricing
formulas are used with careful planning to cover the cost of goods, overhead, and retain a profit. However, I further
explain that a price tag should not reflect wishful thinking. Pricing must revolve around the consumers’ innate sense of
value.
I stress to the class that our silent auction resulted in quite extreme price differences between class members, which was
revealed with our game show rendition. Finally, I provide an overview of the numerous pricing strategies commonly
used in today’s marketplace, with emphasis on how many of these strategies are intended to psychologically persuade
consumers to buy.
22 Chapter 19 ♦ Pricing Concepts
PART 6 – Integrated Case Assignments
MARKETING MISCUE
6PM.COM’S $16 MILLION PRICING ERROR
Upon arrival at the 6pm.com Web site, customers are immediately congratulated for the smart shopping skills that
led them to the site. With brands such as Nike, Oakley, Nine West, Stride Rite, Columbia, and Diesel at discount
prices, the Web site is a mecca for brandaholics seeking discounted merchandise. The online site offers products for
all family members. The female shopper in the family is enticed with casual and contemporary fashion styles, as
well as top-notch performance gear. The male shopper is presented with everything from performance to business
casual to dress-for-success attire. Parents are encouraged to avoid the hassle of taking the kids to the store by
shopping conveniently online. On 6pm.com, the promise is to have this wonderful brandshopping experience at up
to 75 percent off retail prices. This delivery promise was well-heeded when a pricing snafu led to everything on the
site being priced at $49.95.
Zappos.com
Zappos.com started as an online shoe retailer. The idea was to create a Web site that offered the best shoe selection
in terms of brands, styles, colors, sizes, and widths. Since the company’s origination, the goal has broadened to one
in which the company provides the best online service in many product categories. With fast and high-quality
customer service as its mantra, ten years later the company is now comprised of ten separate companies under the
Zappos Family umbrella:
Zappos.com, Inc. (“the management company”)
Zappos IP, Inc. (“ZiP”)
Zappos Development, Inc. (“Zappos.com or ZDev”)
Zappos Merchandising, Inc. (“ZMerch”)
Zappos Fulfillment Centers, Inc. (“ZFC”)
Zappos CLT, Inc. (“ZCLT”)
Zappos Insights, Inc. (“ZInsights”)
Zappos Gift Cards, Inc. (“ZGift Cards”)
Zappos Retail, Inc. (“ZRetail”)
6pm.com, LLC (“6pm”)
The rapidity at which the company has grown is attributed in no small part to its CEO Tony Hsieh (pronounced
Shay). In 1999, Hsieh sold the company he co-founded to Microsoft for $265 million. Joining Zappos.com as an
advisor and investor, Hsieh later became the company’s CEO and helped grow the company to over $1 billion in
gross merchandise sales annually. In November 2009, Zappos.com was acquired by Amazon .com in a deal valued
at $1.2 billion. The passion for service was the common connection between Zappos.com and Amazon.com.
This passion for service is exemplified in the core values at Zappos.com:
• Deliver WOW through Service
• Embrace and Drive Change
• Create Fun and a Little Weirdness
• Be Adventurous, Creative, and Open-Minded
• Pursue Growth and Learning
• Build Open and Honest Relationships with Communication
• Build a Positive Team and Family Spirit
• Do More with Less
• Be Passionate and Determined
• Be Humble
Delivering on these Values at a Very High Price!
In the wee hours of a May morning in 2010, the Zappos-owned 6pm.com e-commerce site had a major glitch in its
pricing engine. Everything on the 6pm.com Web site was priced at $49.95 from midnight to 6 a.m. For example, a
GPS system that normally sold for nearly $2,000 was sold for $49.95. A pair of Bruno Magli boots that usually sold
on 6pm.com for $400 sold for $49.95. The pricing glitch affected products sold only on the 6pm .com site and not
products available on both 6pm.com and Zappos.com.
The pricing mistake was attributed to an employee error in entering data into the pricing engine. Hsieh explained the
pricing error on a company blog. He said that the current version of the pricing engine required near-programmer
skills to manipulate and that a few symbols were missed in the coding of a new rule. Hsieh went on to say that, after
this glitch, the internal pricing engine would be improved upon so that it would have a much easier user interface
with business owners. Additional checks and balances would also be added to further prevent the error from ever
occurring again. Interestingly, the employee responsible for the programming error was not fired.
During the six hours of selling everything for $49.95, much of which was below cost, Zappos.com lost $1.6 million.
While the terms and conditions on the company’s Web site state that the company does not need to fulfill orders that
are placed due to pricing mistakes, Hsieh felt as though it was the right thing for the company to do by honoring
customers’ orders at the noted price. Interestingly, Amazon.com, the parent company of Zappos.com, did not share
this same policy when it experienced a similar pricing glitch a few months prior. In that instance, Amazon.com
cancelled any orders that had not been fulfilled and gave customers a $25 gift card instead of the books that had
been ordered at the wrong price.
Sources: 6pm.com, www.6pm.com; Zappos.com, www.zappos.com; Edward Moyer, “Zappos Sister Site Zapped by Pricing Glitch,” CNET, May 23,
2010, http://news.cnet.com/8301-1023_3-20005714-93.html; Marc Perton, “Zappos Eats $1.6 Million in Pricing Snafu,” Consumerist, May 24, 2010,
http://consumerist.com/2010/05/zappos-eats-16-million-in-pricing-snafu.html.
Open-ended questions
1. What is the relationship between demand and price for products on the 6pm.com e-commerce site?
2. Should there be any legislation that requires companies to adhere to online prices even when posted in
error?
This is a difficult question to answer since it has to be viewed from both the online retailer’s and the
consumer’s perspective. From the online retailer’s perspective, mistakes in programming can happen too
TRUE/FALSE
1. Given American Airlines demands that Orbitz and other middlemen use its Direct Connect, the carrier sees a satisfactory
profit.
2. GDS evolved from YMS.
3. The GDS systems that Orbitz and other middlemen use is an extranet.
4. Critics say that Direct Connect will allow American Airlines to raise its prices whenever it wants.
MULTIPLE CHOICE
1. American Airlines risks disappointing consumers who perceive Expedia and other middlemen as the go-to source for
“great deals.” This is because consumers expect __________ when they buy tickets.
a.
reasonable competition
b.
a reasonable price
c.
little sacrifice
d.
satisfaction maximization
e.
all of the above
2. American Airline tickets are a commodity. If other agents can sell its tickets, then they have __________ that American
Airlines does not have.
a.
status quo pricing
b.
competition
c.
a distribution
d.
supply and demand
e.
unit market share
3. The in-house reservation Direct Connect is the latest example of __________, long used by airlines.
a.
eliminating competition
b.
penetration pricing
c.
a yield management system
d.
a ticket shopping bot
e.
selling for the brand
4. Expedia, Orbitz, Priceline, and travel agencies make their money off __________.
a.
commissions paid by the airlines to sell their tickets
b.
the profits they make by bulk ticket purchases from the airlines
c.
sophisticated scalping software
d.
fees the airlines pay to list tickets on GDS
e.
fees the airlines pay after a ticket is sold on the middlemen’s GDS
5. By removing itself from GDS-type retailers, American Airlines will maximize its ability for all of the following except
__________.
a.
to increase ticket revenue
b.
to decrease marginal cost
c.
two-part pricing
d.
comparison shopping
e.
bundling with hotels, rental car agencies, and the like
6. By eliminating the number of online ticket shopping venues that sold its tickets, American Airlines improves
__________.
a.
its status quo pricing
b.
its buyer dependence—those traveling in and out of its hubs
c.
its ability to absorb fuel costs
d.
its economies of scale
e.
all of the above
26 Chapter 19 ♦ Pricing Concepts
CRITICAL THINKING CASE
WILL A NEW RESERVATION SYSTEM TRANSLATE TO HIGHER PRICES FOR TRAVELERS?
American Airlines, one of the top three airlines in the United States and a major international carrier via strategic
alliances with leading carriers around the world, was founded in 1930 as American Airways. As an innovative leader
in air travel, American Airlines started the frequent-flyer program in 1981. Since then, every major airline in the
world has adopted some form of a frequent-flyer program. In late 2010, American Airlines once again took the lead
in an airline initiative that could change the way consumers search for and ultimately purchase airline tickets.
In an effort to reduce distribution costs, gain greater control over the marketing of its airline tickets, and better meet
customer expectations, American Airlines upgraded its reservation system. In making the upgrade, the company
expected third-party travel operators such as Expedia, Orbitz, and Priceline to follow suit.
The Reservation System
Consumers want low fares while also having the ability to customize their itineraries. Plus, they want to do this
themselves and not have to go through a travel agent. Via an in-house reservation system called Direct Connect,
American Airlines will be able to present a variety of individualized options to consumers, including prices, flight
schedules, seat upgrades, lounge access, faster check-in, hotel reservations, and car rentals. Direct Connect
constitutes a wholesale shakeup of the traditional reservation process that has relied historically on Global
Distribution Systems (GDS) such as Amadeus, Sabre, Worldspan, and Galileo. All of these global distribution
systems were designed originally by airlines, but all are now operated by independent owners.
Middlemen such as Expedia and Orbitz conduct business via a GDS and do not want to upgrade their reservation
systems to models such as Direct Connect. However, the Direct Connect technology will enable airlines to bypass
the GDS and avoid paying the GDS fees. Airlines stopped paying commissions to travel agents in the 1990s, but the
GDS model enables travel agents to sell tickets and collect fees from the sale of tickets via the GDS.
The Dispute
In December of 2010, American Airlines announced that it would no longer do business with Orbitz. By making this
move, Orbitz could no longer sell American Airlines tickets on its online booking Web site. At the heart of the
dispute was that American Airlines wanted Orbitz to use Direct Connect instead of GPS. Orbitz refused to switch
reservation processes, so American Airlines withdrew its tickets. Beating American Airlines to the punch, Expedia
announced on January 1, 2011 that American Airlines tickets were no longer an option on Expedia.com. Following
suit, Sabre dropped American Airlines’ ranking on it site thus making it difficult to find American Airlines fares on
this GDS.
Some say that the bottom line is that American Airlines wants travelers to buy directly from its Web site, such as the
process utilized by Southwest Airlines. From a pricing perspective, the middlemen such as Orbitz and Expedia say
that this will allow American Airlines to raise ticket prices since customers will not have easy access to competitive
pricing information. These distributors are charging that American Airlines’ new Direct Connect model is anti-
consumer and anti-choice. Conversely, American Airlines says that it will enable lower ticket prices since it will
eliminate the cost of the middleman, contending that the GDS model used by online travel agencies prevents airlines
from offering the lowest possible fares.
The chief financial officer at US Airways said that his company agreed in principle with what American Airlines
was doing, citing the importance of lower airline distribution costs. Yet, this competitive airline recently entered into
an agreement with Expedia in which US Airways committed to offering all of the airline’s content on Expedia
through the GDS model. It could be that competitive rivals see this as an opportune time to appear more customer-
friendly, in the hopes of gaining customer affinity while American Airlines battles it out with the middleman.
Sources: American Airlines, http://www.aa.com; Doug Cameron, “American Airlines wants Expedia, Orbitz to Come Around,” Wall
Street Journal, January 5, 2011, http://online.wsj.com/article/SB100014240527487047231045760618917 46793776.html; Kirsten Cluthe,
“American Airlines Battles Expedia and Sabre over Reservations,” PCMag.com, January 18, 2011, www.pcmag.com
/article2/0,2817,2375900,00.asp; Jane Levere, “Who Wins in the Dispute between Airlines and Online Ticket Sites?” Daily Finance, February 1,
2011, www.dailyfinance.com/story/investing/who-wins-in-the-dispute-between-airlines-and-online-ticket-sites/19822771; Josh Lew, “Is
American Airlines Ducking Competition?” LowFares.com, February 16, 2011, www.lowfares.com/blog/2011/02/16/american-airlines-orbitz-
airfares; Hugo Martin, “American Airlines-Orbitz-Expedia Feud may affect Ticket Prices,” Los Angeles Times, February 7, 2011,
http://articles.latimes.com/2011/feb/07/business/la-fi-0217-travel-briefcase-20110217; Reuters, “Expedia Dumps American Airlines Listings,”
FoxBusiness, January 3, 2011, www.foxbusiness.com/personal-finance/2011/01/03/expedia-dumps-american-airlines-listings.
Open-ended questions
1. Identify each channel member’s pricing objective.
American Airlines: sales-oriented Retailer (e.g., Expedia, Orbitz, Priceline): profit-oriented
The pricing objective for channel members appears to vary based on position in the channel. American Airlines
juggles pricing on a daily basis so as to maximize sales. Ultimately, the goal is to have every aircraft take off
2. What is the American Airlines’ pricing strategy?
American Airlines appears to follow a penetration pricing strategy. The constant juggling of prices to accommodate
TRUE/FALSE
1. 6pm.com customers essentially shoplifted online by taking advantage of an honest mistake.
2. The idea that “it’s too good to be true” did not stop people from buying. Consumers will always choose the lowest price.
3. Amazon.com did not want to set the public relations precedent set by Tony Hsieh.
4. Retailers contribute to the “door-buster” and “entitlement” behavior of customers when pricing mistakes are made.
MULTIPLE CHOICE
1. In many marketing textbooks, including this one, there is the principle that if a retailer sets the price too low, it will
frustrate sales based on __________. The write-off of $1.6 million in merchandise proves otherwise given the context.
a.
customer satisfaction
b.
consumer law
c.
the price-is-right notion
d.
perceived reasonable value
e.
none of the above
2. If one were to pick an explanation from economics for why 6pm.com customers took advantage of the programming
error that priced every piece of merchandise at $49.95, it was to __________.
a.
avoid the sacrifice effect of price
b.
experience the pleasure of “cheating back” a large corporation
c.
see if the company would eat the loss
d.
join a class action suit
e.
all of the above
3. What would be the retailing principle that compelled Tony Hsieh to ship merchandise that was grotesquely underpriced
when he could have just cancelled the orders?
a.
every online sale is a legal sale, a contract between consumer and retailer
b.
customer satisfaction
c.
it would have cost more to settle in court
d.
the dollar amount lost is only retail, not wholesale
e.
the loss would be made up in future sales
4. What really pays for the losses absorbed by 6pm.com?
a.
Amazon.com
b.
Amazon shareholders
c.
6pm.com
d.
6pm.com vendors
e.
none of the above
Chapter 19 ♦ Pricing Concepts 29
5. By rewarding consumers who took advantage of the pricing mistake, what factor of human behavior did Tony Hsieh
encourage about the shopping experience at 6pm.com? What made a mistake a promotion?
a.
feelings of entitlement
b.
the hedonistic effect
c.
a sense of fair play
d.
the allocative effect
e.
all of the above
6. Choose the most plausible reason that marketing manager might rationalize giving away $1.6 million in merchandise?
a.
Ultimately, long-term profit goals had to be considered, not a short-term loss.
b.
It is still the right thing to do and no point second guessing Tony Hsieh.
c.
The company seeks only a satisfactory profit motive.
d.
People need a break from the recession.
e.
So consumers did not feel like they were paying a penalty.
