978-1337407588 Chapter 19 Butternut Streaming

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Chapter 19: Pricing Concepts

Video Assignment: Ski Buernut

Ski Butternut is a ski mountain in the Berkshires dedicated to offering a great family ski value. In

this video, Matt Sawyer discusses the various ways that Ski Butternut uses pricing to drive new

business and local business to the mountain. He also discusses how correct pricing can help the

next year’s business model through season pass sales.

1. First-time skiers demonstrate elastic demand.

a. True

b. False

2. When Ski Butternut reduced the first time skier package from $135 to $75, first-time

skiers:

a. experienced unitary elasticity for ski lessons.

b. saw a profit maximization scheme based on discounting the first visit and charging a

lot more once the skier is hooked.

c. saw a perceived reasonable value for an activity they haven’t tried yet.

d. bartered for lower priced rentals.

3. Knowing that weather can affect the profits for a ski area, but also that offering low prices

drives more locals to Ski Butternut, Matt Sawyer is saying that Ski Butternut is aiming for

profit maximization.

a. True

b. False

2. Moving from $199 season pass to $275 season pass was part of a trial and error of pricing

Chapter 19: Pricing Concepts

promotions for Ski Butternut. They have stayed at the $275 price point:

a. because it maximizes profits.

b. because it meets costs without exceeding the competition’s prices.

c. because it makes the cost an inconsequential part of an individual’s budget.

d. because the decline stage can cause some prices to increase.

3. According to the video, college students respond really well when Ski Butternut takes $20

off the price of a lift ticket. College students:

a. are sensitive to price changes—they have inelastic demand.

b. are sensitive to price changes—they have elastic demand.

c. are sensitive to price changes—they have unitary elasticity.

d. are insensitive to price changes—they have elastic demand.

4. Pricing lift tickets at $25 Monday–Friday to drive customers to Ski Butternut is an

aggressive pricing structure designed to increase market share by taking mid-week skiers

away from other mountains.

a. True

b. False

5. Matt Sawyer says that Ski Butternut increases its holiday prices by five dollars because

otherwise the “quality of the experience will deteriorate.” This suggests that on holidays:

a. supply exceeds demand.

b. the equilibrium price has been reached.

c. demand exceeds supply.

d. there is unitary elasticity.

Chapter 19: Pricing Concepts

Case Assignment: Netflix

For two decades, Netflix has been the leader at providing quality at-home entertainment for

In 2011 and just a few months after a price increase, Netflix announced plans to focus

Amid vocal customer outrage and a four percent loss in subscriptions, Netflix quickly

reversed this decision. “Consumers value the simplicity Netflix has always offered and we

While Netflix has further separated their disc rental and streaming services over the

years, the company does continue to offer both. However, many customers are no longer even

In May 2014, Netflix was in the headlines again when it announced it would be

Chapter 19: Pricing Concepts

Then in October 2015, another announcement. The price for new users would be

A few months before May 2016, Netflix emailed customers to remind them of the

By viewing their account settings and seeing their selected plan, customers were

reminded that not only did Netflix still have disc plans available, but they had streaming options

Netflix has recognized that their subscribers have a variety of needs, sometimes share

Since the May 2016 price increase went into effect, Netflix has not made mention of any

additional pricing changes, but they may not be out of the question. A survey conducted by

Sources: B. Katz, “Will Netflix Customers See Another Price Increase in Near Future?,” Forbes,

August 31, 2016, accessed October 24, 2016,

Chapter 19: Pricing Concepts

ay; L. Burruss, “Netflix Abandons Plan for Qwikster DVD Service,” CNN Money, October 10,

2011, accessed October 24, 2016,

TRUE/FALSE

1. By increasing prices without making any change to their service, Netflix is asking their

customers to give up more in exchange for the same service in return.

PTS: 1 OBJ: LO: 19-1 TOP: AACSB: Reflective Thinking

KEY: CB&E Model: Strategy MSC: BLOOMS: Level I Knowledge

2. For customers who decided to cancel their Netflix subscription after the price increase, the

perceived value had risen beyond the cost for the service.

PTS: 1 OBJ: LO: 19-1 TOP: AACSB: Reflective Thinking

KEY: CB&E Model: Strategy MSC: BLOOMS: Level I Knowledge

3. Netflix has the largest market share in the digital entertainment streaming industry.

PTS: 1 OBJ: LO: 19-2 TOP: AACSB: Reflective Thinking

KEY: CB&E Model: Strategy MSC: BLOOMS: Level I Knowledge

4. Competition from other streaming services has no impact on how Netflix determines pricing

for their service.

PTS: 1 OBJ: LO: 19-6 TOP: AACSB: Reflective Thinking

KEY: CB&E Model: Strategy MSC: BLOOMS: Level I Knowledge

5. All streaming services agreeing to increase their price to $20/month would be an example of

price fixing.

Chapter 19: Pricing Concepts

PTS: 1 OBJ: LO: 19-8 TOP: AACSB: Reflective Thinking

KEY: CB&E Model: Strategy MSC: BLOOMS: Level I Knowledge

MULTIPLE CHOICE

1. The nature of the demand of Netflix is __________.

a. status quo

b. elastic

c. inelastic

d. dynamic

PTS: 1 OBJ: LO: 19-3 TOP: AACSB: Reflective Thinking

KEY: CB&E Model: Strategy MSC: BLOOMS: Level I Knowledge

2. To determine the best price for a product, what must be done?

a. establish pricing goals

b. estimate demand, costs, and profits

c. choose a price strategy to determine the base price

d. fine-tune the base price with pricing tactics

e. Both A and B

f. All of these

PTS: 1 OBJ: LO: 19-7 TOP: AACSB: Reflective Thinking

KEY: CB&E Model: Strategy MSC: BLOOMS: Level I Knowledge

3. The shipping costs passed on to the customer for sending and receiving Netflix discs are

determined by __________ and are included in the subscription fee.

a. FOB origin pricing

b. uniform delivered pricing

c. zone pricing

d. basing-point pricing

PTS: 1 OBJ: LO: 19-9 TOP: AACSB: Reflective Thinking

Chapter 19: Pricing Concepts

KEY: CB&E Model: Strategy MSC: BLOOMS: Level I Knowledge

4. When Netflix proposed shifting their disc rental services to a separate business but keeping the

price the same for customers who chose to keep both services, Netflix was offering price

__________.

a. fixing

b. leading

c. bundling

d. baiting

PTS: 1 OBJ: LO: 19-9 TOP: AACSB: Reflective Thinking

KEY: CB&E Model: Strategy MSC: BLOOMS: Level I Knowledge

5. Netflix’s overall pricing approach is to:

a. follow a single-price tactic.

b. use a flexible pricing strategy with their telemarketing subscription sales force.

c. use price lining for their various service options.

d. use leader pricing until all other competition has gone out of business.

PTS: 1 OBJ: LO: 19-9 TOP: AACSB: Reflective Thinking

KEY: CB&E Model: Strategy MSC: BLOOMS: Level I Knowledge