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Chapter 19: Pricing Concepts
1
Video Assignment: Ski Buernut
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
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 19: Pricing Concepts
2
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.
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 19: Pricing Concepts
3
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
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 19: Pricing Concepts
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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,
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 19: Pricing Concepts
5
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.
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 19: Pricing Concepts
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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
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 19: Pricing Concepts
7
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
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
