978-1337407588 Chapter 19 Solution Manual Part 4

subject Type Homework Help
subject Pages 9
subject Words 2835
subject Authors Carl Mcdaniel, Charles W. Lamb, Joe F. Hair

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Chapter 19: Pricing Concepts
1
True/False
1. GDS evolved from YMS.
PTS: 1 OBJ: 19-4 TOP: AACSB Reflective Thinking
KEY: CB&E Model Pricing MSC: BLOOMS Level I Knowledge
2. The GDS systems that Orbitz and other middlemen use is an extranet.
PTS: 1 OBJ: 19-6 TOP: AACSB Reflective Thinking
KEY: CB&E Model Pricing MSC: BLOOMS Level I Knowledge
3. Critics say that Direct Connect will allow American Airlines to raise its prices whenever it
wants.
PTS: 1 OBJ: 19-1 TOP: AACSB Reflective Thinking
KEY: CB&E Model Pricing MSC: BLOOMS Level I Knowledge
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
© 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.
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Chapter 19: Pricing Concepts
2
PTS: 1 OBJ: 19-1 TOP: AACSB Reflective Thinking
KEY: CB&E Model Pricing MSC: BLOOMS Level II Comprehension
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
PTS: 1 OBJ: 19-2 TOP: AACSB Reflective Thinking
KEY: CB&E Model Strategy MSC: BLOOMS Level II Comprehension
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
PTS: 1 OBJ: 19-4 TOP: AACSB Reflective Thinking
KEY: CB&E Model Pricing MSC: BLOOMS Level II
© 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.
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Chapter 19: Pricing Concepts
3
Comprehension
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 a global distribution system (GDS)
e. fees the airlines pay after a ticket is sold on the middlemen’s global distribution
system (GDS)
PTS: 1 OBJ: 19-4 TOP: AACSB Reflective Thinking
KEY: CB&E Model Pricing MSC: BLOOMS Level II Comprehension
5. By removing itself from GDS-type retailers, American Airlines will maximize its ability
for all of the following except _____.
a. increasing ticket revenue
b
.
decreasing marginal cost
c. two-part pricing
d
.
comparison shopping
e. bundling with hotels, rental car agencies, and the like
PTS: 1 OBJ: 19-1, 19-6, 21-3 TOP: AACSB Reflective Thinking
KEY: CB&E Model Pricing MSC: BLOOMS Level II
Comprehension
6. By eliminating the number of online ticket shopping venues that sold its tickets, American
Airlines improves _____.
a. its status quo 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.
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Chapter 19: Pricing Concepts
4
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
PTS: 1 OBJ: 21-1–21-5 TOP: AACSB Reflective Thinking
KEY: CB&E Model Strategy MSC: BLOOMS Level II Comprehension
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
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
© 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.
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Chapter 19: Pricing Concepts
5
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
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 website. At the heart of the dispute was that American Airlines wanted Orbitz to use
Some say that the bottom line is that American Airlines wants travelers to buy directly from its
website, 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
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,
Cluthe, “American Airlines Battles Expedia and Sabre over Reservations,” PCMag.com, January
18, 2011,
© 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.
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Chapter 19: Pricing Concepts
6
Daily Finance, February 1, 2011,
February 16, 2011; Hugo Martin, “American Airlines-Orbitz-Expedia Feud may affect Ticket
Prices,” Los Angeles Times, February 7, 2011,
“Expedia Dumps American Airlines Listings,” FoxBusiness, January 3, 2011,
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 with all seats filled. American Airlines
wants to gain the largest market share and, as such, increase customer loyalty. The
2 What is the American Airlines’ pricing strategy?
American Airlines appears to follow a penetration pricing strategy. The constant juggling
of prices to accommodate the filling of seats on an aircraft results in the company
competing on price to the mass market. While there is lower profit per unit on some seat
© 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.
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Chapter 19: Pricing Concepts
7
True/False
1. The idea that “it’s too good to be true” did not stop people from buying. Consumers will
always choose the lowest price.
PTS: 1 OBJ: 19-1 TOP: AACSB Reflective Thinking
KEY: CB&E Model Pricing MSC: BLOOMS Level I Knowledge
2. Amazon.com did not want to set the public relations precedent set by Tony Hsieh.
PTS: 1 OBJ: 19-1, 19-2 TOP: AACSB Reflective Thinking
KEY: CB&E Model Pricing MSC: BLOOMS Level I Knowledge
3. Retailers contribute to the “door-buster” and “entitlement” behavior of customers when
pricing mistakes are made.
PTS: 1 OBJ: 21-3 TOP: AACSB Ethics
KEY: CB&E Model Pricing MSC: BLOOMS Level I Knowledge
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
© 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.
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Chapter 19: Pricing Concepts
8
PTS: 1 OBJ: 19-1 TOP: AACSB Reflective Thinking
KEY: CB&E Model Pricing MSC: BLOOMS Level II
Comprehension
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
PTS: 1 OBJ: 19-1 TOP: AACSB Reflective Thinking
KEY: CB&E Model Pricing MSC: BLOOMS Level II
Comprehension
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
.
It would maintain 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.
© 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.
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Chapter 19: Pricing Concepts
9
PTS: 1 OBJ: 19-1 TOP: AACSB Reflective Thinking
KEY: CB&E Model Pricing MSC: BLOOMS Level II
Comprehension
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
PTS: 1 OBJ: 19-5 TOP: AACSB Reflective Thinking
KEY: CB&E Model Pricing MSC: BLOOMS Level II
Comprehension
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
© 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.
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Chapter 19: Pricing Concepts
10
PTS: 1 OBJ: 19-6 TOP: AACSB Reflective Thinking
KEY: CB&E Model Pricing MSC: BLOOMS Level II
Comprehension
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. Consumers did not feel like they were paying a penalty.
PTS: 1 OBJ: 21-1 TOP: AACSB Reflective Thinking
KEY: CB&E Model Strategy MSC: BLOOMS Level II Comprehension
© 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.

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