Chapter–by–chapter aids: Chapter 8
8-24. See Exhibit 8-7 and section “Business Product Classes—How They Are Defined.” This
question tries to anticipate material that is discussed in much greater detail in subsequent
chapters. The instructor should not expect the students to contribute the conventional terms
and probably should not supply them either. Rather, understanding of the nature of the
DISCUSSION OF COMPUTER-AIDED PROBLEM 8: BRANDING DECISION
The manager in this problem has been made an offer she “can’t refuse.” A big customer – a grocery
chain – has proposed that the manufacturer make a product for the chain to sell under its own brand.
The manager is concerned that she will lose the customer if she says “no” – yet concerned about what
might happen to profits if she says “yes.” The student analyzes the potential benefits and limitations of
the customer’s proposal – and evaluates potential profitability under different conditions.
Part IV
IV-8-8 Perreault, Cannon, & McCarthy
P L U S – SpreadSheet
Current
Proposed
WHOLESTEEN Brand – Total Number of Cases
100000
*
90000
*
Price per Case
8.88
*
8.88
*
Cost to Produce a Case–WHOLESTEEN
5.30
*
5.30
*
Advertising Allowance per Case
0.25
*
0.25
*
FOODWORLD Brand – Total Number of Cases
10000
*
Price per Case
7.40
*
Basic Cost to Produce a Case
5.30
*
Less Savings per Case on Cans
0.24
*
Less Savings per Case on Labels
0.48
*
Cost per Case
4.58
*
*
Promotion Cost
*
*
Total WHOLESTEEN Ad Allowances
Cost of WHOLESTEEN Cases
Cost of FoodWorld Cases
Revenue from FoodWorld Brand
TOTAL Revenue
TOTAL PROFIT
Answers to Computer–Aided Problem 8:
a. Based on data in the initial spreadsheet (given above), the proposed arrangement would result in a
loss of $5,100 in profits for Wholesteen.
Chapter–by–chapter aids: Chapter 8
P L U S – SpreadSheet
Current
Proposed
WHOLESTEEN Brand – Total Number of Cases
90000
*
90000
*
Price per Case
8.88
*
8.88
*
Cost to Produce a Case–WHOLESTEEN
5.30
*
5.30
*
Advertising Allowance per Case
0.25
*
0.25
*
FOODWORLD Brand – Total Number of Cases
0
*
Price per Case
7.40
*
Basic Cost to Produce a Case
5.30
*
Less Savings per Case on Cans
0.24
*
Less Savings per Case on Labels
0.48
*
Cost per Case
4.58
*
*
Promotion Cost
*
*
Total WHOLESTEEN Ad Allowances
Cost of WHOLESTEEN Cases
Cost of FoodWorld Cases
0.00
Revenue from FoodWorld Brand
0.00
TOTAL Revenue
TOTAL PROFIT
The next spreadsheet is for the analysis if Wholesteen loses all of FoodWorld’s business.
P L U S – SpreadSheet
Current
Proposed
WHOLESTEEN Brand – Total Number of Cases
80000
*
80000
*
Price per Case
8.88
*
8.88
*
Cost to Produce a Case–WHOLESTEEN
5.30
*
5.30
*
Advertising Allowance per Case
0.25
*
0.25
*
FOODWORLD Brand – Total Number of Cases
0
*
Price per Case
7.40
*
Basic Cost to Produce a Case
5.30
*
Less Savings per Case on Cans
0.24
*
Less Savings per Case on Labels
0.48
*
Cost per Case
4.58
*
*
Promotion Cost
*
*
Total WHOLESTEEN Ad Allowances
Cost of WHOLESTEEN Cases
Cost of FoodWorld Cases
0.00
TOTAL of Above Costs
Revenue from FoodWorld Brand
0.00
TOTAL Revenue
TOTAL PROFIT
c. As shown in the spreadsheet below, this change would actually result in an increase over present
profits – $146,900 compared to $143,000 at present. In this situation, the reduced profits from the
first year of the proposal would probably be offset by increased profits from the FoodWorld business
in purchases the next year. Of course, that doesn’t help if the Wholesteen people don‘t want to give
up control of branding!
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IV-8-10 Perreault, Cannon, & McCarthy
P L U S – SpreadSheet
Current
Proposed
WHOLESTEEN Brand – Total Number of Cases
100000
*
80000
*
Price per Case
8.88
*
8.88
*
Cost to Produce a Case–WHOLESTEEN
5.30
*
5.30
*
Advertising Allowance per Case
0.25
*
0.25
*
FOODWORLD Brand – Total Number of Cases
25000
*
Price per Case
7.40
*
Basic Cost to Produce a Case
5.30
*
Less Savings per Case on Cans
0.24
*
Less Savings per Case on Labels
0.48
*
Cost per Case
4.58
120000.00
*
120000.00
*
Promotion Cost
*
*
Total WHOLESTEEN Ad Allowances
Cost of WHOLESTEEN Cases
530000.00
424000.00
Cost of FoodWorld Cases
TOTAL of Above Costs
745000.00
748500.00
888000.00
710400.00
Revenue from FoodWorld Brand
185000.00
TOTAL Revenue
888000.00
895400.00
TOTAL PROFIT
143000.00
146900.00
d. There is not a single “correct” answer to this question. But, from the previous analyses, the student
should see that it is a difficult decision. Most will argue that Wholesteen has little alternative but to
accept the proposal. The instructor can use this problem to highlight the difficulties a firm can face
when a large share of its business comes from one (or very few) customers. This problem can also
be used to “preview” the idea of channel conflict – a topic that is discussed in more detail in Chapter
10 of the text. On the other hand, as illustrated in the questions that follow, it may also be that the
members of the channel can work out an arrangement that is suitable to all concerned – so that one
firm’s gain is not necessarily another’s loss.
CHAPTER 8 – COMMENTS ON USE OF SUGGESTED CASES WITH THIS
CHAPTER
Case 1: McDonald’s “Seniors” Restaurant
This case can be used here to show that a company’s “Product” can consist of much more than just a
physical good. In the McDonald’s case they offer much more than just hamburgers, fries, and a coke.
And they offer more than just fast service too. They are clean, friendly, dependable, and so on. Over the
Case 3: NOCO United Soccer Academy
The product sold by NOCO United Soccer Academy is a service. This case provides a way for an
instructor to talk through some of the unique elements of a service. The instructor might start with a
question like, “What is the product that NOCO United soccer sells?” “What is the need–satisfying offering
of the firm?” “How would customers define product quality?”
Chapter–by–chapter aids: Chapter 8
Instructor’s Manual to Accompany Basic Marketing IV-8-11
Case 13: AAA Office World
Case 31: Amato Home Health
The product sold by Amato Home Health is a service…and the case happens in a nonprofit setting.
Objectives must be set before or during the strategy planning—and these are still being considered. See
case discussion in Part V.
Video Case 3: Toyota Prius
In the early 90s, Toyota decided to re–invent the way automobiles are powered. Called Project G21
(Globe 21st Century), the development process began with generating ideas to achieve Toyota’s stated
objective: the creation of environmentally clean, fuel–efficient vehicles. In the video, Bill Reinhart,
Video Case 7: Invacare
The Invacare Corporation produces home medical equipment for the domestic market as well as select
global markets. Some of the manufacturing is in USA facilities, including a factory at the main
headquarters in Elyria, Ohio and the HomeFill oxygen concentrator production plant in Florida. Invacare’s
product line provides one avenue for discussion tied to the chapter. For more details see the Video
Instructor’s Manual on the Instructor’s Resource CD or the Instructor side of the Online Learning Center
(www.mhhe.com/fourps).
CHAPTER 8 – COMMENTS ON USE OF ETHICS QUESTION WITH THIS CHAPTER
Situation: Your construction firm was the low price bidder on a plan to build three new runways at an
airport. After winning the contract, you assured the airport commissioner that your work would far exceed
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principles. While the quality of the concrete does not meet what the construction firm promised, it does
meet the standards in the contract. Throwing away the cement eats up profits and may delay the project.
CHAPTER 8 – COMMENTS ON USE OF CREATING MARKETING PLANS
QUESTION WITH THIS CHAPTER
The Marketing Plan Coach software on the text website includes a sample marketing plan for Hillside
Veterinary Clinic. Look through the “Marketing Strategy” section.
a. What goods does Hillside Veterinary Clinic sell?
b. What services does Hillside Veterinary Clinic sell?
c. What consumer product classes are offered by Hillside Veterinary Clinic?
d. The discussion of product classes in this chapter indicates what marketing mix is typical for
different classes of products. Does the marketing strategy recommended in the marketing plan fit
with those considerations? Why or why not?
Examples at HVC
Fit with Recommendation
Euthanasia, grief counseling, and
general surgery are likely to fit the
definition of an emergency
The textbook suggests price sensitivity is low and
availability should be widespread. The marketing
plan does indicate that house calls are available
CHAPTER 8 – SUMMARY OF CONNECT HOMEWORK EXERCISES
Exercise 8.1: Branding the Product
Chapter–by–chapter aids: Chapter 8
Exercise 8.2: Business Product Classes
Question Type: Drag–and–drop
Exercise 8.3: Consumer Product Classes
Question Type: Drag–and–drop
Exercise 8.4: Legal Environment Affecting Product Decisions
Question Type: Drag–and–drop
Learning Objectives: 8-3, 8–4, and 8-5
Chapter–by–chapter aids: Chapter 8
Chapter–by–chapter aids: Chapter 9
CHAPTER 9: PRODUCT MANAGEMENT AND NEW–PRODUCT
DEVELOPMENT
CHAPTER 9 – COMMENTS ON QUESTIONS AND PROBLEMS
9- 1. This is just a review question. See section “Managing Products over Their Life Cycles” for
relationships. It is important to recognize that market profits start declining in the market
growth stage. This is a point that is often missed and is crucial for understanding why
competition begins to get stiffer toward the end of the market growth stage and certainly in
9- 2. This question is intended to encourage class discussion after the students have committed to
examples. Actually, it is not nearly as easy as it seems because the stage of the product life
cycle depends on how the related market is defined and how specifically the product is
9- 3. The basic point of this question is to promote thinking about the idea that product life cycles
should be related to specific markets as well as specific product concepts. For example, in the
U.S. the gas powered car is probably at the mature – or even decline stage – of the life cycle.
However, the electric car appears to be just catching on (although the idea has been around
for decades). In other countries – like India – a smaller percentage of consumers can afford
any type of car. However, growth is occurring rapidly in India and some other countries, and in
recent elections India’s citizens voted in a new government. The pressure for change came
from the provinces, where many consumers felt that they had not participated in the benefits of
(or income from) the economic growth that had increased opportunities in other parts of the
country.
9- 4. A firm might introduce an individual product that is new for that firm at any stage of the overall
product life cycle. Just because a product is new for a firm does not mean that it will ever
achieve sales or profit growth. If it does not compete with other offerings on the market in
meeting customer needs it will fail. Further, even if a firm is the first to introduce a really new
Part IV
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mature stage. If Lever 2000 proves to be successful and sales grow, it will be in spite of the
fact that sales in the overall market are stagnant – and any growth in sales will come at the
expense of some other brand’s share of the market.
9- 5. See section “Planning for Different Stages of the Product Life Cycle.” Briefly, when the
personal computer was first introduced, there was little direct competition. But, potential
customers did not know what it could do. Pioneering promotion was required to inform them
and to stimulate primary demand. Intermediaries did not exist and so new channels of
distribution had to be developed. Prices were quite high – in part because the market was still
9- 6. A product may move more quickly through the product life cycle if it has a comparative
advantage over existing products (DVDs offered higher quality for movies than VHS tapes and
had more space for extra features like behind the scenes interviews with actors), if it is easy to
use (DVDs could be popped in a machine and it would automatically start to play, or could be
controlled with a visual interface and remote control), if its advantages are easy to
communicate (a consumer can see the difference in quality that a DVD makes, and the image
doesn’t degrade when a movie is played many times), if the product can be tried on a limited
9- 7. This is basically a review question. See section “New–Product Planning.” The important point
is to identify whom it is new for. A product might be new for a firm, while being basically a
“me–too” product that will not be seen as “new” by any consumers or intermediaries. But, as
illustrated in the text example of videodisc players, a product could be new if presented to a
new market (1) to satisfy a need which had previously not been felt by that market or (2) as a
new solution to the felt needs of a market.
9- 8. See section “An Organized New–Product Development Process Is Critical.” The examples are
9- 9. The purpose of this question is to highlight the general applicability of the new–product
development process developed in the text (see Exhibit 9-4 and section “An Organized New–
Chapter–by–chapter aids: Chapter 9
Product Development Process Is Critical”). [Some of the authors’ students have taken this
question as quite a challenge – as the motivation to come up with an idea for how to make
money during the summer and also live in a resort town]. Students will develop many different
9-10. See section “Need for Product Managers.” Product managers are not usually put in charge of
new–product development efforts.
9-11. This is a much more complex question than will be apparent to most students – at least at first.
However, it does provide an excellent basis for discussion of whether or not “global” strategies
are feasible at all, and if so how the marketing organization can be set up to implement them.
The basic trade–off that is at the heart of this question concerns the extent to which the firm
can obtain some sort of competitive advantage (such as economies of scale and/or greater
9-12. This is a question for each individual – and for society in general – to decide. Some critics feel
the present American habits in this regard are highly wasteful, but it is extremely difficult to
draw a line at a particular place. The idea of psychological satisfaction enters the picture. This
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some businesses, anyway, should and probably will see these demands and move to satisfy
these consumers – even if it means even more “planned obsolescence.”
9-13. The major advantage of total quality management as an approach for implementing a
marketing plan is that it should help reduce the cost of lost customers. It should accomplish
that by helping everyone in the organization to focus on the root causes of customer
dissatisfaction, and what can be done to fix the problems. The concept of continuous
DISCUSSION OF COMPUTER-AIDED PROBLEM 9: GROWTH STAGE
COMPETITION
This revealing problem puts the student in the role of a manager whose innovative new agricultural
fertilizer product is entering the growth stage of the product life cycle. The PLUS program simulates
changes in price, promotion, costs, and profit for the manager’s firm and competitors over time. The
student uses sensitivity analysis to study what is likely to happen to the firm’s market share and profit as
competitors enter the market – and what happens to industry profits as price competition forces lower
prices.
Answers to Computer–Aided Problem 9:
The initial spreadsheet for the problem is presented next:
Chapter–by–chapter aids: Chapter 9
P L U S – SpreadSheet
DATA
CURRENT SITUATION: Unit Sales
1000000
*
Expected Unit Growth Each Year
200000
*
Current Price
13.00
*
Unit Cost
4.00
*
Current Promotion Spending
900000.00
*
Overhead Costs
1200000.00
*
Number of Years in the Future
*
Firms in the Market
Price that Year
13.00
Industry Unit Sales
1000000
Industry Sales Revenue
AgriChem’s Share (percent) of Market
AgriChem’s Unit Sales
1000000.00
AgriChem’s Total Revenue
AgriChem’s Promotion Spending
900000.00
AgriChem’s Total Cost
6100000.00
AgriChem Profit
Ratio of AgriChem Profit to Revenue
0.53
Total Industry Profit
6900000.00
a. By changing the “number of years in the future” variable to 1, the student gets a spreadsheet that
characterizes what the marketing managers should expect (given their assumptions) in the coming
year. The relevant spreadsheet is provided below.
P L U S – SpreadSheet
DATA
CURRENT SITUATION: Unit Sales
1000000
*
Expected Unit Growth Each Year
200000
*
Current Price
13.00
*
Unit Cost
4.00
*
Current Promotion Spending
900000.00
*
Overhead Costs
1200000.00
*
Number of Years in the Future
*
Firms in the Market
Price that Year
12.22
Industry Unit Sales
1200000
Industry Sales Revenue
AgriChem’s Share (percent) of Market
81.67
AgriChem’s Unit Sales
980040.00
AgriChem’s Total Revenue
AgriChem’s Promotion Spending
990000.00
AgriChem’s Total Cost
6110160.00
AgriChem Profit
5865928.80
Ratio of AgriChem Profit to Revenue
0.49
Total Industry Profit
7063271.06
The answers are summarized in the table below. In the current year, AgriChem’s market share is 100
percent – as the innovator here it has all of the market – and its profits are $6,900,000. The following
year the market will have grown by 200,000 units, but given the entry of another competitor
AgriChem’s share will have slipped to 81.67 percent. Note that even with a loss of share its unit
sales drop only slightly – because of the growth in the market. But, its profit drops more – because
the competition has forced prices down. Specifically, AgriChem profit drops from $6,900,000 to
$5,865,928.80 – a decrease in profits of about 15 percent!
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b. A table showing AgriChem’s expected profit, and expected industry sales revenue and profit can be
developed using the What If analysis – varying the “years in the future” variable between 0 and 5.
The resulting What If data display is presented below.
From the table, we see that industry revenue continues to grow. (Note that it grows at a constant
rate – one of the simplifications noted above – rather than in the more typical “S–shaped” pattern.)
Further, industry profit starts to go up, but as more competitors enter the market price–cutting occurs
c. If growth is faster, industry profits will increase more rapidly, and they will continue to increase for a
longer period of time before starting to decline (in year 4). Even so, AgriChem’s profits start to
decline and continue to decline over time as competitors enter the market. The instructor may want
to make the point that the product life cycle concept does not say that the profits of the innovator will
decline during this growth stage. In fact, this is often not the case. But, as this example shows, they
can decline if the firm is not able to hold its own against the increasing competition, the fight for
share, the reduction in price, and increased spending on promotion.
Chapter–by–chapter aids: Chapter 9
Instructor’s Manual to Accompany Basic Marketing IV-9-7
CHAPTER 9 – COMMENTS ON USE OF SUGGESTED CASES WITH THIS
CHAPTER
Case 6: Applied Steel
This case can be used here to discuss what a “new” product is and the difficulty of winning acceptance for
Case 20: Blue Lagoon Marine & Camp
This case can be used to discuss the nature of competition facing manufacturers and retailers who are
selling more or less homogeneous products in market maturity. See case discussion.
Case 22: Bright Light Innovations
The Starlight Stove represents a different kind of new product. While the product does not appear to be
technically sophisticated, it does represent a breakthrough technology for its target market. While there
are other products that provide electricity or the heat and cooking benefits of the stove, no other product
does both. See case discussion in Part V.
Video Case 3: Toyota Prius
In the early 90s, Toyota decided to re–invent the way automobiles are powered. Called Project G21
(Globe 21st Century), the development process began with generating ideas to achieve Toyota’s stated
objective: the creation of environmentally clean, fuel–efficient vehicles. In the video, Bill Reinhart,
Video Case 8: Segway
This video tells the Segway story and discusses the marketing strategies pursued by Segway Inc. since
the introduction of the Segway® Personal Transporter (PT) on ABC’s “Good Morning America” in 2001.
CHAPTER 9 – COMMENTS ON USE OF ETHICS QUESTION WITH THIS CHAPTER
Situation: You are the marketing manager for a company that creates video games. A big competitor has
just released an action game that appeals to kids who own your best–selling game. Your competitor’s
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are likely to wait. Should you announce that your new version is coming or just wait until you know more?
If a reporter for a popular gaming magazine calls and asks for a statement about when your firm’s release
will be on the market, should you say two months, four months, or “we don’t know yet”? If your product is
preannounced but then not ready by that date, what should your firm communicate to customers? Explain
your thinking.
This scenario provides an opportunity to discuss the ethics of providing deliberately false
preannouncements. The scenario suggests varying levels of questionable behavior – as the manager
must decide whether to be honest about the time frame (four months), exaggerate (indicate it will be
ready in two months) or simply say he does not know yet. Of course the last two answers are not
completely honest, and our AMA Statement of Ethics (Exhibit 1–7) asks marketers to be honest. The
case allows for a deeper discussion of the issue by asking students how they would handle customer
communications if the product is not ready by the preannounced date.
CHAPTER 9 – COMMENTS ON USE OF CREATING MARKETING PLANS
QUESTION WITH THIS CHAPTER
The Marketing Plan Coach software on the text website includes a sample marketing plan for Hillside
Veterinary Clinic. Look through the “Marketing Strategy” section.
a. Hillside offers many different products. Identify several of these products and indicate where you
think each of them is in its product life cycle.
b. Exhibit 9-3 summarizes some marketing mix characteristics based on where a product fits in the
product life cycle. Is Hillside’s marketing plan consistent with what this exhibit suggests? Why or
why not?
Chapter–by–chapter aids: Chapter 9
PLC Stage
Examples at HVC
Fit with Recommendation
Market
introduction
Two products may fit here.
The dental services
package is probably new
for most customers (only
5-10% utilize the services
now).
In addition, the geriatric
health care package for
dogs and cats appears to
be new to the market.
Dental services are described as one of the more profitable
services (suggesting a skimming price policy). The
veterinarian and vet techs are also asked to promote this
product during appointments with customers – a form of
personal selling. The introduction of a brochure (to be
available at the clinic and at community events) suggests
communication that informs – while signs generate
awareness. The website recommendations include
detailed descriptions of these services. These are
consistent with recommendations in the chapter. Similar
strategy is suggested for the geriatric health care package.
CHAPTER 9 – SUMMARY OF CONNECT HOMEWORK EXERCISES
Exercise 9.1: The Product Life Cycle and Strategy at Apple
Question Type: Decision generator
Exercise 9.2: Service Quality Problems at Century Bank
Question Type: Comprehension case
Exercise 9.3: Guiding the Toyota Prius Through the Product Life Cycle
Question Type: Video case
IV-9-10 Perreault, Cannon, & McCarthy
Chapter–by–chapter aids: Chapter 10
CHAPTER 10: PLACE AND DEVELOPMENT OF CHANNEL
SYSTEMS
CHAPTER 10 – COMMENTS ON QUESTIONS AND PROBLEMS
10– 1. Before taking a marketing course, students often think very little about what goes on in a
channel of distribution. Of course, the issues of competitive advantage and marketing strategy
apply to retailers (and wholesalers) in a channel just as they apply to producers. A big retail
chain like Barnes & Noble—with many retail stores and also a strong presence on the Web – is
likely to be familiar to most consumers (and students). Its stores tend to be large and thus it
offers a wide selection relative to a small bookshop. It enjoys economies of scale in promotion
and purchasing as well as in other operating expenses. For example, Barnes & Noble (like
Another way to use this question for additional class discussion is to turn the tables a bit and
ask students, for the moment, not to focus on the differences in the two types of retailers but
instead to think about what consumers want when they shop for books, how they shop, when
they shop, etc. What is likely to occur in such a discussion is that sooner or later students will
describe a varied set of consumer behaviors that provide an opportunity to tie back to the idea
of product classes that is introduced in Chapter 8, and the product classes concept can be
linked back to the distribution issues and how they relate to consumer behavior. A thorough
class discussion of this sort will take some time, but it will also generate some good thinking
and can help students see why Barnes & Noble (with both a website and many retail locations)
will have a real competitive advantage in some situations and with some consumers, but not
with others—depending on how particular consumers see a specific book (in terms of product
classes) at a given point in time.
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lot to buy a book on roses. Would that consumer have driven across town to the local
bookshop? Maybe, but the urge to purchase might have passed if the book isn’t purchased
immediately when the felt need is great.
Emergency: An executive rushing to get on an overnight airline flight to Europe doesn’t have
anything to read, so on the way to the airport after dinner just stops by a Barnes & Noble to
grab a paperback. If the local bookstore isn’t open at that hour, it isn’t in the running. On the
other hand, if it was open and had a more convenient location it might get the business.
Specialty: A manager gets a challenging new marketing assignment, and goes to search out
the newest edition of Basic Marketing to review basics and learn more about current “best
practices” in marketing. The fastest way to do that from the office, without eating into personal
time, might be to go to the Barnes & Noble website and place an order. The small bookshop is
not likely to carry the title (unless it’s in a college town), and delivery of a special order at a
small bookshop is likely to take longer than from a website that is geared toward fast service
on everything that is ordered.
10– 2. Channel specialists who work with service producers usually focus on buying/selling functions
and on the information functions. For example, travel agents work as independent
intermediaries to help travelers as well as hotels, airlines, car rental services, and the like.
They provide information about available services as well as costs and other advantages or
disadvantages. Similarly, financial service firms may rely on brokers or some sort of
independent selling agent to reach their target market; for example, insurance firms often sell
their products through independent agents.
10– 3. This question relates to the discussion of direct vs. indirect channel systems – and adds an
international dimension.