Page 387 - Foundations of Marketing

354 Part 4 | Product and Price Decisions

6. List the characteristics of products that have inelastic 11. A retailer purchases a can of soup for 24 cents and sells
demand, and give several examples of such products. it for 36 cents. Calculate the markup as a percentage of
7. Explain why optimal profits should occur when mar- cost and as a percentage of selling price.
ginal cost equals marginal revenue. 12. What is differential pricing? In what ways can it be
8. Chambers Company has just gathered estimates for con- achieved?
ducting a break-even analysis for a new product. Variable 13. For what types of products would price skimming be
costs are $ 7 a unit. The additional plant will cost $ 48,000 . most appropriate? For what types of products would
The new product will be charged $ 18,000 a year for its penetration pricing be more effective?
share of general overhead. Advertising expenditures will be 14. Describe bundle pricing, and give three examples using
$ 80,000 , and $ 55,000 will be spent on distribution. If the different industries.
product sells for $ 12 , what is the break-even point in units? 15. Why do customers associate price with quality? When
What is the break-even point in dollar sales volume? should prestige pricing be used?
9. What are the benefits of cost-based pricing? 16. Compare and contrast a trade discount and a quantity
10. Under what conditions is cost-plus pricing most discount.
appropriate? 17. What is the reason for using the term F.O.B. ?

Marketing Applications

1. As discussed in this chapter, customers interpret and product. Which strategy is more appropriate for the
respond to prices In different ways, depending on the following products? Explain.
type of product, perceptions of product quality, and the a. Short airline flights between cities in Florida
customer's ability to judge product quality indepen- b. A Blu-ray player
dent of the price. Because customers lack the abil- c. A backpack or book bag with a lifetime warranty
ity to judge product quality, they sometimes use the d. Season tickets for a newly franchised NBA basketball
price of the product as an indicator of product quality. team
Thus, the price-quality relationship can influence the
3. Price lining is used to set a limited number of prices for
purchase of some products. For each of the following,
selected lines of merchandise. Visit a few local retail
indicate whether customers rely heavily, moderately,
stores to find examples of price lining. For what types
or hardly at all on the price to judge the quality of a
of products and stores is this practice most common?
product.
For what types of products and stores is price lining not
a. Airfare in coach typical or feasible?
b. Appendectomy 4. Professional pricing is used by people who have great
c. Baby food skill in a particular field, such as doctors, lawyers, and
d. Cell phone service business consultants. Find examples (advertisements,
e. Cosmetics personal contacts) that reflect a professional pricing
f. Dog food policy. How is the price established? Are there any
g. Electricity restrictions on the services performed at that price?
h. Gasoline 5. Organizations often use multiple pricing objectives. Locate
i. Haircut an organization that uses several pricing objectives, and
j. Hotel room discuss how this approach influences the company’s mar-
k. Jewelry keting mix decisions. Are some objectives oriented toward
l. Tanning salon the short term and others toward the long term? How does
m. Used car the marketing environment influence these objectives?
2. Price skimming and penetration pricing are strategies 6. Develop your analytical and communication skills
that are commonly used to set the base price of a new using the Role-Play Exercises online at
www.cengagebrain.com .

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