Contemporary Marketing Study Set 6

Business

Quiz 18 :

Pricing Concepts

Quiz 18 :

Pricing Concepts

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Research the price schedule at your local movie theater multiplex. Which pricing strategy accounts for any price differentials you discover? Why don't matinee prices constitute price discrimination against those who don't qualify for the discounts?
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Price schedule is explained below:
Price schedule is a list of prices that shows the prices of purchased products or services.
Pricing schedule at movie theatre complex is given below:
The movie theatres usually follow various pricing schedules which depend upon the categories of movies. The movie with the top cast will have high prices in the initial release days and the movies with normal or new cast will have a relatively less price.
Differential pricing or price discrimination:
Differential pricing is a strategy used to sell the product to various customers at different prices.
Pricing strategy for discovered price differentials:
In order to attract customers for the afternoon shows, the theatre usually provides discounts and special offers to movies having a normal cast.
Price discrimination of matinee shows is given below:
The demand of evening shows is higher than the demand of matinee shows. Hence, the movie theatres start charging matinee shows with low price and evening shows with high price.

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You work for a major restaurant in your town. The manager is facing cost pressures from rising food prices and says she needs to raise revenues. She decides to reduce the size of the meal portions and use cheaper cuts of meat and fish in some entrées while holding the menu prices constant. She tells you and other staff members not to mention the changes to customers and to deflect any questions or complaints you hear. The descriptions in the menu will not be changed, she says, "because the printing costs would be too high." A customer mentions that the chicken in the sandwich he ordered is "tough and dry" and the order seems smaller than before. What would you do?
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Value pricing:
Value pricing is a concept that emphasizes on product benefit at comparative levels of price and quality.
Tackling cost pressures:
Cost pressures increase prices and disrupt production and ultimately the final output. In order to tackle the situation, the quality and quantity of raw materials is reduced.
In the current situation, due to increase in prices of food material, the owner reduces the meal portions and uses cheaper ingredients. These menu changes are not intimated to the customers.
"X customer orders a food item and finds it to be of bad quality and less quantity."
• Customers are the king of any business. They make a business flourish and at the same time they turn around the business to a huge loss. In the current instance, the restaurant advertises the quality but does not inform about the quantity or menu changes.
• When the customer notices the quality and quantity changes, he will definitely question the waiter. At that time he can apologize to the customer and satisfy his current needs to stop further quarrel.
Here, the waiter is representing the restaurant and thus he cannot give up his organization. Instead, he must try to get rid of the situation smartly without explaining in detail. But, if X is a regular customer he can explain the management's decision.

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How are the following prices determined and what do they have in common? a. ticket to a local museum b. college tuition c. local sales tax rate d. printing of business cards e. lawn mowers
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Price determination is explained below:
Price determination is the process of determining or evaluating prices of the products that interact with two market forces (demand and supply) in the marketplace.
Price determination for the following activities is given below:
a. Ticket to local museum:
The ticket price can be determined based on the demand among the audience. The demand will be categorized by the number of audience visiting to the museum every day. Valuable costs, human personnel, and other security issues should be analyzed in detail before determining the ticket price.
b. College tuition:
The price of college tuition should be determined based on the number of competitors and their prices. It is also determined based on the semester hours and courses provided by the institution.
c. Local sales taxes
The local sales taxes are determined and controlled by the specific government authorities. The prices are determined in a monopoly environment, where the government plays a leading role in the determination of prices.
d. Printing of business cards
The price of printing of business cards is determined by the market. It should be based on the customers' requirements, time of delivery, type of paper, color, and designs.
e. Lawn mowers:
The price of lawn mowers are determined and controlled by the market suppliers since it belongs to the monopolistic competition. It should be determined based on technology and demand of the product.

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Yield management. You are planning a trip to Walt Disney World. Visit the website to price week-long stays at various times of the year. Be sure to choose similar hotels. Which weeks are the most and least expensive? Do the days of arrival and departure make any difference? Prepare a summary of your findings and bring it to class so you can participate in a discussion on yield management.http://disneyworld.disney.go.com/vacation-packages
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The Cash for Clunkers Program During a recent summer, the federal government undertook the temporary Car Allowance Rebate System, abbreviated CARS but popularly known as the Cash for Clunkers program. Under the plan, drivers of qualifying cars from the years 1984 through 2002 with an EPA-rated efficiency of 18 miles per gallon or less received a voucher worth $3,500 to $4,500 for trading those cars in to purchase a new car with an EPA rating of 22 miles per gallon or better. (The voucher amount varied depending on the difference in miles per gallon between the trade-in and the new purchase.) In other words, the government wanted to encourage the purchase of efficient new cars by, in effect, temporarily reducing the price to qualified buyers. The purpose of the plan was twofold: one goal, motivated by the recession-weakened economy, was to "shift expenditures by households, businesses, and governments from future periods when the economy is likely to be stronger, to the present when the economy has an abundance of unemployed resources that can be put to work at low net economic cost," as stated by Christopher Carroll. The second goal was to reduce harmful emissions by getting a large number of older, gas-guzzling vehicles offthe road. While some critics said the plan would simply pull future sales into the rebate period, resulting in no net increase in sales, several studies have shown that Cash for Clunkers was a success. More than 130,000 cars were traded in, and the budgeted allocation of $1 billion for the rebates was gone within a week. Congress had to quickly authorize the release of an additional $2 billion to keep the program going for the announced time period. More than half the cars traded in were at least ten years old and about eight in ten had been driven more than 100,000 miles. In an even more striking result, another quarter-million cars were sold during the Clunkers period to buyers who wanted to cash in, didn't qualify, and decided to purchase a new car anyway. Many of these "halo sales" were of fuel-efficient hybrids, further contributing to what the U.S. Department of Transportation says was a mileage gain of nearly ten miles per gallon overall on vehicles purchased during the plan, compared to the goal of increasing efficiency by four miles per gallon. "Our findings not only provide strong evidence that many more vehicles were sold as a direct result of the incentive program than were previously estimated," said the vice president of an auto industry research group. "They also largely debunk the myth that 'cash for clunkers' mortgaged future car and truck sales. In fact, the program resulted in sales of vehicles to people who don't normally buy them." Some estimate that more than 540,000 of the purchases made during the plan were to buyers and lessees who wouldn't have made a purchase without the cash incentive. And with car sales continuing to rise, the research group concludes, "the program did not [mortgage] the future of the industry by stealing sales that would have occurred otherwise." And according to the National Highway Traffic Safety Administration, the CARS program saved or created nearly 60,000 jobs. Who really pays the cost of a government price-incentive plan like Cash for Clunkers? Why? What other ways can you think of to distribute such costs?
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Airbus and Boeing subsidies. The United States and European Union have had a long-running dispute over allegations of improper government subsidies to commercial aircraft manufacturers (the U.S. about Airbus and the EU about Boeing). Government subsidies may give the manufacturer a price advantage over its competition. Both sides have filed complaints with the World Trade Organization. Go to the WTO website and see the article link listed below. Write a report outlining the trade dispute and its current status. www.wto.org http://www.reuters.com/article/2014/05/19/us-trade-aircraft-subsidies-exclusive-idUSBREA4I03W20140519
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Some finance experts advise consumers not to worry about rising gasoline prices, the cost of which can easily be covered by forgoing one takeout meal a month, but to worry about how high energy prices will affect the rest of the economy. For example, each dollar-a-barrel price increase is equivalent to a $20 million-a-day "tax" on the economy. Explain what this means.
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Give an example of each of the major categories of pricing objectives.
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In small teams, categorize each of the following as a specific type of pricing objective. Suggest a company or product likely to use each pricing objective. Compare your findings. a. 5 percent increase in profits over the previous year b. prices no more than 6 percent higher than prices quoted by independent dealers c. 5 percent increase in market share d. 25 percent return on investment (before taxes) e. setting the highest prices in the product category to maintain favorable brand image
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Price competition. Using a popular travel site, look up airfares for each of the following pairs of cities: New York to Los Angeles Atlanta to Detroit Jacksonville, Florida, to Dallas Chicago to Omaha Denver to Albuquerque Do some fares appear higher (on a per-mile basis) than others? Do these differences reflect how many airlines provide nonstop service between each pair of cities? What about the impact on fares of so-called discount airlines (such as JetBlue)? www.expedia.com www.kayak.com
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What are the practical problems in applying price theory concepts to actual pricing decisions?
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Distinguish between fair-trade and unfair-trade laws. As a consumer, would you support either fair-trade or unfair-trade laws? Would your answer change if you were the owner of a small store?
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Ajax Motor Company recently announced that it will rely less on high-volume strategies such as discounts and rebates to improve its profitability. Another strategy it will employ is to sell fewer cars to rental fleets, which eventually return the cars to Ajax for sale at low auction prices. How do these types of sales affect Ajax's profitability?
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Music artists earn only about 9 percent in royalties per CD, using a royalty base of retail price less 25 percent for packaging costs. The rest goes to the producer and to cover recording costs, promotion, copies given away to radio stations and reviewers, and other costs such as videos. What do you think happens to the artist's royalties when a CD is marked down to sell faster? Consider two cases: (a) the marked-down CD sells more copies, and (b) it sells the same number of copies as before.
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WebTech Development of Nashville, Tennessee, is considering the possible introduction of a new product proposed by its research and development staff. The firm's marketing director estimates the product can be marketed at a price of $70. Total fixed cost is $278,000, and average variable cost is calculated at $48. a. What is the breakeven point in units for the proposed product? b. The firm's CEO has suggested a target profit return of $214,000 for the proposed product. How many units must be sold to both break even and achieve this target return?
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The Cash for Clunkers Program During a recent summer, the federal government undertook the temporary Car Allowance Rebate System, abbreviated CARS but popularly known as the Cash for Clunkers program. Under the plan, drivers of qualifying cars from the years 1984 through 2002 with an EPA-rated efficiency of 18 miles per gallon or less received a voucher worth $3,500 to $4,500 for trading those cars in to purchase a new car with an EPA rating of 22 miles per gallon or better. (The voucher amount varied depending on the difference in miles per gallon between the trade-in and the new purchase.) In other words, the government wanted to encourage the purchase of efficient new cars by, in effect, temporarily reducing the price to qualified buyers. The purpose of the plan was twofold: one goal, motivated by the recession-weakened economy, was to "shift expenditures by households, businesses, and governments from future periods when the economy is likely to be stronger, to the present when the economy has an abundance of unemployed resources that can be put to work at low net economic cost," as stated by Christopher Carroll. The second goal was to reduce harmful emissions by getting a large number of older, gas-guzzling vehicles offthe road. While some critics said the plan would simply pull future sales into the rebate period, resulting in no net increase in sales, several studies have shown that Cash for Clunkers was a success. More than 130,000 cars were traded in, and the budgeted allocation of $1 billion for the rebates was gone within a week. Congress had to quickly authorize the release of an additional $2 billion to keep the program going for the announced time period. More than half the cars traded in were at least ten years old and about eight in ten had been driven more than 100,000 miles. In an even more striking result, another quarter-million cars were sold during the Clunkers period to buyers who wanted to cash in, didn't qualify, and decided to purchase a new car anyway. Many of these "halo sales" were of fuel-efficient hybrids, further contributing to what the U.S. Department of Transportation says was a mileage gain of nearly ten miles per gallon overall on vehicles purchased during the plan, compared to the goal of increasing efficiency by four miles per gallon. "Our findings not only provide strong evidence that many more vehicles were sold as a direct result of the incentive program than were previously estimated," said the vice president of an auto industry research group. "They also largely debunk the myth that 'cash for clunkers' mortgaged future car and truck sales. In fact, the program resulted in sales of vehicles to people who don't normally buy them." Some estimate that more than 540,000 of the purchases made during the plan were to buyers and lessees who wouldn't have made a purchase without the cash incentive. And with car sales continuing to rise, the research group concludes, "the program did not [mortgage] the future of the industry by stealing sales that would have occurred otherwise." And according to the National Highway Traffic Safety Administration, the CARS program saved or created nearly 60,000 jobs. The cash incentive in the CARS plan appears to have succeeded in its goal of reducing harmful emissions. What lessons do you think that success offers for other efforts to safeguard the environment?
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Identify each factor influencing elasticity and give a specific example of how it affects the degree of elasticity in a good or service.
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What are the major price implications of the PIMS studies? Suggest possible explanations for the relationships the PIMS studies reveal.
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You work for a major restaurant in your town. The manager is facing cost pressures from rising food prices and says she needs to raise revenues. She decides to reduce the size of the meal portions and use cheaper cuts of meat and fish in some entrées while holding the menu prices constant. She tells you and other staff members not to mention the changes to customers and to deflect any questions or complaints you hear. The descriptions in the menu will not be changed, she says, "because the printing costs would be too high." You know the restaurant advertises the quality of its ingredients in the local media. The menu changes are not advertised, and it bothers you. What course of action would you take?
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Prices at amusement parks might rise if operators such as Disney and Universal Studios add new attractions. The parks also have to deal with high fuel prices. List as many things as you can think of that such parks offer patrons in return for their money. Which of these do you think are directly reflected in the price of admission?
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