Deck 19: The Global Marketplace

Question 1

As a consumer, would you rather shop at a store that features a sale once a month or a store that practices everyday low pricing (EDLP)? Why?

Answer 1

Situation:
Consumers shopping experience in an everyday low price strategy.
Low pricing strategy:
It is a marketing technique used to attract customers through offering lowest customers to increase demand and market share. In this the retail stores have competitive advantages in most of their products.
Justification:
When a retail store offers everyday low price strategy, there will be an increase in demand of the products compared to other stores and the store has a competitive advantage. The customers prefer shopping in these stores due to their everyday low price offers and rebates on their purchases of products. They strongly believe that this store understands them and develop brand loyalty.

Question 2

What is the difference between a competitive bid and a negotiated price?

Answer 2

Competitive bid:
The competitive bid is the process where it consists of inviting key potential dealers to quote prices on proposed purchases. The complete specifications, evaluate the products and services where the government agencies prefer to purchase. This process usually needs the assistance of organization's technical personnel such as engineers and chemists.
Negotiated price:
The prices negotiated and set up by the government organizations and also by the manufacturers in the event of catastrophe such as war or shortage of products in weak economy or in monopoly circumstances.

Question 3

The law allows companies in various industries to add what many refer to as "hidden" charges to customers' bills. Phone bills, airline tickets, and hotel receipts often contain charges that are difficult to identify. A traveler who stays in a hotel might be hit with a hospitality fee, a resort fee, or an automatic gratuity, to name just a few. These charges are not taxes, and although they are itemized, it is difficult for the average traveler to make sense of them. Most people either don't check their bills thoroughly or are in a hurry to check out and don't bother to dispute the charges, which may be only a few dollars. But these charges add up over the course of hundreds or thousands of visitors each year, and hotels are pocketing them-legitimately.
Visit the website of a hotel chain with which you are familiar to learn if it gives any information about additional surcharges. If consumers were informed about the charges ahead of time, would you feel differently about them? Why or why not?

Answer 3

Situation:
There is a legal provision for different kinds of industries to add hidden charges in their bills. These hidden charges are not taxes they were special costs charged for hospitality fees or a tourist information fee in hotel industry. Most of the visitors do not care much for these hidden tariffs and pay them, but through these tariffs industries make huge money.
Perception of a consumer if hotel management clearly specifies their hidden charges in their bill receipts:
The perception of a customer changes in a positive direction, where he values the service and trustworthiness of the hotel management. The management mentioning their hidden charges in their itemized bill statements gives clear evidence that it is following good ethical practices and also customers prefer to visit the same hotel again

Question 4

Describe briefly the three traditional global pricing strategies. Give an example of a firm or product that would be likely to adopt one of the three approaches, and explain why.

Question 5

Pricing strategies. Say you'd like to go on a Caribbean cruise. Visit the Royal Caribbean website to price cruises at various times of the year-for example, summer vacation, spring break week, and Thanksgiving week. Which cruises are the most and least expensive? Prepare a summary of your findings and bring it to class so you can participate in a discussion on pricing strategies.
www.royalcaribbean.com/findacruise

Question 6

Although cannibalization generally forces price cuts, in what ways can it actually benefit a firm?

Question 7

Figure out how much it will cost to buy and own one of the following new cars from a dealership, or select another model. What is the list price? What price could you negotiate?
a. Ford Escape hybrid
b. Lexus RX 350
c. Hyundai Santa Fe
d. Scion tC

Question 8

What is the difference between a list price and a market price?

Question 9

Under Staples' "Easy Rebates" program, customers can submit most of their rebate applications online for products purchased over the Internet, through the catalog, and in Staples stores. Customers may also submit several rebates at once and receive emails about the status of their rebates at every stage.27 Staples claims the rebates are processed much faster than those of other companies. Do you think the "Easy Rebates" program will increase the number of rebates customers actually submit? Why or why not? Do you think other firms will follow with similar programs?

Question 10

Bundle pricing. Using online websites for several insurance companies, look up pricing for bundling several different types of insurance policies-for example, auto and renter's insurance. Is there an advantage to buying two or more different policies with the same company? What are some of the disadvantages to consumers for bundling insurance coverage with one company? What are some of the other factors that impact the cost of bundling insurance policies?
www.progressive.com
www.geico.com
www.esurance.com

Question 11

What is the difference between a skimming price strategy and a penetration pricing strategy? Under which circumstances is each most likely to be used?

Question 12

Assume that a product sells for $100 per ton and that Pittsburgh is the basing-point city for calculating transportation charges. Shipping from Pittsburgh to a potential customer in Cincinnati costs $10 per ton. The actual shipping costs of suppliers in three other cities are $8 per ton for Supplier A, $11 per ton for Supplier B, and $10 per ton for Supplier C. Using this information, answer the following questions:
a. What delivered price would a salesperson for Supplier A quote to the Cincinnati customer?
b. What delivered price would a salesperson for Supplier B quote to the Cincinnati customer?
c. What delivered price would a salesperson for Supplier C quote to the Cincinnati customer?
d. How much would each supplier net (after subtracting actual shipping costs) per ton on the sale?

Question 13

Does an object that costs more to make than it's worth have any value in today's economy? If the object is the U.S. penny, a growing consensus says "no."
Canada will soon stop producing its penny, following the lead of Australia, New Zealand, Brazil, Norway, Switzerland, Finland, and Britain, which all dropped their lowest-valued coins from circulation with no ill effects. And Canada's penny wasn't as big of a drain on the country's treasury as the U.S. penny. It cost only 1.6 cents to make, whereas the U.S. penny-a copper plate covered by a 99 percent zinc core-cost taxpayers 2.4 cents each. In one recent year, the U.S. Treasury spent $60 million minting pennies, more than double the cost in 1982, all for coins that have no real purchasing power
Canada's government will ask citizens to bring unwanted pennies to banks to be melted down or donated to charities. Canadians who want to continue using the pennies still in circulation are free to do so. They will have fewer opportunities than before, however, since cash sales will be rounded to the nearest five cents.
The zinc industry wants to keep supplying raw material to the U.S. government, of course, but as the cost of zinc keeps rising, some people feel it's time to follow Canada's example and simply eliminate the penny, saving the government the cost of manufacturing it and diverting the metal to some other, better use.
Other people worry that, if all prices are rounded up to the nearest nickel, rather than down, those most affected will be the poor. Others feel that rounded prices will acquire what economists call "stickiness" and resist further increases (which would have to be at least 5 cents) for a few years, thus helping all consumers. "A 99-cent price might go down to 95 cents rather than up to $1 to avoid crossing that higher price threshold," says a senior economist at the Federal Reserve.
QUESTIONS FOR CRITICAL THINKING
1. What do you think would happen to retail prices if the United States withdrew the penny from circulation? Why?
2. Some observers suggest eliminating the nickel as well, since each one costs more than 11 cents to make and distribute. Do you agree, and why or why not? What would be the effect of such a decision on prices?

Question 14

What are allowances? How do they work?

Question 15

When Chinese automakers began exporting cars, rather than focusing on developed nations in the West, they shipped autos to emerging markets in countries such as Algeria, Russia, Chile, and South Africa. In these markets, even used vehicles from multinational manufacturers are relatively scarce-and relatively expensive. The Chinese automakers, who prioritize low cost rather than design or even safety, applied a penetration- pricing strategy. A woman in Santiago, Chile, who bought a new Chery S21 explained, "The price factor is fairly decisive. I paid $5,500 new and full. Toyota with similar features costs around $12,000." Why do you think Chinese automakers chose that pricing strategy? Do you think it was successful? As Chinese regulators pressure these manufacturers to make their cars safer, do you think they will be able to keep their prices low compared with those of the international automakers? Why or why not?

Question 16

Go online to a shopping site you use regularly and note the prices for different types of products. Does this firm use psychological pricing? Product line pricing? Note any pricing strategies you can identify. Do any of these strategies make you prefer the site over a competitor's site?

Question 17

The law allows companies in various industries to add what many refer to as "hidden" charges to customers' bills. Phone bills, airline tickets, and hotel receipts often contain charges that are difficult to identify. A traveler who stays in a hotel might be hit with a hospitality fee, a resort fee, or an automatic gratuity, to name just a few. These charges are not taxes, and although they are itemized, it is difficult for the average traveler to make sense of them. Most people either don't check their bills thoroughly or are in a hurry to check out and don't bother to dispute the charges, which may be only a few dollars. But these charges add up over the course of hundreds or thousands of visitors each year, and hotels are pocketing them-legitimately.
Do you think adding hidden charges to hotel bills is a smart marketing strategy? Why or why not?

Question 18

On your own or with a classmate, visit a local supermarket to find examples of promotional pricing and loss leaders. Note instances of both. Does the promotional pricing make you more likely to purchase a product? Does knowing the store uses loss-leader pricing of bananas make you more inclined to buy them? Present your findings and opinions to the class.

Question 19

Price competition. Using several online ticket sellers, look up prices for an event you would like to attend. Are the prices comparable? What other fees are included in the price-perticket? Are discounts offered for purchasing multiple tickets? Is there a loyalty program for consumers who frequent a specific ticket seller?
www.ticketmaster.com
www.stubhub.com
www.livenation.com

Question 20

Describe the three ways buyers and sellers handle transportation expenses.

Question 21

Good, Better, Best
How do you put a price on the experience of serving friends or family the best dinner you ever cooked? Its value is far greater than the cost of ingredients or the amount of time you spent making the meal. Instead, its value lies in your original inspiration, your goal of producing a great meal, and all the care you blended into your creation-not to mention the enjoyment of your diners. Food Network marketers face this same question when considering pricing objectives for everything from advertising to branded cookware sold by retailer Kohl's.
Although Food Network sells time to advertisers and charges cable and digital distributors for content, the network's ultimate customer is the consumer. "For us, the primary relationship is with the consumer," explains Chris Powell, executive vice president for human resources at Scripps. Food Network delivers relevant content to viewers, creating value for them that allows the network to charge advertising and distribution rates. Advertisers and distributors then have access to those consumers through various outlets-whether it's placing their products in specific episodes or tweeting about an upcoming show premier. Lexus marketers may consider paying a higher price to place a new model in Restaurant: Impossible for the privilege of having its luxury auto featured on a popular show as a worthwhile investment. Distributors may agree to rates that meet Food Network's profitability objectives.
Food Network also designs and sells tangible goods-kitchen utensils, cookware, dinnerware, table linens, and more. Creating a pricing strategy for these products involves integrating the target audience for its television shows with its choice of retailer: Kohl's. Since Food Network products are sold exclusively by Kohl's, marketers can zoom in on a target market for its pricing decisions. Using a competitive pricing strategy, Food Network positions its kitchen goods along the "good, better, best" continuum. "We try to anchor ourselves at the high end of better," observes Sergei Kuharsky, senior vice president and general manager for licensing and merchandising. "We want to be quality first, but we want to be accessible as well." If Food Network priced its kitchen goods too high, fans would view them as unaffordable- undermining sales and potentially doing damage to the lifestyle image of the network. Gabe Gordon, vice president of research for Food Network, agrees with this assessment, particularly during economically difficult times. "If you're overtly leaning toward luxury, you turn a lot of people off," he points out.
When developing its kitchen products, Food Network partners with a team of culinary experts who help design, test, and review everything from frying pans to baking dishes. If these items survive hard use in the test kitchens for four to eight weeks, they'll likely perform well in consumers' homes. Quality combined with the right price creates value for consumers. Kohl's sets the actual retail prices for these items, with product-line pricing-but the price-quality relationship is important to Food Network. "We look at our products as professionally inspired but priced for the home cook, and we want them to be as good if not better for the money than anything else out there," says Kuharsky.
Although consumers don't pay for Food Network programming (except through cable or other media subscriptions), the network takes into consideration pricing issues as it creates the lineup of shows. "I do think our programming is very aspirational," comments Gordon. "We give you the tools to make things your own." When the economy shifted downward several years ago, Food Network marketers noticed that daytime viewers responded well to shows that offered special deals or featured less-expensive menus and recipes. "When times change and money is tight, people will look for ways to cut corners in a less painful way," explains Gordon. In addition, people tend to entertain at home more-instead of dining out-so they gravitate toward shows that provide low-cost but fun or attractive ideas for social gatherings. These programs "help people live a better food life," Gordon continues. Here, price limits go to work in the minds of consumers. They establish a budget for groceries or entertaining, then shop within those limits. But they want to create the tastiest meal or trendiest party those boundaries will allow-and Food Network is there to help.
Price limits also apply to wealthier viewers who might be able to afford to buy more expensive ingredients or cookware but choose not to. If they see a certain dish featured on one of the cooking shows, they might snub it as too exotic for their family's tastes or too complicated or lengthy to make at home. "Surprisingly, you end up turning off more of the upscale people in the audience," warns Gordon. In the end, everyone must eat to live-but Food Network aspires to bring out the inner cook in all of us, upscale or not. "Food is how people express themselves," says Gordon.
Questions for Critical Thinking
1. In your opinion, should Food Network try to attain prestige objectives through pricing? Why or why not?
2. How would you classify the market structure for Food Network's offerings (both content and tangible goods)? Explain.
3. How might Food Network and Kohl's use product-line pricing to expand their partnered offerings?
4. Describe the price-quality relationship of Food Network's programming and its cookware products at Kohl's.

Question 22

Why is competitive bidding an important factor in major purchase decisions such as vehicles for a police force, the construction of a bridge, or the manufacture of military uniforms?

Question 23

With a classmate, create two advertisements for the same product. One advertisement should feature a high price; the other advertisement should feature a low price. Present your advertisements to your classmates. Record their perceptions of the price-quality relationship. Which price do most of them seem to prefer?

Question 24

Decide on a trip you'd really like to take. Then go online to several of the travel sites-Travelocity, Priceline.com, or others-and compare prices for your trip, including airfare, hotels, and so forth. Does bundling the components give you a price break? Note any coupons or promotions for restaurants and attractions as well. Decide which trip is the best deal, and explain why.

Question 25

It's hard to find a real bargain these days, but BoltBus is the real deal. Those black-andorange buses you see trundling past you on the highway or along a city street could be your ticket to ride-for $1. BoltBus, owned by Greyhound Lines, operates buses along the Northeastern corridor, in California, and in the Pacific Northwest, moving more than 2 million passengers each year. The company's primary customers are those in the 18- to 34-year-old range-college students, recent grads, young professionals, and young families. These riders tend to be budget-minded, and BoltBus caters to them. Pricing is a major component of the bus line's marketing strategy.
When BoltBus launched its line in the Northeast, at least 15 other competitors already operated in the region. In addition, travelers could opt for planes or trains, or they drive their own cars. So the bus line had to offer a brand that sold tickets online, at a very competitive cost. "Pricing is really crucial because it's such a competitive environment," says William Koen, a business analyst for BoltBus. With so many other options available to consumers, BoltBus opted for penetration pricing-including its now-famous $1 ticket-relying on the buzz generated by travelers who nabbed the golden ticket as well as those who began to ride the bus line for its average $20 fare. Typically, BoltBus will sell one $1 ticket per route, selling the remainder of seats for around $20. Whoever gets the $1 ticket often posts their lucky draw on Facebook or Twitter-and the news goes viral. "The $1 ticket is meant to be fun," explains Nicole Recker, senior marketing manager, and the strategy seems to work. Everyone hopes to be the $1 ticket holder, but no one minds paying the regular fare, which is significantly lower than those of competing bus lines.
BoltBus does have to monitor its costs, particularly those of fuel and labor. When these two factors have risen, the company has increased prices in small increments to keep up, with the goal of maintaining both value and profitability. The company also continuously monitors the competition to make sure its service is priced less than its rivals while meeting its costs. BoltBus takes into account the price of gasoline, tolls, and parking for those consumers who choose to drive-and tries to offer a cheaper, more convenient service. "Generally in New York City you'll pay more in parking per day than for a one-way ticket on our buses, so having that value for our customers has driven our explosive growth," notes Koen. "It's opening up an entire new market for the bus industry."
BoltBus also takes demand into consideration when setting prices. Using historical data, marketers see how many people its buses have carried along a certain route on any given day or time period. Then they tweak certain variables-such as the frequency of runs-to maximize revenue and profitability without cutting value to customers. For example, ridership tends to increase during the weekends and holiday periods, so BoltBus offers more runs during those high-volume periods, while cutting runs during the midweek when the buses aren't filled. During low-demand periods (such as Wednesdays), BoltBus may offer a lower price to attract more volume; conversely, during high-demand periods (such as Friday evenings), ticket prices are a bit higher. This type of pricing to demand is similar to the strategy of hotels and airlines; consumers pay more to fly or stay in a hotel during popular vacation weeks. Since seats generally sell out during these high-volume periods, BoltBus doesn't need to discount the ticket price. But an empty seat represents a loss of revenue to the company, so a discounted sale is better than no sale-which is why BoltBus offers lower prices during quieter times of the week or year. "It's a high-volume business model," explains general manager David Hall. "We keep the price low and the volume high."
BoltBus' pricing policy is attractive to consumers. Prices are straightforward and easy to understand; consumers know what to expect and what they are getting for their dollar. "Transparency has been key to our success," says Recker. "It's done a lot to enhance our brand." BoltBus charges no hidden or additional fees and doesn't jack up its prices without warning. "We're very honest with our customer," says Recker.
Questions For Critical Thinking
1. How does BoltBus use a combination of penetration pricing and everyday low pricing (EDLP) to achieve its objectives?
2. BoltBus is well known for its $1 ticket sales promotion. Though it has been successful thus far, could it ever backfire? If so, how?

Question 26

How is product-line pricing helpful to both retailers and their customers?

Question 27

Why is competitive pricing risky for marketers?

Question 28

What is the difference between loss leader and leader pricing? Give an example of when retailers would use each of these pricing strategies.