TEST YOURSELF

Chapter 14: Managing the Pricing Function

Essay Questions

1. Three main approaches to pricing were discussed in Chapters 13 and 14: (1) price derivation, which is based on theoretical economic analysis, (2) the cost-plus approach, and (3) the marketing approach. Review the strengths and weaknesses of each approach. Based on your review, which do you think is the best way to set pricing?

2. The text states that “competitive analysis and legal and ethical analysis will almost always result in a price that is somewhere between the floor and the ceiling” prices set through consumer and cost analyses. Explain why, as the text contends, “all three factors tend to constrain price decisions down from the price ceiling.”

3. After the final price has been established for a product, it has to be evaluated to (a) determine if it allows the product to meet its financial goals, and to (b) ensure that it is consistent with the remainder of the marketing mix. The text gives some direction with regard to when a low price might be appropriate. Based on what you have learned thus far about the marketing mix, when would a high price be appropriate? When would a price that matches competition be appropriate?

4. Discuss whether and how, in your experience, the price-quality concept applies to university education, computers, and clothing. If you do not feel that it applies to one or more of these products or services, why not? In other words, what factors override the price-quality relationship for you in these particular instances?

5. Most consumers tend to set a price range that they consider acceptable when purchasing specific goods and services. The text indicates that this range varies with consumers’ socioeconomic characteristics and “buying predispositions”. Is involvement level one of these predispositions? Answer this question by considering whether people in the low income, middle income, and high income categories are likely to have different acceptable price ranges for low-involvement products such as milk and laundry detergent.

6. Unit pricing is common in grocery stores as a means to help consumers compare the prices of products that come in different-size packages or containers. Whether or not unit pricing actually helps in consumer decision-making is still being debated. Take a position for or against unit pricing and provide at least two good reasons supporting your position.
   

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