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CHAPTER 9 – MARKETING: PRODUCT AND PRICE
ANSWERS
LEARNING THE LANGUAGE
1. Brand
2. Everyday low pricing (EDLP)
3. Geographic segmentation
4. Total product offer
5. Primary research
6. Price leadership
7. Relationship marketing
8. Demographic segmentation
9. 4 Ps
10. Focus group
11. Niche marketing
12. Brand loyalty
13. Penetration strategy
14. Market segmentation
15. Industrial good
16. Product differentiation
17. Marketing
18. Marketing research
19. Target costing
20. Bundling
21. Marketing management
22. Brand equity
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
Psychographic segmentation
Volume (usage) segmentation
Secondary research
Product line
Loss leader
High-low pricing strategy
Benefit segmentation
Target marketing
Skimming price strategy
Psychological pricing
Product life cycle
ASSESSMENT CHECK
Learning Goal 1
The Eight Functions of Marketing
1.
The eight functions of marketing are:
a. buying – developing or procuring products to fit the needs of the customers.
b. selling – when customers are informed about the product, selling can be done in several ways.
c. transportation – getting goods from the factory to the final place they will be sold.
d. storage – used when companies aren’t ready to take products directly to the consumer.
e. quality and quantity – understanding the quality standards of the product in order to meet
customer expectations.
f. financial – methods for payment.
g. risk – of buying, selling, transporting products.
h. marketing information – gathering information for setting prices, finances, market research.
Learning Goal 2
Market Segmentation
2.
Consumer groups differ in age, education level, income and taste, and a business can’t usually fill
the needs of every group. So the company must decide what groups to serve, and develop
products and services specially tailored to meet their needs.
3.
a.
b.
c.
d.
e.
4.
The best segmentation strategy is to us all the variables possible to come up with a target market
that is sizeable, reachable, and profitable.
benefit
geographic
demographic
psychographic
volume
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5.
6.
7.
A company will use niche marketing when it can identify a small but profitable market segment
that is very specific, such as people who like refrigerator magnets.
The goal of relationship marketing is to keep individual customers over time by offering them
new products that exactly meet their requirements.
Technology enables sellers to work with individual buyers to determine their wants and needs
and to develop goods and services specifically designed for them.
Learning Goal 3
Consumer Behavior
8.
The steps in the consumer decision-making process are:
a. Problem recognition.
b. Information search.
c. Alternative evaluation.
d. Purchase decision.
e. Post purchase decision (cognitive dissonance).
9.
a.
b.
c.
10.
a.
11.
The business to business (B2B) market includes manufacturers, intermediaries such as retailers,
institutions and the government.
12.
The B2B market is larger than the consumer market because items are often sold and resold
several times in the B2B process before they are sold to the final consumers.
13.
The strategies of business-to-business marketing differ from consumer marketing strategies
because the nature of the buyers is different.
14.
The factors that make business-to-business different from consumer marketing are:
a. The number of customers in the B2B market is relatively few.
b. The size of business customers is relatively large.
c. B2B markets tend to be geographically concentrated.
d. Business buyers generally are more rational than ultimate consumers are.
e. B2B sales tend to be direct.
f. There is much more emphasis on personal selling than in the consumer market.
Marketing mix influences - product, price, promotion, place.
Sociocultural influences - Reference groups, family, social class, culture, subculture.
Situational influences - Type of purchase, social surroundings, physical surroundings,
previous experience.
d. Psychological influences - Perception, attitudes, learning, motivation.
Learning involves changes in an individual’s behavior resulting from previous experiences
and information.
b. A reference group is the group that an individual uses as a reference point in the formation of
his or her beliefs, attitudes, values or behavior.
c. Culture is the set of values, attitudes, and ways of doing things that are passed down from
one generation to another in a society.
d. Subculture is the set of values, attitudes and ways of doing things that result from belonging
to a certain ethnic group, religious group, racial group or other group with which one
identifies.
e. Cognitive dissonance is a type of psychological conflict that can occur after a purchase,
particularly a major purchase.
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Learning Goal 4
The 4Ps of Marketing: Product
15.
16.
The 4P’s of marketing are:
a. product.
b. price.
a.
b.
c.
d.
e.
f.
Price
Store surroundings
Guarantee
Brand name
Service
Speed of delivery
c. place.
d. promotion.
g.
h.
i.
j.
k.
l.
Convenience
Internet access
Image created by advertising
Package
Buyer’s past experience
Reputation of producer
17.
Tangible attributes are the characteristics of the product itself, and the package. Intangible
attributes are the reputation of the seller and the image created by advertising.
18.
Marketing research helps to determine:
a. what customers have purchased in the past.
b. what customers are likely to want in the future.
19.
The four steps of the marketing research process are:
a. Define the question and determine the present situation.
b. Collect data.
c. Analyze the research data.
d. Choose the best solutions.
20.
Quantitative research involves the systematic scientific investigation of phenomena and their
relationships. The data gathered dare analyzed with statistical methods. Qualitative research
targets harder to measure attitudes and opinions. This is the type of research usually used in
marketing.
21.
Primary research is created by a marketer. Secondary research seeks information from previously
published reports and research from journals, trade associations, the government, information
services and others.
22.
Two disadvantages of primary data are:
a. it can be time consuming.
b. it can be expensive.
23.
Advantages of secondary data
a. less expensive than primary data
b. less time consuming
24.
Marketers use a mix of pricing, advertising and packaging to create a unique attractive image to
differentiate their products
25.
Disadvantage
a. may not meet the need of the researcher
The four different classes of consumer goods and services are:
a. Convenience – candy.
b. Shopping – clothes.
c. Specialty – expensive watches, such as a Rolex.
d. Unsought – emergency car towing.
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26.
a.
b.
location
brand awareness
c.
image
27.
Comparisons of shopping goods are based on the quality, price, and style from a variety of
sellers.
Shopping goods are sold largely through shopping centers so that consumers can shop around
and compare.
Marketers can emphasize price differences, quality differences, or some combination of the two.
28.
Specialty goods and services have a perceived value for the customer, have no reasonable
substitute, and as a result, consumers will put forth a special effort to purchase a specific brand
name.
Specialty goods are often marketed through specialty magazines and through interactive Web
sites.
29.
The goal for marketing unsought goods is to get the customer to seek out the product or service in
a pinch, which requires a number of promotional techniques.
30.
The goals of packaging are:
a. Protect the goods from damage, be tamperproof and yet be easy to open and use.
b. Attract the buyer's attention.
c. Describe the contents of the product.
d. Explain the benefits of the product.
e. Provide information on warranties and any warnings.
f. Give an indication of price, value, and uses.
g. Provide the dimensions and weight of the package.
31.
Brand equity is the combination of factors that people associate with a brand name. Those factors
include reputation, image and perceived quality of a product.
32.
The steps in the new product development process are:
a. Idea generation.
b. Product screening.
c. Product analysis.
d. Development.
e. Testing.
f. Commercialization.
Learning Goal 5
The 4 Ps of Marketing: Price
33.
Five pricing objectives include:
a. Achieve a target return on investment or profit.
b. Build traffic in a store or to a web site.
c. Achieve a greater market share.
d. Create an image.
e. Further social objectives.
34.
Market share can be defined as the proportion of sales made by a company versus the total
number of sales for that particular product.
35.
Pricing objectives should be influenced by other marketing mix variable decisions, such as
product design, packaging, branding, distribution and promotion.
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36.
The stages of the product life cycle include:
a. Introduction.
c. Maturity.
b. Growth.
d. Decline.
37.
Not all products follow the life cycle in the same way. Some products may never get through the
introduction stage, and others may become classics that never have a decline.
38.
The product life cycle affects pricing because the longer a product stays in the life cycle, more
profit will be made.
39.
Companies often develop cost accounting systems to measure production costs and come up with
a price. The question is whether the price will be satisfactory to the market. In the long run, the
market determines what the price of a product will be.
40.
Target costing is demand-based. This means that a product will be designed so that it satisfies
customers and meets the firm’s desired profit margins. To use target costing, the firm will
estimate the selling price people would be willing to pay for a product and subtract the desired
profit margin. The result is the target cost of production.
41.
Competition-based pricing is a strategy based on what the competition is charging. The price can
be at, above or below the competition. It depends on customer loyalty, perceived differences in
the product, and the competitive climate.
42.
The formula to determine a break-even point is:
Break even point =
Fixed costs
Price per unit - variable cost per unit
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a.
b.
c.
d.
e.
f.
skimming
high-low
psychological
penetration
bundling
everyday low pricing (EDLP)
44.
The main idea behind everyday low pricing is to have consumers come to the store whenever
they want a bargain, rather than wait until there is a sale.
45.
The problem with a high-low pricing strategy is that it teaches consumers to wait for sales, thus
cutting into profits.
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CRITICAL THINKING EXERCISES
Learning Goals 1,2
1.
a.
This may be a situation where Eric is creating a need! Since the windshield would keep cars
cooler on hot, sunny days, this kind of product could be popular in areas that are sunny for a
good part of the year, like the Southwest, for example. However, it has potential for any area
of the country.
b.
There is a potential for two types of customers, the automotive manufacturers, for installation
as an option in new cars, and the after-market dealers, like auto supply stores, for people who
want the product to be installed later. There will still be a need for a retailer of some kind, to
install the windshield film. So another potential customer would be companies that repair
damaged windshields.
Keep in mind these are suggested answers, and you may come up with a totally different plan.
2.
c.
We have mentioned two target markets for Sun-2-Shade- the original equipment
automotive market, to be installed as cars are assembled, and a consumer market,
through auto parts stores perhaps. A third market, which is complementary to the
original automotive market, is car windshield installation and repair companies. You
may have decided on another way to approach the market.
d.
If you chose the consumer market, variables could include: Income, because the owners
who would be interested may own cars that are higher end models. With research you
may find out that age could be a consideration, or geography, such as warm climates.
Values may be a consideration, if you want to make this product a “prestige” product
with a high end image. There are many choices, and these are suggestions. This is where
research can really come in handy.
Sun-2-Shade’s product could be classified as both a consumer product and a product for the
business-to-business market. If Eric sells the windshield through after-market auto equipment
retailers, the product would be considered a consumer good, in general. In attempting to reach
the automotive manufacturers, Eric is developing a business-to-business marketing relationship.
The characteristics of the business-to-business market listed in your book will affect Sun-2-Shade
in a number of ways. First, the primary market is the automotive industry, so there will be
relatively few customers compared to the consumer market. Those car manufacturers are very
large corporations, among the largest in the world, each with significant buying power. The
domestic car market, at least, is concentrated in one geographic area. If Eric were to try to appeal
to buyers for foreign manufacturers, he would have to do some more traveling. These buyers will
consider Eric’s product based on the “total product offer,” including how much more marketable
Sun-2-Shade will make their product, in addition to factors such as quality and price. If the
customer is the auto industry, Eric won’t need to use wholesalers or retailers, marketing
middlemen, he will sell directly to the car companies. For the consumer market, he will have to
use at least a retail distribution center.
3.
Problem recognition came when Chad realized his system couldn't be fixed. Chad searched for
information through the newspaper ads, and also by going to the stores and talking to
salespeople. He was evaluating the alternatives by comparing each component piece for value
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and sound. When he finally made his purchase, he felt "cognitive dissonance,” uneasy as to how
much he spent, until he saw an ad for the same brand at a more expensive price.
Along the way, several factors influenced Chad’s decision. He spoke to friends, which could be
considered a reference group. Family may have been an influence, as Chad’s sister has the same
brand. There was a cultural influence as well, just from the fact that Chad felt the importance of
having a new CD system for his party, rather that using a less expensive alternative. The price
variable of the marketing mix was an influence, as the system was on sale. You could consider the
psychological influence of learning, as Chad’s friends had learned that this was a good brand
through experience, and passed that information along. You may have thought of other
influences as well.
Learning Goal 4
4.
a. The total product offer for Sun-2-Shade could include convenience, image, and comfort while
driving. An additional benefit is that the car interior stays cooler in the summer while
parking in a sunny area. Customers will also consider price, service (what happens if the
windshield gets scratched?) and the image Sun-2-Shade could create through effective
advertising. These are just suggestions – you may have thought of several more possible
answers.
b.
Sun-2-Shade’s product is unique. It is the only company to offer this type of product up to
this point. It would likely be considered a luxury type product. You could differentiate the
product by giving it an image of not only convenience, but of the "ultimate,” the kind of auto
accessory that everyone needs to have in today's image-conscious world. You could create the
perception that this product isn't merely a luxury, but a necessity. Advertising could be
aimed at the end consumer, with the idea of people asking for the product when they go to
the dealership to buy the car.
The main consideration for an auto manufacturer will be price, how much it will add to the
sticker price of the car, guarantee, and speed of delivery and reputation of Sun-2-Shade. The
ease of installation is also important.
c.
Sun-2-Shade’s product would be classified as a consumer good, when we are aiming our
marketing strategy at the end consumer, and as a B2B good when we are marketing toward
the auto manufacturers. It could be positioned as either a shopping good or a specialty good
for the consumer market.
d. Packaging won’t be an important variable for Sun-2-Shade other than for shipping to the
retailers for installation for the after-market.
Learning Goal 5
5.
a. The number of units Sun-2-Shade would have to sell to break even is 3,000.
1,200,000
= 3,000 units
$500-$100
b.
The break-even point is 3,000 units, so any unit sold beyond 3,000 will generate profits. If the
company sells 5,000 units, profits will be generated by 2,000 of those units.
Price per unit
= $500
Variable cost per unit = $100
Profit per unit
= $400
400 x 2000 = $800,000 profit
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c. If Sun-2-Shade raised their price to $600, the break-even point would be 2,400 units.
$1,200,000
= 2,400 units
$600-$100
d. No, they should not raise their price to $600. If they will break even at 2,400 but can only sell
2,000 units at that price, they will be losing money.
6.
a.
b.
c.
d.
Skimming pricing
Demand pricing
Psychological pricing
Penetration pricing
e.
f.
g.
h.
Everyday low pricing (EDLP)
Bundling
High-low pricing
Price leadership
PRACTICE TEST
MULTIPLE CHOICE
TRUE-FALSE
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
d
d
b
c
b
a
d
c
d
a
d
c
d
a
T
T
F
T
F
F
T
T
T
F
F
F
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