Schindler, Pricing Strategies – Instructor Resources

Chapter 1: Answers to End-of Chapter Questions

Exercises

1. The CEO of a large company selling seeds and garden supplies to consumers and businesses
through catalogs and the Internet is unhappy with its overall profitability. He feels that part of
the solution is to be more professional in price setting, and he asks the director of marketing
to hire an experienced person for a new position of pricing manager. While interviewing one
candidate, the marketing director explains that the company has been advised to listen more
to customers and respond to their needs and asks the candidate how he would implement this
advice in the area of pricing. The candidate responds as follows:
“It’s great to listen to the customer when you are designing your product, but it’s
just not practical in pricing. All the customers have to say is that they want lower
prices. If you want me to increase profits, I can’t very well listen to that!”

a. What should the marketing director make of this response?

b. If you were the candidate, how would you have responded to this question?

2. An entrepreneur is starting a business selling decorative items, such as vases, wall hangings,
and prints (framed or unframed) over the Internet. She is aware that she needs to make a
number of pricing decisions.
a. Describe a decision that the entrepreneur must make that would be an example of price
setting. Describe a decision that she would have to make that would be an example of
pricing policy.

b. Describe a decision that she would need to make regarding price format, and describe one
regarding price structure.

3. As the marketer of your own professional services, you are responsible for price setting.
Thus, it is necessary that you think about your pricing policy.
a. Describe how a business professional might implement the following pricing policies in
the pricing of his or her services: negotiated price policy and fixed price policy.

b. Give and justify your views as to which of these pricing policies would be more
appropriate in an individual’s professional services pricing.
4. Identify someone you know who works in a business organization. Talk with that person to
learn about the individuals in the organization who are involved in the setting of prices.
a. Describe the job of a person within the organization who plays a direct role in price
setting.

b. Describe the job of a person within the organization who plays an indirect role in price
setting. What is the information or expertise provided by that person? When during the
price-setting process does that person interact with an individual who has a more direct
role in price setting?

5. The marketing manager of a large truck manufacturer was surprised to learn that the price
lists generated by his department had little relation to the prices that were actually charged to
customers. The company’s finance department often changed the prices to conform to profit
goals before the prices reached the company’s sales force. The salespeople often gave
customers discounts to increase their sales volume. The operations manager made price
adjustments to accommodate delays in promised shipping times.
a. Why is this situation undesirable for the company?

b. What can be done about this situation?

Review and Discussion Questions

1. Describe the two parties in a commercial exchange and what is given and received by each
party.

2. How is the voluntary nature of the commercial exchange related to its potential for creating
benefits for society?

3. Give some terms other than “price” that are commonly used to refer to prices.

4. In a business organization, describe how what a manager is referring to when speaking of

5. What are the four categories of marketing activities, usually referred to as the marketing
mix? In what important way does pricing differ from the other three categories?

6. What is the marketing concept? How can pricing activities be guided by the marketing
concept?
7. What is barter? Give an example of barter, either from your reading or from your own
experience.

8. What is a medium of exchange? What is most commonly used in our society as a medium of
exchange?

9. Describe the basic elements of price negotiation. Why is a price arrived at through
negotiation referred to as an “interactive price”?

10. What are fixed prices? What do customers like about fixed prices? What do retailers like
about fixed prices?

11. What is price segmentation? Why might a seller want to engage in price segmentation?

12. Give an example of how different numbers could be used to express what would be
substantially the same price.

13. What is the difference between price setting and pricing policy?

14. Give some examples of job titles of those in a large organization who are likely to have
direct responsibility for making pricing decisions.

15. What are some of reasons that an item’s pocket price may not be the same as the item’s
invoice price? What could be done about this?

16. Give an example of a way that everyday pricing decisions could work against a company’s
long-term interests.

17. Describe some benefits of coordinating pricing activities with the other functions of a
business organization.

18. Why might the study of pricing be relevant to a student who does not plan to ever set prices
within a business organization?