CENTRAL | MINDANAO | UNIVERSITY

BAM 64 - Pricing Strategy and Costing

Instruction: Answer the following questions briefly but substantially. (10 points each)

1. What is the difference between explicit knowledge and implicit knowledge? Should all discounting
rules be strictly enforced? How should a firm manage exceptions?

Explicit knowledge is easy to understand, articulate, write down and share. While implicit
knowledge is the application of the explicit knowledge which is complicated. In my own perspective,
discounting rules should NOT be strictly enforced because different firms have different contexts and
situations with the customers that is why if it is strictly implemented, this would be the cause why some
firms will be losing lots of customers. And the firm should manage expectations through not setting a
very high standard in business and accept whatever flows in the long run.

2. Consider the following items and the challenge of setting their prices. If selecting between exchange
value models, economic price optimization, or conjoint analysis, which method would be most
appropriate, and why?
a. Coal
b. A new software app for the iPad
c. Ocean Spray laundry detergent
d. A new fastener for the automotive industry
e. A training seminar on treating patients with mental dementia
f. A forklift with an automatic transmission
g. Boneless chicken breasts sold to restaurants
h. Branded boneless chicken breasts sold to consumers through a grocer

In my own perspective, I think the exchange value models, economic price optimization, or
conjoint analysis, this would be appropriate to the new software app for the Ipad. Because in
technological terms, this is a complicated case, and I think this is applied in a software app in gadgets.

3. An industrial firm has been offering a single standard flat price. The sales team has requested that the
firm offer discounts to a select group of customers. In constructing the discounting policy, the pricing
manager decides to consider changing the standard price as well. Should the standard price remain the
same, be lowered, or be raised in the presence of discounting based upon the information given and
nothing more?

In my own perspective, the standard price should remain the same in the presence of discounting
because in this type of context people are actually more driven to purchase a particular product if they
knew the standard price were officially set. Therefore it should remain the same in the long run. And in
this way, even if seasons will eventually partake, customers can just adjust to the pricing technique, and
this would be a helpful tool to gain more customers, which could also be a benefit in creating a strong
customer base.

4. A firm currently offers a single product within the product category. The product management team is
considering the development of a new high-featured and high-priced offering.

a. Should they expect the new higher-priced product to cannibalize sales from the existing marketed
product?
Usually, the new higher-priced product can actually cannibalize sales from the existing
marketed products if the new product or version is too similar in the segments it targets
from a branding perspective. And this is the reason why they expect the new higher-
priced product will take away sales from existing products.
b. If so, why might the firm move forward with the new high-featured and high-priced offering?

Because this might be an opportunity for the firm to access the new markets and
segments that maybe of worth cannibalization to some existing markets.

5. A firm currently offers a single product within the product category. The product management team is
considering the development of a new low-featured and low-priced offering.

a. Should they expect the new lower-priced product to cannibalize sales from the existing marketed
product?
Actually, the new lower-priced products are sometimes misinterpreted as “cheap” that is
why it is questionable for some high-value customers. These aren’t used just to
cannibalize sales from the existing marketed product, the new low-featured and low-
priced marketed product are used because the product management team wants to capture
customers through presenting the kind of pricing strategy.

b. If so, why might the firm move forward with the new low-featured and low-priced offering?

Aside from the fact that the new low-featured and low-priced offering enhances the
firm’s marketing strategy, also, when companies are focused on the value, consumers
rated cheap products more favorably and would even drive them to purchase the product
without any hesitations. And lastly, if a particular product is not in high demand, the price
could go down to entice people to buy it.

6. Quaker Oats often, but not always, puts coupons within the package of a box of Quaker Oats for
redemption on the next purchase. These coupons provide discounts not only on the product purchased, but
also on other Quaker Oats products. Consider the metrics of targeting, temporary, special, and irregular
promotions. Are the in-package coupons a good form of price promotion for Quaker Oats? Why? What
would you want to know before determining if in-package coupons are a good form of price promotion?

To purchase products at a discounted price, Quaker Oats offer to customers their coupons. And
these in-package coupons a good form of price promotion for Quaker Oats because; it is their strategy to
drive new customers to their brand, and they can just offer a new product line through the use of coupons.
Before identifying if in-package coupons are a good form of price promotion, aside from determining the
different customer profiles, I want to know more about how this type of promotional pricing can be a
great tool to acquire and retain high-value customers.

7. Before conducting a price promotion, executives of a well-known branded good decide to conduct an
analysis of the break-even incremental unit sales per redemption. They then determine that the price
promotion is highly likely to overcome this hurdle. Why might they still decide against the price
promotion?

Although executives found out that price promotion can overcome this type of dilemma, they
might still decide against price promotion because; first, it may limit consumer options for items they
don’t want. They will purchase some items that aren’t necessary, but because of price promotion they find
it at a lower cost that is why they are pushed to purchase the item. Second, it creates price sensitivity
within the targeted demographics. Some customers wait for the opportunity for the business to make
sales, and some customers do not want to pay full price unless they really need it and they have no other
choice, that is why customers usually expect cheaper goods if a business puts a sale on it frequently. And
lastly, sometimes customers will expect cheaper items if the business putting sales frequently. Customers’
perception about the product will actually come if putting sales or any discounts are applied too
frequently. That is why these are the considerations that executives need to evaluate, before deciding any
price promotions.

8. A maker of silicones conducts a net price by market variable investigation and discovers that prices
tend to be lower for customers who have little need for service and tend to buy in bulk. Executives
consider two options: reducing marketing oriented towards low-service, bulk purchasers of silicone or
creating a new offering targeting low-service, bulk purchasers at a lower price point. Which approach
would you support and why?

In my personal opinion, as a business that makes silicones, if my prices tend to be lower for
customers who have little need for service and tends to buy in bulk, the best approach for me is to create a
new offering targeting low-service for bulk purchasers at a lower point. Why? Because if I open a new
offering for these type of customers, aside from extending a new line of service, it would also be
beneficial especially in the maximization of profit, in which customers can just choose either the
traditional offer or the new one. And this new offering of service, cannot just be beneficial for the
business, but as well to the customers as well, because for sure, customers are just waiting for a new
offering and that is the second one.

11. A manufactured-good firm finds that its market share has been slipping in a geographic market. It
chooses to conduct a benchmarking study of its price waterfall against the industry standard and discovers
that the standard trade discount to retailers by competitors in that geographic market is somewhat higher
than the firm’s, while the cooperative advertising budget of competitors in that geographic market is
somewhat lower than the firm’s. What action would you suggest and why?
 The reason why the standard trade discount to retailers by the competitors in that geographic
market is somewhat higher than the firm is because, of its structurally different channel systems which
made its competitors’ cooperative advertising budget more flexible as well that made it as lower than the
firm. In this type of dilemma, as for my own perspective, the action/s that I would suggest is through
analyzing a discount's competitive effect, especially for a manufactured-good firm so that they can make
effective adjustments in their trading system. Additionally, it is also suggested that the firm should as well
learn more about trade and functional price discounts to develop strategies on how trade efficiently in
channel systems to keep the competition a healthy one.

12. A plumbing fixture firm finds that its market share has been growing. It chooses to conduct a
benchmarking study of its price waterfall against the industry standard and discover that its quarterly
bonus is higher than the industry average, while its slotting allowance and in-store marketing support
discounts are lower than the industry average. What action would you suggest and why?

Before making any investments or any plans to widen the business, stock investors uses industry
averages to analyze the value of a company. In this kind of context, the plumbing fixture firm examines
that its slotting allowance and in-store marketing support discounts are lower than the industry average,
considering that its entire market share is also growing. The action that should be done is through
understanding and evaluating areas that may call for extra attention or through highlighting areas where
the firm is meeting or “should be” surpassing the industry averages. Furthermore, the firm should conduct
research in order to forecast potential developments especially in their respective market areas. The firm
should also forecast the growth for the coming months and years by assessing growth factors and
comparing the success of similar products or services in the marketplace.