K-Mart Chapter 11

 

Chapter 11

Pricing Products: Pricing Strategies

Individual Assignment

1. Read the opening vignette to the chapter. Think about the answers to the following questions:
1. Does Kmart have an effective pricing strategy?
2. What are the pricing strategies of its two largest competitors, Wal-Mart and Target?
3. What happened when Kmart decided to cut prices to match Wal-Mart? What would you have done differently?
4. How have empty shelves and no BlueLight Specials affected Kmart’s operation? How has Kmart come to be positioned in most customers’ minds?

Share your findings with the class.

Think-Pair-Share

1. Consider the following questions, format an answer, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.
1. What is market-skimming pricing? Market-penetration pricing? What should either be used?
2. How do consumers respond to product line pricing? Is it a sound pricing policy?
3. Are optional-product pricing and captive-product pricing ethical? Are these policies sound? Why?
4. What are the uses of by-product pricing?
5. How can product-bundling pricing be used by a university or college?
6. What does “2/10, net 30” mean?
7. Why is “always take your discount” an important philosophy?
8. What is segmented pricing?
9. Give an example of psychological pricing.
10. When can promotional pricing be unethical?
11. Provide an illustration of each of the geographical pricing situations. Which is used most often in delivering products sold via the Internet?
12. When is the right time to cut pricing? Raise pricing?
13. What is predatory pricing?
14. What are the chief features of the Robinson-Patman Act?
15. Provide an example of deceptive pricing.

Outside Example

Wine can be a very complicated product to buy. White or red? Sparkling or still? French, Italian, American, Australian, or any number of other countries? With so many varieties to choose from, how do you judge what is a good wine without taking a year-long course?

Price has long been considered a proxy for quality of wine, particularly in the United States, where knowledge of wines is only recently become something people were interested in. But even for those who do know wine, the market continues to change, and it is extremely difficult to keep up, unless it’s your business to know, such as a sommelier in a restaurant, or a wine critic for a major newspaper or magazine.

So, we’re back to using price as a gauge of quality. But hold on, because the same bottle of wine can cost vastly different prices, depending on where you are buying it. Shopping for wine in Pennsylvania is done at state-owned and controlled Wine and Spirit Shops. Cross the Delaware River into New Jersey, however, and you can pick up a bottle of wine in the grocery store.

Gallo is a well-known brand in the United States. Today it stands for high-quality, premium wines. But just a decade or two ago, it was known for inexpensive “table” wines, popular among groups that didn’t have much money to spend. Gallo successfully changed its positioning, and as you can see from its Web site, http://www.gallo.com/, it truly focuses on its high-end offerings.

1. When a new premium wine is launched, what new-product pricing strategy would you select? Defend your response.
2. How would you set your product line prices in a company such as Gallo? Explain your response.
3. Can you conceive of a product bundle pricing strategy for a wine maker? Describe it.
4. Explain the various price adjustment strategies Gallo would use in selling their wines to different geographic markets and to individuals with varying degrees of wine knowledge and desired price points. How would you position your wines to take these factors into consideration?