Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

17. Pricing Objectives and
    Policies

Text © The McGraw−Hill

Companies, 2002

Pricing Objectives and Policies 511

12. How would a ban on freight absorption (that is,
    requiring F.O.B. factory pricing) affect a producer
    with substantial economies of scale in production?


13. Give an example of a marketing mix that has a high
    price level but that you see as a good value. Briefly
    explain what makes it a good value.


14. Think about a business from which you regularly
    make purchases even though there are competing
    firms with similar prices. Explain what the firm offers
    that improves value and keeps you coming back.


15. Cite two examples of continuously selling above the
    market price. Describe the situations.


16. Explain the types of competitive situations that
    might lead to a meeting-competition pricing policy.
    17. Would consumers be better off if all nations dropped
    their antidumping laws? Explain your thinking.
    18. How would our marketing system change if manu-
    facturers were required to set fixed prices on all
    products sold at retail and allretailers were required
    to use these prices? Would a manufacturer’s market-
    ing mix be easier to develop? What kind of an
    operation would retailing be in this situation?
    Would consumers receive more or less service?
    19. Is price discrimination involved if a large oil company
    sells gasoline to taxicab associations for resale to indi-
    vidual taxicab operators for 2^1 ⁄ 2 cents a gallon less
    than the price charged to retail service stations? What
    happens if the cab associations resell gasoline not only
    to taxicab operators but to the general public as well?

Suggested Cases

13. Paper Supplies Corporation 25. PlastiForm Mfg., Inc.

17.Cash Discounts

Joe Tulkin owns Tulkin Wholesale Co. He sells paper,

tape, file folders, and other office supplies to about 120 re-

tailers in nearby cities. His average retailer customer

spends about $900 a month. When Tulkin started busi-

ness in 1991, competing wholesalers were giving retailers

invoice terms of 3/10, net 30. Tulkin never gave the issue

much thought—he just used the same invoice terms

when he billed customers. At that time, about half of his

customers took the discount. Recently, he noticed a

change in the way his customers were paying their bills.

Checking his records, he found that 90 percent of the re-

tailers were taking the cash discount. With so many

retailers taking the cash discount, it seems to have be-

come a price reduction. In addition, Tulkin learned that

other wholesalers were changing their invoice terms.

Tulkin decides he should rethink his invoice terms. He

knows he could change the percent rate on the cash dis-

count, the number of days the discount is offered, or the

number of days before the face amount is due. Changing

any of these, or any combination, will change the interest

rate at which a buyer is, in effect, borrowing money if he

does not take the discount. Tulkin decides that it will be

easier to evaluate the effect of different invoice terms if he

sets up a spreadsheet to let him change the terms and

quickly see the effective interest rate for each change.

a. With 90 percent of Tulkin’s customers now taking the

discount, what is the total monthly cash discount

amount?

b. If Tulkin changes his invoice terms to 1/5, net 20,

what interest rate is each buyer paying by not taking

the cash discount? With these terms, would fewer buy-

ers be likely to take the discount? Why?

c. Tulkin thinks 10 customers will switch to other

wholesalers if he changes his invoice terms to 2/10,

net 30, while 60 percent of the remaining customers

will take the discount. What interest rate does a

buyer pay by not taking this cash discount? For this

situation, what will the total gross sales (total

invoice) amount be? The total cash discount? The

total net sales receipts after the total cash discount?

Compare Tulkin’s current situation with what will

happen if he changes his invoice terms to 2/10,

net 30.

For additional questions related to this problem, see

Exercise 17-3 in the Learning Aid for Use with Basic Mar-

keting,14th edition.

Computer-Aided Problem