Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic

Marketing: A

Global−Managerial

Approach, 14/e

18. Price Setting in the
    Business World

Text © The McGraw−Hill

Companies, 2002

542 Chapter 18

company was $312. The retail markup was 35 per-

cent and the wholesale markup 20 percent. (a)

What was the cost to the wholesaler? To the re-

tailer? (b) What percentage markup did the

producer take?

3. Relate the concept of stock turnover to the growth
   of mass-merchandising. Use a simple example in
   your answer.


4. If total fixed costs are $200,000 and total variable
   costs are $100,000 at the output of 20,000 units,
   what are the probable total fixed costs and total
   variable costs at an output of 10,000 units? What are
   the average fixed costs, average variable costs, and
   average costs at these two output levels? Explain
   what additional information you would want to de-
   termine what price should be charged.


5. Explain how experience curve pricing differs from
   average-cost pricing.


6. Construct an example showing that mechanical use
   of a very large or a very small markup might still lead
   to unprofitable operation while some intermediate
   price would be profitable. Draw a graph and show
   the break-even point(s).


7. The Davis Company’s fixed costs for the year are es-
   timated at $200,000. Its product sells for $250. The
   variable cost per unit is $200. Sales for the coming

year are expected to reach $1,250,000. What is the

break-even point? Expected profit? If sales are fore-

cast at only $875,000, should the Davis Company

shut down operations? Why?

8. Discuss the idea of drawing separate demand curves
   for different market segments. It seems logical be-
   cause each target market should have its own
   marketing mix. But won’t this lead to many demand
   curves and possible prices? And what will this mean
   with respect to functional discounts and varying
   prices in the marketplace? Will it be legal? Will it be
   practical?


9. Distinguish between leader pricing and bait pricing.
   What do they have in common? How can their use
   affect a marketing mix?


10. Cite a local example of psychological pricing and
    evaluate whether it makes sense.


11. Cite a local example of odd-even pricing and evalu-
    ate whether it makes sense.


12. How does a prestige pricing policy fit into a mar-
    keting mix? Would exclusive distribution be
    necessary?


13. Is a full-line pricing policy available only to produc-
    ers? Cite local examples of full-line pricing. Why is
    full-line pricing important?

Suggested Cases

17. Enviro Pure Water, Inc.


18. Wire Solutions, Inc.
    27. Plastic Master, Inc.

18.Break-Even/Profit Analysis

This problem lets you see the dynamics of break-
even analysis. The starting values (costs, revenues,
etc.) for this problem are from the break-even analysis
example in this chapter (see Exhibit 18-8).
The first column computes a break-even point. You
can change costs and prices to figure new break-even
points (in units and dollars). The second column goes
further. There you can specify target profit level, and
the unit and dollar sales needed to achieve your target
profit level will be computed. You can also estimate

possible sales quantities, and the program will compute

costs, sales, and profits. Use this spreadsheet to address

the following issues.

a. Vary the selling price between $1.00 and $1.40. Pre-

pare a table showing how the break-even point (in

units and dollars) changes at the different price levels.

b. If you hope to earn a target profit of $15,000, how

many units would you have to sell? What would total

cost be? Total sales dollars? (Note: Use the right-hand

[“profit analysis”] column in the spreadsheet.)

Computer-Aided Problem