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Instructor’s
Resource Guide
to accompany
Marketing
3rd Edition
by Elliott et al.
Prepared by
Lucy Miller, Macquarie University
© John Wiley & Sons Australia, Ltd

Marketing, 3rdEdition
Chapter 8
Pricing
In Chapter Questions
Opening Question
1. Who do you think are the target customers of the discount carriers such as Tiger and
AirAsia? (pg. 259)
Carriers such as Tiger and AirAsia target customers sensitive to price. These customers
are willing to trade the ‘luxuries’ provided by full service carriers for cheaper air fares.
Price sensitive customers could be assumed to be young with low to medium level
incomes (hence the ‘fun, cheap and cheerful’ advertising that these airlines tend to
employ), however price is a dominating factor in the majority of transactions, and
business customers frequently fly low-cost airlines.
2. How satisfied do you think ‘first time’ customers will be? (pg. 259)
‘First time’ customers will be satisfied if their expectations are met or exceeded. If
discount carriers such as Tiger and AirAsia are clear with their advertising and
promotional material, then customers should expect the level of service that they
receive. If customer expectations are set too high, then disappointment and unsatisfied
customers are likely to result.
3. The appeal of discount carriers is the extent of the discount. If you were setting prices
for a discount carrier, how would you calculate the minimum price savings necessary to
compete with full-service carriers? (pg. 259)
Students are likely to provide a range of answers for this question. Pricing can be based
on costs, required profit margins, positioning, market share, long term prosperity,
competitor prices or the target markets perceived level of value for example.
4. Do you think the discount model will become a permanent feature of airline ticketing?
(pg. 259)
As above, students will have arguments both for and against the discount model
becoming a permanent feature of airline ticketing. Arguments for the model becoming a
permanent feature include: customer expectations have been created and the model has
been working successfully since the 1970’s. Arguments against the model becoming a
permanent feature include: over time the services that were initially removed to reduce
costs are being re-introduced as the airlines try to create a competitive advantage. This
re-introduction of services leads to increased costs for the carriers and as such the
model in not likely to be sustainable.
© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 2

Learning Objective 1
Spotlight questions
1. Australian consumers of prescription pharmaceuticals have generally proven to be less

willing to purchase ‘generic’ versions of formerly patent-protected branded drugs,
despite often substantial price differences. How might you explain this reluctance to
purchase generics? (pg. 269)
The reluctance of Australian consumers to purchase generics in favour of patent-

protected branded drugs could be due to a lack of knowledge about the industry and an
understanding of generic drugs. Consumers must feel that the generic product is
somehow inferior to the branded product.
Concepts and applications check
1.1 We are most familiar with the concept of monetary prices. Explain how goods,
services, attitudes and behaviours can also be considered a price in certain
circumstances. (pg. 269)
Goods and services:

Goods and services can be considered a price when engaging in barter trade. Barter
basically means that goods or services are directly exchanged with other goods or
services without the use of money. This system can successfully be implemented if
a currency is very unstable, causing transaction exposure, or is devalued due to
hyperinflation. Craigslist.com operates primarily on a barter system.
Attitudes and behaviours:

If the product is an ‘idea’ and not a tangible good or a service, the seller of this
‘idea’ is commonly trying to influence the behaviours or attitudes of their ‘buyers’.
The exchange of value therefore occur in the ideas or behaviours exchanged by both
parties. The ideal, and changed, behaviour brought about by this ‘idea’ will be the
buyers’ price of the transaction. Examples of behaviour influencing ideas include
‘Measure Up’ (the Australian Government’s initiative to help Australia stay
healthier) and ‘Speeding. No one thinks big of you’ (the RTA’s campaign to make
speeding uncool). Students may want to revisit the latter (very successful)
campaign, and a video is available via this link: http://www.rta.nsw.gov.au/cgi-
bin/player.cgi?noonethinksbigofyou_low
Sources:
http://www.measureup.gov.au/internet/abhi/publishing.nsf
http://www.rta.nsw.gov.au/newsevents/downloads/070803_pinkyfactsheet.pdf

1.2 Jetstar Airways is a low-priced subsidiary of Qantas. For each of the broad pricing
objectives discussed, outline how the existence of Jetstar could potentially benefit
the Qantas organisation as a whole. (pg. 269)
Benefits to Qantas
Profitability All businesses seek to make a profit, which are generated from
larger total revenues than cost. Price and sales volume combine for
from revenue. Qantas is primarily appealing to the business
market, hence not picking up as much sales volume as possible.
This is where Jetstar comes into the picture, as they can fully
compete with the low-cost end of the market, without sacrificing
the quality Qantas brand.
Long-term Ongoing survival is a fundamental goal of all businesses and
prosperity brings a long-term perspective to the setting of pricing objectives.
Qantas is clearly making money on servicing the business-end of
passengers, but in times of economic downturn, hence after the
2007 global financial crisis, a different pricing approach will be
applicable to most other segments of passengers. For Qantas
cannot be seen to sell discount flights, as this would compromise
their brand perception. Jetstar is then able to pick up the more
price conscious segment of the overall flight passenger market.
Market Pricing objectives may be formulated to achieve particular market
share share outcomes. Many businesses use aggressive pricing in an
effort to increase or defend market share. In the context of Qantas
and Jetstar it is most likely an attempt to defend market share.
After the financial collapse of Ansett Australia in 2001, Qantas
met limited competition especially in the domestic setting until the
Virgin Australia grew big enough to be taken seriously in app.
2003 (when the company was floated on the Australian Stock
Exchange). The entry of another other low-cost carrier, Tiger
Airways, in 2007 has further tightened competition for Australian
passengers. Recently the low-cost competitors, and in particular
Virgin Australia, has started to attack domestic routes previously
monopolistically controlled by Qantas, which has resulted in
significant price drops, e.g. for flights to Uluru.
Hence Qantas needs to use Jetstar as a direct competitor to the
other low-cost operators as to not lose too much market share.
Positioning It helps the brand Qantas to be able to not enter into price-point
completion with e.g. Virgin Blue or Tiger Air, as the subsidiary
brand Jetstar is used for that exact purpose. This means that
Qantas can remain a ‘premium’ brand in the market and attract a
different segment of customers than the low-price carriers. Hence
Qantas in combination with Jetstar covers the entire market for
passenger flights: from the no-frills discount Jetstar flight to the
first class international flight with access to the Qantas First
Lounge, sleeper beds, 8-course menu, real espresso, laptop power

outlet etc.
Sources:
http://www.ansett.com.au/
http://www.virginaustralia.com/AboutUs/Virginbluecorporateinformation/TheVirgi
nBluehistory/
http://www.smh.com.au/travel/travel-news/red-heart-connection-20100813-
122e7.html
1.3 Imagine you are a marketing manager in a fast-moving consumer goods company
and your products are mainly sold through supermarkets. What impact would unit
pricing have on your marketing strategy? (pg. 270)
Unit pricing gives consumers a better idea of how much value they get for their
money by allowing easy price comparisons, with the cost of items displayed per 100
gram, per kilogram, or per litre. The theory behind this is that shoppers can save
time and get better value for money.
For fast-moving consumer goods, where there is very little involvement in the
purchasing decision, unit pricing might seem scary. What if your product is more
expensive than the closest competitors? However, it is an exercise in understanding
how your particular product is differentiated from other offerings. Is it the brand?
The ingredients – maybe they are all Australian-sourced? The packaging – like
Sunrice’s Pour & Store? The taste? Unit pricing does not mean that all FMCGs will
have to cost the same, but it means that the marketer will face the challenge of
clearly explaining to consumers why a particular product is more expensive than
competing brands. A strong focus on differentiation will be necessary.
Source:
http://www.choice.com.au/viewArticle.aspx?id=105862&catId=100570&tid=10001
1&p=1&title=Support+for+unit+pricing
1.4 The Australian government recently enacted legislation to promote ‘clarity in

pricing’. How does this legislation benefit consumers? Can you identify any
downsides to this legislation for consumers or marketers? (pg. 270)
Consumers should be able to make better and more informed choices on the basis of
clarity in pricing and also get more for their hard-earned dollars. There are no
downsides from a consumer perspective. However, there are potential downsides
from a marketer’s standpoint. Marketers are restricted in what they are allowed to
advertise, e.g. bait pricing which has one sole purpose, to attract customers. The
face that this is no longer legal means that marketers will have to find other
drawcards.

Also see the answer for 1.3 about unit pricing and related differentiation.
Students might be able to think of other negative outcomes.
1.5 Outline the circumstances in which price differentials are legal. (pg. 270)
Price differentials are legal when:
• They do not adversely affect competition

• They arise because of differences in the costs of selling or transportation to
various customers (e.g. rural Australia vs. Sydney)
• They arise because a supplier has to cut its price to a particular buyer to meet a
competitor’s prices
• They relate to volume discounts
• They occur in consumer markets (e.g. as concession and senior discounts)
1.6 Explain the concept of value from both a customer’s and an organisation’s
perspective. (pg. 270)
Customer value is the relationship between the sum of benefits a customer receives
from a particular product or service and the price paid for same. The benefits have
to be larger than the price before the purchase will be valuable, or represent value
for money, for the customer. Remember that the value of any product or service will
be unique for each customer.
On the flip side is organisational value. The organisation will not usually give more
than it receives; again, the benefits need to be larger than the cost of offering a
particular product or service, otherwise the organisation will not be able to make
profits. This means that organisations’ costs place a floor on prices; a minimum
price is required to cover associated costs.
Spotlight questions
1. To what extent do you believe penny auction customers are well informed? (pg. 275)
Students will argue both for and against penny auction customers being well informed.
To be legal, these sites must provide comprehensive terms and conditions for their
customers. But as we are all aware, people rarely read the ‘fine print’ and generally
when they do, it is because there is a problem; it is not something that we tend to do
first.

2. Do you think penny auctions will become a permanent feature of the internet retailing
environment (like, for example, eBay)? Why/why not? (pg. 275)
As above, students will argue both for and against penny auctions becoming a
permanent feature of the internet environment. As with gambling sites (which some
claim penny auction sites are unlicensed forms of), people will always be lured in by
the promise of a bargain. As long as these sites have customers, they will generate
profits and continue to exist. If there is enough consumer backlash however,
governments step in to alter the format of these sites, or potentially shut them down.
2.1 Explain the typical demand curve, including the relationship between price and
sales, in your own words. (pg. 275)
A demand curve is a graphical representation of the relationship between the price

of a certain good or service and the amount that consumers are willing to purchase
at that given price.
The typical demand curve has a downward or negative slope, meaning the higher
the price, the lower the quantity demanded. This also implies that the lower the
price, the higher the quantity demanded.
Demand curves can shift when there is a change in the relationship between
quantity and price caused by other factors than price. This shift results in a new
demand curve, either to the left or right of the original demand curve depending on
the situation.
2.2 Using your knowledge of consumer behaviour, how would you explain a ‘backward
sloping’ demand curve that can occur for some prestige products? (pg. 275)
A ‘backward sloping’ demand curve means that the demand for a particular good
increases as the price increases, instead of decreasing according to the typical
demand curve. In economics, goods with an inverse demand curve are known as
Veblen goods, and examples include diamonds, luxury cars, fine wine and
champagne and certain high-end fashion labels. If prices are lowered for these types
of products, they are no longer perceived as exclusive or high status products.
Similarly, a price increase may increase the perception of exclusivity and further
strengthen demand. It is closely linked to conspicuous consumption, where
meaning-making through the consumption of goods and services is used to actively
construct and maintain social hierarchies and identities. In this case, price is quality,
so a certain ‘snob effect’ can be observed.

2.3 Would price competition be an effective strategy for a product whose demand could
be categorised as inelastic? Justify your answer. (pg. 275)
An inelastic demand curve is represented by a very steep slope, meaning that even
dramatic changes in price will only lead to minimal change in the demanded
quantity. This means that price competition would not be an effective strategy, as
any increase or decrease in the price will only lead to insignificant changes in
demand. Examples of products with highly inelastic demand include petrol,
diamonds, gold and drugs such as heroin.
2.4 List five products with elastic demand and five with inelastic demand. (pg. 275)
Below is an example of products with elastic and inelastic demand respectively,

however, student answers will vary.
Elastic Inelastic
Coffee Petrol
Cars Diamonds
Real estate (unless very exclusive) Gold
Public transport Electricity
Cinema tickets Water
Take-away food Cigarettes
Spectacles Alcohol
Spotlight question
1. Often, it appears that, like milk, cartons of Coca-Cola cans are almost permanently
heavily discounted at major supermarkets – sometimes at a third of the cost per
individual can from a corner store. What effect do you think this pricing has on Coke’s
and the supermarkets’ total profits? (pg. 281)
Due to increased demand and economies of scale, the total profits generated during the
discount period are not reduced for either Coca-Cola or the supermarkets. However, if
the discounts occur too frequently, consumers may be reluctant to buy Coca-Cola at
‘full-price’. This may result in a reduction of total sales (over an extended time period)
which would therefore mean a reduction in profits for all involved.

3.1 Generally, costs establish a price floor. Explain why prices may sometimes be set
below cost. (pg. 281)
Prices can be temporarily set below cost to generate cash flow (e.g. for seasonal
products or during a short economic downturn), to attract customers to trial a new
product (called a penetration strategy), to increase market share and force
competitors out of the market, to get rid of excess stock (dumping) or to achieve
other pricing objectives.
3.2 Under what circumstances would a ‘loss leader’ pricing strategy be appropriate for
an organisation? (pg. 281)
If a product is priced below cost it is called a loss leader. A loss leader pricing
strategy can be used for all the reasons given in the answer to 3.1. An additional
reason in the retail arena is to use very low prices to attract customers and generate
store traffic. The theory behind this is that customers will buy additional items,
whether this is at a restaurant or at the local supermarket, that are not loss leaders,
so overall the seller will achieve increased sales and positive profit figures. Just
imagine you own a local cafe where it is very quiet in the afternoon. You might
want to offer a deal for a coffee and a cookie below cost, but theory shows that
many customers will prefer a piece of cake, not included in the deal, with their
coffee, or some might want to purchase a soft drink or a glass of wine instead. The
deal will attract the customers, and then it is up to the individual business to use it
skilfully to increase overall sales and related profits.
3.3 Explain break-even analysis, using your own example. (pg. 281)
A break-even analysis determines the volume of unit sales at which total costs
equals total revenue, this is the break-even point.
Student examples will vary. Below is an example for a tent manufacturer such as
Black Wolf:
Assume that Black Wolf has fixed costs of $2,000,000 a year (including
manufacturing facilities, insurance and ongoing promotional activities) and variable
costs of $500 per tent manufactured and sold (including raw material, labour,
packaging and distribution). Assume Black Wolf sell their tents for an average
$1,250. This can be plotted using Excel (with both a cost and a revenue column)
and gives the following graphical representation:

It can also be derived mathematically using the equation from the textbook:
For this scenario:
Hence, Black Wolf will need to sell 2,667 of their tents before they reach break-
even. This also means that they will have to sell 2,668 tents before they start making
a profit. On the graph, this can be seen as the point where revenue exceeds cost.
Source:
http://www.blackwolf.com.au/tents/
3.4 ‘Marginal analysis is especially relevant for organisations with high fixed costs and
low variable costs’; prepare an argument to support this statement. (pg. 281)
Marginal analysis is used to understand the effect on costs and revenue when a
company produces and sells one more unit of a product. As long as the additional
revenue earned by selling that one additional unit exceeds the related costs of
producing that unit it is worthwhile and will contribute positively to overall profits.

Due to the information necessary to develop a precise marginal analysis (e.g.

average cost, marginal cost, average revenue and marginal revenue) it is difficult to
put into practice. Marginal analysis is particularly useful for industries with high
fixed costs and low variable costs, such as hotels, airlines, telecommunications,
education and mass entertainment. In these particular industries, it is important to
maximise revenue by ensuring that each unit of output is actually sold. Take the
example of the Hilton Hotel in Auckland. Hilton has a range of fixed costs
associated with the hotel, such as the hotel building itself, the block of land the
building is on (typically repayment on loan), permanent staff costs, staffing for late-
night check-in counter, etc. All of these are fixed, and not related to the number of
guests staying at the hotel. Variable costs for a hotel include housekeeping staff (are
there 50 or 150 rooms to be cleaned?) and room supplies (such as soaps and towels).
These variable costs are relatively small compared to the fixed costs. This means
that it makes sense for the hotel to try to get as many guests staying as possible, also
at a lower price, since, more or less, only variable costs associated with cleaning
and supplies will increase. Clearly even selling a room normally worth $500 for
$250 (half price) will still mean additional revenue for Hilton. This is exactly why
many hotels offers last-minute-deals – the more guests they have, the more profit.
However, these lowered prices would not be sustainable in the long-run.
Source:
http://www1.hilton.com/en_US/hi/hotel/AKLHIHI-Hilton-Auckland/index.do
Spotlight questions
1. Why would a discount supermarket such as Costco choose to sell a prestige wine such
as Grange at a discount (apart from the marginal revenue)? (pg. 286)
A discount supermarket such as Costco may choose to sell a prestige wine such as
Penfolds Grange at a discount for a number of reasons including; to reinforce their
position as a ‘value for money’ retailer in the minds of their customers, and to promote
the fact that they sell both prestige / premium wines as well as cheaper wines.
2. Do you think the publicity is good for Penfolds, especially the fact that their iconic label
is being substantially discounted? (pg. 286)
There is a saying that ‘any publicity is good publicity’, so it can be argued that this is a
good thing for Penfolds. The publicity will draw global attention to the brand, so while
most of us will never purchase a bottle of Grange, we may be more inclined to buy a
cheaper bottle of Penfolds wine (over a competitors offer) because of the brand value
that Grange creates.

3. What impact do you think the discounting will have on the longer-term ‘investment’
prices of Grange? (pg. 286)
As stated, ‘wine price is about many things other than what’s in the bottle’. As such, the
long-term investment price is unlikely to be affected.
4.1 What are some risks for an organisation in engaging in price competition? (pg.
286)
Price competition is seldom healthy for profit figures in the long run, and customers
can also get to a point where they will associate the brand with permanently low
prices, and sometimes related low quality. Additionally, customer loyalty cannot be
created via price competition, as consumers will seek the lowest price available,
given that they see the offerings as being non-differentiated. This can damage the
brand and the organisation’s overall reputation.
4.2 Explain how the competitive structure of an industry can impact on price. (pg. 286)
Approaches to pricing based on competition are appropriate in highly competitive

markets in which consumers base their purchasing decisions primarily on price.
4.3 Provide an example of a product where price competition is an effective marketing

strategy and justify your answer. (pg. 286)
For highly standardised product offerings price competition might prove very
effective. This can include many items, such as copy paper, envelopes, pens, pencils
and binder, sold by Officeworks. The fact that a rim of A4 white copy paper is very
hard to differentiate (except for whether it is recycled or
not) makes it very hard to compete on anything but the
price; the same accounts for a standard self-seal white
business envelope, hence why price competition is
necessary.
Several major retailers in Australia offer price
guarantees, which mean that they are very serious about
price competition and confident they can beat competitors’ prices. Examples
include Officeworks, Bunnings, and Harvey Norman.
Source: http://www.officeworks.com.au/retail/content/Home
4.4 Explain why most organisations would prefer to engage in non-price competition.
(pg. 286)

It is generally more profitable to engage in non-price competition, hence why this is

favoured by most organisations. It can also lead to price volatility; and in extreme
cases price wars. If they continue for a substantial period of time, weaker
competitors may be forced out of the market. Price competition is therefore a
difficult strategy to sustain over the long term unless a company enjoys clear market
or cost advantages.
Spotlight question
1. Why would a national brand manufacturer supply retailer ‘home brand’ products to
Coles or Woolworths to compete with its own brands? (pg. 289)
National brand manufacturers supply retailer ‘home brand’ products to Coles and
Woolworths because the contracts to these retailers guarantee large minimum order
quantities. With these large orders guaranteed to be placed, the manufacturers achieve
economies of scale for both the ‘home brand’ products and also their branded products.
In effect, making the ‘home brand’ products makes it cheaper for the manufactures to
make their branded products.
5.1 Why might a business marketer be prepared to offer a trade discount? (pg. 289)
Trade discounts are a percentage reduction off the list price and are provided by
suppliers to marketing intermediaries or business customers in return for the various
functions they perform, such as retailing, transport and providing credit. The trade
discount forms the basis of the intermediary’s profit margin and needs to be
competitive with the discounts offered by alternative suppliers.
5.2 Provide your own examples of a product or industry in which the following price
discounting methods may be an effective business-to-business pricing strategy (pg.
289):
(a) quantity discount
(b) seasonal discount
a) Quantity discounts are used extensively in most industries, and even

consumers can access quantity discounts by buying in bulk at the supermarket.
However, quantity discounts can be very significant in the B2B markets. Take,
for example, bulk cement delivered in a cement truck. The cost involved in
delivering 1,000 litres will obviously be almost the same as the cost for

delivering a full truck-load (which might be up to 20,000 litres). The differences

in cost will of course be the cost of the cement itself; however, the driver will
have to spend less time as he/she is not driving around to deliver the cement at
several different locations. This means that companies like Cement Australia
often engage in quantity discounts.
b) Seasonal discounts are provided to buyers who purchase products outside the
peak selling period of the year. Such discounts are designed to smooth sales,
inventory and distribution costs across the year. For example, the Gold Coast is
a very popular holiday destination during the Australian summertime, while the
winter months can be pretty quiet. This has detrimental impacts for hotels,
which have very high fixed costs. To circumvent the quieter months, most Gold
Coast hotels offer significant discounts to attract visitors in the cooler months,
for example, via last minute deals on wotif.com.
The same can be seen in New Zealand, where the autumn months, after the
summer and before the skiing season, are very quiet. This means that
extraordinary value deals, especially on accommodation and car or campervan
hire, can be seen form May to September (outside the ski fields). This is, of
course, because the hotels, motels and car rental companies have large fixed
costs they need to cover.
5.3 Prepare an argument for and against this statement: ‘Marketing intermediaries
increase the price of products to consumers.’ (pg. 289)
For:
Every link in the chain needs to make a profit, so marketing intermediaries will
increase the price that consumers have to pay.
Against:
Intermediaries often buy larger volumes of goods to distribute further down the
chain, enabling them to negotiate volume, and other, discounts due to their buying
power. This means that the final price paid by consumers will be lower than without
the intermediary.
Spotlight question
1. What are the ‘down sides’ to retailers in the shift from traditional beers to spirit-based
‘mixers’? (pg. 298)
Possible ‘down sides’ to the shift from traditional beers to spirit-based mixers from a

retailer’s perspective include;
• the possible decrease in sales of associated products (i.e. if beer drinking is

associated with eating cheese, biscuits and corn chips at a bbq, will the sales of
those items be reduced with a shift to spirit based drinks?),
• the advertising of these ‘mixers’ and their subsequent increase in sales, was
deemed by the government to be the catalyst for an increase in binge drinking.
Subsequently a tax was placed on these ‘alco-pops’ which lead to an increased
price for consumers.
• When Australian males were predominantly drinking beer, females were
drinking wine or spirits. As such it could be argued that a typical purchase by a
couple would involve two items (beer and a bottle of wine for example). With
this shift, the one purchase of pre-mixed spirits is likely to satisfy both male and
female consumers, so there is the risk that total sales may be reduced.
6.1 Outline some ways in which a marketer can influence a customer’s perception of
price. (pg. 298)
Marketers can utilise some of the pricing approaches summarised below:
Pricing Description Example

Approach
Odd-even Setting prices a few dollars or $9.95 instead of $10
pricing cents under an even number, as $99.95 instead of $100
this is perceived to be $999,990 instead of $1,000,000
significantly cheaper than even
prices.
Reference Pricing a product at a moderate Most car dealers use this approach
pricing level and positioning it next to a and advertise their cheapest
more expensive model or a more version of a particular car, e.g.
expensive competing brand. Toyota Yaris from $15,190. A
search on SciFleet’s website for
used Yaris’ shows that the
average price for a used 2008
Yaris is more than $18,000 –
significantly more than $15,190 –
since most buyers have seen the
need to add more features to the
base model of the car.
Another example of this is
comparing with a competing
brand, e.g. having a lower-priced
Woolworths Select tuna next to

John West tuna on the shelve.

Multiple- Multiple units of a product are This is a widely used strategy due
unit sold for a single price, usually to retailers gaining from higher
pricing with a lower per unit price than sales and can in some cases
the individual price (bulk buying) increase consumption. Examples
include a carton of beer, dozen
bottles of wine, or 32 rolls of
toilet paper.
Bundle Selling a combination of One example might be the meals
pricing complementary products for a at most fast-food outlets.
single price, which is less than the Shampoo and conditioner packs
sum of the individual product are also often sold this way.
prices. This is a common strategy for car
dealers bundling together extras
combinations.
6.2 Explain the difference between price skimming and penetration pricing, using an
example to illustrate when each pricing strategy would be appropriate. (pg. 298)
Price skimming means that a marketer sets a relatively high price for a new product
or service to display some sense of exclusivity; the price is then lowered over time.
It can be very effective for products with inelastic demand. A price skimming
strategy is often the preferred choice for products using brand new technologies,
e.g. when Blu-ray was first introduced, or Apple’s MacBook air.
Price penetration, on the other hand, works in exactly the opposite way. New
products are introduced at a low price to capture the mass market and build market
share. This can be done by offering free samples, e.g. shampoo, combined with
slightly reduced price for the product. The idea behind this approach is that once
consumers are familiar and satisfied with a new product, they will begin to purchase
the product on a regular basis at the standard retail price. This is the most commonly
used approach for fast moving consumer goods. (pg. 290-291)
6.3 Choose a product and outline one or more pricing tactics from table 8.3 that could
form the basis of an effective pricing strategy. Justify your answer. (pg. 298)
Student answers will vary depending on the product of choice. The important thing
to remember is to keep the overall positioning of the product in mind. If it is
positioned as a luxury good with prestige pricing, e.g. like a Ferrari, it makes
absolutely no sense to offer any discounting or bait pricing, as this undermines the
overall perception of the product and the brand. If it is a staple good, is makes sense
to employ value-based pricing, EDLPs and to be a price leader. As long as students
are aware of this, examples should be easy to find.

End of Chapter Questions

Case Study Questions
1. Would you describe the demand for milk in Australia as elastic or inelastic? Why? (pg.
302)
The demand for milk in Australia has increased with the price discounts introduced by
Coles and Woolworths; however this increase is not significant enough to describe milk
demand as elastic. Products which are elastic tend to be able to be stored for later use.
We can only drink so much milk, but it is something that we will pay the retail price for
when we need it.
2. What pricing strategy would be used to best describe the reduction in the price of milk
to $1 per litre? (pg. 302)
Reducing the price of milk to $1 per litre can best be described as a price leader
strategy.
3. What pricing adjustments do you foresee being carried out in the future by Coles and
Woolworths? (pg. 302)
Coles and Woolworths are unlikely to sell milk at below cost (loss leader). Long-term
they need to ensure that their suppliers are also making a profit. As such, prices will be
adjusted to ensure long-term profitability for both the suppliers and the retailers.
4. Do you think that the strategy implemented by Coles has been successful? Why/why
not? (pg. 302)
The strategy by Coles has increased the overall consumption of milk by Australian
consumers. This is likely to have increased the number of customers in supermarkets
and it is also likely that whilst in the stores, they have purchased items other than milk.
As such, the strategy has been successful.
5. What ethical concerns should be considered by marketers when setting a pricing

strategy? (pg. 302)
Marketers need to be aware of the impacts that their decisions will make on the industry
within which they operate. As buyers of very large percentages of the total production,
they have the potential to send suppliers bankrupt; i.e. suppliers can choose to sell to
Coles at near to cost price (or even lower) or have nowhere to sell their product. The
suppliers hope to generate enough profit to survive through other areas of their
business.

Advanced Activity
Research the current domestic premium hotel pricing environment. Imagine you are an
international conference promoter and choose three major hotels that would cover a wide
pricing range, so as to maximise the attractiveness of your conference. Compare and
contrast the likely pricing variables you would consider when selecting the three hotels. In
your analysis, outline the similarities and differences in terms of the following (pg. 302):
(a) pricing objectives

(b) demand considerations (including the concept of elasticity) for various market segments
(c) cost considerations
(d) competition considerations (including different ways your target market may be able to
potentially spend their entertainment dollar)
(e) business-to-business pricing (including your ‘commission’ from the hotels)
(f) the psychology of pricing.
Student answers for this question are likely to differ depending on the premium hotels that
they choose. The advertising pitches from each of the hotels will guide the students
answers.
Pricing objectives for these hotels are likely to revolve around maintaining their prestige
image in the minds of the consumer. At the premium level, demand can be seen to increase
with the increase in price, but for a business conference, this is unlikely to be the case. Cost
considerations could include minimum room booking numbers, minimum night stays, the
number of meals consumed on the premises etc.
Consideration of the competition will again vary depending on the hotels that the students
choose. There will be a link between the conference target market and the ways that they
will spend their entertainment dollars.
Business-to-business pricing involves negotiating with both the hotels and suppliers of the
conference. The various tactics outlined in the text on the psychology of pricing can also be
employed when dealing with suppliers to and customers of the conference.

Another random document with
no related content on Scribd:
She dared not leave her place, lest the least movement
should disturb the sleeper. Sleep was so good for the child.
Beryl slept for nearly an hour. Then she opened her eyes
and looked calmly at her governess. Short as had been her
slumber, its beneficent influence was plain. Delirium had
ceased; there was recognition in the glance of content
which rested on Miss Burton's face.
"Miss Burton," she whispered in a faint, weak voice, "you

won't leave me, will you? You won't go away?"
"No, no, darling; I will not leave you," said Miss Burton,
bending to give her some jelly. "Now take this and then
close your eyes, and try to sleep again, whilst I watch
beside you."
"But you won't go away," repeated the child; "because if

you do, they will put me in the water; they mean to, I
know."
"No, my darling, I will not leave you," Miss Burton assured

her; "no one shall put you into the water; I will take care of
you."
Beryl looked satisfied. Her nurse arranged her pillows more

comfortably, and in a few moments Beryl's eyes again
closed, and her quiet, regular breathing showed that she
was sound asleep. Miss Burton stepped lightly to the door
and opened it. Slight as was the sound, Mr. Hollys heard it,
and came from the next room.
"How is she?" he asked fearfully.
"Better, really better, I believe," replied Miss Burton in a low

voice. "She is fast asleep; come and look at her."
Mr. Hollys followed her into the room, and tears rushed to
his eyes at the sight of Beryl peacefully sleeping. He sat
down at one side of the bed and Miss Burton at the other,
and together they thus watched the child for several hours,
till Beryl woke, weak and helpless as a baby, but without
fever and free from delusions.
Yet the days which followed were anxious ones. There was
fear lest the child should slip away from life through sheer
exhaustion. She needed the utmost care; and now it was
that Miss Burton's capacity as a nurse was fully tested. But
for her constant watching and unwearying devotion, Beryl's
illness might have ended otherwise than it did. But her
governess was ever at hand to administer medicine or
nourishment just when they were needed, ready, too, with
wise and loving words to soothe the nervous depression
which troubled the child, to whom weakness and weariness
were such strange experiences.
"Do you think I am really getting better, Miss Burton?" Beryl

asked one day. "I feel just as weak as ever. You don't think I
shall die, do you? I hope it's not wicked of me, but I don't
want to die. I would so much rather get well and live with
papa."
Mr. Hollys, who was sitting at the further side of the bed,
half-hidden by the curtain, leaned forward and looked
anxiously at his child as she said this, but Miss Burton
replied cheerfully, "It is not wicked, dear; but only right that
you should wish to get well. You are stronger, although you
may not feel it yet. You have a better pulse, and there is a
tinge of colour stealing back into your cheeks. Yes, you are
getting on."
"I am so glad," said Beryl with a smile. "I have been trying
to think about the kingdom; but my head is so stupid that I
cannot remember anything properly. I can't even say that
text, 'Suffer little children to come unto Me.'"
"'Suffer little children to come unto Me, and forbid them

not; for of such is the kingdom of God,'" said Hattie Burton.
"Don't be surprised that you forget things, dear; it is always
so after such an illness as yours, and you will soon get the
better of it, and find everything coming back to you."
"'Of such is the kingdom of God,'" repeated Beryl. "That

does not mean that the kingdom is for children only, does it,
Miss Burton?"
"No, dear; that would be a sad thing for most of us," she
replied with a smile; "it means that it is a kingdom of
childlike, true, and loving spirits, and it is only by becoming
like a little child that any one can enter therein."
"Miss Burton," said Beryl softly, forgetful of her father's

presence, "I wish papa were in the kingdom. Do you think
he ever will be?"
There was a sudden uneasy movement behind the curtain.
Miss Burton coloured, and felt herself painfully embarrassed

by the child's question; but Beryl was looking at her
wonderingly, so she replied in a low voice, "I hope so, dear."
Mr. Hollys rose hastily, and quitted the room without a

word.
Beryl turned in astonishment to Miss Burton.
"Papa here! I did not know it. I wish I had not spoken so.
Will he be angry with me, do you think?"
"I do not think so, dear; no, I am sure he cannot be angry
with you," replied her governess.
There was indeed no anger in Mr. Holly's mind as he went

away. Beryl's words had pricked himself sharply; but he
could not feel cross with the sweet young daughter whose
life was so precious to him.
He went downstairs to the library, and began to pace to and

fro the room in painful thought. Yes, the child was right—he
had no place in the kingdom; his life lay outside it, and till
lately he had preferred that it should be thus. And yet he
was not an unbeliever; he had not fallen under the blight of
scepticism; he professed to believe the truths of
Christianity, and his intellect did hold them true. He could
admire the influence of religious faith in the lives of others.
The memory of his young wife's beautiful life of faith and
love was still fragrant in his mind. He had taken pains to
secure for Beryl religious training; for her sake, he had
rejoiced in the grace and consistency of Miss Burton's
character, and he had heartily approved of the good works
in which she had interested the children.
Yet all the while he had had no heart religion; he had been
satisfied to worship God coldly and formally, and had felt no
desire to draw near to Him as His Father, and claim the
divine sonship which was his inheritance in Christ.
But now, it was different. Of late, the depths of his spirit

had been stirred by sorrow and disappointment, followed
swiftly by the sudden, appalling dread of losing the child of
his love. When in the anguish of suspense, he had tried to
ask God to spare Beryl's life, he had found it impossible to
pray. What right had he to expect that he would be heard,
when he had never cared to pray before, but had fancied
himself sufficient to meet unaided all that life might bring
forth?
As he walked up and down the library, Guy Hollys owned to

himself that he would gladly share his child's simple faith,
and gain an entrance into that kingdom of which his child
loved to think. But could he enter there? Was it for such as
he, this kingdom of God?
As he thought thus, his eyes fell on a book high up on one

of the bookshelves. It was his wife's Bible, which he kept
sacredly for her sake, but which he seldom opened. Now,
however, he lifted it down, wiped the dust from its gilt
edges, and began to turn over the leaves.
As he did so, he looked eagerly for words concerning the

kingdom of God. Verses on this subject were easily found
when he began to search for them.
"The kingdom of God is not in word, but in

power."
"Know ye not that the unrighteous shall not

inherit the kingdom of God?"
"The kingdom of God is not meat and drink; but

righteousness and peace and joy in the Holy
Ghost."
"The kingdom of God cometh not with

observation; neither shall they say, 'Lo here!' or,
'Lo there!' for behold! the kingdom of God is
within you.'"
"Jesus answered, 'My kingdom is not of this

world: if My kingdom were of this world, then
would My servants fight, that I should not be
delivered to the Jews: but now is My kingdom
not from hence.' Pilate therefore said unto Him,
'Art Thou a king then?' Jesus answered, 'Thou
sayest that I am a king. To this end was I born,
and for this cause came I into the world, that I
should bear witness to the truth. Every one that
is of the truth heareth My voice.'"
"'Verily I say unto you, except ye be converted,

and become as little children, ye shall not enter
into the kingdom of heaven.'"
The meaning of these passages was dark to Guy Hollys as

he read them, yet he caught some glimpses of the grandeur
and beauty of the spiritual life they set forth. The last verse
he pondered long. How could he, Guy Hollys, become as a
little child? That would indeed be a conversion. He knew
that he was in spirit far from the kingdom of God. All his
past life rose before him, visible now in its true light, his
love of ease and pleasure, his pride and worldly ambition,
his utter selfishness of heart and barrenness of life. Oh, to
begin a higher, nobler life! But how, how?
A flash of light came from the Word. The leaves had opened
at the first chapter of Matthew, and there were the words:
"'Thou shalt call His name Jesus, for He shall save His
people from their sins.'"
Here was his need met, here was a Saviour who could
deliver him from the power of his sins. And as Guy Hollys
bowed his head on his hands in unwonted humility, and
breathed the most earnest prayer he had ever offered, he
was conscious of the presence of One mighty to save, and
felt that a Hand was stretched out to him, the hand of the
strong Son of God, ready to uphold him in the new life he
desired to begin. With the faith of a little child, he yielded
himself utterly to the Saviour, and the angels of God
rejoiced because another son was born into the kingdom.
CHAPTER XXX
A GRAND SURPRISE FOR BERYL
SIX weeks of the New Year had come and gone, and already
there were tokens of the coming of spring. Sickness and
sadness no longer reigned at Egloshayle House. Beryl's fine
constitution had asserted itself and shaken off all ill effects
of the fever which had brought her so low. She had added
some inches to her height during the weeks that she lay in
bed, and now looked inelegantly gaunt and thin, but
declared herself quite well, except when Miss Burton talked
of returning to London, at which suggestion Beryl would
change her tone, and say that she really was not strong
enough yet to do without Miss Burton's care.
So Hettie Burton stayed on from week to week at

Egloshayle, and found it impossible to fix a day for her
departure in opposition to the warm entreaties which the
mere mention of her going evoked. Mr. Hollys was as urgent
for her remaining longer as his daughter, and Miss Hollys,
whose nerves had been terribly shaken by recent events,
put in a piteous appeal to the same effect.
One bright afternoon, when the air was so mild and the sun
so warm that it seemed as if winter had already yielded the
sceptre to smiling spring, Beryl, having just returned from a
walk, was resting, with her long limbs comfortably curled
up, on the sofa in the drawing-room. She was often glad to
rest thus, for, not having yet regained full strength, she
soon grew weary—a trying experience to her, who in former
days had scarcely known what fatigue meant.
Beryl had found a letter awaiting her from Coral, which she
was now eagerly reading. Coral wrote in good spirits. Her
uncle had taken a beautiful house a few miles out of
Melbourne. There was a large garden with lovely flowers
and delicious fruit, very different from anything to be seen
at Egloshayle. Her uncle had given her a pretty bay pony,
and she often rode for many hours. He had also given her a
fine dog, a monkey, one of the cleverest of his tribe, and a
green parrot, which she had already taught to call her
"Coral," and was now trying to persuade to say "Beryl." Her
uncle had engaged a governess for her, who was very kind,
but, of course, not so nice as Miss Burton.
It was clear that Coral was well pleased with her new life,
and she declared that she should be perfectly happy, if only
she had Beryl with her.
Beryl laid down the letter at last with a sigh. "Coral is quite
gone from me," was her thought. "I shall never see her
again. Well, she is happy enough without me. She does not
really want me now she has that pony, and dog, and
monkey, and parrot."
And, for a few moments, Beryl actually felt injured because

Coral appeared to be enjoying her new life so much. But
she soon was ashamed of the feeling.
"What a horrid, mean thing I am!" she said to herself. "To
think that I should be cross because Coral is happy. As if
her being unhappy could make my life any happier! I ought
to be glad, and I am glad."
But the dreary feeling which had crept over Beryl could not
at once be shaken off. The remarkable mildness of the day
was making her feel very languid, and with languor came
sadness.
"What shall I do when Miss Burton goes away?" she began

to think. "I shall be miserable by myself. I suppose papa will
send me to school when I am strong enough, and that will
be horrid, I know. Oh dear! Oh dear!"
At this moment, a tap at the window attracted her

attention. She started up, and saw her father and Miss
Burton standing outside. Miss Burton had been gathering
some snowdrops and violets, and held them up smilingly to
Beryl's view. Then she and Mr. Hollys turned towards the
hall door, and in a few moments appeared in the drawing-
room.
They came forward with smiling, radiant faces to the sofa

on which Beryl was resting. But if there was any special
significance in their looks, Beryl was not in a mood to
observe it. She sighed heavily as Miss Burton came to her
side.
"I have brought some flowers to cheer you," said Miss

Burton brightly. "You looked very disconsolate when I
peered at you through the window. Is anything the matter?"
"Oh no," said Beryl, "only I'm tired and in the dumps. How
lovely these snowdrops are! And oh, there are some violets
too! Where did you find them?"
"At the bottom of the garden; I smelt them before I could
see them," said Miss Burton. "So you have had a letter from
Coral; how is she?"
"Oh, very well, and having such nice times," said Beryl.
"Her uncle has given her a pony, a dog, a monkey, and a
parrot. It's good to be Coral now."
"What a menagerie!" said Mr. Hollys, sitting down at the end

of the sofa. "I hope you won't want me to get you a monkey
or a parrot, for I dislike both of the creatures, and would
rather not introduce them into the house."
"What would be the good of my having them? I could not

take them to school with me, I suppose?" said Beryl
drearily. "Oh dear, I wish Miss Burton would stay with me
and teach me again."
"Whether she will take the trouble to teach you or not I

cannot say," remarked Mr. Hollys, with peculiar meaning in
his tones; "but, Beryl, I have good news for you. Miss
Burton has promised to stay with us."
"Has she? Oh, I am glad! How good of you!" cried Beryl

joyously, as she turned to look at her governess.
Hettie bent over the sofa, put her arms round Beryl and
kissed her more than once. Perhaps she was glad thus to
hide the blushes that had risen in her cheeks.
"How long will you stay?" said Beryl. "Till Easter."
"Longer than that," returned her father with a smile; "she is

going away for a little while, and then she is coming to stay
with us always."
"Always!" repeated Beryl, in a tone of wonder. "Do you
really mean always? How will your mother like that, Miss
Burton?"
Covered with confusion, Hettie looked appealingly at Mr.

Hollys. "You must tell her all; she will not be so pleased
then, I fear," she said.
Beryl looked from one to the other in utter bewilderment.
"Beryl," said her father, "you told me once that you could
never be happy with a stepmother; but now, dear, you will
have to make the experiment. I am going to marry again."
"Papa!" exclaimed Beryl, looking half frightened, "what do

you mean?"
"Just this, darling—that Hettie Burton has made me very

happy by promising to become my wife, so you see she will
live with us always, and be a mother to you. You will be
glad of that, will you not, Beryl?"
"Papa, is that it?" cried Beryl in excited tones. "Are you

going to marry Miss Burton? I am surprised; I never
dreamed of such a thing. Why, that is quite different. If I
had thought Miss Burton would be my stepmother, I should
not have said that I could not be happy with one. Oh, I am
so glad, so very glad!"
And she threw her arms round Hettie Burton's neck, and
kissed her again and again in an ecstasy of delight.
Surely no stepmother ever had a warmer welcome or a

better prospect of happiness!
THE END
Printed by MORRISON & GIBB LIMITED, Edinburgh

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© John Wiley & Sons Australia, Ltd

© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 2

1. Australian consumers of prescription pharmaceuticals have generally proven to be less

The reluctance of Australian consumers to purchase generics in favour of patent-

Concepts and applications check

Goods and services:

Attitudes and behaviours:

© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 3

© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 4

1.4 The Australian government recently enacted legislation to promote ‘clarity in

© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 5

Price differentials are legal when:

• They do not adversely affect competition

© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 6

Concepts and applications check

A demand curve is a graphical representation of the relationship between the price

© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 7

Below is an example of products with elastic and inelastic demand respectively,

© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 8

Concepts and applications check

© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 9

For this scenario:

© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 10

Due to the information necessary to develop a precise marginal analysis (e.g.

© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 11

Concepts and applications check

Approaches to pricing based on competition are appropriate in highly competitive

4.3 Provide an example of a product where price competition is an effective marketing

© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 12

It is generally more profitable to engage in non-price competition, hence why this is

Concepts and applications check

a) Quantity discounts are used extensively in most industries, and even

© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 13

delivering a full truck-load (which might be up to 20,000 litres). The differences

© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 14

retailer’s perspective include;

• the possible decrease in sales of associated products (i.e. if beer drinking is

Concepts and applications check

Marketers can utilise some of the pricing approaches summarised below:

Pricing Description Example

© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 15

John West tuna on the shelve.

© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 16

End of Chapter Questions

5. What ethical concerns should be considered by marketers when setting a pricing

© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 17

(a) pricing objectives

© John Wiley & Sons Australia, Ltd 2014 Chapter 8 Pricing 18

"Miss Burton," she whispered in a faint, weak voice, "you

"But you won't go away," repeated the child; "because if

"No, my darling, I will not leave you," Miss Burton assured

Beryl looked satisfied. Her nurse arranged her pillows more

"How is she?" he asked fearfully.