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Thursday, December 22, 2011

MKT501 Assignment No 2 Solution


SEMESTER FALL 2011 
Marketing Management (MKT501)
Assignment No. 02 
Due Date:  Dec 27, 2011  Marks: 30

Topics Covered : 

Read the given topics in detail to attempt the assignment. 

1. Pricing 
2. Pricing objectives 
3. Pricing strategies 
  
The Case
Neven Corporation is an international coffee and coffeehouse chai n. Neven is the largest premium 
coffeehouse company in the world, with 18,887 stores in 55 countries. Neven sells drip brewed 
coffee, hot and cold drinks, coffee beans, espresso-based hot drinks, salads , hot and cold sandwiches 
and pastries, snacks, and items such as mugs and tumblers. 

Recently Neven observed customers are cutting back and switching to cheaper coffee shops. When 
recession pushes customers to choose cheaper alternatives and switching from your products, cutting 
your prices to keep the customers is best conventi onal strategy. This practice is usually followed and 
accepted, it is not based on any analysis. 

In such a disastrous situation when Neven was l oosing its customers, Neven decided to raise its 
prices by as much as 10%.   

Requirements:  

1. In the given case of Neven, how did  they decide at price increase? ( 15)   

2. Do you think there will be a fall in sales? How long should the sales fall to nullify the benefits o f  
price increase? ( 15)    




Instructions:   
Please read the following instructions carefully before preparing the assignment solution: 
•   Solve this assignment in your own words.  
•   You can take idea/concept from Video  lectures, recommended books, reference 
books, internet etc 
•   Copy from internet, VU-Student’s  websites/blogs will be graded as zero. 
Note: 
Only in the case of Assignment, 24 hours extra / grace period after the due date is 
usually available to overcome uploading difficulties wh ich may be faced by the 
students on last date.  This extra time should only be used to meet the emergencies 
and above mentioned due dates should always be treated as final to avoid any 
inconvenience. 
Other Important Instructions:  
Deadline: 

•   Make sure to upload the solution  file before the due date on VULMS.  
•   Any submission made via email a fter the due date will not be accepted. 

Formatting guidelines: 

•   Use the font style “Times New Rom an” or “Arial” and font size “12”.  
•   It is advised to compose your document in MS-Word format.  
•   You may also compose your assignment in Open Office format. 
•   Use black and blue font colors only.  

Solution guidelines: 

•   Use APA style for referencing and citati on.  For guidance search “APA reference 
style” in Google and read various website containing information for better 
understanding or visit  http://linguistics.byu.edu/faculty/henrichsenl/apa/APA01.html   
•   Every student will work individually and ha s to write in the form of an analytical 
assignment. 
•   Give the answer according to question,  there will be negative marking for irrelevant 
material. 
•   For acquiring the relevant knowledge  do not rely only on handouts but watch the 
video lectures and use other reference books also.  

Rules for Marking 

Please note that your assignment will not be graded or graded as Zero (0), if: 

•   It is submitted after the due date. 
•   The file you uploaded does not open or is corrupt. 
•   It is in any format other than MS-Word or  Open Office; e.g. Excel, PowerPoint, PDF 
etc. 
•   It is cheated or copied from other  students, internet, books, journals etc. 




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SOLUTION:

Solution:
Neven is actually now starting price skimming. (Charge a high pnice because you have a substatial competitive advantage. However, the advantage is not sustainable. )
“Skim the cream” pricing involves selling at a high price to those who are willing to pay before aiming at more price-sensitive consumers. This expression comes from the farming practice of milking cows – the cream rises to the top and you skim it off. The advantage of using a Skimming price policy is that you can theoretically get the maximum profit from each level of customer
Skimming Pricing
“A Skimming policy is more attractive if demand is inelastic says the Shapiro text – remember inelastic means there are no dose substitutes – products that people will pay a high price for because there is nothing else they can buy the is close to the item
~ ~ Prof. Allen says
“A skimming pricing policy involves setting prices of products relatively high compared to those of similar products and then gradually lowering prices. The skimming price is the highest price possible that buyers who most desire the product will pay (skim the cream off the top — skim the innovators). This market segment is more interested in quality, status, uniqueness, etc. This policy is effective in situations where a firm has a substantial lead over competition with a new products
2. Do you think there will be a fall in sales? How long should the sales fall b nullify the benefits of price increase? (15)
-------------------------------------------------------------------------------------------------------------------

Solution:
The high price tends to attract new competitors into the market, and the price inevitably falls due to increased supply. Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented.


Solution:
Neven is actually now starting price skimming. (Charge a high pnice because you have a substatial competitive advantage. However, the advantage is not sustainable. )


"Skim the cream" pricing involves selling at a high price to those who are willing to pay before aiming at more price-sensitive consumers. This expression comes from the farming practice of milking cows - the cream rises to the top and you skim it off. The advantage of using a Skimming price policy is that you can theoretically get the maximum profit from each level of customer


Skimming Pricing 


"A Skimming policy is more attractive if demand is inelastic says the Shapiro text - remember inelastic means there are no dose substitutes


- products that people will pay a high price for because there is nothing else they can buy the is close to the item

~ ~ Prof. Allen says

"A skimming pricing policy involves setting prices of products relatively high compared to those of similar products and then gradually lowering prices. The skimming price is the highest price possible that buyers who most desire the product will pay (skim the cream off the top -- skim the innovators). This market segment is more interested in quality, status, uniqueness, etc. This policy is effective in situations where a firm has a substantial lead over competition with a new products

2. Do you think there will be a fall in sales? How long should the sales fall b nullify the benefits of price increase? (15) Solution:
The high price tends to attract new competitors into the market, and the price inevitably

falls due to increased supply. Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented.


            


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