Activities

Group No. Strand: Date: Members: PRINCIPLES OF MARKETING: GROUP ACTIVITY INSTRUCTION: In this activity, your task is to set the price for a new home-delivered spring water (the large bulk bottles) company. To complicate matters, you have a few different viewpoints on the best pricing approach. What would you decide? Answer the following Questions ACTIVITY/TASK Spring water is a product that has become popular over the past 10-15 years or so. During the growth phase of the market, a number of businesses were set up to deliver ‘bulk’ (large bottle) spring water directly to offices, businesses, and homes. Consumer’s homes. This case looks at a home-delivered spring water firm that used door-to-door sales (canvassing) as their main promotional method. This approach was adopted to ensure that their customers were all located in close geographical proximity (in order to reduce delivery time). One of the firm’s three owners believes that by using this promotional method the firm can set its price at a premium level, as consumers are not in a position to compare prices. He said: 





“These consumers are not in a supermarket and cannot compare prices. We turn up at their door unexpectedly and say we can deliver spring water in bulk to your home at a good price, which compared to their normal small bottle purchase that sounds like a great deal. Therefore, I think we should charge $7.50 for our bottles.” However, the second owner did not want to be so aggressive on price. According to her: “I think that we should under-cut the market. Currently, the cheapest bottle on the market is $5, so let’s go out there with at a $4 price. At that price we will win a lot of customers. Then, later on, we can price the increase every six months or so – first to $5, then to $6, and finally to $7. That means that we’ll have lots of customers all paying $7 per bottle. The third owner wasn’t sure about either of the first two approaches. His view was: “I think that we should be a price follower. We know that the market is willing to pay between $5 and $6.50 per bottle. Personally, I think it would be risky to price outside that range. We don’t know whether the market will pay more, and we also don’t know if our customers will be happy with a series of price increases.”

QUESTIONS Given the pricing views of the three owners, what price would you set? Why? Would it be feasible to start by under-cutting the market to grow market share and then increase prices to the captive customer base? Why/why not? 3. Other than competitor pricing, what other factors should the management team take into account when setting their prices? 1. 2.

Group No. Strand: Date: Members: PRINCIPLES OF MARKETING: GROUP ACTIVITY INSTRUCTION: In this activity, your task is to set the price for a new home-delivered spring water (the large bulk bottles) company. To complicate matters, you have a few different viewpoints on the best pricing approach. What would you decide? Answer the following Questions ACTIVITY/TASK Spring water is a product that has become popular over the past 10-15 years or so. During the growth phase of the market, a number of businesses were set up to deliver ‘bulk’ (large bottle) spring water directly to offices, businesses, and homes. Consumer’s homes. This case looks at a home-delivered spring water firm that used door-to-door sales (canvassing) as their main promotional method. This approach was adopted to ensure that their customers were all located in close geographical proximity (in order to reduce delivery time). One of the firm’s three owners believes that by using this promotional method the firm can set its price at a premium level, as consumers are not in a position to compare prices. He said: 





“These consumers are not in a supermarket and cannot compare prices. We turn up at their door unexpectedly and say we can deliver spring water in bulk to your home at a good price, which compared to their normal small bottle purchase that sounds like a great deal. Therefore, I think we should charge $7.50 for our bottles.” However, the second owner did not want to be so aggressive on price. According to her: “I think that we should under-cut the market. Currently, the cheapest bottle on the market is $5, so let’s go out there with at a $4 price. At that price we will win a lot of customers. Then, later on, we can price the increase every six months or so – first to $5, then to $6, and finally to $7. That means that we’ll have lots of customers all paying $7 per bottle. The third owner wasn’t sure about either of the first two approaches. His view was: “I think that we should be a price follower. We know that the market is willing to pay between $5 and $6.50 per bottle. Personally, I think it would be risky to price outside that range. We don’t know whether the market will pay more, and we also don’t know if our customers will be happy with a series of price increases.”

QUESTIONS Given the pricing views of the three owners, what price would you set? Why? Would it be feasible to start by under-cutting the market to grow market share and then increase prices to the captive customer base? Why/why not? 6. Other than competitor pricing, what other factors should the management team take into account when setting their prices? 4. 5.

Group No. Strand: Date: Members: PRINCIPLES OF MARKETING: GROUP ACTIVITY INSTRUCTION: In this activity, your task is to set the price for a new home-delivered spring water (the large bulk bottles) company. To complicate matters, you have a few different viewpoints on the best pricing approach. What would you decide? Answer the following Questions ACTIVITY/TASK Spring water is a product that has become popular over the past 10-15 years or so. During the growth phase of the market, a number of businesses were set up to deliver ‘bulk’ (large bottle) spring water directly to offices, businesses, and homes. Consumer’s homes. This case looks at a home-delivered spring water firm that used door-to-door sales (canvassing) as their main promotional method. This approach was adopted to ensure that their customers were all located in close geographical proximity (in order to reduce delivery time). One of the firm’s three owners believes that by using this promotional method the firm can set its price at a premium level, as consumers are not in a position to compare prices. He said: 





“These consumers are not in a supermarket and cannot compare prices. We turn up at their door unexpectedly and say we can deliver spring water in bulk to your home at a good price, which compared to their normal small bottle purchase that sounds like a great deal. Therefore, I think we should charge $7.50 for our bottles.” However, the second owner did not want to be so aggressive on price. According to her: “I think that we should under-cut the market. Currently, the cheapest bottle on the market is $5, so let’s go out there with at a $4 price. At that price we will win a lot of customers. Then, later on, we can price the increase every six months or so – first to $5, then to $6, and finally to $7. That means that we’ll have lots of customers all paying $7 per bottle. The third owner wasn’t sure about either of the first two approaches. His view was: “I think that we should be a price follower. We know that the market is willing to pay between $5 and $6.50 per bottle. Personally, I think it would be risky to price outside that range. We don’t know whether the market will pay more, and we also don’t know if our customers will be happy with a series of price increases.”

QUESTIONS Given the pricing views of the three owners, what price would you set? Why? Would it be feasible to start by under-cutting the market to grow market share and then increase prices to the captive customer base? Why/why not? 9. Other than competitor pricing, what other factors should the management team take into account when setting their prices? 7. 8.

Group No. Strand: Date: Members: PRINCIPLES OF MARKETING: GROUP ACTIVITY INSTRUCTION: In this activity, your task is to set the price for a new home-delivered spring water (the large bulk bottles) company. To complicate matters, you have a few different viewpoints on the best pricing approach. What would you decide? Answer the following Questions ACTIVITY/TASK Spring water is a product that has become popular over the past 10-15 years or so. During the growth phase of the market, a number of businesses were set up to deliver ‘bulk’ (large bottle) spring water directly to offices, businesses, and homes. Consumer’s homes. This case looks at a home-delivered spring water firm that used door-to-door sales (canvassing) as their main promotional method. This approach was adopted to ensure that their customers were all located in close geographical proximity (in order to reduce delivery time). One of the firm’s three owners believes that by using this promotional method the firm can set its price at a premium level, as consumers are not in a position to compare prices. He said: 





“These consumers are not in a supermarket and cannot compare prices. We turn up at their door unexpectedly and say we can deliver spring water in bulk to your home at a good price, which compared to their normal small bottle purchase that sounds like a great deal. Therefore, I think we should charge $7.50 for our bottles.” However, the second owner did not want to be so aggressive on price. According to her: “I think that we should under-cut the market. Currently, the cheapest bottle on the market is $5, so let’s go out there with at a $4 price. At that price we will win a lot of customers. Then, later on, we can price the increase every six months or so – first to $5, then to $6, and finally to $7. That means that we’ll have lots of customers all paying $7 per bottle. The third owner wasn’t sure about either of the first two approaches. His view was: “I think that we should be a price follower. We know that the market is willing to pay between $5 and $6.50 per bottle. Personally, I think it would be risky to price outside that range. We don’t know whether the market will pay more, and we also don’t know if our customers will be happy with a series of price increases.”

QUESTIONS Given the pricing views of the three owners, what price would you set? Why? Would it be feasible to start by under-cutting the market to grow market share and then increase prices to the captive customer base? Why/why not? 12. Other than competitor pricing, what other factors should the management team take into account when setting their prices? 10. 11.

Group No. Strand: Date: Members: PRINCIPLES OF MARKETING: GROUP ACTIVITY INSTRUCTION: In this activity, your task is to set the price for a new home-delivered spring water (the large bulk bottles) company. To complicate matters, you have a few different viewpoints on the best pricing approach. What would you decide? Answer the following Questions ACTIVITY/TASK Spring water is a product that has become popular over the past 10-15 years or so. During the growth phase of the market, a number of businesses were set up to deliver ‘bulk’ (large bottle) spring water directly to offices, businesses, and homes. Consumer’s homes. This case looks at a home-delivered spring water firm that used door-to-door sales (canvassing) as their main promotional method. This approach was adopted to ensure that their customers were all located in close geographical proximity (in order to reduce delivery time). One of the firm’s three owners believes that by using this promotional method the firm can set its price at a premium level, as consumers are not in a position to compare prices. He said: 





“These consumers are not in a supermarket and cannot compare prices. We turn up at their door unexpectedly and say we can deliver spring water in bulk to your home at a good price, which compared to their normal small bottle purchase that sounds like a great deal. Therefore, I think we should charge $7.50 for our bottles.” However, the second owner did not want to be so aggressive on price. According to her: “I think that we should under-cut the market. Currently, the cheapest bottle on the market is $5, so let’s go out there with at a $4 price. At that price we will win a lot of customers. Then, later on, we can price the increase every six months or so – first to $5, then to $6, and finally to $7. That means that we’ll have lots of customers all paying $7 per bottle. The third owner wasn’t sure about either of the first two approaches. His view was: “I think that we should be a price follower. We know that the market is willing to pay between $5 and $6.50 per bottle. Personally, I think it would be risky to price outside that range. We don’t know whether the market will pay more, and we also don’t know if our customers will be happy with a series of price increases.”

QUESTIONS Given the pricing views of the three owners, what price would you set? Why? Would it be feasible to start by under-cutting the market to grow market share and then increase prices to the captive customer base? Why/why not? 15. Other than competitor pricing, what other factors should the management team take into account when setting their prices? 13. 14.

Group No. Strand: Date: Members: PRINCIPLES OF MARKETING: GROUP ACTIVITY INSTRUCTION: In this activity, your task is to set the price for a new home-delivered spring water (the large bulk bottles) company. To complicate matters, you have a few different viewpoints on the best pricing approach. What would you decide? Answer the following Questions ACTIVITY/TASK Spring water is a product that has become popular over the past 10-15 years or so. During the growth phase of the market, a number of businesses were set up to deliver ‘bulk’ (large bottle) spring water directly to offices, businesses, and homes. Consumer’s homes. This case looks at a home-delivered spring water firm that used door-to-door sales (canvassing) as their main promotional method. This approach was adopted to ensure that their customers were all located in close geographical proximity (in order to reduce delivery time). One of the firm’s three owners believes that by using this promotional method the firm can set its price at a premium level, as consumers are not in a position to compare prices. He said: 





“These consumers are not in a supermarket and cannot compare prices. We turn up at their door unexpectedly and say we can deliver spring water in bulk to your home at a good price, which compared to their normal small bottle purchase that sounds like a great deal. Therefore, I think we should charge $7.50 for our bottles.” However, the second owner did not want to be so aggressive on price. According to her: “I think that we should under-cut the market. Currently, the cheapest bottle on the market is $5, so let’s go out there with at a $4 price. At that price we will win a lot of customers. Then, later on, we can price the increase every six months or so – first to $5, then to $6, and finally to $7. That means that we’ll have lots of customers all paying $7 per bottle. The third owner wasn’t sure about either of the first two approaches. His view was: “I think that we should be a price follower. We know that the market is willing to pay between $5 and $6.50 per bottle. Personally, I think it would be risky to price outside that range. We don’t know whether the market will pay more, and we also don’t know if our customers will be happy with a series of price increases.”

QUESTIONS Given the pricing views of the three owners, what price would you set? Why? Would it be feasible to start by under-cutting the market to grow market share and then increase prices to the captive customer base? Why/why not? 18. Other than competitor pricing, what other factors should the management team take into account when setting their prices? 16. 17.

Example 1 1936 Presidential Election. Reference: “Case Study I: The 1936 Literary Digest poll” The U.S. presidential election of 1936 was between Alfred Landon, the Republican governor of Kansas, and the incumbent President, Franklin D. Roosevelt. At that time, there was a popular general interest magazine called Literary Digest that polled American citizens before the 1936 election to make predictions about the outcome.   

A survey, asking participants to fill out a mock ballot, was mailed to 10 million people whose names came from every telephone directory in the United Sates, lists of magazine subscribers, rosters of clubs and associations, and other Sources. Approximately 2.4 million people mailed back their ballots. Based on the returned ballots, the Literary Digest predicted that Landon would get 57% of the vote versus Roosevelt’s 43%. These values are statistics since they were computed with sample data. Along with the Literary Digest’s prediction, George Gallup predicted a Roosevelt victory based on a much smaller sample of about 50,000 people. Who won the presidential election in 1936? Literary Digest’s prediction was incorrect – Roosevelt won with 62% of the vote. This value is a parameter since it is computed with data from the entire population. What went wrong with the Literary Digest’s prediction?

o o o o o o o

Reason #1: Selection Bias Names on the mailing list for the mock ballots were taken from telephone directories, club membership lists, lists of magazine subscribers, etc. In 1936 toward the end of the Great Depression, having a telephone was a luxury, and only middle-class and upper-class citizens had them. Also, since there were nearly 9 million people unemployed at that time, the names of these citizens were not on club membership or magazine subscription lists. In other words, the Literary Digest’s prediction was based on a sample that was not representative of the larger population! Statisticians call this selection bias. Reason #2: Nonresponse Bias Out of the 10 million people who were mailed a mock ballet, only 2.4 million people replied. People who tend to respond to surveys and those who do not are different types of people. Often people who respond to surveys are those who feel strongly about an issue or choice. When a response rate is low (e.g. 24%), statisticians call this nonresponse bias. Nonresponsive people are excluded from the sample, and those peoples’ views may differ from the responders’ views. Example 1 1936 Presidential Election. Reference: “Case Study I: The 1936 Literary Digest poll” The U.S. presidential election of 1936 was between Alfred Landon, the Republican governor of Kansas, and the incumbent President, Franklin D. Roosevelt. At that time, there was a popular general interest magazine called Literary Digest that polled American citizens before the 1936 election to make predictions about the outcome.

  

A survey, asking participants to fill out a mock ballot, was mailed to 10 million people whose names came from every telephone directory in the United Sates, lists of magazine subscribers, rosters of clubs and associations, and other Sources. Approximately 2.4 million people mailed back their ballots. Based on the returned ballots, the Literary Digest predicted that Landon would get 57% of the vote versus Roosevelt’s 43%. These values are statistics since they were computed with sample data. Along with the Literary Digest’s prediction, George Gallup predicted a Roosevelt victory based on a much smaller sample of about 50,000 people. Who won the presidential election in 1936? Literary Digest’s prediction was incorrect – Roosevelt won with 62% of the vote. This value is a parameter since it is computed with data from the entire population. What went wrong with the Literary Digest’s prediction?

o o o o o o o

Reason #1: Selection Bias Names on the mailing list for the mock ballots were taken from telephone directories, club membership lists, lists of magazine subscribers, etc. In 1936 toward the end of the Great Depression, having a telephone was a luxury, and only middle-class and upper-class citizens had them. Also, since there were nearly 9 million people unemployed at that time, the names of these citizens were not on club membership or magazine subscription lists. In other words, the Literary Digest’s prediction was based on a sample that was not representative of the larger population! Statisticians call this selection bias. Reason #2: Nonresponse Bias Out of the 10 million people who were mailed a mock ballet, only 2.4 million people replied. People who tend to respond to surveys and those who do not are different types of people. Often people who respond to surveys are those who feel strongly about an issue or choice. When a response rate is low (e.g. 24%), statisticians call this nonresponse bias. Nonresponsive people are excluded from the sample, and those peoples’ views may differ from the responders’ views Example 1

1936 Presidential Election. Reference: “Case Study I: The 1936 Literary Digest poll” The U.S. presidential election of 1936 was between Alfred Landon, the Republican governor of Kansas, and the incumbent President, Franklin D. Roosevelt. At that time, there was a popular general interest magazine called Literary Digest that polled American citizens before the 1936 election to make predictions about the outcome.   

A survey, asking participants to fill out a mock ballot, was mailed to 10 million people whose names came from every telephone directory in the United Sates, lists of magazine subscribers, rosters of clubs and associations, and other Sources. Approximately 2.4 million people mailed back their ballots. Based on the returned ballots, the Literary Digest predicted that Landon would get 57% of the vote versus Roosevelt’s 43%. These values are statistics since they were computed with sample data. Along with the Literary Digest’s prediction, George Gallup predicted a Roosevelt victory based on a much smaller sample of about 50,000 people. Who won the presidential election in 1936? Literary Digest’s prediction was incorrect – Roosevelt won with 62% of the vote. This value is a parameter since it is computed with data from the entire population. What went wrong with the Literary Digest’s prediction?

o o o o o o o

Reason #1: Selection Bias Names on the mailing list for the mock ballots were taken from telephone directories, club membership lists, lists of magazine subscribers, etc. In 1936 toward the end of the Great Depression, having a telephone was a luxury, and only middle-class and upper-class citizens had them. Also, since there were nearly 9 million people unemployed at that time, the names of these citizens were not on club membership or magazine subscription lists. In other words, the Literary Digest’s prediction was based on a sample that was not representative of the larger population! Statisticians call this selection bias. Reason #2: Nonresponse Bias Out of the 10 million people who were mailed a mock ballet, only 2.4 million people replied. People who tend to respond to surveys and those who do not are different types of people. Often people who respond to surveys are those who feel strongly about an issue or choice. When a response rate is low (e.g. 24%), statisticians call this nonresponse bias. Nonresponsive people are excluded from the sample, and those peoples’ views may differ from the responders’ views. Example 1 1936 Presidential Election. Reference: “Case Study I: The 1936 Literary Digest poll” The U.S. presidential election of 1936 was between Alfred Landon, the Republican governor of Kansas, and the incumbent President, Franklin D. Roosevelt. At that time, there was a popular general interest magazine called Literary Digest that polled American citizens before the 1936 election to make predictions about the outcome.

  

A survey, asking participants to fill out a mock ballot, was mailed to 10 million people whose names came from every telephone directory in the United Sates, lists of magazine subscribers, rosters of clubs and associations, and other Sources. Approximately 2.4 million people mailed back their ballots. Based on the returned ballots, the Literary Digest predicted that Landon would get 57% of the vote versus Roosevelt’s 43%. These values are statistics since they were computed with sample data. Along with the Literary Digest’s prediction, George Gallup predicted a Roosevelt victory based on a much smaller sample of about 50,000 people. Who won the presidential election in 1936? Literary Digest’s prediction was incorrect – Roosevelt won with 62% of the vote. This value is a parameter since it is computed with data from the entire population. What went wrong with the Literary Digest’s prediction?

o o o o o o o

Reason #1: Selection Bias Names on the mailing list for the mock ballots were taken from telephone directories, club membership lists, lists of magazine subscribers, etc. In 1936 toward the end of the Great Depression, having a telephone was a luxury, and only middle-class and upper-class citizens had them. Also, since there were nearly 9 million people unemployed at that time, the names of these citizens were not on club membership or magazine subscription lists. In other words, the Literary Digest’s prediction was based on a sample that was not representative of the larger population! Statisticians call this selection bias. Reason #2: Nonresponse Bias Out of the 10 million people who were mailed a mock ballet, only 2.4 million people replied. People who tend to respond to surveys and those who do not are different types of people. Often people who respond to surveys are those who feel strongly about an issue or choice. When a response rate is low (e.g. 24%), statisticians call this nonresponse bias. Nonresponsive people are excluded from the sample, and those peoples’ views may differ from the responders’ views. Example 1 1936 Presidential Election. Reference: “Case Study I: The 1936 Literary Digest poll”

The U.S. presidential election of 1936 was between Alfred Landon, the Republican governor of Kansas, and the incumbent President, Franklin D. Roosevelt. At that time, there was a popular general interest magazine called Literary Digest that polled American citizens before the 1936 election to make predictions about the outcome.   

A survey, asking participants to fill out a mock ballot, was mailed to 10 million people whose names came from every telephone directory in the United Sates, lists of magazine subscribers, rosters of clubs and associations, and other Sources. Approximately 2.4 million people mailed back their ballots. Based on the returned ballots, the Literary Digest predicted that Landon would get 57% of the vote versus Roosevelt’s 43%. These values are statistics since they were computed with sample data. Along with the Literary Digest’s prediction, George Gallup predicted a Roosevelt victory based on a much smaller sample of about 50,000 people. Who won the presidential election in 1936? Literary Digest’s prediction was incorrect – Roosevelt won with 62% of the vote. This value is a parameter since it is computed with data from the entire population. What went wrong with the Literary Digest’s prediction?

o o o o o o o

Reason #1: Selection Bias Names on the mailing list for the mock ballots were taken from telephone directories, club membership lists, lists of magazine subscribers, etc. In 1936 toward the end of the Great Depression, having a telephone was a luxury, and only middle-class and upper-class citizens had them. Also, since there were nearly 9 million people unemployed at that time, the names of these citizens were not on club membership or magazine subscription lists. In other words, the Literary Digest’s prediction was based on a sample that was not representative of the larger population! Statisticians call this selection bias. Reason #2: Nonresponse Bias Out of the 10 million people who were mailed a mock ballet, only 2.4 million people replied. People who tend to respond to surveys and those who do not are different types of people. Often people who respond to surveys are those who feel strongly about an issue or choice. When a response rate is low (e.g. 24%), statisticians call this nonresponse bias. Nonresponsive people are excluded from the sample, and those peoples’ views may differ from the responders’ views.

Example 1 1936 Presidential Election. Reference: “Case Study I: The 1936 Literary Digest poll” The U.S. presidential election of 1936 was between Alfred Landon, the Republican governor of Kansas, and the

incumbent President, Franklin D. Roosevelt. At that time, there was a popular general interest magazine called Literary Digest that polled American citizens before the 1936 election to make predictions about the outcome.   

A survey, asking participants to fill out a mock ballot, was mailed to 10 million people whose names came from every telephone directory in the United Sates, lists of magazine subscribers, rosters of clubs and associations, and other Sources. Approximately 2.4 million people mailed back their ballots. Based on the returned ballots, the Literary Digest predicted that Landon would get 57% of the vote versus Roosevelt’s 43%. These values are statistics since they were computed with sample data. Along with the Literary Digest’s prediction, George Gallup predicted a Roosevelt victory based on a much smaller sample of about 50,000 people. Who won the presidential election in 1936? Literary Digest’s prediction was incorrect – Roosevelt won with 62% of the vote. This value is a parameter since it is computed with data from the entire population. What went wrong with the Literary Digest’s prediction?

o o o o o o o

Reason #1: Selection Bias Names on the mailing list for the mock ballots were taken from telephone directories, club membership lists, lists of magazine subscribers, etc. In 1936 toward the end of the Great Depression, having a telephone was a luxury, and only middle-class and upper-class citizens had them. Also, since there were nearly 9 million people unemployed at that time, the names of these citizens were not on club membership or magazine subscription lists. In other words, the Literary Digest’s prediction was based on a sample that was not representative of the larger population! Statisticians call this selection bias. Reason #2: Nonresponse Bias Out of the 10 million people who were mailed a mock ballet, only 2.4 million people replied. People who tend to respond to surveys and those who do not are different types of people. Often people who respond to surveys are those who feel strongly about an issue or choice. When a response rate is low (e.g. 24%), statisticians call this nonresponse bias. Nonresponsive people are excluded from the sample, and those peoples’ views may differ from the responders’ views.

Important conclusions from this real-world example: 

A large, poorly-chosen sample is worse than a small, well-chosen sample. Gallup made the correct prediction using a much smaller sample that represented the true population of interest.



When choosing a sample, sampling bias in the form of selection or nonresponse bias should be avoided. However, it can be difficult to avoid nonresponse bias in surveys since there are people who will fill out surveys and those who will not, even when financial prizes or discounts are involved