Reference no: EM133285465

You are an economist for an alcohol producer. Your firm is considering its marketing strategy for its new alcohol. Your CEO believes that the superior taste of the alcohol means there need not be any specific marketing strategy, as the taste alone would encourage interested consumers to buy the alcohol.

a) She asks for your opinion, and you note your disagreement with her idea. Explain to her why (with a hypothetical example) she is wrong, using your knowledge of the concept of framing.

b) Now the CFO wants your opinion on pricing. He is confident the superior taste means the firm can charge $30.99 per bottle, which while expensive is, in his opinion, a fair price because of the quality of the product. Plus, by adding .99 at the end of the price, he feels that will attract customers because it signifies the product is cheaper rather than rounding it to a .00 scenario. In other words, the $0.01 discount (selling at $30.99 rather than $31.00) will psychologically seem to be an even 'bigger' discount in the mind of the customer, and thus boost sales further. You voice your concern that he has misunderstood economic behaviour. Explain the concept that leads you to come to your conclusion, and again provide a hypothetical example to force your point through to your CFO.