Justifying Price Increases

Topic: Marketing Research

Characters: Sam, Marketing research manager at a television station John, General manager of a television station


Last year Sam was promoted to manager of marketing research for the sole television station in a small metropolitan market. Sam had earned a bachelor’s degree in marketing research three years earlier and immediately accepted an entry-level marketing research position at the television station because its management had a reputation for honesty and helping small businesses gain access to the mass media. The television station was sold six months ago to an international conglomerate. At that time, the general manager was replaced by John. John has developed a reputation in the industry of raising revenues and cutting costs.

John just finished reviewing the policies of the former general manager and noted that, although the cost of servicing the numerous small business accounts was high, the profit margin on these accounts was about the same as for large business accounts. John decided that revenues and profits could be increased by 20 percent simply by charging small business accounts proportionately more for television air time. John calls Sam and wants him to conduct a survey that would guarantee data that would justify his price increase.

Sam is dismayed at the prospect of conducting such research. In his college coursework, Sam had learned the importance of conducting objective, unbiased research studies. Furthermore, Sam had won a national competition with his senior marketing research project. Through the first two years with the television station, Sam was consistently complimented by the small business owners that he worked with for his integrity in conducting research studies. It was this work and these compliments that led to his promotion to manager of marketing research.

After Sam got off the telephone with John, he stared into space and pondered his dilemma. Jobs were not readily available in the town, and he did not wish to relocate elsewhere. Y et if he produced the data that John wanted, it would go against his training and pride in conducting proper research studies. And what about all of those small businesses that have come to rely on the television station for their access to the mass media? How many would be able to pay the higher price for television air time?

Author: Craig A. Kelley, Professor of Marketing, California State University, Sacramento.

What Are the Relevant Facts?

  1. Sam has a reputation for conducting research projects with integrity-
  2. Small businesses rely on the television station for access to the mass media.
  3. Small business accounts, although numerous and costly to administer, have about the same profit margin as large business accounts.
  4. John has a reputation for raising revenues and cutting costs.
  5. John wants Sam to conduct a survey that would produce data that would justify a price increase for the small business accounts.

What Are the Ethical Issues?

  1. How can Sam conduct a survey that he knows may be biased? And should he do so?
  2. What obligation does Sam have to the small businesses that the television station serves and to his employer?

Who Are the Primary Stakeholders?

  • Sam
  • John
  • Owners of the television station
  • Small business owners in the market
  • Large businesses in the market
  • Viewers of the television station’s programming

What Are the Possible Alternatives?

  1. Tell John that he can’t conduct a survey that will guarantee a certain result.
  2. Let the small business owners know of John’s intentions.
  3. Conduct a survey and manipulate the data so that it produces the results that John wants.
  4. Appeal to the owners of the television station, explaining the importance of developing small businesses in the market.

What Are the Ethics of the Alternatives?

  • Questions based on the “utilitarian” perspective
  1. Which alternative would provide the greatest benefit for greatest number of stakeholders?
  2. How should costs and benefits be measured for (a) giving small business access to mass media and (b) compromising the principles of objective, unbiased marketing research?
  3. Do the benefits of conducting objective, unbiased research outweigh the profit motivations of the television station ownership?
  4. What is the benefit of resigning if the next marketing research manager is willing to conduct the survey that John wants?
  • Questions based on the “rights” perspective
  1. What does each stakeholder have a right to expect?
  2. Which alternative is right for Sam? John?
  3. Which alternative would you not want imposed on you if you were a small business owner?
  • What are the rights of the viewers of the television station?
  1. Questions based on the “justice” perspective:
  2. Which alternative allocates the benefits and costs most fairly among the stakeholders?
  3. Which stakeholders carry the greatest cost if Sam resigns?

What Are the Practical Constraints?

  1. There are limited job opportunities for Sam if he decides to resign.
  2. No marketing research is completely objective or unbiased. However, efforts can be made to limit the amount of bias and error present in the results of marketing research studies.
  3. Over time, some small businesses may or may not be able to afford mass media exposure at any price.

What Actions Should Be Taken?

  1. What should Sam do?
  2. Which alternative would you select if you were in Sam’s shoes? Why would you pick this alternative?
  3. Which of the ethical theories (utilitarian, rights, justice) make the most sense in this situation?

Would you decide on the same alternative under all three theories? Why or why not?

  1. Regardless of what Sam does in this situation, how can he prevent this situation from arising in his future employment, whether at the television station or elsewhere?