CLEP Management

Category - CLEP Management

A relatively unknown maker of luxury soaps, shampoos and lotions might provide its products to a high-end hotel chain for zero for which of the following reasons? Select all that apply.
Its products are experience goods.
  1. Branding
  2. Marginal cost
  3. Marginal analysis
  4. TQM
Answer: a and b - Soaps, shampoos and lotions tend to be experience goods. Experience goods are those that have incumbent products already preferred by a user. In order to get people to switch, they must “experience” the new product. This requires a person to receive a sample or purchase the good (often at a discounted price, although heavy advertising may also persuade the buyer).

Branding is also a consideration since associating the unknown brand with a well-known, high-end luxury hotel will provide credibility in the marketplace through an association with a premium hotel.

Key Takeaway: We want you to recognize an experience good when it’s presented. You will deal with many questions dealing with market entry or strategy for an experience good. They vary from condiments to disposable razors to hand creams. People have an established preference and must experience a higher utility from a new good. Thus, your good must both have a higher utility (relative to price) and you must get the consumer to actually try the good.
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