MAC 143 Study Guide - Midterm Guide: Transmedia Storytelling, Annie Hall, Caveman

View the video transcript below and share your thoughts on the economic concepts that you believe are applicable.

Question# 1. Provide a rationale on whether or not a firm has to possess market power in order to raise prices.

How to Raise Prices Without Losing Customers

JJ RAMBERG, anchor:

With gas prices soaring and the economy tightening, you may think it’s not possible to charge your customers more. But, it turns out you can successfully raise prices without driving those customers away. Bob Prosen runs the consulting company, Prosen Center for Business. He’s helped business leaders rapidly increase performance, productivity and profits, and he’s also author of the book, “Kiss Theory Goodbye: Five Proven Ways to Get Extraordinary Results in Any Company.” Bob, welcome.

Mr. BOB PROSEN: Thank you.

RAMBERG: So, if you’re going to raise prices on your customers, one of the things you say is don’t surprise them. So, how do you give them warning?

Mr. PROSEN: Well, our customers are very important to us, lets not surprise them. Let’s let them know in advance that prices will increase. But, it’s important to explain to them in their language as to why prices are increasing. For instance, if its fuel surcharges, they’ll understand that. But its important we put it in their language so that they, in turn, can pass that along and plan for it in their own business.

RAMBERG: So, a lot of times when people are paying more, they expect to get more. So, you should communicate increased value I assume. But is saying, um--gas prices are going up for me, is that uh--the same as saying, you’re going to get more for your money?

Mr. PROSEN: No, definitely it’s not. In fact, the equation for value is benefits plus price. So, if prices are going to go up we have to have increased benefits for our customers. So, we can do things like under promise and over deliver. Give them a little bit more. Understand their customer’s customer. So that when we provide our services to them, they’re customized for our customers. They see more value, we understand their business, and therefore they’ll be more appreciative of what we do and less sensitive to price increases.

RAMBERG: That seems to--to follow into your next point, or go right into your next point, which is, track the quality of your products.

Mr. PROSEN: This is absolutely critical, and we can track the quality of our products many ways. Customers call us, complaints, warranty, rework. If we’ll deal with that, capture that, and inside of “Kiss Theory Goodbye” I teach business people how to reduce these problem occurrences and increase the quality of their product. You do it for two reasons: One, customers like us a lot more when things work the way they’re supposed to; and our cost structure goes down therefore maybe we don’t have to increase our prices as much and we can be more competitive.

RAMBERG: And then, also, relationships matter.

Mr. PROSEN: Oh this…

RAMBERG: So, if you have a good relationship, you can do more within that relationship.

Mr. PROSEN: Oh, definitely. People like to do business with people they like. So, lets make sure we stay in touch with our clients. Customize what we touch them with. You know, for instance, when I travel and I deal with business people, I always carry thank you notes in my briefcase. When I’m finished, I send them a note. It’s a rarity these days to even get a thank you note.

RAMBERG: Yeah, it absolutely is. So, about how much can you raise prices by? Can you suddenly figure out that your costs are gone up so much because of energy prices, or food prices, or gas prices, whatever it is, um--and raise it by 50%? Should you do it incrementally? Should you do it all at once? How does it work?

Mr. PROSEN: Yeah, that’s a great question. It depends on what industry you’re in. It depends on what you customers are doing. It depends on a number of things that determine how much, and when, and the frequency of our ability to raise prices. Therefore, what I always recommend to business leaders is work on your cost structure; make sure you’re efficient and effective. Keep your costs as low as you can. Therefore, you can be more competitive on your pricing. Sometimes, you have to pass along the price. Other times, try to absorb what you can through improved efficiencies.

RAMBERG: Should you be looking at your competitors and how much they’re charging?

Mr. PROSEN: Yes, you should absolutely be looking at your competitors. We always want to know what they’re charging. And by the way, we want to differentiate our products and services from our competitors. And, if we can prove a higher value by dealing with us versus our competitor we should be able to articulate that, and we do it based on facts because we know what’s going on in the industry.

RAMBERG: Alright, Bob I know a lot of people are thinking about raising prices so thanks for giving them some tips on how to actually do it.

Mr. PROSEN: My pleasure.

View the video transcript below and share your thoughts on the economic concepts that you believe are applicable.

Question# 1. Why does a firm have to posses market power in order to raise prices.

How to Raise Prices Without Losing Customers

JJ RAMBERG, anchor:

With gas prices soaring and the economy tightening, you may think it’s not possible to charge your customers more. But, it turns out you can successfully raise prices without driving those customers away. Bob Prosen runs the consulting company, Prosen Center for Business. He’s helped business leaders rapidly increase performance, productivity and profits, and he’s also author of the book, “Kiss Theory Goodbye: Five Proven Ways to Get Extraordinary Results in Any Company.” Bob, welcome.

Mr. BOB PROSEN: Thank you. RAMBERG: So, if you’re going to raise prices on your customers, one of the things you say is don’t surprise them. So, how do you give them warning?

Mr. PROSEN: Well, our customers are very important to us, lets not surprise them. Let’s let them know in advance that prices will increase. But, it’s important to explain to them in their language as to why prices are increasing. For instance, if its fuel surcharges, they’ll understand that. But its important we put it in their language so that they, in turn, can pass that along and plan for it in their own business.

RAMBERG: So, a lot of times when people are paying more, they expect to get more. So, you should communicate increased value I assume. But is saying, um--gas prices are going up for me, is that uh--the same as saying, you’re going to get more for your money?

Mr. PROSEN: No, definitely it’s not. In fact, the equation for value is benefits plus price. So, if prices are going to go up we have to have increased benefits for our customers. So, we can do things like under promise and over deliver. Give them a little bit more. Understand their customer’s customer. So that when we provide our services to them, they’re customized for our customers. They see more value, we understand their business, and therefore they’ll be more appreciative of what we do and less sensitive to price increases.

RAMBERG: That seems to--to follow into your next point, or go right into your next point, which is, track the quality of your products.

Mr. PROSEN: This is absolutely critical, and we can track the quality of our products many ways. Customers call us, complaints, warranty, rework. If we’ll deal with that, capture that, and inside of “Kiss Theory Goodbye” I teach business people how to reduce these problem occurrences and increase the quality of their product. You do it for two reasons: One, customers like us a lot more when things work the way they’re supposed to; and our cost structure goes down therefore maybe we don’t have to increase our prices as much and we can be more competitive.

RAMBERG: And then, also, relationships matter.

Mr. PROSEN: Oh this…

RAMBERG: So, if you have a good relationship, you can do more within that relationship.

Mr. PROSEN: Oh, definitely. People like to do business with people they like. So, lets make sure we stay in touch with our clients. Customize what we touch them with. You know, for instance, when I travel and I deal with business people, I always carry thank you notes in my briefcase. When I’m finished, I send them a note. It’s a rarity these days to even get a thank you note.

RAMBERG: Yeah, it absolutely is. So, about how much can you raise prices by? Can you suddenly figure out that your costs are gone up so much because of energy prices, or food prices, or gas prices, whatever it is, um--and raise it by 50%? Should you do it incrementally? Should you do it all at once? How does it work?

Mr. PROSEN: Yeah, that’s a great question. It depends on what industry you’re in. It depends on what you customers are doing. It depends on a number of things that determine how much, and when, and the frequency of our ability to raise prices. Therefore, what I always recommend to business leaders is work on your cost structure; make sure you’re efficient and effective. Keep your costs as low as you can. Therefore, you can be more competitive on your pricing. Sometimes, you have to pass along the price. Other times, try to absorb what you can through improved efficiencies.

RAMBERG: Should you be looking at your competitors and how much they’re charging?

Mr. PROSEN: Yes, you should absolutely be looking at your competitors. We always want to know what they’re charging. And by the way, we want to differentiate our products and services from our competitors. And, if we can prove a higher value by dealing with us versus our competitor we should be able to articulate that, and we do it based on facts because we know what’s going on in the industry.

RAMBERG: Alright, Bob I know a lot of people are thinking about raising prices so thanks for giving them some tips on how to actually do it.

Mr. PROSEN: My pleasure.

For many of us, smartphones have become indispensable, but they have also come under fire
for their impact on the way we think and behave, especially among children. Two of the largest
investors in Apple Inc. are urging the iPhone maker to take action against smartphone addiction
among children over growing concerns about the negative effects of technology. An open letter
to Apple on January 6, 2018 from New York-based JANA Partners and the California State
Teachers’ Retirement System (CalSTRS) stated that the firm must do more to help children
fight smartphone addiction. These two shareholders together control about $2 billion in Apple
stock. The investors’ letter urged Apple to offer tools to prevent smartphone addiction and to
provide more parental options for monitoring children’s smartphone usage. The iOS operating
system for Apple smartphones and tablets already has limited parental controls for restricting
Examiners: Dr. Emmanuel Awuni and Dr. Acheampong Owusu Page 2 of 4
apps, features such as location sharing, and access to certain types of content. The investors
felt Apple needs to do more—for example, enable parents to specify the age of the user of the
phone during setup, establish limits on screen time, select hours of the day the phone can be
used, and block social media services.
The average American teenager who uses a smartphone receives his or her first phone at age
10 and spends over 4.5 hours a day on it (excluding texting and talking). Seventy-eight percent
of teens check their phones at least hourly and 50 percent report feeling “addicted” to their
phones. The investors’ letter cited a number of studies on the negative effects of heavy
smartphone and social media use on the mental and physical health of children whose brains
are still developing. These range from distractions in the classroom to a higher risk of suicide
and depression. A recent survey of over 2,300 teachers by them Center on Media and Child
Health and the University of Alberta found that 67 percent of the teachers reported that the
number of students who are negatively distracted by digital technologies in the classroom is
growing. Seventy-five percent of these teachers think students’ ability to focus on educational
tasks has decreased. Research by psychology professor Jean Twenge of San Diego State
University found that U.S. teenagers who spend 3 hours a day or more on electronic devices
are 35 percent more likely, and those who spend 5 hours, or more are 71 percent more likely,
to have a risk factor for suicide than those who spend less than 1 hour. This research also
showed that eighth-graders who are heavy users of social media have a 27 percent higher risk
of depression. Those who spend more than the average time playing sports, hanging out with
friends in person, or doing homework have a significantly lower risk. Additionally, teens who
spend 5 or more hours a day on electronic devices are 51 percent more likely to get less than 7
hours of sleep per night (versus the recommended 9).
Nicholas Carr, who has studied the impact of technology on business and culture, shares these
concerns. He has been highly critical of the Internet’s effect on cognition, and these cognitive
effects extend to smartphone use. Carr worries that excessive use of mobile devices diminishes
the capacity for concentration and contemplation. Carr recognizes that smartphones provide
many useful functions in a very handy form. However, this extraordinary usefulness gives them
too much influence on our attention, thinking, and behaviour. Smartphones shape our thoughts
in deep and complicated ways, and their effects persist even when we aren’t using the devices.
Research suggests that the intellect weakens as the brain grows dependent on the technology.
Carr points to the work of Adrian Ward, a cognitive psychologist and marketing professor at
the University of Texas at Austin, who for a decade has been studying how smartphones and
the Internet affect people’s thoughts and judgment. Ward has observed that using a smartphone,
or even hearing one ring or vibrate, produces distractions that make it harder to concentrate on
a difficult problem or job. Divided attention impedes reasoning and performance.
A study published in Applied Cognitive Psychology in April 2017 examined how smartphones
affected learning in a lecture class with 160 students at the University of Arkansas at
Monticello. It found that students who didn’t bring their phones to the classroom scored a full
letter-grade higher on a test of the material presented than those who brought their phones. It
didn’t matter whether students who brought their phones used them or not. A study of 91 U.K.
secondary schools, published in 2016 in the journal Labour Economics, found that when
schools ban smartphones, students’ examination scores go up substantially, and the weakest 
students benefit the most. Carr also observes that using smartphones extensively can be
detrimental to social skills and relationships. Connecting with “friends” electronically via
smartphones is not a substitute for genuine person-to-person relationships and face-to-face
conversations.