Deck 20: Setting Prices

Question 1

Identify and describe the four types of product-line pricing.

Answer 1

Product-line pricing means establishing and adjusting the prices of multiple products within a product line. Product-line pricing can provide marketers with flexibility in setting prices. When marketers employ product-line pricing, they have several strategies from which to choose. These include captive pricing, premium pricing, bait pricing, and price lining. When marketers use captive pricing, the basic product in a product line is priced low, but the price on the items required to operate or enhance it are higher. This pricing strategy is effective because consumers must purchase more of the operating items than the basic product, over their lifetimes. Premium pricing occurs when the highest-quality product or the most-versatile and most desirable version of a product in a product line is assigned the highest price. Other products in the line are priced to appeal to price-sensitive shoppers or to those who seek product-specific features. Marketers that use premium pricing often realize a significant portion of their profits from premium-priced products. To attract customers, marketers may put a low price on one item in the product line with the intention of selling a higher-priced item in the line. This strategy is known as bait pricing. Producers of smartphones and tablets may engage in bait pricing, selling ultra-low-priced models that lure in customers but charging extra for the most desirable features. Price lining is the strategy of selling goods only at certain predetermined prices that reflect explicit price breaks. It eliminates minor price differences from the buying decision-both for customers and for managers who buy merchandise to sell in these stores.

Question 2

What are some issues to consider when determining a specific price?

Answer 2

A pricing strategy will yield a certain price or range of prices, which is the final step in the pricing process. However, marketers may need to refine this price in order to make it consistent with circumstances, such as a sluggish economy, and with pricing practices in a particular market or industry. Pricing strategies should help a firm in setting a final price. If they are to do so, marketers must establish pricing objectives, have considerable knowledge about target market customers, and determine demand, price elasticity, costs, and competitive factors. The way marketers use pricing in the marketing mix will also affect the final price.

Question 3

Compare and contrast price skimming and penetration pricing.

Answer 3

Price skimming is the strategy of charging the highest possible price for a product during the introduction stage of its lifecycle. A seller essentially "skims the cream" off the market, which helps a firm to recover the high costs of R & D more quickly. A danger is that a price-skimming strategy may make a product appear more lucrative than it actually is to potential competitors. A firm also risks misjudging demand and facing insufficient sales at a high price. Penetration pricing is the strategy of setting a low price for a new product. The main purpose of setting a low price is to build market share quickly in order to encourage product trial by the target market and discourage competitors from entering the market. A disadvantage of penetration pricing is that it places a firm in a less-flexible pricing position. It is more difficult to raise prices significantly than it is to lower them.

Question 4

What are some of the objectives a firm might hope to achieve when setting prices?

Question 5

The Office Place is an office supplies company that has just adjusted its price levels so that it can increase its sales volume to match its expenses. The Office Place is most likely employing a____ objective.

A) market share
B) cash flow
C) return on investment
D) survival
E) profit

Question 6

When establishing prices, a marketer's first step is to

A) determine demand.
B) develop pricing objectives.
C) select a pricing policy.
D) evaluate competitors' prices.
E) determine a pricing method.

Question 7

Marketers must take steps to make sure that the pricing objectives they set are consistent with the organization's ____ objectives and ____ objectives.

A) advertising; marketing
B) overall; marketing
C) marketing; promotional
D) overall; promotional
E) overall; revenue

Question 8

Explain the difference between cost-plus and markup pricing.

Question 9

How can a marketer use product quality as a pricing objective to influence purchasing decisions?

Question 10

What is bundle pricing? Give three examples, each one from a different industry.

Question 11

Describe, compare, and contrast the three major bases for setting prices.

Question 12

Identify and describe seven types of psychological pricing.

Question 13

Explain differential pricing and then describe the four major types.

Question 14

How might a marketer find information about a competitor's prices? Why is this information important?

Question 15

Describe the six steps of the process that marketers can use to establish prices.

Question 16

Westin Hotels, Inc. has an objective of achieving a 25% return from its overall sales. This is an example of a ____ pricing objective.

A) market share
B) cash flow
C) return on investment
D) profit
E) status quo

Question 17

How are pricing objectives similar to a corporation's overall goals? How are they different?

Question 18

Under what conditions would a marketer most likely use a price leader strategy?

Question 19

Running a big sale in order to generate enough cash flow to pay creditors is typical in a situation in which a firm's primary pricing objective is

A) keeping the status quo.
B) profit.
C) survival.
D) market share.
E) recovery.

Question 20

Which of the following is a requirement for setting pricing objectives?

A) The objectives should be short-term oriented.
B) There should be only one pricing objective.
C) An evaluation of competitors' prices should be made.
D) The cost structure should be identified.
E) The objectives should be explicitly stated.

Question 21

When a seller's costs are usually determined during or after a product is made and then a specified percentage or dollar amount is added to the cost to establish a price, an organization is using ____ pricing.

A) markup
B) demand-based
C) differential
D) cost-plus
E) expense-based

Question 22

The three primary bases for developing prices are

A) profit, demand, and competition.
B) supply, demand, and marketing objectives.
C) demand, competition, and cost.
D) markup, cost, and cost-plus.
E) negotiation, periodicity, and randomness.

Question 23

Most pricing objectives based on ____ are achieved by trial and error because not all cost and revenue data are available when prices are set.

A) market share
B) cash flow
C) return on investment
D) survival
E) profit

Question 24

Which type of pricing objective can reduce a firm's risk by helping to stabilize demand for its products?

A) Status quo
B) Market share
C) Survival
D) Cash flow
E) Return on investment

Question 25

Maintaining a certain market share, meeting competitors' prices, maintaining a favorable image, and achieving price stability are all associated with a ____ pricing objective.

A) product quality
B) market share
C) survival
D) profit
E) status quo

Question 26

What type of pricing objective would an organization use if it were in a favorable position and desired nothing more?

A) Return on investment
B) Cash flow
C) Profit
D) Status quo
E) Survival

Question 27

Some grocery stores collect data on competitive prices

A) by calling their competitors.
B) on a quarterly basis.
C) through stores' purchase data.
D) from their resellers.
E) by using full-time comparison shoppers.

Question 28

Kendra has been doing research for a smartphone manufacturing company. She has just been reviewing the results of several focus groups and has found that for customers, value is a function of the product's

A) quality attributes.
B) price and brand name.
C) price and durability.
D) quality and functional attributes.
E) quality relative to the quality of competing brands.

Question 29

The pricing of Clinique makeup, which is considerably higher than brands such as Cover Girl, Revlon, and Maybelline, is used to communicate ____, which is the company's primary pricing objective.

A) market share
B) product quality
C) status quo
D) profitability
E) cash flow

Question 30

Marketers at organizations engaged in nonprice competition

A) are more concerned about knowing competitors' prices than are marketers in organizations that are engaged in price competition.
B) are not concerned about the prices of competing brands.
C) need competitive price information to make sure that their products are priced at approximately the same level as the prices of competing brands.
D) rely on customers to help them gather information regarding the prices of competing brands.
E) experience high levels of price instability.

Question 31

Which of the following pricing objectives sets prices to recover cash as quickly as possible?

A) Market share
B) Profit
C) Cash flow
D) Return on investment
E) Product quality

Question 32

Gambrell Designs thinks its new product, the Automatic Dog Walker, will have a short product life cycle; therefore, its marketing department sets its primary pricing objective as

A) market share.
B) cash flow.
C) profit.
D) product quality.
E) status quo.

Question 33

Which pricing objective de-emphasizes price and can lead to a climate of nonprice competition in an industry?

A) Status quo
B) Return on investment
C) Market share
D) Survival
E) Cash flow

Question 34

For custom-made equipment or commercial construction projects, which pricing method is most likely used?

A) Prestige
B) Premium
C) Differential
D) Return on investment
E) Cost-plus

Question 35

If an organization sets prices to recover research and development expenses and establish a premium quality image for its product, it would be using a ____ pricing objective.

A) survival
B) return on investment
C) market share
D) product quality
E) cash flow

Question 36

Under Armour is establishing a ______ pricing objective to maintain or increase its product's sales in relation to total industry sales.

A) return on investment
B) survival
C) product quality
D) market share
E) status quo

Question 37

Competitors' prices, along with the marketing variables they emphasize, are determining factors in

A) the instability of prices in a particular industry.
B) using markup pricing for consumer goods.
C) how much marketing research a firm needs to collect.
D) using differential pricing to demonstrate quality differences.
E) how important price will be to customers.

Question 38

A marketer is most likely to set prices according to a cash-flow objective when a

A) trial-and-error approach to the market is acceptable.
B) certain market share must be maintained.
C) quick return on investment is desired.
D) higher price is acceptable to the firm.
E) product is expected to have a long life cycle.

Question 39

A market share objective

A) is not recommended when sales for the total industry are declining.
B) is not especially useful when sales for the total industry are increasing.
C) is not especially useful when sales for the total industry are flat.
D) is useful primarily in an industry where total sales are increasing.
E) can be used effectively whether total industry sales are rising or falling.

Question 40

Maintaining or increasing market share

A) can be achieved even if industry sales are flat or decreasing.
B) is an infrequently used pricing objective in most industries.
C) depends on the overall growth of the total industry.
D) is a profit-related objective based on price.
E) is directly tied to leading an industry in product quality.

Question 41

When determining markup as a percentage of cost, divide the markup amount by

A) price.
B) cost.
C) quantity.
D) revenue.
E) 100.

Question 42

The fact that senior citizens are charged a lower price at movie theaters than younger adults is an example of ____ pricing.

A) price-line
B) promotional
C) professional
D) differential
E) psychological

Question 43

Amtrak is considering two pricing strategies for its service. One is to price its train tickets so that it is less expensive to travel on weekends than during the week when there is heavy business travel, which illustrates _____ pricing. The second is to price its train tickets so that the further away the travel date, the greater the discount, which is best described as _____.

A) demand-based; secondary market pricing
B) demand-based; differential pricing
C) demand-based; periodic discounting
D) cost-plus; secondary markup
E) cost-plus; periodic discounting

Question 44

Which of the following statements about markup pricing is correct?

A) The use of similar markups reduces price competition.
B) Markup pricing is inconvenient to use.
C) Markup pricing results in a high price when demand is high and a low price when demand is low.
D) Markup pricing is a demand-based pricing method.
E) Using markups makes pricing a time-consuming, difficult process.

Question 45

A problem associated with ____ is that consumers can predict when prices will be lowered and delay purchases until that time.

A) random discounting
B) penetration pricing
C) reference pricing
D) everyday low pricing
E) periodic discounting

Question 46

When products in an industry are relatively homogeneous and price is a key purchase consideration,

A) competition-based pricing becomes more important.
B) demand-based pricing dominates pricing decisions.
C) firms tend to use secondary-market pricing.
D) cost-based methods like markup pricing are dominant.
E) customary pricing is often used.

Question 47

If General Motors determines that it wants to sell 200,000 Chevrolet Acadias and sets the price at $29,500 because it knows that at that price it will reach that goal, the firm would be using a ____ pricing method.

A) cost-plus
B) competition-based
C) psychological
D) comparison
E) demand-based

Question 48

If local Shell gasoline stations look at BP stations' prices as the primary method of determining its own prices, Shell is using

A) price fixing, which considers competition to be less important than costs.
B) price fixing, which considers costs to be less important than competitor's prices.
C) market share pricing, which considers competition to be the ultimate pricing goal.
D) competition-based pricing, which considers profit to be the ultimate pricing goal.
E) competition-based pricing, which considers costs to be less important than competitor's prices.

Question 49

Kohl's pays $16.50 for a six-ounce bottle of cologne and sells it for $25.95. Its markup as a percentage of cost is approximately ____% for this product.

A) 64
B) 36
C) 18
D) 57
E) 45

Question 50

Competition-based pricing is

A) used when costs and revenues are secondary to competitors' prices.
B) not useful as a method of increasing market share.
C) not useful if the competing products are homogeneous.
D) not able to increase sales.
E) used when competing products are heterogeneous.

Question 51

Executives in Japan decided to price Lexus luxury cars in the United States at $55,000 while pricing them at $66,000 in their own country. This is an example of

A) secondary-market pricing.
B) price skimming.
C) bait pricing.
D) prestige pricing.
E) random discounting.

Question 52

Maria recently put her house on the market at an asking price of $260,000. She realizes, however, that in order to sell the house, she may have to use

A) secondary-market pricing.
B) reference pricing.
C) negotiated pricing.
D) price lining.
E) professional pricing.

Question 53

During July and August, Lakewood Links Golf Course, located in South Carolina, offers weekday rates of $13 for a round of golf with a cart. During the rest of the year, the weekday rates are between $25 and $35. This is an example of the use of

A) differential pricing.
B) incentives.
C) competition-based pricing.
D) demand-based pricing.
E) random discounting.

Question 54

A retailer of Real Dry deodorant prices it at $2.00; it costs the retailer $1.40. What is the approximate markup as a percentage of selling price?

A) 3%
B) 14.3%
C) 30%
D) 70%
E) 20%

Question 55

Markup is measured either as a percentage of ____ or a percentage of ____.

A) selling price; cost
B) cost; profit
C) revenue; contribution margin
D) resources used; cost
E) demand; competition

Question 56

The federal government often uses ____ pricing when it grants defense contracts.

A) markup
B) differential
C) breakeven
D) cost-plus
E) competition-based

Question 57

Wet Seal, a retailer of swimwear, employs a commonly used cost-based pricing method called

A) value pricing.
B) cost-plus pricing.
C) cost discounting.
D) differential pricing.
E) markup pricing.

Question 58

If PepsiCo sets its twelve-pack price to match the price charged by Coca-Cola, Pepsi is using which of the following pricing methods?

A) Demand-based
B) Cost-based
C) Reference pricing
D) Competition-based
E) Price leader

Question 59

If a product is priced based on how many or how few people want it at a particular time and place, ____ pricing is being used.

A) markup
B) demand-based
C) competitive
D) peak
E) differential

Question 60

The "White Sale" that many department stores have every year a few weeks after Christmas is an example of

A) secondary pricing.
B) off-peak pricing.
C) periodic discounting.
D) random discounting.
E) captive pricing.

Question 61

When a satellite dish company uses bundling to combine phone, dish, and broadband Internet access prices, it is attempting to influence a consumer's perception of price to make a product's price more attractive and reduce "sticker shock." This is an example of using a ____ pricing strategy.

A) competition-based
B) cost-based
C) promotional
D) competitive
E) psychological

Question 62

If Samsung uses _____ pricing for its newest version of laptops, it is probably most interested in obtaining market share; and it is assuming

A) premium pricing; that no other competitors are likely to enter the market soon.
B) price-skimming; that no other competitors are likely to enter the market soon.
C) premium pricing; it needs to recoup R & D costs as soon as possible.
D) penetration pricing; that no other competitors are likely to enter the market soon.
E) penetration pricing; that other competitors could enter the market easily.

Question 63

When an organization sets a number of prices for selected groups of merchandise, this is commonly referred to as

A) prestige pricing.
B) price lining.
C) customary pricing.
D) odd-even pricing.
E) ethical pricing.

Question 64

When Sharp first introduced its line of graphing calculators, it set the price quite high; it has lowered the price as competitors have entered the market. The pricing strategy initially used by Sharp is called

A) customary pricing.
B) odd-even pricing.
C) penetration pricing.
D) price skimming.
E) prestige pricing.

Question 65

Lexmark sells some of its color printers for about $100, but the refill cartridges cost over $30 each. Lexmark's pricing strategy would be best labeled as

A) bait pricing.
B) captive pricing.
C) customary pricing.
D) price lining.
E) complementary pricing.

Question 66

If a business decides to reduce its prices once in a while on an unsystematic basis, it is using

A) price reduction planning.
B) random discounting.
C) bait pricing.
D) periodic discounting.
E) penetration pricing.

Question 67

A sale that advertised prices "up to 65% off" the original price uses

A) tensile pricing.
B) random discounting.
C) periodic discounting.
D) bait pricing.
E) psychological pricing.

Question 68

Sony management decided to use skimming as a pricing strategy for its newest line of high-definition television (HDTV) sets. It should be aware that this strategy does not

A) generate capital to cover research and development costs.
B) discourage competitors from entering the market.
C) provide flexibility in the introductory base price.
D) protect the firm from covering costs if prices are set too low.
E) reduce the stress that may be placed on the firm's production capabilities.

Question 69

Pricing the basic product in a product line low while pricing related items at a higher level is called

A) premium pricing.
B) bait pricing.
C) captive pricing.
D) price skimming.
E) price lining.

Question 70

All of the following are pricing strategies used by companies establishing prices of multiple products within a product line except

A) premium pricing.
B) price lining.
C) captive pricing.
D) bait pricing.
E) penetration pricing.

Question 71

If Norelco introduced a new electric razor that sonically removes hair and priced it first at $175 and then at $150 before reducing the price to $100, the firm's initial pricing strategy is known as

A) penetration pricing.
B) psychological pricing.
C) price lining.
D) price skimming.
E) odd-even pricing.

Question 72

The pricing strategy that assumes that demand is relatively inelastic over certain price ranges is called

A) price lining.
B) odd-even pricing.
C) price skimming.
D) prestige pricing.
E) customary pricing.

Question 73

The newest version of a product like Bose headphones is likely to use _____, while the new version of Red Bull is likely to use _____ .

A) penetration pricing; price skimming
B) price skimming; psychological pricing
C) psychological pricing; penetration pricing
D) price skimming; penetration pricing
E) price skimming; promotional pricing

Question 74

Breyer's produces a variety of ice cream flavors and lines of varying qualities. The higher quality ice cream varieties are priced higher than the basic ones. Breyer's is using ____ to price its ice cream.

A) captive pricing
B) price baiting
C) premium pricing
D) bait pricing
E) differential pricing

Question 75

A price-skimming strategy assumes that

A) the initial demand is highly elastic.
B) the product is efficient.
C) it will be difficult to recoup development costs.
D) all consumers have homogeneous tastes.
E) the initial demand is highly inelastic.

Question 76

Which of the following would be used in setting the price of a new product if considerable competition is expected?

A) Psychological pricing
B) Penetration pricing
C) Odd-even pricing
D) Price skimming
E) Prestige pricing

Question 77

A product that has more features than those of its competition, or that is perceived to be of higher quality, warrants using which type of pricing strategy?

A) Custom pricing
B) Special-event pricing
C) Premium pricing
D) Price lining
E) Bait pricing

Question 78

If Nabisco wants to quickly gain a large market share with its new line of reduced-fat snack crackers, it should use

A) penetration pricing.
B) random discounting.
C) captive pricing.
D) price skimming.
E) everyday low prices.

Question 79

When Gabriella logs on to Dell's website, she sees a notebook model priced well below $1,000. As she continues through the site to view the other options, she realizes the first one she saw was the cheapest model available, but she of course wants more features. Dell is utilizing

A) bait and switch.
B) price lining.
C) captive pricing.
D) penetration pricing.
E) bait pricing.

Question 80

A manager at Kohl's discovers that Macy's has reduced the price of its children's Levi's from $31.99 to $24.99, according to an advertisement in the Sunday newspaper. She immediately phones her store and instructs the salesperson on duty to put a sign up next to their children's Levi's that reads, "SALE: $24.99." This is an example of what pricing strategy?

A) Secondary-market pricing
B) Bait-pricing
C) Reference pricing
D) Random discounting
E) Comparison discounting