Deck 11: Developing Pricing Strategies and Programs

Question 1

When Yolanda went shopping, she paid a lot to buy a jacket that had a well-known designer's tag attached to it. After a few days, she came across a store-brand jacket that looked similar but was one-fifth the price of the one she had bought. She didn't give this a second thought because she was convinced that the designer label she had bought was worth it. What does this suggest about consumer psychology?

Answer 1

Yolanda was using the price as an indicator of quality. Image pricing of the designer-label jacket was therefore effective. In general, this kind of pricing is especially effective with ego-sensitive products such as perfumes, expensive cars, and designer clothing.

Question 2

If demand hardly changes with a small change in price, the demand is said to be ________.

A) strained
B) marginal
C) inelastic
D) flexible
E) unit elastic

Answer 2

C

Question 3

Today, consumers are price takers and accept prices at face value or as given.

Answer 3

False

Question 4

Many consumers are willing to pay $100 for a perfume that contains $10 worth of scent because the perfume is from a well-known brand. What does this image pricing suggest about these consumers?

A) They process prices from left to right.
B) They use the price as an indicator of quality.
C) They are rounding up the price.
D) They are remembering an external frame of reference.
E) They are breaking the price into smaller units.

Question 5

Although consumers may have fairly good knowledge of the range of prices involved, very few can accurately recall specific prices of products.

Question 6

What would a consumer's lower price threshold signal?

A) the use of everyday low pricing
B) a discounted price for a high-value product
C) a fair price
D) a price below which the product is considered to be a good value
E) a price below which the product is assumed to be of unacceptable quality

Question 7

Customers usually have a lower price threshold below which prices signal inferior or unacceptable quality, as well as an upper price threshold above which prices are prohibitive and the product appears not worth the money.

Question 8

When examining products, consumers compare an observed price to an internal reference price they remember or an external frame of reference.

Question 9

Which of the following is the first step in setting a pricing policy?

A) selecting a pricing method
B) selecting the pricing objective
C) determining demand
D) estimating cost
E) analyzing competitors' costs, prices, and offers

Question 10

NV Inc. has launched a touch-sensitive handset in the Indian market and priced it at 9,500 rupees. Although many people are checking it out, marketers see evidence that the price exceeds the upper price threshold for the majority of Indian consumers. What does this mean?

Question 11

Which of the following would NOT be a consumer's reference price?

A) the advertised price per month
B) the actual future price
C) a price the consumer remembers
D) a posted "regular retail price"
E) the manufacturer's suggested price

Question 12

When Apple introduced its iPhone, it was priced at $599. This allowed Apple to earn the maximum amount of revenue from the various segments of the market. Two months after the introduction, the price had come down to $399. What kind of a pricing did Apple adopt?

A) loss-leader pricing
B) market-penetration pricing
C) market-skimming pricing
D) target-return pricing
E) value pricing

Question 13

A firm that is plagued with overcapacity, intense competition, or changing consumer desires would do better if it pursues ________ as its major objective.

A) market skimming
B) product-quality leadership
C) survival
D) profit maximization
E) market penetration

Question 14

A market-penetration pricing strategy is most suitable when ________.

A) a low price slows down market growth
B) production and distribution costs fall with accumulated production experience
C) a high price dissuades potential competitors from entering the market
D) the market is characterized by inelastic demand
E) a low price encourages actual competition

Question 15

Prices that end in 9 are most appropriate when ________.

A) customers have substantial knowledge about quality
B) customers process prices right to left
C) there is a mental price break at the lower, rounded price
D) the marketer wants to suggest a discount or bargain
E) the marketer wants to convey a high-price image

Question 16

After determining its pricing objectives, what is the next logical step a firm should take in setting its pricing policy?

A) It should analyze its competitors' costs, prices, and offers.
B) It should select its pricing method.
C) It should select its final price.
D) It should determine the demand for its product.
E) It should estimate the cost of its product.

Question 17

Price is one of the two elements of the marketing mix that produces revenue.

Question 18

How do consumers use reference prices?

Question 19

When consumers examine products, they often compare an observed price to an internal price they remember. This is known as a(n) ________ price.

A) markup
B) reference
C) market-skimming
D) accumulated
E) target

Question 20

Consumers are less price sensitive when ________.

A) they buy high cost items
B) they frequently change their buying habits
C) there are more substitutes
D) there are more competitors
E) they do not readily notice higher prices

Question 21

An umbrella manufacturing company's fixed costs are $275,000. The variable cost per unit is $5 and each umbrella is sold at $10. How many units should the firm sell in order to break even?

A) 1,819
B) 5,500
C) 18,000
D) 27,500
E) 55,000

Question 22

________ pricing takes into account a host of inputs, such as the buyer's image of the product performance, the channel deliverables, the warranty quality, customer support, and attributes such as the supplier's reputation, trustworthiness, and esteem.

A) Perceived-value
B) Value
C) Going-rate
D) Auction-type
E) Markup

Question 23

In the case of prestige goods, the demand curve sometimes slopes upward.

Question 24

A marketer who has unit costs of $16 and wants to earn a 20 percent markup on sales would charge a markup price of $20.

Question 25

Which of the following is True regarding price elasticity?

A) The higher the elasticity, the lesser the volume growth resulting from a one-percent price reduction.
B) Long-run and short-run price elasticity may differ, delaying the impact of a price change.
C) If demand is elastic, sellers assume that lowering the price will decrease total revenue.
D) Price elasticity does not depend on magnitude and direction of the contemplated price change.
E) When demand is inelastic, sellers should lower prices in order to increase total revenue.

Question 26

In ________ pricing, the firm bases its price largely on competitor's prices.

A) going-rate
B) auction-type
C) markup
D) target-return
E) perceived-value

Question 27

Matt's retail store offers all products at $2 less than its competitors. The store never runs promotional campaigns or offers special discounts. Matt's retail store is following a(n) ________ pricing policy.

A) auction-type
B) target-plus
C) everyday low
D) high-low
E) going-rate

Question 28

ConAgra Foods decided its prices had risen too high, so it determined to set a lower price for its products. To make the new price level profitable, ConAgra cut $250 million in costs. What application of cost estimation did this represent?

A) target costing
B) experience-curve pricing
C) ceiling pricing
D) the learning curve
E) promotional price elasticities

Question 29

A manufacturer has invested $750,000 in a new product and wants to set a price to earn a 15 percent ROI. The cost per unit is $18 and the company expects to sell 50,000 units in the first year. Calculate the company's target-return price for this product.

A) $18.10
B) $18.23
C) $20.25
D) $20.70
E) $25.50

Question 30

Price elasticity depends upon the magnitude and direction of the contemplated price change.

Question 31

Everyday low pricing is most suitable if ________.

A) consumers are willing to perform activities such as clip coupons to avail of discounts
B) consumers tend to associate price with quality
C) customers are insensitive to changes in price
D) the cost of conducting frequent sales and promotions is high
E) consumers have sufficient time to find the best prices

Question 32

________ auctions let would-be suppliers submit only one bid; they cannot know the other bids.

A) Descending bid
B) Sealed-bid
C) English
D) Dutch
E) Reverse

Question 33

Despite its weaknesses, markup pricing remains popular for which of the following reasons?

A) Sellers can determine demand much more easily than they can estimate costs.
B) By tying the price to cost, the pricing task becomes more sophisticated.
C) When all firms in the industry use markup pricing, price competition flourishes.
D) Sellers take advantage of buyers when the latter's demand becomes acute.
E) Many people feel that cost-plus pricing is fairer to both buyers and sellers.

Question 34

If firms wish to maximize their market share, they should opt for market-skimming pricing.

Question 35

Which of the following is the most elementary pricing method?

A) value pricing
B) going-rate pricing
C) markup pricing
D) target-return pricing
E) perceived-value pricing

Question 36

Total costs consist of the sum of the fixed and the variable costs for any given level of production.

Question 37

The decline in the average cost of production with accumulated production experience is called the ________.

A) demand curve
B) supply chain
C) learning curve
D) value chain
E) indifference curve

Question 38

Value pricing requires a company to reengineer its operations to become a low-cost producer.

Question 39

JJ's Hair Salon pays overhead each month, including bills for rent, heat, interest, and salaries. These payments are examples of ________ costs.

A) total
B) average
C) activity-based
D) variable
E) fixed

Question 40

In which of the following auctions does the auctioneer first announce a high price for a product and then slowly decreases the price until a bidder accepts?

A) a Dutch auction with one buyer and many sellers
B) an English auction with one seller and many buyers
C) an ascending bid auction
D) a sealed-bid auction
E) a Dutch auction with one seller and many buyers

Question 41

When museums charge a lower admission fee to students and senior citizens, this form of pricing is known as ________.

A) perceived value pricing
B) third-degree price discrimination
C) first-degree price discrimination
D) second-degree price discrimination
E) psychological discounting

Question 42

ROC Engineering, a Chinese shipbuilding company, agrees to build a fleet of submarines for the Sri Lankan navy, for which it will be paid in the local Sri Lankan currency. As per the agreement, ROC must also spend a substantial amount of the money it generates through this deal within the country. In accordance with the contract, ROC buys Sri Lankan tea at a reduced rate. This is an example of which of the following forms of countertrade?

A) descending bid
B) offset
C) barter
D) compensation deal
E) buyback arrangement

Question 43

Daryl encouraged his prospective client to buy Car A for $38,000 because it was a comfortable, reliable, and fuel-efficient model. But the client was interested in Car B, a used car costing $10,000 less. How could Daryl apply the total cost of ownership to convince this client to buy Car A?

Question 44

Ellie's manager has asked her to come up with ways to reduce costs of their new product by utilizing a process called "target costing." What should Ellie do?

Question 45

In high-low pricing, retailers charge low prices on an everyday basis with occasional price increases.

Question 46

For price discrimination to work ________.

A) the market must be segmentable and the segments must show similar intensities of demand
B) members in the lower-price segment must be able to resell the product to the higher-price segment
C) competitors must be able to undersell the firm in the higher-price segment
D) the practice must not breed customer resentment and ill will
E) the extra revenue derived from price discrimination must not exceed the cost of segmenting and policing the market

Question 47

In which of the following forms of countertrade do buyers and sellers directly exchange goods, with no money and no third party is involved?

A) buyback arrangements
B) offsets
C) barter
D) sealed bids
E) compensation deals

Question 48

On sites such as eBay and Amazon.com, the seller puts up an item for sale and bidders raise the offer price until the top price is reached. What kind of auctions are these?

Question 49

In ________, the seller charges a separate price to each customer depending on the intensity of his or her demand.

A) second-degree price discrimination
B) third-degree price discrimination
C) psychological discounting
D) special-customer pricing
E) first-degree price discrimination

Question 50

When hotels, motels, and airlines offer discounts in slow selling periods, they are said to be offering ________.

A) trade discounts
B) quantity discounts
C) functional discounts
D) seasonal discounts
E) trade-in allowances

Question 51

What are the seven price-setting methods? Briefly describe each of them.

Question 52

When supermarkets and department stores drop the price on well-known brands to stimulate store traffic, they are said to be following ________ pricing.

A) value
B) loss-leader
C) special event
D) high-low
E) everyday low

Question 53

In a compensation deal, the seller sells a plant, equipment, or technology to another country and agrees to accept as partial payment products manufactured with the supplied equipment.

Question 54

A toaster manufacturer has invested $1 million in the business and wants to set a price to earn a 20 percent return on investment, specifically $200,000. What pricing method should it choose?

Question 55

Briefly describe the different types of pricing objectives.

Question 56

________ are offered by a manufacturer to trade-channel members if they will perform certain functions, such as selling, storing, and record keeping.

A) Consumer promotions
B) Quantity discounts
C) Functional discounts
D) Seasonal discounts
E) Trade-in allowances

Question 57

________ reward dealers for participating in advertising and sales support programs.

A) Functional discounts
B) Trade discounts
C) Promotional allowances
D) Rebates
E) Quantity discounts

Question 58

What pricing decision should a company make if its competitor's product contains features that are not available in its own product?

Question 59

A Japanese firm is ready to sell its recent technological innovation to the U.S. government. But it has asked for 80 percent in cash and the rest in mica. The Japanese firm is looking to enter into a(n) ________ with the U.S. government.

A) functional discount
B) compensation deal
C) buyback arrangement
D) offset agreement
E) barter deal

Question 60

The airline and hospitality industries use ________, by which they offer discounted but limited early purchases, higher-priced late purchases, and the lowest rates on unsold inventory just before it expires.

A) special-customer pricing
B) yield pricing
C) cash rebates
D) location pricing
E) customer-segment pricing

Question 61

Psychological discounting involves setting an artificially high price and then offering the product at substantial savings.

Question 62

Which of the following is a possible trap of a price-cutting strategy?

A) Low prices usually achieve increases in both market share and market loyalty when customers switch.
B) The company might need additional business because it has excess plant capacity.
C) The company can initiate price cuts to dominate the market through lower costs.
D) Consumers might not demand price concessions in the future.
E) Competitors that match low prices might have longer staying power because of deep cash reserves.

Question 63

Consumers usually like price increases because these changes signal that an item is "hot" and represents a good value.

Question 64

What are some ways to respond to overdemand?

Question 65

In first-degree price discrimination, the seller charges less to buyers who purchase in larger volumes.

Question 66

What questions should a firm consider if it is in a nonhomogeneous market and a competitor lowers its prices?

Question 67

What are the different types of promotional pricing?

Question 68

Companies sometimes initiate price cuts in an attempt to dominate the market through lower costs.

Question 69

Loss leader pricing dilutes a company's brand image.

Question 70

How can a firm anticipate a competitor's reactions to a price change?

Question 71

Pepsi Co. sold its cola syrup to Russia and agreed to buy Russian vodka at a certain rate for sale in the United States for the next five years. What kind of a countertrade did both the parties indulge in?

Question 72

What are the different types of price discounts and allowances?

Question 73

Which of the following is most likely to be a valid reason for initiating a price increase?

A) anticipated cost inflation
B) excess plant capacity
C) a drive to dominate the market
D) a low-cost strategy
E) a market share objective

Question 74

In markets that are characterized by products that are highly homogeneous, how should a firm react to a competitor's reduction in price?

A) shrink the amount of the product available
B) substitute expensive materials or ingredients
C) reduce product features
D) reduce product services
E) augment the product

Question 75

A firm in a homogeneous market that has the ability to augment its product is more likely to need to meet a competitive price reduction than one that does not have the ability to augment its product.

Question 76

When the airline industry offers discounted but limited early purchases, higher-priced late purchases, and the lowest rates on unsold inventory just before it expires, what kind of a pricing technique are they said to be using?

Question 77

When Indu's company printed the ad for their perfume in the newspapers, the caption read, "WAS $100, NOW $75." What kind of a promotional pricing did her company use?

Question 78

A company must consider the product's stage in the life cycle and its importance in the company's portfolio before responding to a competitor's price cut.

Question 79

What are the different forms of countertrade?

Question 80

What circumstances lead companies to initiate price cuts, and what are the traps that companies can fall into if they do?