Question 1

When Circuit Town Electronics sets its televisions at three price levels of $699,$899,and $1,099,it is most likely using ________.

Accepted Answer

Price lining is the practice of setting a few specific price points for products within a product line. In this case, Circuit Town Electronics has set three price levels for its televisions, indicating the use of price lining. Price fixing involves colluding with competitors to set prices, penetration pricing is the use of low prices to enter a new market, skimming pricing is the use of high prices for new and innovative products, and loss leader pricing involves selling a product at a loss to entice customers to make additional purchases.

Question 2

A number of top fashion-modeling agencies were charged with ________ because they were jointly determining what commissions they would charge for models.

Accepted Answer

The term "price-fixing" refers to an agreement between two or more competitors to set the price of a product or service. When this agreement takes place among competitors at the same level in the supply chain, it is called horizontal price-fixing. In this case, the top fashion-modeling agencies were jointly determining what commissions they would charge for models, which constitutes horizontal price-fixing.

Question 3

A local restaurant sells lunch entrees for $7.95,$9.95,and $11.95.From this information,you can infer the restaurant uses which of the following?

Accepted Answer

The restaurant is using odd pricing by having entrees priced at $7.95, $9.95, and $11.95. Additionally, they may be using price lining, which is when different price points are offered for similar products to appeal to different customer segments.

Question 4

Swatch surveyed the market and identified an unserved segment of watch buyers.Using these results,they created a watch at a price consumers were willing to pay.The unorthodox order of this marketing mix decision is an example of ________.

Accepted Answer

Target costing involves designing a product to meet a specific cost and price point that consumers are willing to pay, which aligns with Swatch's approach.

Question 5

Joe Bergerson makes and sells maple racks for cooling cakes and cookies.Joe knows that it costs $15 to make one rack,and he wants to earn a 25 percent profit on each rack.Which approach to pricing is Joe most likely to use?

Accepted Answer

Joe is most likely to use cost-plus pricing because he knows his cost to make one rack and wants to earn a 25 percent profit on each rack. Cost-plus pricing involves adding a markup or desired profit margin to the cost of producing a product to determine the selling price.

Question 6

For a company that manufactures plastic signs,the printing press used to make the signs,the manager's salary,and the utilities are all examples of ________.

Accepted Answer

Fixed costs are expenses that remain constant regardless of the level of production, such as the printing press, manager's salary, and utilities.

Question 7

A skimming price strategy would likely be most effective in selling which of the following?

Accepted Answer

An electronic device which involved a great deal of research and development to bring to market is likely to be most effectively sold using a skimming price strategy. This is because the high price will help to recoup the costs of research and development, and will also create a sense of exclusivity around the product.

Question 8

Which of the following is an example of a variable cost for an amusement park?

Accepted Answer

Food cart supplies are a variable cost for an amusement park because the amount of supplies needed will vary based on the number of visitors and the demand for food.

Question 9

As a result of the ________,Rick decided the candy priced at $2.50 per pound could not be nearly as good as the candy priced at $9.50 per pound.

Accepted Answer

The contrast effect occurs when a consumer's perception of a product or service is influenced by the comparison with another product or service. In this case, the candy priced at $2.50 per pound seems inferior to the candy priced at $9.50 per pound due to the drastic difference in price. Therefore, the correct answer is B.

Question 10

Valeo Fashions has just introduced a new line of fashion dresses for teens.The line will initially enter the market at high prices in a ________ strategy.

Accepted Answer

Skimming pricing is a strategy where a company launches a new product or service at a high price initially, targeting early adopters or customers who are willing to pay a premium for the new offering. This strategy is often used by companies in the fashion industry to set a premium image for their brand and create a sense of exclusivity. As such, it is the best choice for Valeo Fashions given that they are introducing a new line of fashion dresses for teens.

Question 11

Johnson Boats wants to introduce a new model of boat into mature markets in highly developed countries with the goal of quickly gaining mass-market share.As a consultant,you should recommend a ________ pricing strategy.

Accepted Answer

A penetration pricing strategy would be best suited for Johnson Boats' goal of quickly gaining mass-market share in mature markets. This strategy involves setting a relatively low price to quickly penetrate the market and capture a large share of customers, which can lead to high sales volume and cost efficiencies in the long run. In contrast, a skim pricing strategy involves setting a high price for a new, innovative product to maximize initial profit margins, which may not be optimal for Johnson Boats' goal of gaining rapid market share. Price leadership and cost-plus pricing strategies are more focused on maintaining a certain price point relative to competitors or covering costs, rather than gaining market share. A captive pricing strategy may be more relevant for products with complementary goods or services, rather than boats.

Question 12

Savings for You,a discount retail chain,is highly competitive.When entering a new market,Savings for You often cuts prices so deeply that it sells below costs,effectively pushing smaller companies with less purchasing power out of the market.Savings for You is most at risk of being accused of ________.

Accepted Answer

Predatory pricing is a strategy where a larger firm prices its products so low that it drives smaller competitors out of business. This may be illegal in some countries since it is anti-competitive behavior.

Question 13

As a manufacturer increases price,the ________ drops.

Accepted Answer

The answer of As a manufacturer increases price,the ________ drops.
...

Question 14

Manufacturers of which of the following would be most likely to use freight absorption pricing?

Accepted Answer

The answer of Manufacturers of which of the following would...

Question 15

Bayer AG agreed to pay $46 million as part of a law settlement for conspiring with Archer-Daniels-Midland (ADM)to keep prices of citric acid at a certain level.These two international companies were guilty of ________.

Accepted Answer

The two companies were guilty of price-fixing, which is the illegal collusion between competitors to set prices at a certain level.

Question 16

When a beverage maker came out with a new drink and priced it at half price for a month to attract buyers,the company was using a(n)________ strategy.

Accepted Answer

The answer of When a beverage maker came out with...

Question 17

Mach 3 razor blades must be used in the Mach 3 razor.Which type of pricing is most likely used for the razor blades?

Accepted Answer

Captive pricing refers to a pricing strategy in which the price of a product is low, but the complementary product required to use or fully enjoy it (in this case, the Mach 3 razor blades) is priced higher. This creates a dependency on the complementary product and ensures that customers keep coming back to purchase it, therefore creating a captive market. In this case, since Mach 3 razor blades can only be used with the Mach 3 razor, the captive pricing strategy is the most likely to be used.

Question 18

The average price Xerox charged when it introduced the first stand-alone fax machine was $12,700.This premium price was a way for Xerox to recoup some of the research and development costs that went into production.Xerox used ________.

Accepted Answer

Xerox used skimming pricing, which involves setting a high initial price to recoup the costs of development and then gradually lowering the price over time. This strategy is often used for new products or technologies that have a strong unique selling proposition or competitive advantage.

Question 19

A hamburger stand near the local mall sells hamburgers for $3.99,drinks for $1.99,and fries for $1.49,while a gourmet restaurant nearby sells entrees for $20,$30,and $45.Both of these restaurants are using ________.

Accepted Answer

The answer of A hamburger stand near the local mall...

Question 20

After looking at the ads in her Sunday paper,Ruby decided to visit a local nursery and buy potting soil at $1.99 a bag.The regular price is $4.99 a bag.While Ruby was there she also purchased three bushes,six flowering plants,and a bird bath.You can infer from this information that the nursery used the bags of potting soil as a(n)________.

Accepted Answer

The fact that the nursery is selling the potting soil at a heavily discounted price suggests that it is being used as a loss leader - a product sold at a low price to entice customers to come into the store and potentially purchase other, more expensive items.

Quiz 11: Price the Product