Question 1

A penetration pricing strategy is called _____ pricing when it implements the premise that a lower-than-market price will attract buyers and move a brand from an unknown newcomer to brand-recognition or brand-preference stage.
A) market-plus
B) market-minus
C) EDLP
D) FOB

Accepted Answer

Market-minus pricing is the strategy where prices are set lower than the prevailing market prices to attract customers and increase brand recognition or preference, especially for new entrants in the market.

Question 2

When the elasticity of demand is greater than 1.0, then that demand is said to be inelastic.

Accepted Answer

When the elasticity of demand is greater than 1.0, demand is considered to be elastic, not inelastic. Elastic demand means consumers are highly responsive to changes in price.

Question 3

Since it involves the use of a high price relative to prices of competing products or services, the skimming pricing strategy is sometimes referred to as _____ pricing.
A) penetration
B) competitive
C) market-plus
D) functional

Accepted Answer

The skimming pricing strategy is referred to as market-plus pricing because it sets a high price relative to the prices of competing products or services, aiming to maximize profits by targeting consumers willing to pay more.

Question 4

Brands that are seeking to be associated with prestige and exclusivity often set higher prices.

Accepted Answer

Higher prices can create a perception of higher quality, exclusivity, and prestige, making the brand more desirable to consumers who seek status and differentiation.

Question 5

The price elasticity of demand (or elasticity of demand) is the percentage change in the quantity of a good or service demanded divided by the percentage change in its price.

Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in its price, calculated as the percentage change in quantity demanded divided by the percentage change in price.

Question 6

Unfair-trade laws were intended to protect small specialty shops, such as dairy stores, from loss-leader pricing tactics.

Accepted Answer

Unfair-trade laws, also known as resale price maintenance laws or fair trade laws, were designed to protect small retailers, including specialty shops like dairy stores, from the competitive pressures of larger stores using loss-leader pricing tactics. These laws allowed manufacturers to set minimum retail prices for their products, thereby preventing larger retailers from undercutting small businesses by selling goods at very low prices to draw in customers.

Question 7

The ticket reselling market is both highly fragmented and susceptible to fraud and distorted pricing.

Accepted Answer

The ticket reselling market is indeed highly fragmented, with numerous platforms and individual sellers, and it is susceptible to fraud (e.g., selling fake tickets) and distorted pricing (e.g., significantly marked-up prices due to high demand and limited supply).

Question 8

Most states supplement federal legislation with their own unfair-trade laws, which require sellers to maintain minimum prices for comparable merchandise.

Accepted Answer

The answer of Most states supplement federal legislation with their...

Question 9

A _____ pricing strategy helps manufacturers to distinguish their high-end products from similar products of their competitors.
A) skimming
B) market share
C) competitive
D) penetration

Accepted Answer

A skimming pricing strategy involves setting high prices initially to target customers who are willing to pay more for a new or unique product, helping to distinguish high-end products from competitors'.

Question 10

Pricing decisions are influenced by a variety of legal constraints imposed by federal, state, and local governments.

Accepted Answer

Governments at various levels can impose regulations and laws that affect pricing strategies, such as minimum wage laws, antitrust laws, price fixing regulations, and consumer protection laws, all of which can influence how a company sets its prices.

Question 11

The price of products only includes the costs incurred by the manufacturer for procuring the raw material and for processing the products.

Accepted Answer

The price of products also includes other costs such as labor, marketing, distribution, and overheads, in addition to the costs of raw materials and processing.

Question 12

If consumers can easily find close substitutes for a good or service, the product's demand tends to be inelastic.

Accepted Answer

If consumers can easily find close substitutes for a good or service, the product's demand tends to be elastic, meaning consumers are more sensitive to price changes.

Question 13

Paul and Amanda have six season tickets to the St. Louis Cardinals, a major league baseball team. During the season, they often offer their unused tickets to the highest bidder, especially when the Cardinals play the Chicago Cubs. This practice, known as "scalping," is illegal in all U.S. cities.

Accepted Answer

Scalping laws vary by state and city in the U.S., and it is not illegal in all U.S. cities. Some places have specific regulations that allow for the resale of tickets under certain conditions.

Question 14

In order to recover research and development costs rapidly and earn high initial profits, SenseTV is setting a high price for its plasma TVs. The pricing strategy SenseTV is using is called _____ pricing strategy.
A) market-minus
B) skimming
C) penetration
D) competitive

Accepted Answer

Skimming pricing strategy involves setting high initial prices to "skim" revenue layers from the market. It is used to recover research and development costs quickly and to maximize profit by targeting early adopters who are less price-sensitive.

Question 15

Defense based on cost differentials against charges of price discrimination under the Robinson-Patman Act works only if the price differences exceed the cost differences resulting from selling to various classes of buyers.

Accepted Answer

The defense based on cost differentials under the Robinson-Patman Act works if the seller can prove that the price differences are justified by cost savings in serving different buyers, not only when price differences exceed cost differences.

Question 16

When a chain store sells certain products below cost to attract customers, it is practicing a loss-leader price tactic.

Accepted Answer

A loss-leader pricing strategy involves selling a product at a price that is not profitable (below cost) to attract customers, with the expectation that those customers will also purchase other, more profitable items.

Question 17

A skimming pricing strategy is more commonly used by firms to:
A) reduce the raised prices of products to the original level.
B) set a market-entry price for distinctive goods or services with little or no initial competition.
C) set a relatively low price for a product when they enter new markets characterized by dozens of competing brands.
D) set stable wholesale prices that undercut offers competitors make to retailers.

Accepted Answer

A skimming pricing strategy involves setting high prices initially for a new or innovative product, where there is little or no competition, to maximize profits from early adopters before lowering the price over time as competition increases.

Question 18

High-demand sporting or concert events have encountered an expensive, often illegal, form of pricing where tickets are resold at a much higher price than what it was originally bought for. This practice is called ticket scalping.

Accepted Answer

Ticket scalping refers to the practice of purchasing tickets to an event and reselling them at a higher price, often significantly above face value, especially for high-demand events. This can happen through various channels, including online platforms, and is considered illegal or regulated in many jurisdictions.

Question 19

Companies can avoid penalties under the Robinson-Patman Act as long as they can demonstrate that their price discounts and promotional allowances restrict competition.

Accepted Answer

The Robinson-Patman Act prohibits certain forms of price discrimination. Companies must demonstrate that their price discounts or promotional allowances do not restrict competition, rather than the opposite.

Question 20

Price is an important indicator of quality for many consumers.​

Accepted Answer

Many consumers perceive price as an indicator of quality, often assuming that higher-priced goods or services are of better quality than lower-priced ones.

Quiz 14: Pricing Strategies

A penetration pricing strategy is called _____ pricing when it implements the premise that a lower-than-market price will attract buyers and move a brand from an unknown newcomer to brand-recognition or brand-preference stage.