Question 1

In the absence of tangible quality cues, consumers often use reference prices as an indicator of product quality.

Accepted Answer

When consumers lack tangible quality cues, they often rely on reference prices (i.e. the price range they believe the product should be) as a proxy for product quality. This is because people often associate higher prices with higher quality, so if a product is priced above its reference price, consumers may assume it is of higher quality. However, this is not always an accurate indicator and can lead to consumer bias and false perceptions of quality.

Question 2

Psychological pricing considers the impact of consumer perceptions and not simply economic influences.

Accepted Answer

Psychological pricing takes into account how consumers perceive prices and considers the emotional and psychological factors that affect their purchasing decisions, such as pricing strategies like charm pricing, prestige pricing, and odd-even pricing. It goes beyond just economic factors such as costs and profits.

Question 3

Firms typically have a multiplicity of objectives. Which objective would be the single most important to all firms? How do the goals of providing customer satisfaction and making a profit relate to this objective?

Accepted Answer

The answer of Firms typically have a multiplicity of objectives....

Question 4

A carpet steam cleaning company is offering a fantastic price deal. The offer includes the cleaning of three rooms plus a sofa and two cushions for $80. This is an example of product- bundle pricing.

Accepted Answer

The offer includes multiple products (cleaning of three rooms, a sofa, and two cushions) at a discounted price, which is an example of product-bundle pricing.

Question 5

Seasonal discounts are offered so that the seller can keep production steady throughout the year.

Accepted Answer

Seasonal discounts are often offered to encourage consumers to purchase goods during slower times of the year, keeping production steady throughout the year rather than only during peak seasons.

Question 6

Briefly describe market- skimming pricing. What benefits does it offer? What circumstances favour its use?

Accepted Answer

The answer of Briefly describe market- skimming pricing. What benefits...

Question 7

Functional discounts are offered to channel members for performing certain basic marketing functions in the channel of distribution.

Accepted Answer

Functional discounts are a type of trade discount offered to channel members for certain functions they perform in the distribution channel such as warehousing, transportation, advertising, and promotion. These discounts are often calculated as a percentage of the invoice price and are meant to encourage channel members to perform these functions efficiently and effectively.

Question 8

New product pricing strategies can be implemented at any stage of the product life cycle.

Accepted Answer

The answer of New product pricing strategies can be implemented...

Question 9

The highly heterogeneous nature of products sold under oligopolistic competition allows each oligopolist to virtually ignore the pricing activities of its competitors.

Accepted Answer

The highly heterogeneous nature of products sold under oligopolistic competition requires each oligopolist to carefully consider the pricing activities of its competitors to maintain or improve its market position.

Question 10

Market- skimming pricing takes advantage of the fact that some customers are willing to pay more to be the first to own a new, or unique, product.

Accepted Answer

Market-skimming pricing is a strategy of pricing a new and unique product high initially and then lowering the price later. This strategy is based on the principle that early adopters are willing to pay more for the product, and it helps the company to recover its R&D and marketing costs quickly.

Question 11

Under basing point pricing, freight is charged from a designated location regardless of the actual location of shipment.

Accepted Answer

Under basing point pricing, the price is based on a designated location, and all customers pay the same freight charge regardless of their actual location.

Question 12

Sealed- bid pricing often forces the firm to estimate the expected profit that would be associated with various pricing strategies.

Accepted Answer

Sealed-bid pricing requires the firm to estimate the profitability of different pricing strategies because they are submitting a price without knowing what competitors will offer.

Question 13

What is the experience curve in pricing? Upon what basic economic concept is it based?

Accepted Answer

The answer of What is the experience curve in pricing?...

Question 14

If all sellers in an industry selected the same location as a basing point, no seller would enjoy a locational advantage with regard to freight charges.

Accepted Answer

This statement is true. If all sellers selected the same location as a basing point, then they would all be equidistant from their customers and shipping costs would be the same for all of them. Therefore, no seller would have a locational advantage in terms of freight charges.

Question 15

A company that plans to develop an imitative new product faces a product- positioning problem.

Accepted Answer

When a company plans to develop an imitative new product, it faces a product-positioning problem because it needs to differentiate itself from the existing products already in the market.

Question 16

As a general rule, buyers are more price sensitive when the products they are buying are unique.

Accepted Answer

Buyers are generally more price sensitive when products are commoditized and there are many similar options available. When a product is unique, buyers may be willing to pay a higher price for its unique features or qualities.

Question 17

Target profit pricing is best described as a cost- oriented approach to pricing.

Accepted Answer

Target profit pricing sets prices based on the company's desired profit level, which is a cost-oriented approach. The company determines the total costs and desired profit, then calculates the price that will allow them to reach that profit level.

Question 18

Mark- ups are generally higher on products that have an elastic demand.

Accepted Answer

Mark-ups are generally higher on products that have an inelastic demand, as customers are less sensitive to price changes and are willing to pay more for the product. In contrast, products with elastic demand have more price-sensitive customers who are less likely to pay high mark-ups.

Question 19

In producing its primary product, the Meatpack Corporation also generates several by- products of little or no value. The firm should consider selling these by- products at any price above the cost of storing or delivering them.

Accepted Answer

Selling the by-products, even at a low price, would generate additional revenue for the firm while also reducing the cost of storing or disposing of them.

Question 20

The use of optional product pricing allows a seller to keep the price of the basic product low while making a profit on extras the consumer would like to add to that product.

Accepted Answer

Optional product pricing is a pricing strategy where a seller offers a basic product at a low price and then charges extra for optional features or add-ons. This allows the seller to keep the price of the basic product low while making a profit on the extras that consumers may want to add.

Quiz 12: Pricing for Value