Question 1

An increasing number of companies are basing their prices on the customer's perceived value.Explain the concept of "perceived value" and identify the key to pricing in this manner.

Accepted Answer

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Question 2

The quantity demanded of your firm's product increased only 5% when the price of each unit was reduced by 33%.This is an example of what type of demand

Accepted Answer

The fact that the quantity demanded only increased by 5% despite a 33% price reduction means that the demand for the product is relatively unresponsive to changes in price. This is characteristic of inelastic demand. Inelastic demand occurs when changes in price have a relatively small effect on the quantity demanded.

Question 3

Starbucks coffee,Aveda shampoo,and BMW cars have been able to position themselves within their categories by combining quality,luxury,and premium prices with an intensely loyal customer base.These companies are employing a ________ strategy.

Accepted Answer

These companies are using a product-quality leadership strategy, which emphasizes high-quality products and premium prices to target a segment of customers who value luxury and are willing to pay a premium for it. This strategy emphasizes building a strong brand reputation, customer loyalty, and long-term success rather than short-term profit maximization, survival, or market share maximization.

Question 4

Identify and discuss the six steps of the pricing procedure.

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Question 5

Under what conditions is demand likely to be less elastic for a product

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Question 6

When a consumer buys a $100 bottle of perfume containing $10 worth of materials,the gift giver is communicating their high regard to the receiver,and this represents the concept of ________ in pricing.

Accepted Answer

The concept of price-quality relationship refers to how the price of a product may communicate its perceived quality to consumers. In this example, the high price of the perfume may lead the receiver to believe that it is of higher quality, thus enhancing their regard for the gift giver.

Question 7

For price discrimination to work,certain conditions must exist.List and briefly explain these conditions.

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Question 8

Texas Instruments builds a large plant to produce a great quantity of products,hoping that as prices decline,sales volume increases and thus costs decline.This market-penetration pricing is dependent upon three conditions existing in the marketplace.Which one of the following is NOT one of these conditions

Accepted Answer

The three conditions required for market-penetration pricing to be effective are:

1) The market is stimulated by lower prices.
2) The market is highly price sensitive.
3) Production and distribution costs actually fall with increases in production.

Option C contradicts the first condition by stating that low prices do not increase consumer demand but increase retailer competition. Therefore, option C is the incorrect answer.

Question 9

Explain why and how the Internet is partially reversing the fixed price concept of retailing

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Question 10

In responding to a competitor's price cut,a firm in a nonhomogeneous market has more latitude and should consider what four issues before responding

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Question 11

You are introducing a new product to the market; in fact,you are first with this new product to the marketplace.In developing your pricing strategy,it was decided that the price of the product should be at the maximum the market would bear.This is an example of what type of pricing strategy

Accepted Answer

Market-skimming pricing involves setting a high price for a new product in order to maximize profits while the product is still unique and there is little competition. Since this product is the first of its kind in the market, it makes sense to use market-skimming pricing strategy and set the maximum price the market is willing to pay for the product.

Question 12

In a classic study,Farris and Reibstein examined the relationships among relative price,relative quality,and relative advertising for 227 consumer businesses.List and briefly explain their findings.

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Question 13

Prior research has shown that although consumers may have fairly good knowledge of the range of prices involved,surprisingly few can recall specific prices of products accurately.When examining products,consumers often employ reference prices.List the possible prices consumers use as their "reference."

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Question 14

Explain why "value pricing" is not just a matter of simply setting lower prices.

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Question 15

The demand for your product fell 66% when the price increased by 50%.This is an example of what type of demand

Accepted Answer

This is an example of elastic demand because the percentage decrease in quantity demanded (66%) is greater than the percentage increase in price (50%). In other words, consumers are sensitive to the change in price and are willing to reduce their quantity demanded significantly. This indicates that the product is not a necessity and there are substitutes available in the market.

Question 16

Manufacturing costs such as rent,utilities,interest expense,and some salaries are considered ________ and these costs do not vary with the production or sale of the item.

Accepted Answer

Fixed costs are expenses that do not vary with changes in production or sales volume, such as rent, utilities, interest expense, and some salaries. They are also sometimes referred to as overhead costs.

Question 17

When a retailer puts a sign on a product that says "reduced" or a retailer puts a sign on a product that says "compare to XXX at $10.00 more," the retailer is encouraging what kind of pricing psychology for its shoppers

Accepted Answer

By incorporating language such as "reduced" or "compare to XXX at $10.00 more," the retailer is providing a reference point for shoppers to compare the current price to. This encourages shoppers to consider the perceived value of the product based on the provided reference point and make a decision based on that comparison, which is a key aspect of reference pricing.

Question 18

If consumers were largely indifferent to a $0.10 increase in the price of a gallon of milk,the rise can be said to fall within customers' ________.

Accepted Answer

The term "price indifference band" refers to a range within which price changes do not significantly affect consumer demand, indicating indifference to small price changes.

Question 19

Research has shown that consumers tend to process prices in a "left-to-right" manner rather than by rounding.With this knowledge,which of the following prices would seem to be a better physiological price

Accepted Answer

Research has shown that consumers tend to process prices in a "left-to-right" manner rather than by rounding. Among the options given, $99.99 would be the best physiological price as it positions the number "99" in the consumer's mind first, making it seem cheaper than $100.00 which has the potential to appear more expensive.

Question 20

What is experience-curve pricing and what risks does it carry

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Quiz 14: Developing Pricing Strategies and Programs