Question 1

The strategy of market-skimming pricing is especially suited for new products because:
A) it provides the firm with pricing flexibility.
B) high prices can be used to connote quality.
C) it is an excellent way to recoup research and development costs.
D) high initial prices can keep demand from outdistancing supply.
E) all of the above are True.

Accepted Answer

Market-skimming pricing is suited for new products because it allows for pricing flexibility, can connote quality through high prices, helps recoup research and development costs, and prevents demand from outstripping supply by setting high initial prices.

Question 2

An organization should use a market-skimming strategy for a new product if:
A) competitors have free access to the product's raw materials.
B) demand for the product is very elastic.
C) the product is not unique enough to be patented.
D) the new product is distinctive.
E) all of the above are True.

Accepted Answer

A market-skimming strategy involves setting high prices initially to "skim" revenue layers from the market. It is most effective when the new product is distinctive, allowing the company to capitalize on its uniqueness and lack of direct competition. Choices A, B, and C describe conditions that typically do not support a skimming strategy.

Question 3

For which of the following new products would the manufacturer be most likely to use a market-skimming strategy?
A) low-fat condensed milk
B) a portable x-ray machine
C) a sugar-free jelly
D) mildew-free shower curtains
E) an insect spray that is safe to use around children and pets

Accepted Answer

A market-skimming strategy involves setting high initial prices to "skim" revenue layers from the market. It is most suitable for products with unique advantages or innovations, which customers are willing to pay a premium for, such as a portable x-ray machine. This product likely has less price sensitivity initially due to its innovative nature and specific target market, making it ideal for a skimming strategy.

Question 4

When StarSignal introduced its fax machine for receiving and sending color documents, it charged $26,000-a lot more than fax machines usually cost. More than likely, StarSignal was trying to recoup its product development costs by using _____ pricing.
A) market-skimming
B) market-absorption
C) market-penetration
D) cost-plus
E) value-set

Accepted Answer

Market-skimming pricing involves setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price. StarSignal's strategy of charging a lot more for its new fax machine fits this description, as it aims to recoup development costs quickly from customers less sensitive to price.

Question 5

In _____ pricing, a relatively low initial price is set in order to sell to the mass market immediately.
A) market-skimming
B) market-absorption
C) market-penetration
D) cost-plus
E) value-set

Accepted Answer

Market-penetration pricing strategy involves setting a low initial price to quickly attract a large number of buyers and gain a significant market share. This approach is used to penetrate the market rapidly.

Question 6

When Playstation video games were introduced into the United States, they were priced at an introductory price of $299. This price was $100 lower than the Sega games. Playstation used _____ pricing to quickly gain a large share of the market.
A) market-skimming
B) market-absorption
C) market-penetration
D) cost-plus
E) value-set

Accepted Answer

Market-penetration pricing strategy involves setting a low initial price to quickly attract a large number of buyers and gain a significant market share, which is what Playstation did by pricing their video games at $100 lower than Sega games to quickly attract customers.

Question 7

Market-penetration pricing for a new product is most likely to be used when:
A) high initial prices can keep demand within the limits of a company's productive capacities.
B) economies of scale are impossible to achieve.
C) the product has a highly elastic demand.
D) the product is unlikely to face much competition until the growth stage of its product life cycle.
E) the . product's sales depends on derived demand.

Accepted Answer

Market-penetration pricing is used when demand is highly elastic, meaning that lower prices will significantly increase sales volume, allowing the company to quickly gain market share.

Question 8

Apple Computer Inc. introduced its computers to the Japanese market at a low introductory price to appeal to a broader segment of the market and to increase the company's market share. Apple Computers used _____ pricing.
A) market-skimming
B) market-absorption
C) market-penetration
D) cost-plus
E) value-added

Accepted Answer

Market-penetration pricing strategy involves setting a low price for a new product to attract a large number of buyers and a large market share quickly.

Question 9

What pricing strategy was Apple Computer Inc. using when it introduced the iMac computers with relatively low initial prices?
A) market-skimming
B) market-absorption
C) market-penetration
D) cost-plus
E) value-added

Accepted Answer

Apple Computer Inc. used the market-penetration pricing strategy when it introduced the iMac computers with relatively low initial prices. This strategy aims to attract a large number of buyers quickly and secure a substantial market share by setting a low initial price.

Question 10

Which of the following situations is the most compelling case for market-penetration pricing?
A) Economies of scale cannot be achieved in the existing market.
B) A large mass market exists for the product.
C) The product has a highly inelastic demand.
D) No competition currently exists.
E) All of the above cases are suitable for market-penetration pricing.

Accepted Answer

Market-penetration pricing is most effective in situations where a large mass market exists for the product. This strategy involves setting a low initial price to attract a large number of buyers quickly and secure a significant market share, which is more feasible in a large market.

Question 11

Salon Selectives introduced its line of Botanical Blends for consumers who were looking for a way to create hair that looked like it had come from a salon, but didn't smell like it. Since there are several existing hair care products already targeted to the same market, Salon Selectives should initially use a _____ pricing strategy.
A) market-penetration
B) market-absorption
C) market-skimming
D) cost-plus
E) marginal-cost

Accepted Answer

A market-penetration pricing strategy is appropriate for Salon Selectives in this scenario because it involves setting a low initial price to attract a large number of buyers quickly and win a large market share, especially in a market with several existing competitors.

Question 12

_____ is an extreme case of penetration pricing.
A) Trading down
B) Cost-plus pricing
C) Contribution costing
D) Predatory pricing
E) Value-pricing

Accepted Answer

Predatory pricing is an extreme case of penetration pricing where a company sets very low prices with the intention of driving competitors out of the market or creating barriers to entry for potential new competitors.

Question 13

Apple Computer Inc. introduced its computers to the Japanese market at a low introductory price to appeal to a broader segment of the market and to increase the company's market share. If the original price was below its production costs, and Apple planned to raise prices in Japan later to recoup earlier losses, it would have engaged in:
A) trading down.
B) cost-plus pricing.
C) trading up.
D) predatory pricing.
E) value-pricing.

Accepted Answer

This strategy is known as predatory pricing, where a company sets prices below production costs with the intent to eliminate competition or to establish a strong market position, planning to raise prices later to recoup losses.

Question 14

If a company gives away its products or charges a price that is below its cost and plans to raise prices later on in order to recoup earlier losses, the company would have engaged in:
A) trading down.
B) cost-plus pricing.
C) contribution costing.
D) predatory pricing.
E) value-pricing.

Accepted Answer

This strategy is known as predatory pricing. It involves setting prices low with the intention to eliminate competition or discourage new entrants into the market, with plans to raise prices later once the competition has been reduced or eliminated.

Question 15

Manufacturers offer _____, deductions from a seller's list price, to encourage customers to buy in larger amounts or to make most of their purchases from that seller.
A) functional discounts
B) quantity discounts
C) seasonal discounts
D) promotional allowances
E) trade discounts

Accepted Answer

Quantity discounts are offered by manufacturers to incentivize customers to purchase in larger volumes or to consolidate most of their buying with that seller.

Question 16

If Ephraim buys a single can of motor oil, it will cost him $1.99 at his local convenience store, but a case of 12 cans of motor oil costs only $18. The motor oil case price reflects a _____ strategy
A) cumulative pricing
B) price lining
C) quantity discount
D) promotional discount
E) full-service retailing

Accepted Answer

The motor oil case price reflects a quantity discount strategy because buying in bulk (a case of 12 cans) is cheaper per unit than buying single cans.

Question 17

One set of tangle proof jumper cables costs a retailer $2.76 if purchased separately. If a lot of five is purchased, the individual price is reduced to $2.52. This is an example of a _____ strategy.
A) cumulative pricing
B) price lining
C) quantity discount
D) promotional discount
E) full-service retailing

Accepted Answer

This is an example of a quantity discount strategy, where the price per unit decreases when a larger quantity is purchased.

Question 18

When Jenny went to purchase an ounce of turmeric to restock her bakery's pantry, she discovered that one once would cost her $6, but that she could purchase 5 ounces of turmeric for $21. This is a form of:
A) cumulative pricing.
B) price lining.
C) quantity discount.
D) promotional discount.
E) full-service retailing.

Accepted Answer

This is an example of a quantity discount because Jenny can buy a larger quantity (5 ounces) of turmeric for a lower per-unit price ($21 for 5 ounces) than the single-unit price ($6 for 1 ounce).

Question 19

Individual bottles of Stroh Ranch Marinade sell for $4. If you buy by the case, it's only $3.50 per bottle. This is an example of:
A) price discrimination.
B) a quantity discount.
C) a trade discount.
D) a promotional discount.
E) price lining.

Accepted Answer

This is an example of a quantity discount because the price per bottle decreases when a customer buys in larger quantities, in this case, by the case rather than individually.

Question 20

A manufacturer of laminated posters sells its posters to retailers for $14. If a retailer buys between 25 and 50 posters in any 6-month period, the price is $12 per poster. If a retailer buys more than 50 posters in a 6-month period, the price is $11 a poster. The poster manufacturer is offering a _____ discount.
A) seasonal
B) cash
C) noncumulative quantity
D) trade
E) cumulative quantity

Accepted Answer

The answer of A manufacturer of laminated posters sells its...

Quiz 13: Pricing Strategies

The strategy of market-skimming pricing is especially suited for new products because:

An organization should use a market-skimming strategy for a new product if:

For which of the following new products would the manufacturer be most likely to use a market-skimming strategy?

When StarSignal introduced its fax machine for receiving and sending color documents, it charged $26,000-a lot more than fax machines usually cost. More than likely, StarSignal was trying to recoup its product development costs by using _____ pricing.

In _____ pricing, a relatively low initial price is set in order to sell to the mass market immediately.

When Playstation video games were introduced into the United States, they were priced at an introductory price of $299. This price was $100 lower than the Sega games. Playstation used _____ pricing to quickly gain a large share of the market.

Market-penetration pricing for a new product is most likely to be used when:

Apple Computer Inc. introduced its computers to the Japanese market at a low introductory price to appeal to a broader segment of the market and to increase the company's market share. Apple Computers used _____ pricing.

What pricing strategy was Apple Computer Inc. using when it introduced the iMac computers with relatively low initial prices?

Which of the following situations is the most compelling case for market-penetration pricing?

_____ is an extreme case of penetration pricing.

If a company gives away its products or charges a price that is below its cost and plans to raise prices later on in order to recoup earlier losses, the company would have engaged in:

Manufacturers offer _____, deductions from a seller's list price, to encourage customers to buy in larger amounts or to make most of their purchases from that seller.

If Ephraim buys a single can of motor oil, it will cost him $1.99 at his local convenience store, but a case of 12 cans of motor oil costs only $18. The motor oil case price reflects a _____ strategy

One set of tangle proof jumper cables costs a retailer $2.76 if purchased separately. If a lot of five is purchased, the individual price is reduced to $2.52. This is an example of a _____ strategy.

When Jenny went to purchase an ounce of turmeric to restock her bakery's pantry, she discovered that one once would cost her $6, but that she could purchase 5 ounces of turmeric for $21. This is a form of:

Individual bottles of Stroh Ranch Marinade sell for $4. If you buy by the case, it's only $3.50 per bottle. This is an example of: