Question 1

The concept of prestige pricing is drawn from

Accepted Answer

The price-quality association suggests that consumers perceive higher-priced products as being of higher quality. Prestige pricing is a pricing strategy that sets prices higher than the competition to create an image of luxury and exclusivity.

Question 2

A firm sells key items in its product assortment at less than their usual profit margins. This illustrates the use of

Accepted Answer

Leader pricing is a pricing strategy in which a firm sells key items in its product assortment at less than their usual profit margins to attract customers and increase sales of other products.

Question 3

The major objective of leader pricing is to

Accepted Answer

Leader pricing aims to attract more customers into the store by offering popular items at a lower price, thereby increasing customer traffic.

Question 4

A firm offers several models of a product, with each model representing a distinct level of quality or features. This illustrates

Accepted Answer

Price lining is a pricing strategy in which a firm offers several models of a product, with each model representing a distinct level of quality or features.

Question 5

An advantage of price lining is that it

Accepted Answer

Price lining minimizes consumer confusion by offering products at predetermined price points, making it easier for consumers to make purchasing decisions.

Question 6

A firm offers a basic product, options, and customer service for one total price with

Accepted Answer

Bundled pricing is a strategy where a firm offers a basic product, options, and customer service for one total price, combining several goods or services into a single comprehensive package for an all-inclusive price.

Question 7

With which form of geographic pricing does the buyer select the transportation form and pay all freight charges?

Accepted Answer

FOB (Free On Board) mill (factory) pricing means the buyer takes responsibility for the goods once they leave the seller's premises, including choosing the transportation method and paying for all freight charges.

Question 8

The seller is responsible for paying all shipping costs in which form of geographic pricing?

Accepted Answer

In uniform delivered pricing, the seller includes all shipping costs in the price of the goods, so the buyer does not pay any additional fee for delivery regardless of their location.

Question 9

Discounts, timing of payments, and credit arrangements are all examples of

Accepted Answer

Purchase terms include discounts, timing of payments, and credit arrangements, as they all relate to the conditions under which a purchase is made rather than the pricing strategy itself.

Question 10

A firm is contractually able to raise an item's price to reflect its rising costs in those items' essential ingredients without changing printed list prices with a(n) ___ clause.

Accepted Answer

An escalator clause in a contract allows a company to adjust prices based on changes in costs, such as the cost of essential ingredients, without altering the initially printed list prices.

Question 11

Which of these is an indication that a pricing strategy may be performing poorly?

Accepted Answer

Frequent price changes to match competitors can indicate a lack of a stable pricing strategy, suggesting the strategy may not be effectively capturing market value or differentiating the product.

Question 12

A regulated utility often cites the need for a minimum return on investment when making rate-increase requests. This illustrates the use of

Accepted Answer

Regulated utilities need to ensure they can cover their costs and make a reasonable profit to continue operations and investments. Citing the need for a minimum return on investment when requesting rate increases is an example of setting profit-based objectives. They aim to secure enough revenue to meet their financial goals, which is characteristic of profit-based pricing strategies.

Question 13

A research study indicates a large market segment exists for a new product, but that this segment is highly price elastic. An appropriate pricing strategy is

Accepted Answer

Penetration pricing is appropriate for a market segment that is highly price elastic because it involves setting a low initial price to attract a large number of buyers quickly and win a large market share. The sensitivity to price changes means consumers are likely to respond positively to lower prices.

Question 14

A firm has introduced a new microwave oven that also serves as a convection oven. The oven has been acclaimed by food critics, has received much publicity, and has no direct competition. What is the most appropriate pricing strategy for the firm?

Accepted Answer

Skimming is the most appropriate pricing strategy in this scenario because the product is unique, has high demand, and lacks direct competition, allowing the firm to set higher initial prices to maximize profits before any potential competitors enter the market.

Question 15

A firm requires funds for further expansion and has excellent patent protection. A suitable new-product pricing strategy is

Accepted Answer

Skimming pricing is suitable for a firm with excellent patent protection looking to expand. This strategy involves setting high initial prices to "skim" revenue layers from the market, capitalizing on the lack of competition due to the patent protection.

Question 16

Many firms first use skimming prices and then apply penetration pricing. An advantage of this strategy is that

Accepted Answer

This strategy allows firms to initially target consumers who are willing to pay a higher price, maximizing early profits, and then lower prices to attract a broader customer base once the initial market is saturated.

Question 17

A blender manufacturer with excess capacity has analyzed its costs and found that the lowest price it can accept for a major order (and still attain its profit goal) is $10 per unit. This illustrates

Accepted Answer

A price floor is the minimum price at which a product can be sold while still making a profit or meeting financial goals. In this scenario, the manufacturer has determined that $10 per unit is the lowest price at which they can sell their blenders to achieve their profit objectives, which aligns with the concept of a price floor.

Question 18

A key potential difficulty with cost-based pricing is that

Accepted Answer

Cost-based pricing can lead to different pricing outcomes depending on the method used to allocate costs, making it a potential difficulty.

Question 19

A firm's contract calls for it to receive 15 percent of total costs as a profit (using the cost-plus pricing technique). If total costs are $300,000 and the firm sells 10,000 units, its price is

Accepted Answer

The firm's total cost is $300,000, and it receives 15% of this as profit, which is $45,000 ($300,000 * 0.15). Therefore, the total price is the sum of the total cost and profit, which is $345,000 ($300,000 + $45,000). Dividing this by the number of units (10,000) gives a price per unit of $34.50 ($345,000 / 10,000).

Question 20

A wholesaler buys a coat for $75 and requires a 25 percent markup at wholesale. The wholesale selling price should be

Accepted Answer

The answer of A wholesaler buys a coat for $75...

Quiz 21: Developing and Applying a Pricing Strategy