Question 1

Pricing new products is usually a choice between skimming and penetration.

Accepted Answer

Skimming and penetration are two common pricing strategies for new products. Skimming involves pricing the product high initially and gradually reducing the price over time, while penetration involves setting a low price initially to gain market share, with the intention of raising the price later. Therefore, the statement is true.

Question 2

Psychological pricing assumes that consumers make rational decisions when purchasing products.

Accepted Answer

Psychological pricing actually assumes that consumers are influenced by emotional and psychological factors when making purchasing decisions, rather than purely rational factors. This includes factors such as the perception of value, the influence of social norms, and the emotional appeal of a product. Psychological pricing techniques such as setting prices just below a round number (e.g. $9.99 instead of $10) are designed to tap into these emotional and psychological factors in order to sway consumer behavior.

Question 3

Price lining is the practice of pricing goods slightly under a whole dollar amount (e.g., $9.95, $1.95).

Accepted Answer

Price lining is the practice of selling products at a limited number of predetermined price points, rather than offering a continuous range of prices.

Question 4

When Carbonite Inc. started its new online backup service, it charged "one flat low price no matter how much you need to back up your PC files." This is an example of price skimming.

Accepted Answer

Price skimming involves setting a high price for a new product or service during its initial launch to maximize profits from early adopters. The statement in the question indicates that Carbonite Inc. charged a single, low price for its new online backup service, which is not consistent with price skimming.

Question 5

The ultimate objective of any promotion is to sell more products.

Accepted Answer

The primary goal of any promotion is to increase sales and ultimately generate revenue for the company. While promotions may have other secondary objectives like increasing brand awareness or loyalty, the end goal is always to drive more sales of products or services.

Question 6

If a retailer buys shirts for $8 from a supplier and then sells them for $15 to customers, the markup percentage is 87.5 percent.

Accepted Answer

The markup percentage is calculated as ((Selling Price - Cost Price) / Cost Price) * 100. Here, it is ((15 - 8) / 8) * 100 = 87.5%, which is correct. However, the statement is false because the calculation provided in the question is correct, but the statement asks if it is 87.5%, which is indeed true.

Question 7

A push strategy appeals directly to consumers who "push" their local retailer to carry the product.

Accepted Answer

A push strategy involves pushing the product to the retailers, wholesalers, and distributors, rather than directly to the consumer. In contrast, a pull strategy appeals directly to the consumer, creating demand for the product, which retailers then seek to meet by carrying it in stores.

Question 8

If total fixed costs are $200 000, the product is sold for $30, and the variable cost is $16, the break-even point is 14 286 units.

Accepted Answer

To calculate the break-even point, we use the formula:

Break-even point (in units) = Total fixed costs / (Selling price per unit - Variable cost per unit)

Plugging in the given values, we get:

Break-even point (in units) = $200,000 / ($30 - $16) = 14,285.71

Rounding up to the nearest whole number, we get the break-even point as 14,286 units. Therefore, the statement is true.

Question 9

If total fixed costs are $200 000, the product is sold for $20, and the variable cost is $5, the break-even point is 10 000 units.

Accepted Answer

The answer of If total fixed costs are $200 000,...

Question 10

A company which sets prices above the market rate plays on the consumer's belief that higher prices mean higher quality products.

Accepted Answer

This is known as the pricing strategy of premium pricing, where a company sets prices above the market rate to create the perception of higher quality and exclusivity. Consumers may be willing to pay more for the product based on this perceived value.

Question 11

Dynamic pricing is feasible in the electronic marketplace because the flow of information on the Internet notifies millions of buyers of instantaneous changes in product availability.

Accepted Answer

This statement is true as the internet allows for real-time communication of changes in product availability to potential buyers. This enables sellers to adjust their prices dynamically to match demand and optimize their profits.

Question 12

The two general values to be gained from any promotional activity are communicating information and creating satisfying exchanges.

Accepted Answer

Promotional activities aim to communicate information about a product or service to potential customers and ultimately create satisfying exchanges (i.e. sales).

Question 13

Coke has discovered that it can charge more for a can of soda in the sportswear aisle of Walmart than in the beverage aisle near competing colas. This is an example of a market share pricing objective.

Accepted Answer

This is an example of price discrimination or price differentiation, where Coke adjusts its pricing based on the perceived value or demand in different locations, not a strategy aimed at increasing market share.

Question 14

A break-even analysis is used to determine how many units of a product must be sold at a given price before the company begins to make a profit.

Accepted Answer

A break-even analysis is used to determine the point at which a company begins to make a profit by selling a certain number of units at a specific price. It helps companies to determine their minimum sales goals and pricing strategies to achieve profitability.

Question 15

The formula for determining the break-even point (in units) is total fixed costs divided by price minus variable cost.

Accepted Answer

This is the correct formula for determining the break-even point in units.

Question 16

A retail seller of music would like to hit the break-even point as late as possible so profits will be maximized.

Accepted Answer

The break-even point is the point at which the revenue from sales is equal to the costs of producing and selling the music. After hitting the break-even point, every sale made will result in a profit. Therefore, a retail seller of music would want to reach the break-even point as soon as possible in order to begin generating profits. Waiting too long to hit the break-even point would result in missed opportunities for profit.

Question 17

Cost-oriented pricing of products focuses primarily on the supply and demand for the product at various prices.

Accepted Answer

Cost-oriented pricing of products focuses on determining the cost of producing the product and adding a markup to set the selling price, rather than primarily considering supply and demand.

Question 18

Price lining is a tactic used for new products and requires that prices be set very high to cover product development and introduction costs.

Accepted Answer

Price lining involves establishing a range of prices for a product line, with each price point reflecting a different level of quality or features. It is not necessary to set all of the prices very high, as the goal is to provide options for consumers at different price points. While there may be some costs associated with developing and introducing new products, this is not the primary goal of price lining.

Question 19

The markup percentage is determined by dividing the markup by the sales price.

Accepted Answer

The markup percentage is determined by dividing the markup by the cost price, not the sales price.

Question 20

A good example of cost-oriented pricing is theatre ticket prices for Hollywood films.

Accepted Answer

Cost-oriented pricing means setting prices based on the cost of production or distribution, which is not the case for Hollywood films. Hollywood film prices are typically set based on market demand and competition, making it an example of market-oriented pricing.

Quiz 13: Pricing, Promotion, and Distributing Products