Question 1

Penetration pricing means charging a relatively low price for a product as a way to reach the mass market.The low price is designed to capture a large share of a substantial market.Thus,penetration pricing does which of the following?
A)tends to be more effective in a less price-sensitive market
B)tempts competitors to enter the market
C)recoups product development costs quickly
D)tends to lower production costs

Accepted Answer

The low price is designed to capture a large share of the market,resulting in lower production costs.Production costs are lowered because of economies of scale in production.

Question 2

The price-skimming strategy is sometimes called a "market-plus" approach to pricing because it denotes a high price relative to the prices of competing products.When does this strategy work best?
A)when competition is abundant
B)when revenues are equal to expenses
C)when supply is greater than demand
D)when demand is greater than supply

Accepted Answer

Price skimming denotes a high price;therefore,the demand must be great.

Question 3

The marketing manager of icruise.com (a travel website targeted to consumers who want a luxury vacation)finds that the firm can gain market share and become the industry leader if it slashes prices by 50 percent during December.However,the vice-president of finance is committed to reporting a 25 percent return on investment at all times.What does this conflict illustrate?
A)a need to eliminate low-profit products
B)how pricing operates in a mature marketplace
C)the need for trade-offs in pricing objectives
D)how target markets can be ignored

Accepted Answer

Different individuals in an organization may have pricing objectives that are not mutually compatible and will involve trade-offs.

Question 4

The introductory price for the Nintendo Gamecube video game console was $100 lower than the list price of Xbox and Playstation 2,its only two competitors.Given this information,you can assume Nintendo used which type of policy for its Gamecube?
A)penetration pricing
B)flexible pricing
C)competitive skimming
D)price sensitive skimming

Accepted Answer

Penetration pricing is a pricing strategy where the initial price of a product is set low to attract customers and gain market share. In this case, Nintendo set the introductory price of the Gamecube lower than its competitors, Xbox and Playstation 2, to attract customers and gain a larger market share.

Question 5

Which strategy involves a firm charging a price identical to or very close to the competition's price?
A)differentiation pricing
B)penetration pricing
C)status quo pricing
D)leader pricing

Accepted Answer

Status quo pricing involves charging a price identical to or very close to the competition's price. This strategy is often used when the market is stable and competitors have similar products, making it difficult to differentiate based on price alone. Other strategies, such as differentiation pricing and leader pricing, involve setting prices either higher or lower than the competition in order to highlight a unique selling proposition or attract more customers. Penetration pricing involves setting a low price to enter a new market and gain market share.

Question 6

Super-Sav supermarket employees regularly shop at other local supermarkets in order to make certain that Super-Sav is charging prices comparable to the other supermarkets.What type of pricing strategy is Super-Sav using?
A)leader pricing
B)pre-emptive pricing
C)status quo pricing
D)flexible pricing

Accepted Answer

Status quo pricing is simply meeting the competition.

Question 7

For which of the following situations would a price-skimming strategy be most appropriate?
A)the addition of a new comic book series with an obviously gay hero
B)the introduction of a new brand of bottled water
C)the elimination of demand for low wattage light bulbs
D)the introduction of a unique,roomy automobile model that has extremely low energy and fuel costs

Accepted Answer

The automobile will justify a price-skimming strategy because the manufacturer will need to recoup R&D costs,and it will take several years for the competition to catch up.

Question 8

A company's pricing strategy should do all of the following EXCEPT which of these?
A)give direction for price movements over the product life cycle.
B)define the initial price.
C)ignore the targeting and positioning strategy of the company.
D)interact with the other elements of the marketing mix.

Accepted Answer

The pricing strategy needs to blend with the targeting and positioning strategy of the company.

Question 9

After establishing pricing goals,managers should estimate total revenue at a variety of prices.Next,they should do which of the following?
A)choose the ROI target
B)determine corresponding costs for each price
C)implement pricing segmentation
D)establish geographic pricing heuristics

Accepted Answer

Once pricing goals are established and revenue is estimated at different price points, managers must determine the corresponding costs for each price to assess profitability. This cost analysis helps to identify the most viable pricing strategy for the company. Choosing an ROI target, implementing pricing segmentation, and establishing geographic pricing heuristics are other factors that can be considered but are not as directly tied to the initial step of pricing estimation.

Question 10

Pharmacies are a new addition to Costco.They could exert a greater influence on the marketplace for prescription drugs than their newness indicates.Costco has a stated philosophy of marking up merchandise a maximum of 14 percent.When that philosophy is applied to prescription drugs,especially generics,warehouse club prices can be dramatically lower than those of conventional drugstores,supermarkets,or discount store pharmacies.Which type of strategy is Costco using to convince consumers to use its pharmacies rather than its competitors?
A)penetration pricing
B)price-insensitive demand
C)price skimming
D)cost bundling

Accepted Answer

When a firm introduces a new product at a relatively low price because it hopes to reach the mass market,it is following a penetration pricing strategy.The low price is designed to capture a large share of a substantial market and produce lower production costs.

Question 11

A penetration strategy tends to be effective in a price-sensitive market.What is one of the purposes of penetration pricing?
A)to recoup product development costs quickly
B)to discourage competitors from entering the market
C)to produce a large margin of profit per unit
D)to develop exclusive distribution

Accepted Answer

A low price will mean a low profit margin and will be attractive only if a large volume of business can be seized.The first company on the market that uses penetration pricing has a great advantage.

Question 12

The market for turkey products is large.If a major producer of turkeys were to introduce a boneless fresh turkey wrapped around savoury dressing,most of the large market for this new product would be aware of its existence.The market is price sensitive,and there is some potential competition.What would be the appropriate strategy?
A)price skimming
B)penetration pricing
C)status quo
D)price lining

Accepted Answer

The market for the new product is price sensitive.

Question 13

Leupold & Stevens,Inc. ,makes Leupold scopes for rifles and has introduced a new scope that has the quality and performance for which Leupold & Stevens is famous at a price much lower than it has ever sold a rifle scope before.The new scope offers several different magnifications and is the only scope in the $200 range that is made in the United States.(All similar scopes are priced much higher. )Which pricing strategy is Leupold & Stevens using to appeal to a larger market?
A)price skimming
B)status quo pricing
C)penetration pricing
D)demand skimming

Accepted Answer

Leupold & Stevens is using penetration pricing by introducing a new scope with a lower price point to appeal to a larger market. This is evident from the statement that the new scope is priced much lower than their previous offerings and similar scopes in the market.

Question 14

Big Sky Brands have introduced Jones Carbonated Candy,a candy that delivers a blast of the most popular Jones soft drink flavours along with an oddly enjoyable tongue-tingling sensation.Which strategy would most likely be used with this product to convince consumers to try it and not buy some other brand?
A)price lining
B)price fixing
C)penetration pricing
D)price skimming

Accepted Answer

Consumers can be expected to be price sensitive in this market category.

Question 15

A shortage of blood for transfusions for injured animals has resulted in the introduction of a synthesized product called Oxyglobin,which can be used effectively as a blood replacement.The manufacturer of the product has put a high price on the product in order to recoup its research and development costs.Which type of policy is the manufacturer of Oxyglobin using?
A)penetration pricing
B)price-lining
C)bundling costs
D)price-skimming

Accepted Answer

Price skimming is a pricing policy whereby a firm charges a high introductory price.

Question 16

When a firm introduces a new product at a relatively low price it is designed to capture a large share of a substantial market and produce lower production costs because it hopes to reach the mass market.It is following which of these type of strategies?
A)penetration pricing
B)price-insensitive demand
C)price skimming
D)cost bundling

Accepted Answer

Penetration pricing is a strategy used by firms to introduce a new product at a relatively low price to capture a large share of the market. The objective of this strategy is to quickly gain market share and generate economies of scale, which will eventually result in lower production costs. This strategy is typically used when the market is price-sensitive and there is a substantial market for the product. Therefore, A) Penetration pricing is the best choice in this scenario.

Question 17

A 16-ounce bottle of Prairie Herb vinegar sells for $4.95,and a 16-ounce bottle of Heinz vinegar costs $1.05.Prairie Herb vinegar is new to the market,perceived to be of higher quality,and provides a unique flavour to foods even though it is used in the same way as Heinz vinegar.Which type of policy is Prairie Herb vinegar most likely using?
A)penetration pricing
B)status quo skimming
C)price-skimming
D)bundling cost pricing

Accepted Answer

Price skimming is common for products in the introductory stage of their product life cycle.

Question 18

The DCS Stainless Steel Gas Grill for outside cooking costs $3,995.The market for a grill that could easily replace a kitchen range is limited even though a lot of people have seen articles about this grill in cooking magazines and in the cooking section of newspapers.There is no potential competitor for this grill.Which strategy is probably best?
A)price-skimming
B)penetration pricing
C)status quo
D)price-lining

Accepted Answer

Like products in the introductory stage of the product life cycle,this grill has no competition.

Question 19

When the Mosquito Magnet was introduced,it was designed to rid the immediate area of mosquitoes and other annoying insects.The technology for the Mosquito Magnet took years to develop.It is a patented grill-like apparatus that emits carbon dioxide to attract bugs to a fan that draws them into the device where they die.What type of pricing policy would you recommend the company use to introduce this product to the market?
A)penetration pricing
B)price-skimming
C)flexible skimming
D)leader pricing

Accepted Answer

The price-skimming strategy will recoup the R&D costs quickly.Also,patents will limit or prohibit direct competition.

Question 20

When does a penetration pricing strategy tend to be most effective?
A)when demand is relatively inelastic
B)in price-sensitive markets
C)when the company can perform only small production runs
D)if unit costs are high

Accepted Answer

Penetration pricing is the logical choice given an elastic demand curve.

Quiz 19: Setting the Right Price

Penetration pricing means charging a relatively low price for a product as a way to reach the mass market.The low price is designed to capture a large share of a substantial market.Thus,penetration pricing does which of the following?

The price-skimming strategy is sometimes called a "market-plus" approach to pricing because it denotes a high price relative to the prices of competing products.When does this strategy work best?

The introductory price for the Nintendo Gamecube video game console was $100 lower than the list price of Xbox and Playstation 2,its only two competitors.Given this information,you can assume Nintendo used which type of policy for its Gamecube?

Which strategy involves a firm charging a price identical to or very close to the competition's price?

Super-Sav supermarket employees regularly shop at other local supermarkets in order to make certain that Super-Sav is charging prices comparable to the other supermarkets.What type of pricing strategy is Super-Sav using?

For which of the following situations would a price-skimming strategy be most appropriate?

A company's pricing strategy should do all of the following EXCEPT which of these?

After establishing pricing goals,managers should estimate total revenue at a variety of prices.Next,they should do which of the following?

A penetration strategy tends to be effective in a price-sensitive market.What is one of the purposes of penetration pricing?

When a firm introduces a new product at a relatively low price it is designed to capture a large share of a substantial market and produce lower production costs because it hopes to reach the mass market.It is following which of these type of strategies?

When does a penetration pricing strategy tend to be most effective?