Question 1

A strategy of selling a new product or service at a high price that innovators and early adopters are willing to pay to obtain is called:

Accepted Answer

Price skimming is a strategy in which a new product or service is sold at a high price initially, targeting innovators and early adopters who are willing to pay a premium to have the latest and greatest. This can help a company to recover its development costs quickly and establish a premium brand image. As more competitors enter the market, the company may lower its price to attract the mass market.

Question 2

The pattern of buying both premium and low-priced merchandise or patronizing both expensive, status- and price-oriented retailers is called:

Accepted Answer

The pattern described is called cross-shopping, which involves buying both premium and low-priced merchandise or patronizing both expensive, status-oriented retailers and price-oriented retailers. This behavior is becoming increasingly common among consumers seeking value and variety in their shopping experiences.

Question 3

A strategy companies use to emphasize the continuity of their retail prices at a level somewhere between the regular, nonsale price and the deep-discount sale prices their competitors may offer is called:

Accepted Answer

Everyday low pricing is a strategy where companies set their prices lower than the high/low pricing model but not as low as deep-discount sales. This approach aims to provide consumers with consistently low prices without frequent sales or discounts, distinguishing the company from competitors who may use high/low pricing strategies.

Question 4

A method for setting prices that determines the total expense of possessing a product over its useful life is called the:

Accepted Answer

The cost of ownership method takes into account not only the initial purchase price but also the costs associated with owning and maintaining a product over its useful life. This can include expenses such as repairs, maintenance, and operating costs. By considering the total cost of ownership, a company can set a price that accurately reflects the value of the product to the customer while also ensuring a reasonable profit margin.

Question 5

Telecommunication industry in Canada is controlled by handful companies, therefore, the competition is:

Accepted Answer

The statement mentions that the industry is controlled by a few companies, indicating that there is a small number of dominant firms. This aligns with the definition of an oligopoly, where a few firms have significant market power and are able to influence prices and market outcomes. Therefore, C is the best choice. Monopoly (A) would mean that there is only one firm in the industry, which is not the case. Pure competition (B) would imply that there are many small firms and no one has significant market power, which also does not align with the statement. Monopolistic competition (D) would imply that there are many firms producing slightly different products, but there is no indication of this in the statement. Gray market (E) refers to the unauthorized trade of goods, which is not relevant to the question.

Question 6

A car company introduces a new car in the market.It maintains a low introductory price to reach the middle-income group.The main objective of the company is to build sales and profits quickly.This is an example of:

Accepted Answer

The scenario describes market penetration pricing, which involves setting a low price to quickly gain market share and attract price-sensitive customers. The goal is to maximize sales and profits in the short-term. This is different from everyday low pricing, where the price is consistently low over time, and high/low pricing, where the price alternates between high and low promotions. External reference price and internal reference price are not applicable in this scenario.

Question 7

A store that sells childrens' clothes reduces its prices drastically during promotional sales.This is an example of:

Accepted Answer

This is an example of high/low pricing where the store offers high prices initially, then reduces them drastically during promotional sales to attract customers.

Question 8

When a market legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer, it is called a:

Accepted Answer

The definition provided in the question is that of a grey market. A black market typically deals in illegal goods or services. Pure competition and monopoly markets are types of market structures and do not pertain to the described situation. A monopsonic market is a type of market in which a single buyer has a dominant or monopolistic position, which is also not relevant to the described scenario.

Question 9

Which of the following pricing strategies sets the initial price low for the introduction of a new product or service, with the objective of building sales, market share, and profits quickly?

Accepted Answer

Market penetration pricing sets a low initial price to quickly penetrate the market and gain market share. This strategy helps to build sales volume and capture a large customer base rapidly. As sales and brand awareness increase, the company can gradually increase the price to achieve profitability.

Question 10

As the number of tourists in a village increases during Christmas, the hotels in the locality temporarily increase the rates of accommodation to make profit.This is an example of:

Accepted Answer

This scenario fits the definition of high/low pricing, where the prices are temporarily increased to take advantage of increased demand during a certain time of year (Christmas). Price skimming involves starting with a high price for a new product and gradually lowering it, external reference pricing involves setting prices based on competitors, market penetration pricing involves setting low initial prices to enter a new market, and odd pricing involves pricing items at odd numbers (e.g. $4.99 instead of $5.00).

Question 11

When different companies sell commodity products that consumers perceive as substitutable, this is called:

Accepted Answer

Pure competition occurs when different companies sell commodity products that are perceived by consumers as substitutable, meaning there is little to differentiate between products from different companies.

Question 12

The method in which a manager must estimate how much more, or less, consumers are willing to pay for a product relative to other comparable products is called the:

Accepted Answer

The improvement value method involves estimating how much more or less consumers are willing to pay for a product compared to other similar products, based on the perceived improvements or additional value it offers.

Question 13

Jared's, an exclusive deli, marked down its smoked sausages from $9.99 to $6.99 in a prominently displayed poster at its smoked meats section.When consumers viewed the sale price, they tended to pick more smoked sausages than they required.This is an example of strategy using:

Accepted Answer

External reference price is a pricing strategy that sets a price for a product based on the consumer's perception of the product's value. In this case, the consumer's perception of the value of the smoked sausages was based on the original price of $9.99. When the price was marked down to $6.99, the consumer perceived the sausages to be a good value, and they purchased more than they needed.

Question 14

Ochre Inc.had marked its refrigerators at $729.94 as the original price.This was close to the standard price for refrigerators of the same quality in the market.Later, the price is brought down to $650.99.A customer compares Ochre's marked-down price with the original price and perceives an increased value.This is an example of:

Accepted Answer

This is an example of external reference pricing, where customers compare the current price of a product with its original price or the prices of similar products in the market. The customer perceives an increased value because the discounted price is lower than the original price.

Question 15

A pricing strategy that relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases, is called:

Accepted Answer

The pricing strategy described is high/low pricing, which involves offering regular prices on products but also periodically promoting sales with reductions in price to encourage purchases. This strategy aims to attract bargain hunters and help increase sales during slower periods.

Question 16

Which of the following approaches attempts to reflect how a firm wants consumers to interpret its products relative to the offerings of rival companies?

Accepted Answer

The competitor-based pricing method attempts to reflect how a firm wants consumers to interpret its products relative to the offerings of rival companies. This approach evaluates the prices of competitors and sets prices based on whether a product is priced higher, lower or at parity with competitors to attract customers.

Question 17

Which of the following pricing methods focuses on the overall worth of the product offering as perceived by consumers, who compare it what they need to sacrifice in order to acquire the product?

Accepted Answer

Value-based pricing methods focus on the perceived value of the product to the consumer, rather than the cost, competition or supply/demand. It considers how much consumers are willing to pay for the benefits they receive from the product or service, and what they have to sacrifice (such as time, money, effort) in order to acquire it.

Question 18

Which of the following pricing methods determine the final price to charge without recognizing the role that consumers or competitors' prices play in the marketplace?

Accepted Answer

Cost-based pricing methods determine the final price based on the cost of producing or providing a product or service, without taking into account how consumers or competitors might value the product or service. This approach can lead to pricing decisions that don't reflect market realities, such as setting prices too high or too low based solely on production costs. Therefore, it is not the best choice for pricing strategy, particularly in today's complex and competitive marketplace.

Question 19

A company sells shoes at a price somewhere between the regular, nonsale price and the deep-discount sale prices that its competitors may offer.This is an example of:

Accepted Answer

Everyday low pricing is a strategy where a company consistently offers products at a price lower than the regular price but not as low as deep-discount sale prices, aiming to provide value without frequent sales.

Question 20

Blue Corp., a laptop manufacturer, introduces a new model in the market.Since the target audience for this product is students, Blue Corp.launches the model at a low price.The main objective of the company is to build sales and profits quickly.This is an example of:

Accepted Answer

This is an example of market penetration pricing, which involves setting a low price for a new product to quickly gain market share and build sales and profits. The target audience for the product being students and the goal of building sales and profits quickly align with this pricing strategy.

Quiz 11: Pricing Concepts and Strategies: Establishing Value