Question 1

Consumers are more likely to judge a product's quality based on its price when they are less knowledgeable about the product category.

Accepted Answer

When consumers are less familiar with a product category or have limited information about different brands and options available, they tend to rely more on price to assess the quality of the product. This is known as the price-quality heuristic, where consumers use the price as a cue for the quality or value of the product when other information is not available. As consumers become more knowledgeable and experienced with a product category, they are more likely to rely on personal experience, brand reputation, and other product attributes beyond price to evaluate quality.

Question 2

Clove, a fitness centre, opens a new gym in Boston. Two gyms already exist around the same locality. To attract customers and drive its competitors out of business, Clove, offers a very low enrolment and monthly fee. The owners of the other gyms meet with the director of Clove to negotiate. Finally, all three gyms collude and decide to fix a standard enrolment and monthly fee that customers will have to pay. They also decide to charge a higher fee for men because they spend greater time in the gym.
-All three gyms decide to charge a higher fee from men.This is an example of:
A)predatory pricing.
B)vertical price fixing.
C)external reference allowance.
D)price discrimination.
E)bait and switch.

Accepted Answer

The three gyms colluding to charge a higher fee for men is an example of price discrimination, where they are charging different prices for the same service based on the gender of the customer. This practice is illegal under most jurisdictions.

Question 3

If a pricing strategy is implemented well, it could last for a long time without changes.

Accepted Answer

While a pricing strategy may last for a significant amount of time, market conditions and changes in the competitive landscape may require adjustments to be made to the pricing strategy over time. Therefore, a pricing strategy may not last indefinitely without any changes.

Question 4

Which of the following is reflective of oligopolistic competition?
A)A large number of companies sell silver in a market where the price of silver is determined by demand and supply.
B)Ramsons is the sole supplier of military binoculars in the market.
C)Hundreds of firms make wristwatches, and the market is highly differentiated.
D)Pure Diamonds Inc.controls the diamond market as it is the only supplier of diamonds.
E)A price war occurs between Comfort Airlines and Air Secure, the only two airlines in the market.

Accepted Answer

Oligopolistic competition involves a small number of large firms dominating a market. In this scenario, Comfort Airlines and Air Secure are the only two airlines in the market, indicating a limited number of firms competing. The price war also suggests that the firms are interdependent and are trying to capture a larger market share.

Question 5

A computer store advertises to sell a particular laptop model at a discounted price.When a customer visits the store to purchase the discounted model, he is informed that it is out of stock.The salesperson then tries to sell him a different model that is priced higher than the model for which he had come.This action of the salesperson is an example of:
A)predatory pricing.
B)vertical price fixing.
C)horizontal price fixing.
D)price discrimination.
E)bait and switch.

Accepted Answer

This action of the salesperson is an example of bait and switch, the practice of advertising a product at a low price to attract customers and then persuading them to purchase a higher-priced alternative when the advertised product is unavailable.

Question 6

Lee's, a department store, decides to promote its sales during Christmas. In the clothing section, it offers customized men's T-shirts for $11.99. To every customer who purchases a pair of shoes, the shoe department issues a document promising a discount of $20 on the customer's next shoe purchase. The store also has its air conditioners on sale at a reduced price because the sale of air conditioners is slow during the month of December and the company wants to get rid of its slow-moving merchandise.
-The price reduction that Lee's offers for its air conditioners is an example of a:
A)rebate.
B)size discount.
C)markdown.
D)coupon.
E)quantity discount.

Accepted Answer

The price reduction that Lee's offers for its air conditioners falls under the category of markdown, which is a reduction in the original price of a product to increase its demand or to clear slow-moving stock.

Question 7

A vegetable farm supplies vegetables to a supermarket in Pemberton.The vegetable vendor and the supermarket work together to control the prices passed on to consumers.This is an example of:
A)predatory pricing.
B)vertical price fixing.
C)horizontal price fixing.
D)price discrimination.
E)bait and switch.

Accepted Answer

This scenario is an example of vertical price fixing, where the supplier and the retailer work together to control the prices that are passed on to consumers. This can be considered illegal in some circumstances, as it limits competition and can result in higher prices for consumers.

Question 8

Jade's manufactures electronic appliances.Jade's does not have any retail stores of its own and prefers to sell its products through Ramon.Ramon stores are striking in decor, well maintained, and serviced by a polite and well-informed staff that pays great attention to customer service and feedback.Ramon also has a huge promotional budget and launches prominent promotional campaigns on a regular basis.In fact, Jade's offers Ramon a discount on products that are included in these campaigns.This is an example of a(n):
A)seasonal discount.
B)cash discount.
C)advertising allowance.
D)quantity discount.
E)listing allowance.

Accepted Answer

The discount offered by Jade's to Ramon for including its products in their promotional campaigns is an example of an advertising allowance.

Question 9

Lee's, a department store, decides to promote its sales during Christmas. In the clothing section, it offers customized men's T-shirts for $11.99. To every customer who purchases a pair of shoes, the shoe department issues a document promising a discount of $20 on the customer's next shoe purchase. The store also has its air conditioners on sale at a reduced price because the sale of air conditioners is slow during the month of December and the company wants to get rid of its slow-moving merchandise.
-The document the shoe department gives to every customer who buys a pair of shoes is a:
A)rebate.
B)size discount.
C)markdown.
D)coupon.
E)quantity discount.

Accepted Answer

The document given by the shoe department promising a discount on the next purchase is a coupon, as it offers a specific discount on a future purchase rather than reducing the price of the current purchase (rebate) or offering a discount based on the quantity purchased (quantity discount). The document does not involve changing the size of the purchase (size discount) or reducing the price of slow-moving merchandise (markdown).

Question 10

Price is the only element of the marketing mix that generates revenue.

Accepted Answer

Price is the only element of the marketing mix that directly brings in revenue, while the other elements (product, promotion, and place) contribute indirectly to revenue generation.

Question 11

Lee's, a department store, decides to promote its sales during Christmas. In the clothing section, it offers customized men's T-shirts for $11.99. To every customer who purchases a pair of shoes, the shoe department issues a document promising a discount of $20 on the customer's next shoe purchase. The store also has its air conditioners on sale at a reduced price because the sale of air conditioners is slow during the month of December and the company wants to get rid of its slow-moving merchandise.
-Price reduction on air conditions in December is an example of a:
A)Cash discounts
B)Allowances
C)Markdowns
D)Quantity discount
E)Price bundling

Accepted Answer

A markdown is a reduction in the price of an item to increase sales and clear out slow-moving inventory. The price reduction on air conditioners is an example of a markdown as the department store wants to get rid of its slow-moving merchandise. Cash discounts are offered to customers who pay in cash, while allowances are price reductions offered to customers for reasons such as defective or damaged goods. Quantity discounts are provided when customers purchase products in large quantities, and price bundling is the practice of offering two or more products for sale as a package deal at a discounted price. None of these apply to the scenario described in the question.

Question 12

Clove, a fitness centre, opens a new gym in Boston. Two gyms already exist around the same locality. To attract customers and drive its competitors out of business, Clove, offers a very low enrolment and monthly fee. The owners of the other gyms meet with the director of Clove to negotiate. Finally, all three gyms collude and decide to fix a standard enrolment and monthly fee that customers will have to pay. They also decide to charge a higher fee for men because they spend greater time in the gym.
-When Clove decided to offer enrolment at a very low price, it was with an intention to drive its competitors out of business.This is an example of:
A)predatory pricing.
B)vertical price fixing.
C)horizontal price fixing.
D)price discrimination.
E)bait and switch.

Accepted Answer

Predatory pricing is a strategy used by a firm to drive competitors out of business by temporarily setting prices very low. In this scenario, Clove is offering a low enrollment and monthly fee with the intention of driving its competitors out of business. This is a predatory pricing strategy.

Question 13

A prominent fast-food chain sets a very low price for its burgers with the intent of driving its competition out of business.This is an example of:
A)predatory pricing.
B)vertical price fixing.
C)horizontal price fixing.
D)price discrimination.
E)bait and switch.

Accepted Answer

Predatory pricing is the tactic of setting very low prices with the intention of driving out competitors. This allows the dominant company to gain a large market share and eventually raise prices to increase profits. The other options (vertical price fixing, horizontal price fixing, price discrimination, bait and switch) are all different pricing strategies that involve collusion, discrimination, or deception.

Question 14

Clove, a fitness centre, opens a new gym in Boston. Two gyms already exist around the same locality. To attract customers and drive its competitors out of business, Clove, offers a very low enrolment and monthly fee. The owners of the other gyms meet with the director of Clove to negotiate. Finally, all three gyms collude and decide to fix a standard enrolment and monthly fee that customers will have to pay. They also decide to charge a higher fee for men because they spend greater time in the gym.
-All the gyms collude and decide to control the enrolment and monthly fee payable by customers.This is an example of:
A)predatory pricing.
B)vertical price fixing.
C)horizontal price fixing.
D)price discrimination.
E)bait and switch.

Accepted Answer

This scenario is an example of horizontal price fixing, where competitors collude to fix prices and control the market. By agreeing to charge a standard enrolment and monthly fee and to charge higher fees for men, the gyms are engaging in anticompetitive behavior that restricts consumer choice and harms competition. Additionally, offering a low initial fee to drive out competitors is an example of predatory pricing, but it is not the main focus of the scenario. Bait and switch refers to advertising a low price to lure in customers and then convincing them to purchase a higher-priced product or service, which is not present in this scenario. Price discrimination involves charging different prices to different customers based on a characteristic like gender, which is present in this example, but it is not the main focus.

Question 15

Snails Inc., a 10-year-old bookstore situated in New York, recently launched an online store that offers uniform delivered pricing to all its customers across the globe.It also offers all the books from the previous year at a discount.Which of the following statements about Snails and its customers is true in this case?
A)Customers from Canada are likely to pay a lesser shipping price than those in Asia.
B)Snails uses rebates to wholesalers and retailers that deal with its books.
C)Books from the previous year are offered at a size discount.
D)Snails uses price bundling to offer older goods to customers when it delivers them for at a standard shipping price.
E)Customers from Mexico are likely to pay the same shipping price as those from China.

Accepted Answer

The statement "Snails Inc. offers uniform delivered pricing to all its customers across the globe" indicates that customers from all countries are likely to pay the same shipping price, which rules out options A and E. The statement "It also offers all the books from the previous year at a discount" indicates that Snails is offering discounts on older goods, ruling out options C and D. This leaves option B, which is not supported by any information in the statement. Therefore, the correct answer is E.

Question 16

Ramsons manufactures binoculars.Although the binoculars are priced unreasonably high, Ramsons manages to sell a large number of units each year because Ramsons is the sole supplier of binoculars in the market.This is an example of:
A)a monopoly.
B)an oligopoly.
C)monopolistic competition.
D)pure competition.
E)more price competition.

Accepted Answer

Ramsons is the sole supplier in the market, which means that it has complete control over the supply of binoculars. This situation characterizes a monopoly, which is a market structure in which a single firm dominates the industry and controls the market supply of a good or service. The high price of the binoculars indicates that there is no competition, so Ramsons can set the price at a level that maximizes its profits.

Question 17

Two dairy farms supply milk to a local town.Both of them work together to control the price that the townspeople pay for milk.This is an example of:
A)predatory pricing.
B)vertical price fixing.
C)horizontal price fixing.
D)price discrimination.
E)bait and switch.

Accepted Answer

This scenario is an example of horizontal price fixing, which is when two or more competitors agree to set prices for their products or services in order to eliminate competition and increase profits.

Question 18

A company manufacturing shampoo charges a low price to customers who buy sachets on the premise that these customers belong to lower income groups and are more price sensitive.On the other hand, it charges higher prices to customers who purchase the same shampoo in bottles.This is an example of:
A)predatory pricing.
B)vertical price fixing.
C)horizontal price fixing.
D)price discrimination.
E)bait and switch.

Accepted Answer

This is an example of price discrimination, where the company charges different prices for the same product to different customers based on their willingness to pay. By charging a lower price for sachets, the company is targeting lower-income customers who are more price-sensitive, while charging higher prices for bottles to customers who are willing to pay more for the convenience and packaging. This practice is legal as long as it does not harm competition or consumers.

Question 19

Which of the following would a shipping company adopt in order to set a price that would charge its customers based on the actual distance?
A)Seasonal discounts
B)Cash discounts
C)Geographic pricing
D)Quantity discounts
E)Uniform delivered pricing

Accepted Answer

Geographic pricing charges different prices based on the geographic location of the customer. This allows a shipping company to set prices based on the actual distance of the shipment, making it a suitable option for this scenario. Seasonal discounts, cash discounts, quantity discounts, and uniform delivered pricing do not take into account the distance of the shipment.

Question 20

Tangerine, an exclusive retailer of handbags, chooses its suppliers very carefully.It prefers one supplier mainly because it offers great quality and 40 percent discount on any single order of more than $20,000.The supplier is offering a(n):
A)seasonal discount.
B)cash discount.
C)listing allowance.
D)quantity discount.
E)advertising allowance.

Accepted Answer

The supplier is offering a quantity discount because the discount is based on the quantity of the order, specifically a single order of more than $20,000.

Quiz 11: Pricing Concepts and Strategies: Establishing Value

Consumers are more likely to judge a product's quality based on its price when they are less knowledgeable about the product category.

If a pricing strategy is implemented well, it could last for a long time without changes.

Which of the following is reflective of oligopolistic competition?

A vegetable farm supplies vegetables to a supermarket in Pemberton.The vegetable vendor and the supermarket work together to control the prices passed on to consumers.This is an example of:

Price is the only element of the marketing mix that generates revenue.

A prominent fast-food chain sets a very low price for its burgers with the intent of driving its competition out of business.This is an example of:

Ramsons manufactures binoculars.Although the binoculars are priced unreasonably high, Ramsons manages to sell a large number of units each year because Ramsons is the sole supplier of binoculars in the market.This is an example of:

Two dairy farms supply milk to a local town.Both of them work together to control the price that the townspeople pay for milk.This is an example of:

A company manufacturing shampoo charges a low price to customers who buy sachets on the premise that these customers belong to lower income groups and are more price sensitive.On the other hand, it charges higher prices to customers who purchase the same shampoo in bottles.This is an example of:

Which of the following would a shipping company adopt in order to set a price that would charge its customers based on the actual distance?

Tangerine, an exclusive retailer of handbags, chooses its suppliers very carefully.It prefers one supplier mainly because it offers great quality and 40 percent discount on any single order of more than $20,000.The supplier is offering a(n) :