Question 1

A paving contractor wants to work on road construction contracts administered and paid for by the state government. The contractor submits a sealed proposal to the state department of transportation for each construction job. The proposal contains a description of how the contractor will fulfill the specifications for the job at a specified price. The contractor is engaging in:
A) odd-even pricing.
B) prestige pricing.
C) leader pricing.
D) bid pricing.
E) price lining.

Accepted Answer

Bid pricing means offering a specific price for each possible job rather than setting a price that applies for all customers.

Question 2

Which of the following statements concerning "negotiated price" is FALSE?
A) The negotiated price is set by bargaining between the buyer and the seller.
B) Negotiated pricing is not a demand-oriented approach.
C) Bargaining may involve the whole marketing mix, not just the price level.
D) Sellers must know their costs to negotiate effectively.
E) None of these statements about "negotiated price" is FALSE.

Accepted Answer

Negotiated pricing is a demand-oriented approach.

Question 3

A firm is looking to construct a new office. It puts out a request for proposals from contractors inviting their price quotations given certain defined specifications. This is an example of:
A) bid pricing.
B) odd-even pricing.
C) psychological pricing.
D) leader pricing.
E) price lining.

Accepted Answer

Bid pricing involves offering a specific price for each possible job rather than setting a price that applies for all customers. Bids are usually based on purchase specifications provided by the customer. It differs from other forms of pricing which involves the seller basing prices on customer's demands.

Question 4

If a service firm sets a specific price for each possible job-rather than setting a standard price for all potential customers-it is most likely using:
A) product-bundle pricing.
B) a one-price policy.
C) price lining.
D) average-cost pricing.
E) bid pricing.

Accepted Answer

Bid pricing means offering a specific price for each possible job rather than setting a price that applies for all customers.

Question 5

With regard to bid pricing, a marketing manager should be aware that:
A) the same overhead charges and profit rates usually apply to all bids.
B) bids are usually based on inspection.
C) a big problem is estimating all the costs-including the variable and fixed costs that apply to a particular job.
D) e-commerce is of little use in bid pricing.
E) None of these alternatives is correct.

Accepted Answer

A big problem in bid pricing on a complicated job is estimating all the costs that will apply.

Question 6

Fly-Right Travel Agency arranges vacation packages to Disney World in Florida. The price includes airfare, a rental car, deluxe accommodations, and tickets to Disney World and other attractions. Fly-Right is using:
A) Product-bundle pricing.
B) Complementary product pricing.
C) Full-line pricing.
D) Bid pricing.
E) Demand-backward pricing.

Accepted Answer

Product-bundle pricing is setting one price for a set of products.

Question 7

Regarding bid pricing:
A) the same overhead charges and profit rates should apply to all bids-to avoid legal problems.
B) most firms should try to bid for as many jobs as possible-to spread risk.
C) all business buyers are legally required to accept the lowest bid-if they ask for bids.
D) the big problem for sellers is estimating all the costs-including the variable and fixed costs-that apply to a particular job.
E) All of these alternatives are correct.

Accepted Answer

A big problem in bid pricing on a complicated job is estimating all the costs that will apply.

Question 8

When consumers decide to purchase a music CD from Amazon.com, the company's website often suggests that consumers purchase an additional CD by the same artist for a combined price that is lower than the two CDs would sell for separately. Amazon.com is using:
A) Product-bundle pricing.
B) Complementary product pricing.
C) Full-line pricing.
D) Bid pricing.
E) Demand-backward pricing.

Accepted Answer

Product-bundle pricing is setting one price for a set of products.

Question 9

Use this information for question that refer to the Sporting Products, Inc. (SPI) case. Randy Todd, marketing manager for Sporting Products, Inc. (SPI), is thinking about how changes taking place among retailers in his channel might impact his strategy.
SPI sells the products it produces through wholesalers and retailers. For example, SPI sells basketballs to Wholesale Supply for $8.00. Wholesale Supply uses a 20 percent markup and most of its "sport shop" retailer customers, like Robinson's Sporting Goods, use a 33 percent markup to arrive at the price they charge final consumers. However, one fast growing retail chain, Sports Depot, only uses a 20 percent markup for basketballs, even though it pays Wholesale Supply the same price as other retailers. Furthermore, Sports Depot occasionally lowers the price of basketballs and sells them at cost-to draw customers into its stores and stimulate sales of its pricey basketball shoes.
Sports Depot is also using other pricing approaches that are different from the sports shops that usually handle SPI products. For example, Sports Depot prices all of its baseball gloves at $20, $40, or $60-with no prices in between. There are three big bins - one for each price point.
Todd is also curious about how Sports Depot's new strategy to increase sales of tennis balls will work out. The basic idea is to sell tennis balls in large quantities to nonprofit groups who resell the balls to raise money. For example, a service organization at a local college bought 2,000 tennis balls printed with the college logo. Sports Depot charged $.50 each for the tennis balls-plus a $500 one-time charge for the stamp to print the logo. The service group plans to resell the tennis balls for $2.50 each and contribute the profits to a shelter for the homeless.
Todd is not certain if Sports Depot ideas will affect SPI's plans. For example, SPI is considering adding tennis racquets to the lines it produces. This would require a $500,000 addition to its factory as well as the purchase of new equipment that costs $1,000,000. The variable cost to produce a tennis racquet would be $20, but Todd thinks that SPI could sell the racquet at a wholesale price of $40 each. That would allow most retailers to add their normal markup and make a profit. However, if Sports Depot sells the racquet at a lower than normal price other retailers might decide to carry it.
By pricing below other retailers, Sports Depot apparently:
A) hopes to achieve status quo pricing objectives.
B) wants to set prices based on "value in use."
C) relies on a high margin percent.
D) sees this as an oligopoly market.
E) expects a high stockturn rate.

Accepted Answer

Lower markups can speed turnover and the stockturn rate.

Question 10

_____ involves setting one price for a set of products.
A) Price lining
B) Odd-even pricing
C) Product bundle pricing
D) Bait pricing
E) Price leading

Accepted Answer

Product-bundle pricing is setting one price for a set of products. The overall price is usually set so that it's cheaper for the customer to buy the products at the same time than separately.

Question 11

Regarding "full-line pricing," which of the following statements is TRUE?
A) A good marketing manager usually tries to price products in a line so that the prices will seem logically related and make sense to target customers.
B) The marketing manager should try to cover all costs on the whole product line.
C) Most customers seem to feel that prices in a product line should be somewhat related to cost.
D) Not all companies that make a line of products must use full-line pricing.
E) All of these statements about "full-line pricing" are TRUE.

Accepted Answer

Full-line pricing is setting prices for a whole line of products. All of the above given statements about full-line pricing are true.

Question 12

In order to stand apart, the airline Fly High Air offers low airfares and heavy seasonal discounts. However, it charges its passengers for in-flight meals, water, and baggage service as opposed to its competitors who offer these services for free. Fly High Air is following a(n) _____ pricing strategy.
A) odd-even
B) unbundled
C) negotiated
D) bid
E) markup

Accepted Answer

Fly High Air is using an unbundled pricing strategy. It successfully differentiates its offering from other airlines by unbundling the services most airlines offer. Fly High Air sells deeply discounted airfares, and then charges customers for water, in-flight meals, and baggage service-all extras fliers usually receive for "free" on other airlines.

Question 13

When CenturyLink attracts residential customers by setting one monthly fee for high-speed Internet, cable TV, and long-distance phone services that is $40 less than the price of purchasing these three services separately, this is an example of:
A) Reference price
B) Price line
C) Bundle price
D) Leader price
E) Demand-backward price

Accepted Answer

Product-bundle pricing is setting one price for a set of products.

Question 14

Use this information for question that refer to the Sporting Products, Inc. (SPI) case. Randy Todd, marketing manager for Sporting Products, Inc. (SPI), is thinking about how changes taking place among retailers in his channel might impact his strategy.
SPI sells the products it produces through wholesalers and retailers. For example, SPI sells basketballs to Wholesale Supply for $8.00. Wholesale Supply uses a 20 percent markup and most of its "sport shop" retailer customers, like Robinson's Sporting Goods, use a 33 percent markup to arrive at the price they charge final consumers. However, one fast growing retail chain, Sports Depot, only uses a 20 percent markup for basketballs, even though it pays Wholesale Supply the same price as other retailers. Furthermore, Sports Depot occasionally lowers the price of basketballs and sells them at cost-to draw customers into its stores and stimulate sales of its pricey basketball shoes.
Sports Depot is also using other pricing approaches that are different from the sports shops that usually handle SPI products. For example, Sports Depot prices all of its baseball gloves at $20, $40, or $60-with no prices in between. There are three big bins - one for each price point.
Todd is also curious about how Sports Depot's new strategy to increase sales of tennis balls will work out. The basic idea is to sell tennis balls in large quantities to nonprofit groups who resell the balls to raise money. For example, a service organization at a local college bought 2,000 tennis balls printed with the college logo. Sports Depot charged $.50 each for the tennis balls-plus a $500 one-time charge for the stamp to print the logo. The service group plans to resell the tennis balls for $2.50 each and contribute the profits to a shelter for the homeless.
Todd is not certain if Sports Depot ideas will affect SPI's plans. For example, SPI is considering adding tennis racquets to the lines it produces. This would require a $500,000 addition to its factory as well as the purchase of new equipment that costs $1,000,000. The variable cost to produce a tennis racquet would be $20, but Todd thinks that SPI could sell the racquet at a wholesale price of $40 each. That would allow most retailers to add their normal markup and make a profit. However, if Sports Depot sells the racquet at a lower than normal price other retailers might decide to carry it.
What is the final selling price Robinson's Sporting Goods charges for a SPI basketball?
A) $10.00
B) $15.00
C) $15.75
D) $20.80
E) None of these alternatives is correct.

Accepted Answer

Markup (percent) means percentage of selling price that is added to the cost to get the selling price. A markup chain is the sequence of markups firms use at different levels in a channel. For example, a producer's selling price becomes the cost the wholesaler pays. The wholesaler's selling price becomes the retailer's cost. Next, this cost plus a retail markup becomes the retail selling price. Each markup should cover the costs of running the business and leave a profit.

Question 15

Which of the following observations is false?
A) Competition needs to be considered when adding in overhead and profit for a bid price.
B) Some sellers fake their records to make costs seem higher than they really are.
C) Negotiated price is a price set based on bargaining between the buyer and seller.
D) Negotiated pricing is rare in situations where the marketing mix is adjusted for each customer.
E) Negotiated pricing is a demand-oriented approach.

Accepted Answer

Negotiated pricing is most common in situations where the marketing mix is adjusted for each customer.

Question 16

Use this information for question that refer to the Sporting Products, Inc. (SPI) case. Randy Todd, marketing manager for Sporting Products, Inc. (SPI), is thinking about how changes taking place among retailers in his channel might impact his strategy.
SPI sells the products it produces through wholesalers and retailers. For example, SPI sells basketballs to Wholesale Supply for $8.00. Wholesale Supply uses a 20 percent markup and most of its "sport shop" retailer customers, like Robinson's Sporting Goods, use a 33 percent markup to arrive at the price they charge final consumers. However, one fast growing retail chain, Sports Depot, only uses a 20 percent markup for basketballs, even though it pays Wholesale Supply the same price as other retailers. Furthermore, Sports Depot occasionally lowers the price of basketballs and sells them at cost-to draw customers into its stores and stimulate sales of its pricey basketball shoes.
Sports Depot is also using other pricing approaches that are different from the sports shops that usually handle SPI products. For example, Sports Depot prices all of its baseball gloves at $20, $40, or $60-with no prices in between. There are three big bins - one for each price point.
Todd is also curious about how Sports Depot's new strategy to increase sales of tennis balls will work out. The basic idea is to sell tennis balls in large quantities to nonprofit groups who resell the balls to raise money. For example, a service organization at a local college bought 2,000 tennis balls printed with the college logo. Sports Depot charged $.50 each for the tennis balls-plus a $500 one-time charge for the stamp to print the logo. The service group plans to resell the tennis balls for $2.50 each and contribute the profits to a shelter for the homeless.
Todd is not certain if Sports Depot ideas will affect SPI's plans. For example, SPI is considering adding tennis racquets to the lines it produces. This would require a $500,000 addition to its factory as well as the purchase of new equipment that costs $1,000,000. The variable cost to produce a tennis racquet would be $20, but Todd thinks that SPI could sell the racquet at a wholesale price of $40 each. That would allow most retailers to add their normal markup and make a profit. However, if Sports Depot sells the racquet at a lower than normal price other retailers might decide to carry it.
What is the final selling price Sports Depot charges for a SPI basketball?
A) $10.00
B) $12.00
C) $12.50
D) $15.00
E) $18.00

Accepted Answer

Markup (percent) means percentage of selling price that is added to the cost to get the selling price. A markup chain is the sequence of markups firms use at different levels in a channel. For example, a producer's selling price becomes the cost the wholesaler pays. The wholesaler's selling price becomes the retailer's cost. Next, this cost plus a retail markup becomes the retail selling price. Each markup should cover the costs of running the business and leave a profit.

Question 17

_____ means offering a specific price for each possible job rather than setting a price that applies for all customers.
A) Price lining
B) Odd-even pricing
C) Product bundle pricing
D) Bid pricing
E) Price leading

Accepted Answer

Bid pricing means offering a specific price for each possible job rather than setting a price that applies for all customers.

Question 18

Which of the following pricing approaches should be used by a profit-oriented retailer if its demand curve is down-sloping to the right for a while-but then actually bends back to the left at lower prices?
A) Psychological pricing
B) Prestige pricing
C) Average-cost pricing
D) Bait pricing
E) Penetration pricing

Accepted Answer

Target customers who respond to prestige pricing give the marketing manager an unusual demand curve. Instead of a normal down-sloping curve, the curve goes down for a while and then bends back to the left again.

Question 19

When Walgreens Drugstore advertises one price for the cost of a roll of film and the cost of processing it, it is using
A) complementary product pricing.
B) flexible pricing.
C) product-bundle pricing.
D) a one-price policy.
E) bait pricing.

Accepted Answer

Product-bundle pricing is setting one price for a set of products.

Question 20

When Nintendo sets a relatively low price on its game units to stimulate more demand for its game cartridges, it is using
A) complementary product pricing.
B) product-bundle pricing.
C) price lining.
D) bait pricing.
E) cost plus pricing.

Accepted Answer

Complementary product pricing is setting prices on several products as a group. This may lead to one product being priced very low so that the profits from another product will increase, thus increasing the product group's total profits.

Quiz 17: Price Setting in the Business World

Which of the following statements concerning "negotiated price" is FALSE?

A firm is looking to construct a new office. It puts out a request for proposals from contractors inviting their price quotations given certain defined specifications. This is an example of:

If a service firm sets a specific price for each possible job-rather than setting a standard price for all potential customers-it is most likely using:

With regard to bid pricing, a marketing manager should be aware that:

Fly-Right Travel Agency arranges vacation packages to Disney World in Florida. The price includes airfare, a rental car, deluxe accommodations, and tickets to Disney World and other attractions. Fly-Right is using:

Regarding bid pricing:

When consumers decide to purchase a music CD from Amazon.com, the company's website often suggests that consumers purchase an additional CD by the same artist for a combined price that is lower than the two CDs would sell for separately. Amazon.com is using:

_____ involves setting one price for a set of products.

Regarding "full-line pricing," which of the following statements is TRUE?

When CenturyLink attracts residential customers by setting one monthly fee for high-speed Internet, cable TV, and long-distance phone services that is $40 less than the price of purchasing these three services separately, this is an example of:

Which of the following observations is false?

_____ means offering a specific price for each possible job rather than setting a price that applies for all customers.

Which of the following pricing approaches should be used by a profit-oriented retailer if its demand curve is down-sloping to the right for a while-but then actually bends back to the left at lower prices?

When Walgreens Drugstore advertises one price for the cost of a roll of film and the cost of processing it, it is using

When Nintendo sets a relatively low price on its game units to stimulate more demand for its game cartridges, it is using