Question 1

Target profit pricing refers to setting prices that give a profit that is a specified percentage of the sales volume.

Accepted Answer

Target profit pricing involves setting prices to achieve a specific absolute amount of profit, not a percentage of the sales volume.

Question 2

Often, a firm that is selling not just a single product but a line of products may price them at a number of different specific pricing points, which is called odd-even pricing.

Accepted Answer

This strategy is called price lining, not odd-even pricing. Price lining involves setting different price points for different products in a line to target various consumer segments, whereas odd-even pricing (or psychological pricing) involves setting prices that end in odd or even numbers to influence perception.

Question 3

For many consumers, the higher the price, the lower the perceived quality of the product.

Accepted Answer

This statement is generally false. In some cases, consumers may associate a higher price with higher quality, especially if they perceive the product to be a luxury item or if the price is comparable to those of other high-end products. However, in other cases, consumers may perceive a high price as a sign of greed or exploitation by the seller, resulting in a lower perceived quality of the product. Therefore, the relationship between price and perceived quality is not absolute and can vary depending on the product, brand, and consumer perception.

Question 4

The demand for a product falls as the prices of its substitutes fall.

Accepted Answer

When the prices of substitutes for a product fall, consumers may switch to the substitutes, leading to a decrease in demand for the original product. This is known as the substitution effect. Therefore, the statement is true.

Question 5

Skimming pricing is a suitable demand-oriented approach when a firm is trying to attract price-sensitive customers.

Accepted Answer

Skimming pricing involves setting high prices initially to target customers less sensitive to price, typically for new or innovative products, not price-sensitive customers.

Question 6

"Get double Heped!! Buy two for the price of one!!!" is a promotion by Hep & Happy, a retailer of women's slim fit jeans.The retailer has, however, doubled the price charged for a pair of slim fit jeans.This is an example of double ticketing.

Accepted Answer

Double ticketing refers to the practice of displaying one price but charging a higher price at the checkout. In this case, the promotion is deceptive because the retailer is not actually offering two pairs of jeans for the price of one, but rather charging double for one pair of jeans under the guise of a promotion.

Question 7

Value is considered to be the ratio of perceived benefits to the price.

Accepted Answer

This statement reflects the commonly accepted definition of value, where the benefits a customer perceives from a product or service are compared to its price in determining whether it offers good value.

Question 8

Retailers sometimes deliberately sell commonly used products, such as paper towels, soft drinks, and facial tissues, at very low prices to attract consumers who, the retailer hopes, will also buy other, regularly priced merchandise.This is referred to as below-market pricing.

Accepted Answer

This strategy is referred to as "loss leader pricing," where products are sold at a loss or minimal profit to attract customers to the store.

Question 9

A target return objective is one in which a company gives up immediate profit in exchange for achieving a higher market share.

Accepted Answer

A target return objective focuses on achieving a specific return on investment or sales, not necessarily on sacrificing profit for higher market share.

Question 10

Companies often pursue a market share objective when industry sales are relatively flat or declining.

Accepted Answer

When industry sales are not growing, companies may try to increase their market share in order to maintain or increase their overall sales. This can be achieved by taking market share away from competitors or by expanding the overall size of the market.

Question 11

Tuition, rent and insurance premiums are all examples of price.

Accepted Answer

Tuition, rent, and insurance premiums are all expenses that require payment of a certain price or amount. Therefore, they are examples of price.

Question 12

Dumping comes about when individuals buy products in a lower-priced country from a manufacturer's authorized retailer, ship them to higher-priced countries, and then sell them below the manufacturer's suggested retail price through unauthorized retailers.

Accepted Answer

Dumping refers to the practice where a company exports a product at a price lower than the price it normally charges in its own home market, often with the intention of increasing market share in the foreign market by undercutting local competitors. It does not involve buying products from a lower-priced country to sell them in a higher-priced country through unauthorized retailers.

Question 13

If consumers can easily find close substitutes for a good or service, the product's demand tends to be inelastic.

Accepted Answer

If consumers can easily find close substitutes for a good or service, the product's demand tends to be elastic because consumers have options and can easily switch to a substitute if the price of the original product increases. Inelastic demand occurs when there are limited substitutes and consumers are willing to pay higher prices for the good or service.

Question 14

By offering lower interest rates, a company chooses to lower profits in the short run to sell its product quickly.

Accepted Answer

This is because lower interest rates make the product more affordable and attractive to potential buyers, which can increase sales in the short run. However, the company may still make profits from the increased volume of sales.

Question 15

Direct labour and direct materials used in producing an item are examples of fixed costs.

Accepted Answer

Direct labour and direct materials used in producing an item are examples of variable costs, which vary depending on the quantity produced. Fixed costs, on the other hand, remain constant regardless of the quantity produced.

Question 16

Penetration pricing discourages competitors from entering the market.

Accepted Answer

Penetration pricing involves setting a low price initially to attract customers and gain market share. This low price may discourage competitors from entering the market as they cannot compete with such low prices without sacrificing their profits. This can help the business establish itself in the market and increase its customer base, leading to greater profits in the long run.

Question 17

The older the product and the later it is in its life cycle, the higher the price that can usually be charged.

Accepted Answer

The statement is actually false. As a product gets older and closer to the end of its life cycle, its price tends to decrease due to increased competition, lower demand, and the introduction of newer, more advanced products.

Question 18

The availability of different suppliers on the Internet combines to create more products with inelastic demand.

Accepted Answer

The availability of different suppliers on the Internet increases competition and variety, which typically makes demand more elastic as consumers have more alternatives.

Question 19

Price is unique in the 4 Ps as it is the only element that can affect both Total Revenues and Total Costs.

Accepted Answer

Price is the only element in the 4 Ps which can have a direct impact on both Total Revenues and Total Costs. By setting a higher price, a business may earn more revenue, but may also incur higher costs due to lower demand or increased production costs. Conversely, a lower price can lead to lower revenues but may also lead to reduced costs by increasing demand and benefiting from economies of scale.

Question 20

The break-even point (BEP) is the quantity at which total revenue and total cost are equal.

Accepted Answer

The break-even point is the point at which total revenue and total cost intersect, resulting in neither a profit nor a loss.

Quiz 9: Pricing