Question 1

A penetration pricing strategy tends to be most effective:

Accepted Answer

A penetration pricing strategy is designed to attract price-sensitive customers and gain market share quickly. Therefore, it tends to be most effective in price-sensitive markets where customers are more likely to be swayed by low prices.

Question 2

Quantity discounts are most often used to:

Accepted Answer

Quantity discounts are commonly used to incentivize customers to purchase more of a product or slow-moving inventory. This helps increase sales potential and reduce excess inventory.

Question 3

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:

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 4

After mangers understand both the legal and the marketing consequences of price strategies,they should set a(n)_____ price,the general level at which a company expects to sell a good or service.

Accepted Answer

A base price is the general level at which a company expects to sell a good or service, and it serves as a starting point for further adjustments based on market conditions and other factors. This price is typically set after considering both legal and marketing implications, as well as production costs and profit margins. A functional price refers to a price that covers the costs of producing and distributing a product, while a demand price is determined by the level of consumer demand for the product. A leader price is a low-price strategy used to attract customers, and a zone price refers to different prices offered in different geographic regions. None of these options fully capture the concept of a base price.

Question 5

Imagine you have developed a device that can be used to tell whether uncooked meat has been irradiated.Several smaller retail chains have agreed to carry your product,but a large discount retailer has asked you to sell the device to them for a substantially lower price.The large discount retailer is asking you to practice:

Accepted Answer

The large discount retailer is asking for a substantially lower price, which indicates they want a discount. This is an example of price discrimination, where different prices are charged to different buyers for the same product or service.

Question 6

K&G Restaurant Supplies sells paper products and commodity items like flour to for-profit businesses.It charges a substantially lower price to companies that operate multiple locations such as a restaurant chain.It charges a higher price to small or independent operations because they are less profitable customers.K&G Restaurant Supplies is engaging in:

Accepted Answer

K&G Restaurant Supplies is engaging in price discrimination by charging a different price to different customers based on their profitability. This is not necessarily unfair or illegal as long as it does not harm competition or violate antitrust laws. The practice of charging lower prices to larger customers is known as quantity discounts and is common in many industries.

Question 7

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?

Accepted Answer

Leupold & Stevens is using penetration pricing strategy by introducing a new scope at a much lower price compared to other similar scopes in the market. This is an attempt to capture a larger market share by appealing to price-sensitive customers who may have previously been unable or unwilling to purchase a Leupold scope.

Question 8

General Electric Co.was accused of conspiring with De Beers Centenary AG to set a price for industrial diamonds,which are used on industrial cutting tools.As a result,the two companies were charged with:

Accepted Answer

The accusation is of conspiring to set a price for industrial diamonds, which is a clear case of price fixing. Therefore, option B is the correct choice.

Question 9

States developed unfair trade practice acts to

Accepted Answer

Unfair trade practice acts were developed to protect smaller, local firms from larger companies that operated more efficiently with lower profit margins. These acts were intended to prevent unfair competition practices by larger companies that could potentially put smaller firms out of business.

Question 10

State laws that put a lower limit on wholesale and retail prices are called _____.In states that have these laws,selling below cost is illegal.

Accepted Answer

State laws that put a lower limit on wholesale and retail prices are called unfair trade practice acts. These laws prohibit selling below cost and are designed to prevent predatory pricing practices that can harm small businesses and competition.

Question 11

When Microsoft introduced its Windows NT network operating system,it gave buyers free Web-server software.At the same time,Netscape was trying to sell similar Web-server software for $4,999.Once Microsoft got a lion's share of the market,and Netscape's market share declined substantially,Microsoft began charging above-market price for its Web-server software.Many people thought Microsoft was guilty of:

Accepted Answer

Microsoft's strategy of offering free Web-server software to gain a dominant market share and then raising the price above the market level is an example of predatory pricing, which is a strategy of pricing below cost to drive out competition and seize market share.

Question 12

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?

Accepted Answer

Status quo pricing involves setting prices based on competitors' prices, which is what Super-Sav is doing by comparing its prices to those of other local supermarkets.

Question 13

The Association of Specialty Surgical Practice has published a minimum fee schedule for services and distributed this schedule throughout the medical profession.Specialty Surgical is encouraging:

Accepted Answer

The publication of a minimum fee schedule is an indication of price fixing, which is an illegal practice where competing firms agree to set prices at a certain level in order to reduce competition and maximize profits.

Question 14

A _____ discount is a deduction from list prices that is aimed at encouraging customer loyalty.

Accepted Answer

The answer of A _____ discount is a deduction from...

Question 15

One order of over $500 from The Baker's Catalog earns a five percent discount,and one order of $1,000 and over earns a 10 percent merchandise discount.These discounts are examples of:

Accepted Answer

The discounts given by The Baker's Catalog are noncumulative quantity discounts because they are based on the amount of a single order rather than the total amount of orders made by a customer over time.

Question 16

When a buyer pays a lower price for buying in multiple units or above a specified dollar amount,the buyer is receiving a:

Accepted Answer

A quantity discount is offered when a buyer purchases in bulk or a certain quantity, hence giving the buyer a lower price per unit. This can incentivize bulk purchases and reduce inventory costs for the seller.

Question 17

Razer-Edge makes machines for sharpening the blades used by butchers to slice meat.When Razer-Edge priced its Primary Sharpener,its salespeople were told that it would be sold for $1,700,but that there would be room for discounts and flexibility.The $1,700 price is the _____ price for the Primary Sharpener

Accepted Answer

The term used to describe the initial or starting price for a product is the base price. In this case, Razer-Edge's Primary Sharpener is priced at $1,700, which is its base price.

Question 18

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 a _____ policy for its Gamecube.

Accepted Answer

Penetration pricing is a pricing strategy in which a company sets a low price for its product or service initially to quickly gain market share. This is exactly what Nintendo did by setting the introductory price of the Gamecube $100 lower than the list price of its competitors Xbox and Playstation 2.

Question 19

A firm charging a price identical to or very close to the competition's price is using a _____ strategy.

Accepted Answer

Status quo pricing refers to setting a price that is similar to competitors' prices. This strategy is often used when there is little differentiation among products in the market or when the firm does not have a significant competitive advantage.

Question 20

DeBeers and General Electric were accused of price fixing of industrial-grade diamonds.This means the companies:

Accepted Answer

Price fixing refers to the practice where two or more companies conspire to set prices for a product or service in order to eliminate competition and increase profits. Therefore, DeBeers and General Electric colluded on the price they would charge customers for industrial-grade diamonds.

Quiz 18: Setting the Right Price