Deck 19: Setting the Right Price

Question 1

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 does which of the following?

A)tends to be more effective in a less price-sensitive market
B)tempts competitors to enter the market
C)recoups product development costs quickly
D)tends to lower production costs

Answer 1

D
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 2

The price-skimming strategy is sometimes called a "market-plus" approach to pricing because it denotes a high price relative to the prices of competing products.When does this strategy work best?

A)when competition is abundant
B)when revenues are equal to expenses
C)when supply is greater than demand
D)when demand is greater than supply

Answer 2

D
Price skimming denotes a high price;therefore,the demand must be great.

Question 3

The marketing manager of icruise.com (a travel website targeted to consumers who want a luxury vacation)finds that the firm can gain market share and become the industry leader if it slashes prices by 50 percent during December.However,the vice-president of finance is committed to reporting a 25 percent return on investment at all times.What does this conflict illustrate?

A)a need to eliminate low-profit products
B)how pricing operates in a mature marketplace
C)the need for trade-offs in pricing objectives
D)how target markets can be ignored

Answer 3

C
Different individuals in an organization may have pricing objectives that are not mutually compatible and will involve trade-offs.

Question 4

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 which type of policy for its Gamecube?

A)penetration pricing
B)flexible pricing
C)competitive skimming
D)price sensitive skimming

Question 5

Which strategy involves a firm charging a price identical to or very close to the competition's price?

A)differentiation pricing
B)penetration pricing
C)status quo pricing
D)leader pricing

Question 6

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?

A)leader pricing
B)pre-emptive pricing
C)status quo pricing
D)flexible pricing

Question 7

For which of the following situations would a price-skimming strategy be most appropriate?

A)the addition of a new comic book series with an obviously gay hero
B)the introduction of a new brand of bottled water
C)the elimination of demand for low wattage light bulbs
D)the introduction of a unique,roomy automobile model that has extremely low energy and fuel costs

Question 8

A company's pricing strategy should do all of the following EXCEPT which of these?

A)give direction for price movements over the product life cycle.
B)define the initial price.
C)ignore the targeting and positioning strategy of the company.
D)interact with the other elements of the marketing mix.

Question 9

After establishing pricing goals,managers should estimate total revenue at a variety of prices.Next,they should do which of the following?

A)choose the ROI target
B)determine corresponding costs for each price
C)implement pricing segmentation
D)establish geographic pricing heuristics

Question 10

Pharmacies are a new addition to Costco.They could exert a greater influence on the marketplace for prescription drugs than their newness indicates.Costco has a stated philosophy of marking up merchandise a maximum of 14 percent.When that philosophy is applied to prescription drugs,especially generics,warehouse club prices can be dramatically lower than those of conventional drugstores,supermarkets,or discount store pharmacies.Which type of strategy is Costco using to convince consumers to use its pharmacies rather than its competitors?

A)penetration pricing
B)price-insensitive demand
C)price skimming
D)cost bundling

Question 11

A penetration strategy tends to be effective in a price-sensitive market.What is one of the purposes of penetration pricing?

A)to recoup product development costs quickly
B)to discourage competitors from entering the market
C)to produce a large margin of profit per unit
D)to develop exclusive distribution

Question 12

The market for turkey products is large.If a major producer of turkeys were to introduce a boneless fresh turkey wrapped around savoury dressing,most of the large market for this new product would be aware of its existence.The market is price sensitive,and there is some potential competition.What would be the appropriate strategy?

A)price skimming
B)penetration pricing
C)status quo
D)price lining

Question 13

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?

A)price skimming
B)status quo pricing
C)penetration pricing
D)demand skimming

Question 14

Big Sky Brands have introduced Jones Carbonated Candy,a candy that delivers a blast of the most popular Jones soft drink flavours along with an oddly enjoyable tongue-tingling sensation.Which strategy would most likely be used with this product to convince consumers to try it and not buy some other brand?

A)price lining
B)price fixing
C)penetration pricing
D)price skimming

Question 15

A shortage of blood for transfusions for injured animals has resulted in the introduction of a synthesized product called Oxyglobin,which can be used effectively as a blood replacement.The manufacturer of the product has put a high price on the product in order to recoup its research and development costs.Which type of policy is the manufacturer of Oxyglobin using?

A)penetration pricing
B)price-lining
C)bundling costs
D)price-skimming

Question 16

When a firm introduces a new product at a relatively low price it is designed to capture a large share of a substantial market and produce lower production costs because it hopes to reach the mass market.It is following which of these type of strategies?

A)penetration pricing
B)price-insensitive demand
C)price skimming
D)cost bundling

Question 17

A 16-ounce bottle of Prairie Herb vinegar sells for $4.95,and a 16-ounce bottle of Heinz vinegar costs $1.05.Prairie Herb vinegar is new to the market,perceived to be of higher quality,and provides a unique flavour to foods even though it is used in the same way as Heinz vinegar.Which type of policy is Prairie Herb vinegar most likely using?

A)penetration pricing
B)status quo skimming
C)price-skimming
D)bundling cost pricing

Question 18

The DCS Stainless Steel Gas Grill for outside cooking costs $3,995.The market for a grill that could easily replace a kitchen range is limited even though a lot of people have seen articles about this grill in cooking magazines and in the cooking section of newspapers.There is no potential competitor for this grill.Which strategy is probably best?

A)price-skimming
B)penetration pricing
C)status quo
D)price-lining

Question 19

When the Mosquito Magnet was introduced,it was designed to rid the immediate area of mosquitoes and other annoying insects.The technology for the Mosquito Magnet took years to develop.It is a patented grill-like apparatus that emits carbon dioxide to attract bugs to a fan that draws them into the device where they die.What type of pricing policy would you recommend the company use to introduce this product to the market?

A)penetration pricing
B)price-skimming
C)flexible skimming
D)leader pricing

Question 20

When does a penetration pricing strategy tend to be most effective?

A)when demand is relatively inelastic
B)in price-sensitive markets
C)when the company can perform only small production runs
D)if unit costs are high

Question 21

When a channel intermediary is compensated for the ordinary services and tasks performed within the channel of distribution,the compensation usually comes in the form of a discount from base price.What is this discount called?

A)promotional allowance.
B)cumulative or noncumulative quantity discount
C)functional (or trade)discount.
D)rebate allowance

Question 22

Which type of discount is a deduction from list prices that is aimed at encouraging customer loyalty?

A)cumulative quantity
B)noncumulative quantitative
C)functional
D)cash

Question 23

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

A)a functional discount
B)a cash discount
C)a promotional discount
D)a quantity discount

Question 24

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 large share of the market,and Netscape's market share declined substantially,Microsoft began charging an above-market price for its Web server software.What did many people think Microsoft was guilty of?

A)predatory pricing
B)unfair trade practices
C)channel manipulation pricing
D)price discrimination practices

Question 25

What is the term for a price reduction that shifts the storage function forward to the purchaser and enables manufacturers to maintain steady production year-round?

A)functional allowance
B)promotional allowance
C)quantity discount
D)seasonal discount

Question 26

Toronto Blue Jays for 2006,the price of a single ticket in the infield box at a Toronto Blue Jays baseball game was $35.
Refer to Toronto Blue Jays.If you elected to buy a season pass for the same seat,the ticket price was reduced or discounted.This $35 is an example of which type of price?

A)base
B)zone
C)demand
D)functional

Question 27

A June sale on Cadbury Crème Eggs,an Easter staple for many people,is an example of which of the following pricing tactics?

A)quantity discount
B)seasonal discount
C)promotional allowance
D)functional allowance

Question 28

After managers understand both the legal and the marketing consequences of price strategies,they should set the general level at which a company expects to sell a good or service.What is this type of price called?

A)zone
B)demand
C)leader
D)base

Question 29

When the salesperson from R.W.Hunt & Sons,a distributor of rifles and other items needed for hunting or target practice,calls on retail sporting goods stores,she is authorized to offer the retailers a 15 percent discount from the list price in recognition of activities retailers perform for the distributor.These activities include unpacking,floor display setup,and a repair service.What is this 15 percent reduction called?

A)bulk discount
B)promotional allowance
C)trade discount
D)channel allowance

Question 30

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 it for a substantially lower price.What is the large discount retailer asking you to carry out?

A)unfair trade practices
B)predatory pricing
C)price fixing
D)price discrimination

Question 31

Some restaurants have early bird specials early in the evening when they sell meals for less than during peak times.What is this example of?

A)price fixing
B)price discrimination
C)predatory pricing
D)bait pricing

Question 32

An Internet picture frame manufacturer offers retailers reduced prices on any combination of size or style frames purchased.The discount is shown as they shop and adjusted as the quantity of frames purchased increases.What common form of purchase discount is the frame manufacturer using?

A)-rebate allowance
B)quantity discount
C)promotional allowance
D)functional discount

Question 33

Why are quantity discounts most often used?

A)to reward the buyer who pays in cash
B)to encourage large orders
C)to increase supply for a specific raw material
D)to shift the storage function backward to the supplier

Question 34

Toronto Blue Jays for 2006,the price of a single ticket in the infield box at a Toronto Blue Jays baseball game was $35.
Refer to Toronto Blue Jays.The effective value of a season pass for the same seat was $2,735,but the buyer was charged $2,241.What were season ticket buyers rewarded with?

A)promotional allowances
B)noncumulative quantity discounts
C)frequent buyer allowances
D)cumulative quantity discounts

Question 35

The U.S.Department of Justice has charged that Samsung,the world's largest DRAM (dynamic RAM)maker,Hynix Semiconductor,Inc. ,Infineon Technologies AG,and Micron Technology,Inc.all conspired to set prices of computer memory between 1999 and 2002.This means the companies did which of the following?

A)tried to sell computer memory at below costs
B)charged customers different amounts for the same number of computer memory
C)colluded on the price they would charge customers for the computer memory
D)created an artificial demand for computer memory

Question 36

When a customer of the Majestic Sign Company chooses to pay immediately on delivery rather than wait to be billed in 30 days,the buyer receives a 5 percent discount.What is this discount an example of?

A)a quantity discount.
B)a cash discount.
C)a functional discount.
D)a promotional discount.

Question 37

Companies frequently offer a reduction from the base price to customers who pay immediately,or within a specified time period.What is this called?

A)a quantity discount
B)a base discount
C)a cash discount
D)a promotional discount

Question 38

South Africa's Competition Commission accused South African Airways of conspiring with its partner,Germany's Lufthansa,to set prices on flights between Cape Town,Johannesburg,and Frankfurt.As a result,what were the two airlines charged with?

A)price discrimination
B)price fixing
C)bait pricing
D)channel control pricing tactics

Question 39

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.What type of price is the $1,700 price for the Primary Sharpener?

A)base
B)zone
C)demand
D)functional

Question 40

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.What is K&G Restaurant Supplies engaging in?

A)unfair trade practices
B)price fixing
C)price discrimination
D)predatory pricing

Question 41

Shipping fresh-cut flowers to international buyers can be risky because of price changes during the time required for shipment,expense incurred over long distances,and quality of product delivered.To minimize risks and costs,what would a seller likely employ?

A)freight absorption pricing
B)zone pricing
C)basing-point pricing
D)FOB origin pricing

Question 42

An Ontario-based catalogue retailer sells fireplace equipment such as screens and andirons.Its customers in Ontario are charged one shipping rate,and customers west of the Rockies are charged a different rate.Customers in the Maritime provinces are charged yet another rate.What kind of geographic pricing is the catalogue retailer using?

A)FOB origin pricing
B)zone pricing
C)freight absorption pricing
D)uniform delivered pricing

Question 43

Quart jars of Dancing Pig Barbecue Sauce,produced in British Columbia,are sold through the mail.The company uses two different shipping prices.All customers west of the Fraser River pay $3.99 shipping and handling costs per order,while all east of the Fraser River pay $4.99.Which type of pricing is being used?

A)penetration
B)skimming
C)zone
D)freight absorption

Question 44

Landover Arms,Inc.currently markets its rifles designed for competitive shooting in the Ontario market.It would like to expand into the western market,but the competition there is intense.Which geographic pricing tactic should the firearms manufacturer use?

A)zone pricing
B)freight absorption pricing
C)basing-point pricing
D)multiple unit pricing

Question 45

Green Earth Marketing sells containers for temporary storage of recyclables nationally through its catalogue.The company wants to simplify pricing and reduce its risk.Green Earth also desires some type of difference in price due to distance.Which type of pricing should the company use?

A)uniform delivered
B)freight absorption
C)flexible
D)zone

Question 46

What does uniform delivered pricing enable a firm to do?

A)charge each customer the actual cost of shipping its products
B)stir up price competition between buyers
C)maintain a nationally advertised price
D)charge each customer its fair share of the cost of shipping

Question 47

When a firm is customer driven and seeks to understand the attributes customers want in the goods and services they buy and the value of those attributes to customers,the price of the product is set at a level that seems to the customer to be a good price compared with the prices of other options.What is this strategy called?

A)value-based pricing
B)noncumulative pricing
C)promotional bundling
D)price bundling

Question 48

If a company decides to divide its market area into segments or regions and charge a flat rate for freight to all customers in a given region,which type of pricing is the company using?

A)zone
B)uniform delivered
C)FOB origin
D)basing point

Question 49

What is FOB an acronym for?

A)free on board
B)fee on buyer
C)first buyer
D)freight on board

Question 50

If an item purchased under FOB origin terms is damaged in truck transit,against whom can the purchaser file its damage claim?

A)against the manufacturer
B)against the common carrier
C)against all of the supply chain members
D)against the driver

Question 51

Uniform delivered pricing is which of the following?

A)not geographic price discrimination
B)sometimes called "postage stamp pricing"
C)common where freight costs are a large portion of total costs
D)calculated from regional base points

Question 52

When does a seller pay the actual freight charges and bill every purchase with an identical,flat freight charge?

A)when using uniform delivered pricing
B)when using zone pricing
C)when using FOB origin pricing
D)when using freight absorption pricing

Question 53

If the seller pays all or part of the actual freight charges and does not pass them on to the buyer,which type of pricing is the seller using?

A)freight absorption
B)uniform delivered
C)zone
D)basing point

Question 54

What is the price tactic that requires the purchaser to absorb the freight costs from the shipping point?

A)zone pricing
B)uniform delivered pricing
C)freight absorption pricing
D)FOB origin pricing

Question 55

Bowler's Alley is a chain of Canadian stores targeted to people who are proud of their NBA (National Bowling Association)membership.It has agreed to set up a special display of Rawling bowling balls near its bike aisles and also to run an advertisement in newspapers in communities where its stores are located.Rawling has agreed to supply the display material free and to pay for half the cost of the advertisement.What is this example of?

A)a bundled pricing tactic
B)a functional allowance
C)a promotional allowance
D)a quantity tactic

Question 56

What is the term for cash refunds given for the purchase of a product during a specific period?

A)rebates
B)loss leaders
C)reciprocal allowances
D)promotional allowances

Question 57

What is the basic assumption behind value-based pricing?

A)The firm is sales driven.
B)The firm is both customer driven and competitor driven.
C)Increased profitability for wholesalers will increase the number of services they are willing to perform.
D)Consumers are more concerned about price than quality.

Question 58

If your favourite mail-order catalogue lists freight charges according to the dollar amount of merchandise purchased,which type of pricing is it using?

A)quantity discount
B)freight absorption
C)uniform delivered
D)FOB origin

Question 59

Kenmore offered purchasers of any Kenmore brand major appliance a refund of $100 if they mailed Kenmore the receipt showing where and when they had purchased the appliance.What was Kenmore offering?

A)a rebate
B)a reciprocal allowance
C)a cash discount
D)a trade promotion

Question 60

If a manufacturer designates a shipping point from which to calculate all freight charges and charges customers the freight costs from that point (even if the goods were shipped from another location),which type of pricing is the manufacturer using?

A)freight absorption
B)uniform delivered
C)zone
D)basing-point

Question 61

The retail nursery is selling potting soil at a below-market price to lure customers into the store in hopes that while they are in the store to buy potting soil,they will also buy other gardening items that have a much higher markup.What is the retail nursery using?

A)price lowballing
B)price maintenance
C)price lining
D)leader pricing

Question 62

What is the term for an attempt by the marketing manager to induce store patronage through selling a product near cost or even below cost?

A)odd-even pricing
B)leader pricing
C)price skimming
D)base skimming

Question 63

In a catalogue targeted to people who like to bake,customers can buy a single yeast bread mix designed specifically to be baked in bread machines for $3.95 each or 12 different mixes for $37.50.What is this an example of?

A)price bundling
B)psychological pricing
C)penetration pricing
D)basing-point bundling

Question 64

Why is price lining is a valuable tactic for marketing managers?

A)Price lining results in a greater inventory carrying charge.
B)A company that uses price lining is able to carry a smaller total inventory and reduce confusion for its customers.
C)A company that uses price lining has more price markdowns and greater markup.
D)The price lining strategy allows the company to gain brand loyalty from its targeted segments.

Question 65

Ahmad Jing operates a wedding consultant service.He will often provide essentially the same service to different customers at distinctly different prices depending on how much he likes the customer and how much he thinks the customer needs his services.What does Jing use?

A)two-part pricing
B)flexible pricing
C)bait-and-switch practices
D)zoning (or basing)pricing

Question 66

Cashtown Used Cars aired a radio spot announcing,"Today only,previously owned cars are only $200!" Meghan just wanted some kind of in-town transportation.When she went to Cashtown,the salesperson said,"We have only one $200 car left,but it's not the kind of car I'd want my wife to drive.However,we do have some great deals on newer models." Meghan went home with an $8,000 used car.What is Cashtown probably practising?

A)decoy pricing
B)deal pricing
C)functional pricing
D)bait pricing

Question 67

Pauline LaMour works as a personal organizer.If she were hired to come to your home and organize your closets,she would charge $500-whether the job took her 15 minutes or the entire day.She feels her fee is justified because of her 20 years of experience.Which pricing policy is LaMour using?

A)professional services pricing
B)price maintenance
C)psychological pricing
D)flexible (or variable)pricing

Question 68

A national manufacturer of car parts has six warehouses and has a pricing policy of charging freight from the closest warehouse to the customer,regardless of where parts are shipped from.For instance,if the customer is in Vancouver,British Columbia,the closest warehouse to the customer is in Seattle,Washington.If the ordered car part actually comes from the Alabama warehouse,the customer still pays freight from Seattle.Which pricing does the manufacturer use?

A)FOB origin
B)uniform delivered
C)basing-point
D)freight absorption

Question 69

The dollar store is a chain of retail stores,where all of the merchandise is priced at $1.The Dollar Store uses which of the following?

A)a single-price tactic
B)flexible pricing
C)price lining
D)price bundling

Question 70

Eustis Lee is a lawyer who handles only drinking and driving cases.No matter how quickly he resolves the case,he charges each customer $5,000.Lee justifies the fee because of his lengthy education and the years he has spent learning how the judicial system operates.Which pricing policy is the lawyer using?

A)professional services pricing
B)potential (or base)pricing
C)price maintenance
D)flexible (or variable)pricing

Question 71

Why do retailers use leader pricing?

A)to attract customers to a store so they can be persuaded to buy a more expensive product instead
B)to attract customers to the store so they will buy other products in addition to the leader product
C)to price products at odd-numbered amounts to stimulate demand
D)to maintain a status quo pricing strategy

Question 72

According to your text what is an advantage associated with a flexible pricing policy?

A)It causes inconsistent profit margins.
B)It enables a seller to close a sale with a price-conscious customer.
C)It enables salespeople to automatically lower the price to make a sale.
D)It can spark a price war with competitors.

Question 73

Which of the following tries to get customers into the store with misleading advertising and then uses high-pressure selling to persuade the consumer to buy something else more expensive?

A)functional pricing
B)bait pricing
C)production-oriented pricing
D)decoy pricing

Question 74

Often a seller will establish a series of prices for a family of merchandise items.There may be several different models at specific price points but no prices in between.What is this policy called?

A)price lining
B)family bundling
C)variable lining
D)price bundling

Question 75

At the Greenville Florist,there are four different prices for funeral bouquets.The smallest bouquet sells for $30;there is also a $40 version and a $75 version.For those who want to express their grief through the purchase of a dramatic floral arrangement,the florist also offers a $150 value.Why has the owner of the florist shop chosen price lining?

A)It will enable the shop to carry a larger total inventory.
B)It will maintain all of the product line at the same stage in the product life cycle.
C)It will confuse customers and allow salespeople to sell more of the expensive models.
D)It will reach several different target market segments.

Question 76

Which of the following best describes single-price selling?

A)removes price comparisons from the buyer's decision-making process.
B)does not benefit the retailer.
C)is most effective when used during an inflationary period.
D)encourages clerical errors.

Question 77

The owner of a neighbourhood hardware store has decided to sell a set of three padlocks for $5.He hopes the below-cost price for the locks will attract current and new customers who will also buy regularly priced items.The owner is encouraging store patronage through which of the following?

A)variable maintenance
B)psychological pricing
C)price maintenance
D)leader pricing

Question 78

This tactic allows different customers to pay different prices for essentially the same merchandise bought in equal quantities.It is often found in the sale of shopping goods,specialty merchandise,and most industrial goods except supply items.What is this tactic called?

A)zoning (or basing)pricing
B)price maintenance
C)psychological (or odd-even)pricing
D)flexible (or variable)pricing

Question 79

Merck & Co. ,the manufacturer of the AIDS drug Crixidan,distributes exclusively to one distributor,Stadtlanders Pharmacy.The pharmacy has been criticized for charging too high a price for the drug and exploiting inelastic demand.Stadtlanders claims the charges are ethical because of high staffing costs and associated discounts with various health plans.This situation describes issues associated with which of the following?

A)price bundling.
B)flexible pricing.
C)professional services pricing.
D)uniform delivered bundling

Question 80

The advent of the Internet and electronic commerce has greatly affected the way businesses price their goods and services and has allowed for the use of more of which of the following?

A)zoning (or basing)pricing
B)two-part pricing
C)psychological (or odd-even)
D)flexible (or variable)pricing