Deck 13: Pricing Strategies

Question 1

A(n) _____ is a broad plan of action by which an organization intends to reach its goal.

A) tactic
B) policy
C) objective
D) strategy
E) code of ethics

Answer 1

strategy

Question 2

Which of the following is a direct form of price competition?

A) The Hormel Food Corporation lengthens its channel of distribution for its nonperishable products.
B) The Kroger supermarket in Franklin prices Stouffer's Lean Cuisine 15 percent lower than Winn-Dixie, its leading competitor in that community.
C) Harper Paperbacks pays 50 percent of the advertising cost for a bookstore that features its book Far from Home.
D) Death on Demand bookstore introduces a book search service for its customers.
E) The manufacturer of the 1928 brand of gift accessories introduces a line of toiletries.

Answer 2

The Kroger supermarket in Franklin prices Stouffer's Lean Cuisine 15 percent lower than Winn-Dixie, its leading competitor in that community.

Question 3

Which of the following is a direct form of price competition?

A) Family Dollar Store carries the same Palmolive dishwashing detergent as Triangle Supermarket, but at a 15 percent lower price.
B) Piggly-Wiggly supermarkets pay double the face value of any coupons used in their stores.
C) A retailer closes its store and opens an Internet retailing site to reduce its fixed costs.
D) McRae's department store runs a 50-percent-off sale on its Healthtex toddler clothes.
E) Office Depot offers free software with every computer purchased.

Answer 3

Family Dollar Store carries the same Palmolive dishwashing detergent as Triangle Supermarket, but at a 15 percent lower price.

Question 4

_____ is a form of price competition aimed at improving the ratio of a product's benefits to its price and related costs.

A) Fair-trade pricing
B) Psychological pricing
C) Cost-plus pricing
D) Penetration pricing
E) Value pricing

Question 5

Both the Cedartown Grooming Gallery and the local veterinarian will wash, comb, and trim your dog. Even though their prices are about the same, the Cedartown Gallery is the better deal because the animals are kept in large kennels and given access to outside areas while they wait for their owners to pick them up. The vet's office has only a few small inside kennels. In comparison with the vet's office, Cedartown Grooming Gallery is using _____ pricing.

A) fair-trade
B) value
C) psychological
D) penetration
E) cost-plus

Question 6

The price of a haircut is $16 in all of the hair salons in the town of Fairview. All of the salons have equally good stylists, so you know that you will receive a good haircut. But, if you have your hair cut at Foxglove Salon, you will also get a ten-minute shoulder massage with your haircut. The price there is still only $16. Foxglove Salon is using _____ pricing.

A) fair-trade
B) value
C) psychological
D) penetration
E) cost-plus

Question 7

Wendy's fast-food restaurant chain has priced several of its more popular menu items at $.99. This pricing strategy is an example of _____ pricing because the chain is trying to improve the ratio of its products' benefits to its price and related costs.

A) fair-trade
B) value
C) psychological
D) penetration
E) cost-plus

Question 8

The headline on the ad for Post cereal reads, "Breakfast is supposed to be the most important meal of the day. Not the most expensive." The subheading continued, "So we've lowered the price of all our cereals." Post cereal is apparently using _____ pricing.

A) fair-trade
B) value
C) psychological
D) penetration
E) cost-plus

Question 9

When a seller attempts to shift the consumer demand curve for its product to the right, it uses product differentiation, promotional activities, or other similar techniques. The sellers are using:

A) price competition.
B) economic diversification.
C) market control.
D) nonprice competition.
E) price fixing.

Question 10

There are many marinades and barbecue sauces currently on the market. To differentiate Stroh Ranch Marinade from all of the others on the market and to increase demand for the product, Jeanette Stroh includes a recipe booklet with each bottle of marinade she sells. This is an example of:

A) price competition.
B) economic diversification.
C) market control.
D) nonprice competition.
E) price fixing.

Question 11

While the prices for most wine brands were falling, and restaurants were canceling wine orders for bottles that cost over $25 apiece, Nickel & Nickel launched a new wine brand selling at $125 per bottle. There were already many less expensive wines on the market. Nickel & Nickel invited the sales staff of one of the largest wine distributors in the U.S. to attend a pre-release testing. This would be an example of:

A) price competition.
B) economic diversification.
C) market control.
D) nonprice competition.
E) price fixing.

Question 12

All of the following strategies are examples of nonprice competition EXCEPT:

A) offering charge accounts and free deliveries.
B) charging less during an end-of-year sale.
C) keeping your store open nights and Sundays.
D) product differentiation.
E) heavy advertising.

Question 13

Which of the following is an example of how a weight-loss clinic could use nonprice competition?

A) It could offer free classes on how to monitor fat in your diet.
B) It could give quantity discounts to family members who participate in the clinic's program with you.
C) It could stage a two-for-one sale.
D) It could charge less for diet pills and diet food purchased during December.
E) It could feature the lowest prices in the community on diet supplements.

Question 14

Which of the following is an example of how a jewelry store could use nonprice competition?

A) It could provide free cleaning for all rings it sells.
B) It could offer a 50-percent off sale on all costume jewelry.
C) It could advertise that its price on Mexican silver jewelry is the lowest in town.
D) It could hire salespeople to work on commission and reduce prices by ten percent.
E) It could give a quantity discounts to customers who purchased more than two gold necklaces.

Question 15

Many marketing executives prefer nonprice competition rather than price competition because:

A) a seller has more potential selling features with which to hold customer loyalty.
B) a seller can move up or down on the same demand curve rather than worrying about a shift in demand.
C) price wars are more prevalent in nonprice competition.
D) price competition is usually illegal.
E) there is more price flexibility in nonprice competition.

Question 16

_____ pricing involves setting a price that is high in the range of expected prices.

A) Market-penetration
B) Market-absorption
C) Cost-plus
D) Market-skimming
E) Marginal-cost

Question 17

While the prices for most wine brands were falling, and restaurants were canceling wine orders for bottles that cost over $25 apiece, Nickel & Nickel launched a new wine brand selling at $125 per bottle. The goal of this high price was to denote quality and to appeal to people who perceive themselves as wine connoisseurs. Nickel & Nickel used a _____ strategy for its new wine.

A) cost-plus
B) marketing-skimming
C) market-absorption
D) marginal-cost
E) market-penetration

Question 18

The expected price for sunscreen is in the $3 to $6 price range. The introductory price for Shade UVA Guard by Schering-Plough was $5.99 to recover its research and development costs. Schering-Plough was using a _____ strategy.

A) cost-plus
B) marketing-skimming
C) market-absorption
D) marginal-cost
E) market-penetration

Question 19

When Warren Peace learned of the difficulty of capturing a near-perfect round for ballistics matching to weapons used in crimes, he decided to develop a system for testing bullets and firearms. After much trial-and-error and several costly prototypes that were ineffective, he developed a ballistic testing unit. He priced each individual unit at $12,000, and very few law enforcement agencies can afford to spend that much. Peace is using a _____ strategy.

A) cost-plus
B) marketing-skimming
C) market-absorption
D) marginal-cost
E) market-penetration

Question 20

The strategy of market-skimming pricing is especially suited for new products because:

A) markets cannot be effectively segmented on an income basis.
B) price competition is typically most important in the introductory stage of the product life cycle.
C) high initial prices can keep demand from exceeding supply.
D) profits are more important than recouping costs.
E) all of the above are True.

Question 21

The strategy of market-skimming pricing is especially suited for new products because:

A) it provides the firm with pricing flexibility.
B) high prices can be used to connote quality.
C) it is an excellent way to recoup research and development costs.
D) high initial prices can keep demand from outdistancing supply.
E) all of the above are True.

Question 22

An organization should use a market-skimming strategy for a new product if:

A) competitors have free access to the product's raw materials.
B) demand for the product is very elastic.
C) the product is not unique enough to be patented.
D) the new product is distinctive.
E) all of the above are True.

Question 23

For which of the following new products would the manufacturer be most likely to use a market-skimming strategy?

A) low-fat condensed milk
B) a portable x-ray machine
C) a sugar-free jelly
D) mildew-free shower curtains
E) an insect spray that is safe to use around children and pets

Question 24

When StarSignal introduced its fax machine for receiving and sending color documents, it charged $26,000-a lot more than fax machines usually cost. More than likely, StarSignal was trying to recoup its product development costs by using _____ pricing.

A) market-skimming
B) market-absorption
C) market-penetration
D) cost-plus
E) value-set

Question 25

In _____ pricing, a relatively low initial price is set in order to sell to the mass market immediately.

A) market-skimming
B) market-absorption
C) market-penetration
D) cost-plus
E) value-set

Question 26

When Playstation video games were introduced into the United States, they were priced at an introductory price of $299. This price was $100 lower than the Sega games. Playstation used _____ pricing to quickly gain a large share of the market.

A) market-skimming
B) market-absorption
C) market-penetration
D) cost-plus
E) value-set

Question 27

Market-penetration pricing for a new product is most likely to be used when:

A) high initial prices can keep demand within the limits of a company's productive capacities.
B) economies of scale are impossible to achieve.
C) the product has a highly elastic demand.
D) the product is unlikely to face much competition until the growth stage of its product life cycle.
E) the . product's sales depends on derived demand.

Question 28

Apple Computer Inc. introduced its computers to the Japanese market at a low introductory price to appeal to a broader segment of the market and to increase the company's market share. Apple Computers used _____ pricing.

A) market-skimming
B) market-absorption
C) market-penetration
D) cost-plus
E) value-added

Question 29

What pricing strategy was Apple Computer Inc. using when it introduced the iMac computers with relatively low initial prices?

A) market-skimming
B) market-absorption
C) market-penetration
D) cost-plus
E) value-added

Question 30

Which of the following situations is the most compelling case for market-penetration pricing?

A) Economies of scale cannot be achieved in the existing market.
B) A large mass market exists for the product.
C) The product has a highly inelastic demand.
D) No competition currently exists.
E) All of the above cases are suitable for market-penetration pricing.

Question 31

Salon Selectives introduced its line of Botanical Blends for consumers who were looking for a way to create hair that looked like it had come from a salon, but didn't smell like it. Since there are several existing hair care products already targeted to the same market, Salon Selectives should initially use a _____ pricing strategy.

A) market-penetration
B) market-absorption
C) market-skimming
D) cost-plus
E) marginal-cost

Question 32

_____ is an extreme case of penetration pricing.

A) Trading down
B) Cost-plus pricing
C) Contribution costing
D) Predatory pricing
E) Value-pricing

Question 33

Apple Computer Inc. introduced its computers to the Japanese market at a low introductory price to appeal to a broader segment of the market and to increase the company's market share. If the original price was below its production costs, and Apple planned to raise prices in Japan later to recoup earlier losses, it would have engaged in:

A) trading down.
B) cost-plus pricing.
C) trading up.
D) predatory pricing.
E) value-pricing.

Question 34

If a company gives away its products or charges a price that is below its cost and plans to raise prices later on in order to recoup earlier losses, the company would have engaged in:

A) trading down.
B) cost-plus pricing.
C) contribution costing.
D) predatory pricing.
E) value-pricing.

Question 35

Manufacturers offer _____, deductions from a seller's list price, to encourage customers to buy in larger amounts or to make most of their purchases from that seller.

A) functional discounts
B) quantity discounts
C) seasonal discounts
D) promotional allowances
E) trade discounts

Question 36

If Ephraim buys a single can of motor oil, it will cost him $1.99 at his local convenience store, but a case of 12 cans of motor oil costs only $18. The motor oil case price reflects a _____ strategy

A) cumulative pricing
B) price lining
C) quantity discount
D) promotional discount
E) full-service retailing

Question 37

One set of tangle proof jumper cables costs a retailer $2.76 if purchased separately. If a lot of five is purchased, the individual price is reduced to $2.52. This is an example of a _____ strategy.

A) cumulative pricing
B) price lining
C) quantity discount
D) promotional discount
E) full-service retailing

Question 38

When Jenny went to purchase an ounce of turmeric to restock her bakery's pantry, she discovered that one once would cost her $6, but that she could purchase 5 ounces of turmeric for $21. This is a form of:

A) cumulative pricing.
B) price lining.
C) quantity discount.
D) promotional discount.
E) full-service retailing.

Question 39

Individual bottles of Stroh Ranch Marinade sell for $4. If you buy by the case, it's only $3.50 per bottle. This is an example of:

A) price discrimination.
B) a quantity discount.
C) a trade discount.
D) a promotional discount.
E) price lining.

Question 40

A manufacturer of laminated posters sells its posters to retailers for $14. If a retailer buys between 25 and 50 posters in any 6-month period, the price is $12 per poster. If a retailer buys more than 50 posters in a 6-month period, the price is $11 a poster. The poster manufacturer is offering a _____ discount.

A) seasonal
B) cash
C) noncumulative quantity
D) trade
E) cumulative quantity

Question 41

In order to encourage customers to make frequent purchases of its sandwiches, The House of Subs would most likely offer a:

A) cash discount.
B) cumulative quantity discount.
C) promotional allowance.
D) noncumulative quantity discount.
E) trade discount.

Question 42

Guan-yin went into her neighborhood bookstore today looking for a mystery to read. A sign in the store stated, "Buy 5 paperback books during March and get the 6thone free." The bookstore was offering a _____ discount.

A) seasonal
B) cash
C) noncumulative quantity
D) trade
E) cumulative quantity

Question 43

Every time you buy a gallon of Golden Gallon milk, you can have your Golden Gallon milk card punched. When the card has 12 punches, your thirteenth gallon of milk is free. Golden Gallon is using a _____ discount.

A) seasonal
B) cash
C) noncumulative quantity
D) trade
E) cumulative quantity

Question 44

Noncumulative quantity discounts are primarily offered by a seller in order to:

A) encourage the buyer to make all of his or her purchases from this seller over an extended period of time.
B) avoid having to offer promotional allowances.
C) encourage large individual orders.
D) give preferential treatment to certain customers.
E) comply with the Robinson-Patman Act.

Question 45

Cumulative quantity discounts are designed to:

A) increase the size of individual orders.
B) encourage the buyer to make most of his or her purchases from this seller over a period of time.
C) be used by a seller of a single product but not by a producer of multiple products.
D) encourage retailers to buy in advance of the normal selling season.
E) pay wholesalers and retailers for performing their regular services.

Question 46

_____ are reductions from the list price offered to buyers in payment for marketing functions they will perform.

A) Markdowns
B) Cash discounts
C) Trade discounts
D) Oligopolistic discounts
E) Quantity discounts

Question 47

A trade discount is also known as a _____ discount.

A) functional
B) relational
C) reseller
D) manufacturer's
E) barter

Question 48

Producers typically offer trade discounts when selling to:

A) retailers or wholesalers.
B) ultimate consumers.
C) agricultural buyers.
D) large quantity buyers.
E) manufacturers.

Question 49

A manufacturer of kits for making beaded moccasins offers a discount of 15 percent to its wholesalers in return for their transporting and storing the kits. This is an example of a ____ discount.

A) seasonal
B) trade
C) cumulative quantity
D) noncumulative quantity
E) case

Question 50

A manufacturer of leather sandals offers the reseller of the shoes a 10 percent discount in return for the retailer agreeing to be responsible for promoting the sandals. The manufacturer's 10 percent discount off the sales price is a form of ______ discount.

A) functional
B) relational
C) reseller
D) manufacturer's
E) barter

Question 51

A _____ discount is a deduction granted to buyers for paying their bills within a specified period of time.

A) seasonal
B) cash
C) cumulative quantity
D) noncumulative quantity
E) trade

Question 52

Whenaselleroffersacashdiscountwithtermsof3/10,n/60,thismeans:

A)the buyer gets adiscount of 10 percent if the bill is paid within 3 days; otherwise theentire amount is due in 60 days.
B)payment is due in 10 days, or else there is a 3 percent late-paymentpenalty.
C)payment is due in 60 days, or else there is a 3percent late-paymentpenalty.
D)the buyer gets adiscount of 3 percent if the billis paid within 10 days; otherwise the entire amount is due in 60days.
E)if the buyer pays within 60 days, there is a 3 percent discount; beyond that is a10-day grace period before there is apenalty.

Question 53

Imagine the manufacturer of Claude Montana perfume quotes a retail price of $75 on one bottle of the French designer's signature perfume and offers trade discounts of 30 percent to retailers and 15 percent to wholesalers. The perfume manufacturer would receive _____ per bottle in revenue.

A) $33.75
B) $44.63
C) $52.50
D) $61.65
E) $41.25

Question 54

Imagine the manufacturer of Claude Montana perfume quotes a retail price of $75 on one bottle of the French designer's signature perfume and offers trade discounts of 30 percent to retailers and 15 percent to wholesalers. The perfume wholesaler would receive _____ per bottle in revenue.

A) $11.25
B) $22.50
C) $33.75
D) $52.50
E) $63.75

Question 55

If the manufacturer of prefabricated aluminum buildings quotes a retail price of $6,500 per structure with trade discounts of 15 percent and 40 percent for transporting and storing, the manufacturer would receive _____ in revenue.

A) $975
B) $2,210
C) $2,925
D) $3,315
E) $3,575

Question 56

Mike is the financial officer for a company that manufactures lawn furniture from recycled materials. Cash flow has become a problem for the company, so Mike has decided to offer a 5 percent discount to its middlemen who pay a bill within 10 days after its invoice date. All bills are due within 30 days of the invoice date. How should he write these terms?

A) 10/30, n/5
B) 5/30, n/10
C) 5/10, n/30
D) n/30, 5/10
E) n/10, 5/30

Question 57

The owner of Knighton Hardware store received an invoice for $145 from Coleman for a case of lanterns he purchased. The terms on the invoice read, "4/10, n/20." The next day the hardware storeowner sent Coleman a payment of $139.20. The $5.80 he subtracted from his bill is an example of a _____
discount.

A) seasonal
B) cash
C) cumulative quantity
D) noncumulative quantity
E) trade

Question 58

As the financial officer for a company that manufactures lawn furniture from recycled materials, Mike knows the company needs to get its buyers to pay their bills more quickly. What kind of discount would be most likely to encourage faster bill payment?

A) a promotional allowance
B) a trade discount
C) a quantity discount
D) a functional discount
E) a cash discount

Question 59

On May 15, Riverwalk Café received a $265 invoice for restaurant supplies. The invoice offered the following terms, "3/14, n/30." If the owner pays the invoice by May 25, she should make her check out for:

A) $185.50
B) $227.90
C) $238.50
D) $257.05
E) $265.00

Question 60

On May 15, Riverwalk Café received a $265 invoice for restaurant supplies. The invoice offered the following terms, "3/14, n/30." If the owner pays the invoice by June 1, she should make her check out for:

A) $185.50
B) $227.90
C) $238.50
D) $257.05
E) $265.00

Question 61

When a seller offers a cash discount with terms of 3/10, n/30, buyers pay approximately a _____ rate of annual interest if they do not take the discount.

A) 3 percent
B) 10 percent
C) 18 percent
D) 36 percent
E) 54 percent

Question 62

A _____ is a discount on a product that a customer obtains by submitting a form or certificate provided by the seller.

A) countertrade
B) functional discount
C) value price
D) rebate
E) cash discount

Question 63

The two types of rebates are:

A) mail-in and coupon.
B) print media and in-store.
C) Internet and print media.
D) manufacturer and reseller.
E) test and promotional.

Question 64

Kim just purchased a package containing 10 DVD blank disks. Kim can receive a $5 _____ if she mails in her proof or purchase and her cash register receipt to an address on the box.

A) countertrade
B) functional discount
C) value price
D) rebate
E) cash discount

Question 65

Last year Jim and his wife Angel both attended the MidSouth Educator's Conference. He, as a college instructor, paid the full price of $199 while his wife paid the spouse price of $89. The sponsors of the conference used:

A) price customization.
B) price fixing.
C) illegal price discrimination.
D) a tying price strategy.
E) promotional pricing.

Question 66

The intent of price customization is to:

A) create a price glass ceiling.
B) establish various prices on the basis of how much value is attached to a product by different people.
C) eliminate the perceptual impact of prestige pricing.
D) eliminate quantity discounts.
E) reward retailers for performing services that are normally performed by manufacturers.

Question 67

A recent book on consumer buying habits says, "There's no class consciousness about how you shop anymore. People don't think you're white trash if you shop at discount stores." The fact that social class does not dictate what types of prices a person is willing to pay illustrates the great need for _____ to accommodate different perceptions of value.

A) price customization.
B) price fixing.
C) illegal price discrimination.
D) a tying price strategy.
E) promotional pricing.

Question 68

Why would a manufacturer of snow boots offer a seasonal discount?

A) to encourage off-season orders
B) to comply with the Robinson-Patman Act
C) to encourage customers to buy in large quantities
D) to stimulate customers to pay their bills promptly
E) to avoid having to offer costly promotional allowances

Question 69

In January, a truckload of seasoned oak for your woodburning stove costs $65.00. If you purchase the same truckload in May, it will only cost you $40.00. This is an example of a:

A) seasonal discount.
B) trade discount.
C) cash discount.
D) promotional allowance.
E) functional discount.

Question 70

For which of the following products would a manufacturer be most likely to offer a seasonal discount?

A) bottles of aspirin
B) steering wheel covers
C) snow parkas
D) fork-lifts
E) rolls of wallpaper

Question 71

For which of the following products would a manufacturer be LEAST likely to offer a seasonal discount?

A) Christmas cards
B) ski vacations
C) dictionaries
D) spring-blooming bulbs
E) flea and tick sprays

Question 72

Which of the following is a price reduction granted by a seller in payment for promotional services provided by buyers?

A) a promotional allowance
B) a price differential
C) a cumulative discount
D) price lining
E) a chain discount

Question 73

A chain of restaurants in San Francisco uses Stroh Ranch Marinade in many of its meat entrees. The chain also sells the marinade in a display next to its cash registers. For every case the restaurant sells, it receives a free bottle for the kitchen. This is an example of a:

A) promotional allowance.
B) forward-dated discount.
C) seasonal discount.
D) rebate.
E) quantity discount.

Question 74

For featuring Lego blocks prominently in its store window, Child's Heaven, a store that carries educational toys, received a free motorized Ferris wheel kit, valued at $50. This is an example of a:

A) promotional allowance.
B) forward-dated discount.
C) seasonal discount.
D) cash discount.
E) quantity discount.

Question 75

Almay's cosmetics paid one-half of the advertising cost for Classique Boutique to run a series of ads on a local radio station. Each of the radio ads emphasized the retailer carried the complete line of Almay products. This would be an example of a:

A) promotional allowance.
B) forward-dated discount.
C) seasonal discount.
D) cash discount.
E) quantity discount.

Question 76

The liquor distributor gave the liquor store owner a rubber boat for his children to play in at the lake when the store owner agreed to put up an end-of-aisle display promoting Woodbridge brand wines. This is an example of a:

A) promotional allowance.
B) forward-dated discount.
C) seasonal discount.
D) cash discount.
E) quantity discount.

Question 77

The _____ prohibits certain forms of price discrimination when it substantially reduces competition.

A) Truth-in-Pricing Act
B) Sherman Act
C) Fair Trade Act
D) Robinson-Patman Act
E) Interstate Amendment to the act that created the Federal Trade Commission

Question 78

The Robinson-Patman Act is of concern primarily to marketers because of its regulation of:

A) monopolies.
B) mergers in restraint of trade.
C) False or misleading advertising.
D) price discrimination.
E) oligopolies.

Question 79

Which of the following statements about the Robinson-Patman Act is True?

A) The act was created to curb the price discrimination practices of large retailers.
B) The act applies only to sales to ultimate household consumers.
C) The act makes all price differentials illegal.
D) Under the act, buyers and sellers automatically are equally guilty and will receive the same punishment for a violation of the act.
E) The act makes many trade discounts illegal.

Question 80

Which of the following statements about the Robinson-Patman Act is True?

A) According to the act, quantity discounts are the only kind of discount that is always permissible in interstate trade.
B) Under this act, the buyer is as guilty as the seller if the buyer knowingly receives an unlawful price discrimination.
C) The act only applies to intrastate activities.
D) All price differentials are illegal according to this act.
E) The act applies to sales made to middlemen and to ultimate consumers.