Question 1

In Canada, Home Depot shows it is serious about always having the lowest prices by using an animated hammer that is shown in its ads smashing prices to make them even lower. In the United States, Wal-Mart uses a smiley face in its ads because it has low prices. Both stores are promoting their use of _____ pricing strategy.
A) everyday low
B) target-return
C) rate-of-return
D) high/low

Accepted Answer

The EDLP strategy lets customers know that they will get the same low prices every time they patronize the EDLP retailer.

Question 2

Which of the following observations about the impact of product considerations on pricing is true?
A) A penetration policy should be used when the firm expects no competition for a product.
B) The stage of the life cycle that a product is in does not have any pricing implications.
C) A going-rate pricing is popular for distinctive products.
D) A skimming policy is useful when the firm has a temporary monopoly and when demand for the product is price inelastic.

Accepted Answer

Generally, a skimming policy is used when the firm has a temporary monopoly and when demand for the product is price inelastic.

Question 3

Which of the following statements about perishable products is incorrect?
A) High fashion products, fads, and seasonal products are perishable.
B) Perishable products are typically discounted as they approach being no longer fit for sale.
C) High fashion and fad products lose most of their value when they go out of style.
D) Perishable products will always have a high degree of distinctiveness.

Accepted Answer

Perishability of a product does not necessarily make it distinctive.

Question 4

Ned buys old lawn mowers, reconditions them, and sells them for $225. He knows he needs to sell 80 mowers to break even. Calculate Ned's variable cost per lawn mower if his fixed costs are $8,000.
A) $125
B) $100
C) $80
D) $150

Accepted Answer

Expalnation:  BEP (In units) = FC/ (SP - VC).

Question 5

The pricing strategy in which the seller charges a relatively high price on a new product is called
A) price fixing.
B) deceptive pricing.
C) price discrimination.
D) skimming.

Accepted Answer

A skimming policy is one in which the seller charges a relatively high price on a new product.

Question 6

The estimated production and sales for a coffee table book on celebrity gardening is 50,000 volumes at a total cost of $750,000. Calculate the sales price for each book if the publisher desires a before-tax return of 25 percent.
A) $12.50
B) $15.00
C) $18.75
D) $30.00

Accepted Answer

With the rate-of-return, or target pricing method, price is determined by adding a desired rate of return on investment to total costs. Generally, a break-even analysis is performed for expected production and sales levels and a rate of return is added on. Thus, the sales price can be calculated as [750,000 + (0.25 * 750,000)]/50,000.

Question 7

Some retailers augment low prices and advertising with special in-store activities like product demonstrations, giveaways, and celebrity appearances. Which advantage associated with high/low pricing does this illustrate?
A) High/low pricing reduces advertising and operating expenses.
B) High/low pricing increases profits through price discrimination.
C) High/low pricing creates excitement.
D) High/low pricing reduces stockouts and improves inventory management.

Accepted Answer

Sales create excitement: A "get them while they last" atmosphere often occurs during a sale. Sales draw a lot of customers, and a lot of customers create excitement. Some retailers augment low prices and advertising with special in-store activities like product demonstrations, giveaways, and celebrity appearances.

Question 8

The fixed costs for the manufacture of hand-made ceramic planters are $21,000. The variable costs to manufacture 10 planters are $800. If the potter has to sell 700 units to break even, what is the selling price of the planters?
A) 21
B) 30
C) 80
D) 110

Accepted Answer

BEP (In units) = FC/(SP - VC); (21,000 + 800 * 700/10)/700.

Question 9

A retailer who uses an everyday low pricing (EDLP) strategy tends to
A) frequently use sales to increase store profits.
B) find that this method actually increases the probability of stockouts.
C) advertise more than those who rely on high/low pricing.
D) reduce stockouts and improve inventory management.

Accepted Answer

One of the advantages of EDLP pricing strategy is to reduce stockouts and improves inventory management.

Question 10

Manufactured goods can be differentiated on the basis of certain features, such as package, trademark, engineering design, and chemical features. These features highlight the _____ of the product.
A) distinctiveness
B) perishability
C) life cycle
D) intangibility

Accepted Answer

Marketers try to distinguish their products from those of competitors and if successful, can often charge higher prices for them. While such things as styling, features, ingredients, and service can be used to try to make a product distinctive, competitors can copy such physical changes.

Question 11

Kroger uses a strategy of price discrimination to increase profits. It charges higher prices to customers who are not price sensitive and low prices to price sensitive customers who will wait for sales. Identify the pricing strategy of Kroger.
A) Target pricing
B) Odd-even pricing
C) High/low pricing
D) Discount pricing

Accepted Answer

High/low pricing allows retailers to charge higher prices to customers who are not price sensitive and are willing to pay the "high" price and lower prices to price-sensitive customers who will wait for the "low" sale price.

Question 12

Discounting products as they approach being no longer fit for a sale is associated with which product consideration in pricing?
A) Distinctiveness
B) Perishability
C) Elasticity
D) Stage in product life cycle

Accepted Answer

Perishability: Some products, such as fresh meat, bakery goods, and some raw materials are physically perishable and must be priced to sell before they spoil. Typically, this involves discounting the products as they approach being no longer fit for sale.

Question 13

A retailer who uses _____ pricing strategy can increase profits through price discrimination.
A) everyday low
B) prestige
C) high/low
D) odd-even

Accepted Answer

One of the advantages of high/low pricing strategy is to increase profits through price discrimination.

Question 14

The fixed costs for manufacturing hand-painted wooden decorative plaques are $7,000. The 5-inch oval plaques are sold at craft fairs for $2.25. Variable costs to produce 100 plaques are $100. What is the break-even point in units?
A) 1,786 plaques
B) 3,111 plaques
C) 5,600 plaques
D) 7,000 plaques

Accepted Answer

BEP (In units) = FC/ (SP - VC); [7000/ (2.25 - 100/100)].

Question 15

Which of the following describes a disadvantage associated with cost-oriented approaches to pricing?
A) Extremely complex to implement.
B) Difficult to understand and put into practice.
C) Fail to adequately reflect competition.
D) Generally do not yield a good price decision.

Accepted Answer

Cost approaches fail to reflect competition adequately.

Question 16

Which of the following describes an advantage associated with cost-oriented approaches to pricing?
A) Its methods have direct relationship to what people will be willing to pay for the product.
B) They clearly and adequately reflect competition.
C) They give adequate consideration to both supply and demand factors.
D) They are very simple to use and generally yield a good price decision.

Accepted Answer

Cost-oriented approaches to pricing have the advantage of simplicity, and many practitioners believe that they generally yield a good price decision.

Question 17

Large sums of money are often invested to make the products and brands distinctive in the minds of buyers so that the
A) seller will be able to charge higher prices.
B) consumer goods would be homogeneous.
C) substitute products in the market gain demand.
D) prices may be marked up and later discounts be given.

Accepted Answer

Marketers try to distinguish their products from those of competitors and if successful, can often charge higher prices for them.

Question 18

Which of the following is a product consideration in pricing?
A) Affordability
B) Distinctiveness
C) Target return on investment
D) Target market share

Accepted Answer

Three of the most important are (1) perishability, (2) distinctiveness, and (3) stage in the product life cycle.

Question 19

Ned buys old lawn mowers, reconditions them, and sells them for $225. His average variable cost per lawn mower is $125. He knows he needs to sell 64 mowers to break even. Calculate Ned's fixed costs.
A) $7,500
B) $6,400
C) $1,800
D) $5,540

Accepted Answer

BEP (In units) = FC/ (SP - VC); [64 * (225 - 125)].

Question 20

Which of the following statements about product distinctiveness is true?
A) All commodities have a high degree of distinctiveness.
B) Producers of fruits, vegetables and processed food cannot increase their products' distinctiveness.
C) Branding and brand equity are commonly used to make products distinctive in the minds of the customer.
D) Products can be distinctive in the sense that demand for them is confined to a specific time period.

Accepted Answer

Thus, it is through branding and brand equity that the products are commonly made distinctive in the minds of the customer. This helps to create higher prices and reinforce the brand equity of prestigious products.

Quiz 11: Pricing Strategy

Which of the following observations about the impact of product considerations on pricing is true?

Which of the following statements about perishable products is incorrect?

Ned buys old lawn mowers, reconditions them, and sells them for $225. He knows he needs to sell 80 mowers to break even. Calculate Ned's variable cost per lawn mower if his fixed costs are $8,000.

The pricing strategy in which the seller charges a relatively high price on a new product is called

The estimated production and sales for a coffee table book on celebrity gardening is 50,000 volumes at a total cost of $750,000. Calculate the sales price for each book if the publisher desires a before-tax return of 25 percent.

Some retailers augment low prices and advertising with special in-store activities like product demonstrations, giveaways, and celebrity appearances. Which advantage associated with high/low pricing does this illustrate?

The fixed costs for the manufacture of hand-made ceramic planters are $21,000. The variable costs to manufacture 10 planters are $800. If the potter has to sell 700 units to break even, what is the selling price of the planters?

A retailer who uses an everyday low pricing (EDLP) strategy tends to

Manufactured goods can be differentiated on the basis of certain features, such as package, trademark, engineering design, and chemical features. These features highlight the _____ of the product.

Kroger uses a strategy of price discrimination to increase profits. It charges higher prices to customers who are not price sensitive and low prices to price sensitive customers who will wait for sales. Identify the pricing strategy of Kroger.

Discounting products as they approach being no longer fit for a sale is associated with which product consideration in pricing?

A retailer who uses _____ pricing strategy can increase profits through price discrimination.

The fixed costs for manufacturing hand-painted wooden decorative plaques are $7,000. The 5-inch oval plaques are sold at craft fairs for $2.25. Variable costs to produce 100 plaques are $100. What is the break-even point in units?

Which of the following describes a disadvantage associated with cost-oriented approaches to pricing?

Which of the following describes an advantage associated with cost-oriented approaches to pricing?

Large sums of money are often invested to make the products and brands distinctive in the minds of buyers so that the

Which of the following is a product consideration in pricing?

Ned buys old lawn mowers, reconditions them, and sells them for $225. His average variable cost per lawn mower is $125. He knows he needs to sell 64 mowers to break even. Calculate Ned's fixed costs.

Which of the following statements about product distinctiveness is true?