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.

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?

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?

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.

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

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.

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?

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?

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

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.

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.

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?

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.

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?

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?

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?

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

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?

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.

Accepted Answer

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

Question 20

Which of the following statements about product distinctiveness is true?

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