Question 1

How do firms that use captive-product pricing make up for the low prices of their main products?

Accepted Answer

Captive-product pricing strategies involve selling the main product at a low price (or even at a loss) and then making up for it with high markups on the necessary captive products. These are the additional items or refills that are essential for the main product's operation, ensuring profitability for the firm.

Question 2

Posh Collections introduced a new watch to appeal to upscale consumers. The company will most likely use a(n)________ strategy.

Accepted Answer

Market-skimming pricing would be the best strategy for Posh Collections as they are introducing a new product to appeal to upscale consumers. This pricing strategy involves setting a high price initially to attract customers who are willing to pay a premium for a new, innovative product. This strategy is commonly used by companies in the luxury goods industry.

Question 3

What is a demand curve? Why is it useful to marketers?

Accepted Answer

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Question 4

The first generation Apple iPod was introduced in 2001 and sold for $500. The following year a mini version was introduced for $250. Apple initially used a ________ strategy to price their digital music innovation.

Accepted Answer

Apple used a market-skimming pricing strategy when they introduced the first generation Apple iPod for $500, which was a premium price at the time. The following year, they introduced a mini version for $250, which is also an example of market skimming. This strategy involves setting a high price initially to capture early adopters and generate high profits, then gradually lowering the price over time to reach a broader market.

Question 5

The first Target store opened in 1962. Its initial strategy was to set prices low to attract a large number of buyers quickly and win a large market share. This is referred to as ________.

Accepted Answer

The initial strategy of setting low prices to quickly attract a large number of buyers and gain a larger market share is known as market-penetration pricing. This strategy is often used by firms in the early stages of entering a new market, with the aim of securing a foothold and gaining market share.

Question 6

Which of the following conditions is most likely essential for implementing a successful market-penetration pricing strategy for a product?

Accepted Answer

Market-penetration pricing strategy involves setting a low price for a new product to attract a large number of customers quickly and gain a significant market share. This strategy is most effective in a price-sensitive market where customers are willing to switch brands for a lower price. Therefore, option C is the correct choice. Options A, B, D, and E are not essential for implementing a successful market-penetration pricing strategy.

Question 7

With reference to the different types of markets, compare pure competition with monopolistic competition.

Accepted Answer

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Question 8

With reference to pricing in different types of markets, compare oligopolistic competition with a pure monopoly.

Accepted Answer

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Question 9

Explain the concept of price elasticity.

Accepted Answer

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Question 10

Which of the following conditions is most likely essential for implementing a successful market-skimming pricing strategy for a product?

Accepted Answer

For a market-skimming pricing strategy to be successful, the product's quality and image must support its high price. This is because customers are willing to pay a premium price for a product if they perceive its quality and image to be high. Lower-priced alternatives entering the market easily and low prices promoting market growth are conditions that favor a market-penetration pricing strategy. The product's price matching its manufacturing costs is a condition for cost-plus pricing, while maintaining a low-price position is a condition for a low-price strategy.

Question 11

Market skimming makes sense when a product's quality and image support its higher price, and enough buyers want the product at that price.

Accepted Answer

Market skimming involves setting a high price for a product initially and then gradually lowering it as competition enters the market. This strategy is effective when the product has a unique value proposition and a strong brand image that justifies the higher price. Additionally, there must be enough demand for the product at the high price point. Therefore, the statement is true.

Question 12

NerdHerd Electronics sells three different sizes of televisions at three different prices. In this case, the company's pricing strategy is referred to as ________ pricing.

Accepted Answer

NerdHerd Electronics is using a product line pricing strategy, where they offer different products (TVs of different sizes) at different prices.

Question 13

Computer World sells laptops separately from accessory products like docking stations, anti-virus software, and external hard drives. This is referred to as ________ pricing.

Accepted Answer

Optional-product pricing is when companies offer optional products or services along with their main product and charge an additional price for them. In this case, Computer World is offering optional accessories along with their laptops, and customers have the choice to purchase them or not.

Question 14

There is no true substitute for coffee. If the price goes from $8 to $12 for a package of k-cups due to a coffee bean shortage, demand will remain relatively unchanged. This is an example of demand elasticity.

Accepted Answer

This is an example of inelastic demand, where the quantity demanded changes very little when the price changes, indicating that consumers are relatively insensitive to price changes for this product. Elastic demand would imply a significant change in quantity demanded with price changes.

Question 15

What external factors affect the pricing decisions made by organizations?

Accepted Answer

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Question 16

If demand is elastic rather than inelastic, sellers typically consider increasing their prices.

Accepted Answer

If demand is elastic, it means that a small change in price will result in a large change in quantity demanded. In this case, if sellers increase their prices, they may actually sell less and lose revenue. Therefore, sellers would typically not consider increasing their prices in this situation.

Question 17

Distinguish between market-skimming pricing and market-penetration pricing.

Accepted Answer

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Question 18

Netcorp, an Internet service provider, charges its users a fixed rental fee for its basic package, which has a download limit. If a user exceeds this download limit, an additional fee is charged for every download. In this case, the firm's pricing strategy is referred to as ________ pricing.

Accepted Answer

The pricing strategy in this case involves a fixed rental fee (part one) and an additional fee for exceeding the download limit (part two), making it a two-part pricing strategy.

Question 19

Establishing prices for razor blades that must be used with a razor blade system is known as ________ pricing.

Accepted Answer

Captive-product pricing involves setting prices for products that must be used with a complementary product, such as razor blades for a razor blade system. The goal is to encourage customers to purchase the complementary product by offering it at a lower price, while charging a premium for the main product (in this case, the razor blade system).

Question 20

Pricing strategies usually remain the same as a product passes through its life cycle.

Accepted Answer

Pricing strategies usually change as a product passes through its life cycle. During the introduction stage, pricing may be set high to recover development costs, while during the growth stage, prices may be lowered to attract more customers. In the maturity stage, pricing may be adjusted to maintain market share and profitability, while in the decline stage, prices may be lowered to liquidate remaining inventory or increased to create a niche market.

Quiz 9: Pricing: Understanding and Capturing Customer Value