Question 1

A machinery manufacturer wants to compensate salespeople on the basis of the gross profit margin (selling price less merchandise cost) for each sales transaction. What pricing technique should the firm utilize?

Accepted Answer

Variable pricing allows for flexibility in setting prices based on factors such as cost, demand, and competition, which would enable the firm to compensate salespeople based on the gross profit margin of each transaction.

Question 2

When using odd pricing, firms should recognize that

Accepted Answer

Sales tax can alter the final price that consumers pay, making it no longer appear as an "odd price" (e.g., $9.99 becoming $10.07), which can undermine the psychological effect of odd pricing strategies intended to make prices seem lower.

Question 3

The price-quality association is most likely to be used as a consumer decision-making guide when consumers

Accepted Answer

When consumers have little experience or confidence in judging the quality of products, they are more likely to use price as an indicator of quality, assuming that higher-priced items are of better quality.

Question 4

In prestige pricing, the demand curve is

Accepted Answer

Prestige pricing involves setting a high price to give the perception of high quality or exclusivity. If the price is too low, consumers may perceive the product as low quality, leading to a decrease in demand, hence the demand curve is negatively sloped except at low prices.

Question 5

A firm sells three levels of a popular statistical package: a basic package for undergraduate students, an intermediate package aimed at graduate students and faculty members, and an advanced package for universities. This strategy illustrates

Accepted Answer

Price lining is a pricing strategy where a company sells products or services at different price points, often based on features or quality levels. In this case, the firm is offering three levels of a statistical package at presumably different prices, tailored to different segments (undergraduate students, graduate students and faculty, and universities), which is a classic example of price lining.

Question 6

A local full-service furniture wholesaler usually deals with price-conscious interior decorators who do not desire such services as delivery and extended warranties. The wholesaler should consider the use of

Accepted Answer

Unbundled pricing is the most suitable option for a wholesaler dealing with price-conscious interior decorators who do not desire additional services like delivery and extended warranties. This pricing strategy allows customers to pay only for the core product without the added costs of services they do not value, aligning with their preference for lower prices and no extra services.

Question 7

Manufacturers that want to have a one-price policy for all their consumers should utilize

Accepted Answer

Uniform delivered pricing is a strategy where a manufacturer charges all customers the same price, regardless of their location. This approach ensures that every consumer pays the same amount for a product, aligning with the goal of a one-price policy.

Question 8

A gold necklace maker needs to quote prices to its jewelry store customers now, but is concerned about the price of gold when the necklaces are scheduled for delivery (about two months after orders are placed). The jeweler should consider the use of

Accepted Answer

Escalator clauses allow the price of the necklace to be adjusted based on changes in the cost of gold, protecting the maker from price fluctuations.

Question 9

Which of these price adjustment tactics by a manufacturer enables the manufacturer to develop and maintain a customer data base?

Accepted Answer

Rebates often require customers to fill out forms and provide personal information to receive the discount, allowing manufacturers to collect and maintain a customer database.

Question 10

An independent channel member's gross margin is often unaffected by which of the following?

Accepted Answer

Rebates are typically offered by manufacturers to consumers and do not directly affect the gross margin of independent channel members, as they are handled between the manufacturer and the consumer. Markdowns, surcharges, and additional markups directly impact the selling price and cost structure within the channel, affecting gross margins.

Question 11

Like any planning activity, a pricing strategy begins with a clear statement of objectives and ends with an adaptive or corrective mechanism.

Accepted Answer

A pricing strategy starts with defining clear objectives (such as maximizing profit, increasing market share, or entering a new market) and includes mechanisms for adaptation or correction based on market feedback and performance analysis, ensuring the strategy remains aligned with business goals.

Question 12

An indication that a pricing strategy may be performing poorly is that sales personnel spend a large part of their selling time negotiating prices with potential consumers.

Accepted Answer

When sales personnel spend a significant amount of time negotiating prices, it often indicates that the initial pricing strategy may not be aligned with market expectations or consumer willingness to pay, suggesting poor performance of the pricing strategy.

Question 13

Skimming pricing is the proper approach when a firm seeks the mass market as its target market.

Accepted Answer

Skimming pricing is typically used when targeting a smaller, premium segment of the market, not the mass market. It involves setting high prices initially to "skim" off customers willing to pay more before lowering prices to attract a broader base.

Question 14

A firm with a high status image and high customer brand loyalty should utilize a penetration pricing strategy.

Accepted Answer

A firm with a high status image and high customer brand loyalty is more likely to benefit from a premium pricing strategy, as their customers are willing to pay more for the perceived value and exclusivity of the brand. Penetration pricing, which involves setting a low price to gain market share, is not typically suitable for such firms.

Question 15

A skimming price is best used to attract the price-sensitive market segment.

Accepted Answer

A skimming price strategy involves setting high prices initially to target customers less sensitive to price, not the price-sensitive market segment.

Question 16

Firms can first use skimming pricing to attract innovators and then switch to penetration pricing to attract the mass market.

Accepted Answer

Skimming pricing involves setting high prices initially to target early adopters who value the product highly, then lowering prices over time to attract a broader customer base, which aligns with the strategy described.

Question 17

There is relatively little incentive for a service provider to improve its efficiency if it uses cost-plus pricing.

Accepted Answer

Cost-plus pricing guarantees the service provider a profit over their costs, reducing the motivation to lower costs or improve efficiency since the pricing model allows for the direct pass-through of costs to the customer.

Question 18

Cost-plus pricing allows firms to receive consumer orders, produce items, and derive prices after total costs are known.

Accepted Answer

Cost-plus pricing involves calculating the total costs incurred in producing a product or delivering a service and then adding a markup percentage to determine the selling price. This method allows firms to cover their costs and ensure a profit margin, making it possible to derive prices after the total costs are known.

Question 19

Markups are most frequently stated in terms of percentages of costs.

Accepted Answer

The answer of Markups are most frequently stated in terms...

Question 20

In a variable markup policy, a seller may use different markups for different categories of goods and services.

Accepted Answer

In a variable markup policy, a seller adjusts the markup percentage based on factors like the type of product, competition, or market demand, leading to different markups for different categories of goods and services.

Quiz 21: Developing and Applying a Pricing Strategy