Question 1

With an understanding of price elasticity, sellers should know that the less elastic the demand for their product is, the more advantageous it is for them to ________.

Accepted Answer

If demand for a product is less elastic, it means that consumers are less sensitive to changes in price and are likely to continue purchasing the product even if the price is increased. Therefore, sellers can take advantage of this by raising the price without risking a significant drop in demand.

Question 2

Value-based pricing is being used when costs vary directly with the level of product.

Accepted Answer

Value-based pricing is based on the perceived value that customers are willing to pay for a product or service. It is not dependent on the production costs of the product.

Question 3

Johnson Boats wants to introduce a new model of boat into mature markets in highly developed countries with the goal of quickly gaining mass-market share. As a consultant, you should recommend a ________ pricing strategy.

Accepted Answer

The best pricing strategy to quickly gain mass-market share in mature markets would be a market-penetration strategy. This involves offering the product at a lower price than competitors to quickly capture a large share of the market. This can be effective in mature markets because buyers are already familiar with the product and competition is high. Johnson Boats can gradually increase their price as they establish themselves in the market.

Question 4

When Whallans Gift Card Shop offers a price reduction to customers who buy Christmas cards the week after Christmas, Whallans is giving a(n)________ discount.

Accepted Answer

The discount offered by Whallans is specifically related to the season of Christmas, making it a seasonal discount.

Question 5

Mach 3 razor blades must be used in the Mach 3 razor. Which type of pricing is most likely used?

Accepted Answer

Captive-product pricing involves selling a main product (in this case, the Mach 3 razor) at a low price or even at a loss in order to drive sales of the accompanying product (the Mach 3 razor blades). Consumers must buy the specific blades that fit the Mach 3 razor, making them captive to that product and creating a steady stream of revenue for the company.

Question 6

Product costs set a floor to a product's price; consumer perceptions of the product's value set the ceiling.

Accepted Answer

Product costs determine the minimum price at which the product can be sold, while consumer perceptions of the product's value determine the maximum price at which the product can be sold. Therefore, product costs set a floor to the product's price and consumer perceptions set a ceiling.

Question 7

When Pepsi came out with Pepsi Blue and priced it at half price to attract buyers, Pepsi was using ________.

Accepted Answer

Pepsi was using market-penetration pricing by setting a low price for a new product to attract a large number of buyers quickly and gain market share.

Question 8

Savings for You, a discount retail chain, is highly competitive. When entering a new market, Savings for You often cuts prices so deeply that it sells below costs, effectively pushing smaller companies with less purchasing power out of the market. Savings for You is most at risk of being accused of ________.

Accepted Answer

Predatory pricing is a strategy in which a company intentionally sets low prices to drive competitors out of the market. This is illegal in many countries, including the United States, as it can lead to unfair competition and monopolies. Savings for You's pricing strategy of selling below costs fits this definition and puts the company at risk of being accused of predatory pricing.

Question 9

The fact that a hot dog costs five times more at Disneyland than at Costco is an example of ________.

Accepted Answer

Captive-product pricing involves offering a product (in this case, food) at a higher price when it is sold at a location where the customer is captive and has limited options, like Disneyland, compared to where the customer has more options, like Costco. This is because the customer is likely to perceive higher value at Disneyland, and therefore be willing to pay more.

Question 10

Big Mike's Health Food Store sells nutritional energy-producing foods. The price of the products sold varies according to individual customer accounts and situations. For example, long-time customers receive discounts. This strategy is an example of ________.

Accepted Answer

Dynamic pricing is a strategy where the price of a product or service can change over time based on various factors such as customer demand, time, and customer characteristics (like being a long-time customer). In this case, Big Mike's Health Food Store adjusts prices for individual customer accounts and situations, which aligns with the concept of dynamic pricing.

Question 11

If Northwest Awnings charges the same price for delivery of their product to any customer that is located within the Great Lakes states, the company is using ________.

Accepted Answer

Zone pricing involves setting different prices for different geographic areas, and in this case, the Great Lakes states are treated as a single zone with a uniform delivery price.

Question 12

Demand and consumer value perceptions set the floor for prices.

Accepted Answer

Supply and costs set the floor for prices, while demand and consumer value perceptions set the ceiling.

Question 13

Prices have a direct impact on a company's bottom line.

Accepted Answer

Prices directly affect a company's revenue and profits. If prices are too low, the company may not make enough profit to cover its expenses. If prices are too high, customers may choose to go to competitors with lower prices, which could lead to a decrease in revenue. Therefore, pricing strategy is an important aspect of a company's overall profitability.

Question 14

Market-skimming pricing would likely be most effective in selling ________.

Accepted Answer

Market-skimming pricing is an effective strategy for selling high-tech electronic devices for which research and development costs need to be recouped. By setting a high price initially, the company can make big profits from early adopters and then gradually lower the price as the product becomes more widely adopted. This strategy works particularly well for products with unique features that cannot be easily replicated by competitors.

Question 15

To offset the pricing of its main product, the Toronto Zoo has partnered with a waste management company to turn animal waste into methane gas to be used to produce power. This is an example of ________.

Accepted Answer

This is an example of by-product pricing, as the waste produced by the main product (the animals) is being used to create a new product (methane gas) which can be sold to generate additional revenue.

Question 16

If Canon Camera Company follows a high-price, high-margin strategy, what will competitors most likely do?

Accepted Answer

Competitors are likely to try to undercut Canon's price if Canon follows a high-price, high-margin strategy. This is because they may see an opportunity to gain market share by offering a lower-priced alternative.

Question 17

The Winnipeg Goldeyes ballpark charges different prices for seats in different areas of the ballpark, even though their costs are the same. What is this form of pricing called?

Accepted Answer

This is called location-based pricing. The prices vary based on the location of the seats, even though the cost of providing the seats is the same.

Question 18

When Circuit Town Electronics sets its televisions at three price levels of $699, $899, and $1,099, it is using ________.

Accepted Answer

Circuit Town Electronics is using product line pricing by setting different prices for different models of televisions. This pricing strategy allows them to cater to consumers with different budgets and preferences, while also potentially earning more profit on the higher-end models.

Question 19

A manufacturer offers 3/10, net 30, terms to a wholesaler for a recent purchase. Under these terms, the wholesaler may deduct ________ percent if the bill is paid within ________ days.

Accepted Answer

The terms "3/10, net 30" mean that the wholesaler can deduct 3 percent if the bill is paid within 10 days; otherwise, the full amount is due in 30 days.

Question 20

Vac 'N' Sew will give customers $100 for a used vacuum cleaner, regardless of condition, when they purchase a new vacuum or sewing machine. This essentially reduces the price by $100. What is this type of discount called?

Accepted Answer

This discount is called a trade-in allowance, as customers are receiving a discount for trading in their old vacuum cleaner towards the purchase of a new one.

Quiz 10: Pricing: Understanding and Capturing Customer Value