Question 1

Derek is a financial advisor with Scotia Bank. What kind of pricing strategy should he employ?

Accepted Answer

As a professional offering financial services, Derek should employ a professional services pricing strategy. This means charging fees that reflect the value of his advice and expertise, rather than competing solely on price. Financial zoning pricing is not applicable in this case as it refers to varying pricing based on geographic location. Bankers pricing is not a recognized pricing strategy. Bait pricing is a deceptive strategy where customers are lured in with low prices but then pressured to upgrade to more expensive options, which is not ethical for a professional financial advisor.

Question 2

South Africa's Competition Commission accused South African Airways of conspiring with its partner, Germany's Lufthansa, to set prices on flights between Cape Town, Johannesburg, and Frankfurt. As a result, what were the two airlines charged with?

Accepted Answer

The two airlines, South African Airways and Lufthansa, were accused of conspiring to set prices, which is known as price fixing. Therefore, the best choice is B.

Question 3

Some restaurants have early bird specials early in the evening when they sell meals for less than during peak times. What is this example of?

Accepted Answer

This is an example of price discrimination, as the restaurant is charging different prices based on the time of day.

Question 4

Because many sellers ship their wares to a nationwide or even a worldwide market, the cost of freight can greatly affect the total cost of a product. Which of the following is NOT an example of geographic pricing?

Accepted Answer

Location bundling is not an example of geographic pricing. FOB origin pricing, uniform delivered pricing, and zone pricing are all examples of geographic pricing.

Question 5

Scenario 13-2
It's September and Sophia wants to buy some arts and crafts supplies for an after-school program she is developing for her daughter's elementary school. In her Saturday newspaper was a flyer from Michael's, an arts and crafts retailer. As she looked through the newspaper insert, she noticed that if she purchased three or more bottles of Alene's Tacky Glue, the regular price of $1.50 each was reduced to $1.15 each. She also saw that the store priced its plastic storage boxes at $1.99, $3.99, and $5.99. She thought they would be useful for storing each individual child's projects. On the front page of the flyer was an ad for Funky Girls Gel Pens, something she knew her daughter would love to use. The price at Michael's was $6.99 lower than the price she had found at the other stores that carried the pens. She thought that some of the older girls might like to start a scrapbook and was pleased to find that Michael's had a scrapbook starter kit, which includes scissors, book, pages, and stickers for only $15. The items could be purchased separately for $19.99. The flyer also announced that all flag-related items left over from its Canada Day sale were reduced by 40 percent.
-Refer to the scenario. Which type of discount is being used to price the tacky glue?

Accepted Answer

The discount on the tacky glue is a noncumulative quantity discount because it applies to a single purchase of three or more bottles, rather than accumulating over time or multiple purchases.

Question 6

Why do consumers sometimes prefer two-part pricing?

Accepted Answer

Consumers might prefer two-part pricing when they are uncertain about the number and types of activities they might use at places like amusement parks. Two-part pricing allows them to pay a fixed fee for admission and then decide later which activities to participate in, without having to pay for each activity individually. This can give consumers more flexibility and control over their costs.

Question 7

Teresa and Debbie have decided to keep their new power boat in a "drystack" storage facility rather than in the water at a marina. The storage facility charges them a fee of $500 per year, plus $25 each time they call ahead and ask the facility to put their boat in the water for the day or weekend. Which pricing tactic is the facility using?

Accepted Answer

The storage facility is using two-part pricing, where there is a fixed fee (annual fee of $500) and a variable fee (charge of $25 each time the boat is put in the water).

Question 8

Which of the following pricing methods can be used to build market share during a recession?

Accepted Answer

Bundling can be used to build market share during a recession as it offers customers a package deal of multiple products/services at an attractive price. This can help incentivize customers to choose the company over competitors and increase market share.

Question 9

Pennies (a grocery chain) opened next door to the established low cost grocery chain Price Busters. Price Busters lowered their prices to a level at which Pennies could not compete. Once Pennies was driven out of business, Price Busters increased their prices again. What is this strategy called?

Accepted Answer

This strategy is called predatory pricing, where a company lowers its prices to drive out competitors and then raises them again once the competition is eliminated.

Question 10

Cashtown Used Cars aired a radio spot announcing, "Today only, previously owned cars are only $200!" Meghan just wanted some kind of in-town transportation. When she went to Cashtown, the salesperson said, "We have only one $200 car left, but it's not the kind of car I'd want my wife to drive. However, we do have some great deals on newer models." Meghan went home with an $8,000 used car. What is Cashtown probably practising?

Accepted Answer

Cashtown is most likely practicing bait pricing, which is when a business advertises an extremely low-priced item to attract customers but then upsells them on a more expensive item when they arrive. The $200 car was likely a bait to get Meghan to come to the dealership, but once there, the salesperson tried to sell her a more expensive car.

Question 11

Best Buy sells their televisions at or just above cost in the hope that when customers come to purchase televisions, they shall also purchase other peripheral items such as cables. What would these televisions also be known as?

Accepted Answer

The televisions described in the scenario are known as "loss leaders." This is because they are sold at or below cost, with the intention of attracting customers to the store in the hope that they will also purchase other, higher-profit items.

Question 12

K&G Restaurant Supplies sells paper products and commodity items like flour to for-profit businesses. It charges a substantially lower price to companies that operate multiple locations such as a restaurant chain. It charges a higher price to small or independent operations because they are less profitable customers. What is K&G Restaurant Supplies engaging in?

Accepted Answer

K&G Restaurant Supplies is engaging in price discrimination because it is charging different prices to different customers for the same product based on their business size and profitability. This practice is legal as long as it does not violate anti-discrimination laws.

Question 13

What are two effective pricing tactics that can be used during a recession to hold or build market share?

Accepted Answer

During a recession, customers are on a tight budget and are more focused on the value they receive from a product. Therefore, value-based pricing can be an effective tactic to hold or build market share by offering products at a fair price that reflects the value they provide. Additionally, price bundling, where different products or services are bundled together at a discounted price, can also be effective in attracting price-sensitive customers and driving sales volume.

Question 14

Post makes several varieties of cereals. In promoting this product line, Post offers a 50-cents-off coupon that can be used to purchase any of its cereals. What type of discount is this?

Accepted Answer

This is a cash discount because it directly reduces the purchase price of the cereal when the coupon is used at the time of purchase.

Question 15

When Microsoft introduced its Windows NT network operating system, it gave buyers free Web server software. At the same time, Netscape was trying to sell similar Web server software for $4,999. Once Microsoft got a large share of the market, and Netscape's market share declined substantially, Microsoft began charging an above-market price for its Web server software. What did many people think Microsoft was guilty of?

Accepted Answer

Many people thought Microsoft was guilty of predatory pricing, which involves initially setting prices below market levels to drive competitors out of the market and then raising prices to capture a larger share of the market.

Question 16

Scenario 13-2
It's September and Sophia wants to buy some arts and crafts supplies for an after-school program she is developing for her daughter's elementary school. In her Saturday newspaper was a flyer from Michael's, an arts and crafts retailer. As she looked through the newspaper insert, she noticed that if she purchased three or more bottles of Alene's Tacky Glue, the regular price of $1.50 each was reduced to $1.15 each. She also saw that the store priced its plastic storage boxes at $1.99, $3.99, and $5.99. She thought they would be useful for storing each individual child's projects. On the front page of the flyer was an ad for Funky Girls Gel Pens, something she knew her daughter would love to use. The price at Michael's was $6.99 lower than the price she had found at the other stores that carried the pens. She thought that some of the older girls might like to start a scrapbook and was pleased to find that Michael's had a scrapbook starter kit, which includes scissors, book, pages, and stickers for only $15. The items could be purchased separately for $19.99. The flyer also announced that all flag-related items left over from its Canada Day sale were reduced by 40 percent.
-Refer to the scenario. Which of the following merchandise is offered in the flyer with a seasonal discount?

Accepted Answer

The flyer announces that all flag-related items left over from its Canada Day sale were reduced by 40 percent, indicating a seasonal discount.

Question 17

If you want to buy season tickets in the comfortable seating behind the batter at the Fullerton Softball Complex, you can expect to make a qualifying payment that gives you the right to purchase the tickets. This payment is not deemed to be part of the ticket price. It is one of the costs that must be paid in order to buy a season ticket. What is Fullerton using?

Accepted Answer

Fullerton Softball Complex is using two-part pricing, which involves making a qualifying payment (the first part) to have the right to purchase the tickets (the second part). This allows the complex to charge a higher price for the tickets while still making them accessible to those who can make the qualifying payment.

Question 18

Imagine you have developed a device that can be used to tell whether uncooked meat has been irradiated. Several smaller retail chains have agreed to carry your product, but a large discount retailer has asked you to sell the device to it for a substantially lower price. What is the large discount retailer asking you to carry out?

Accepted Answer

The large discount retailer is asking for a substantially lower price which indicates price discrimination. The retailer is asking for a lower price compared to the other retail chains, which can be considered discriminatory pricing.

Question 19

Health and fitness clubs charge a membership fee and then a flat fee each time a person uses certain equipment or facilities. What is this known as?

Accepted Answer

This is known as two-part pricing, as it involves charging a membership fee (the first part) and then an additional fee for each use of certain equipment or facilities (the second part).

Question 20

Which of the following tries to get customers into the store with misleading advertising and then uses high-pressure selling to persuade the consumer to buy something else more expensive?

Accepted Answer

Bait pricing is a tactic that involves advertising an item at a very low price to attract customers to the store, but then pushing them to buy something more expensive with high-pressure selling tactics. It is considered misleading because the advertised item may be out of stock or of poor quality.

Quiz 13: Setting the Right Price