Question 1

Which of the following pricing approaches should be used by a profit-oriented retailer if its demand curve is down-sloping to the right for a while-but then actually bends back to the left at lower prices?

Accepted Answer

Prestige pricing is appropriate for a profit-oriented retailer facing a demand curve that initially slopes downward to the right but then bends back to the left at lower prices. This phenomenon indicates that at lower prices, the perceived value and thus the demand for the product decreases, which is a scenario where prestige pricing can be effective. Prestige pricing involves setting a high price to signal high quality or exclusivity, appealing to consumers who associate higher prices with higher value, which aligns with the demand curve described.

Question 2

_____ means offering a specific price for each possible job rather than setting a price that applies for all customers.

Accepted Answer

Bid pricing means offering a specific price for each possible job rather than setting a price that applies for all customers. This type of pricing is commonly used in industries such as construction, freelance services, and other project-based industries where each job is unique and requires a custom quote.

Question 3

In a down economy, a local florist surveys her customers to determine the amount they feel comfortable spending for a bouquet of flowers. Then she displays bouquets costing that exact amount in her refrigerated case. This is an example of:

Accepted Answer

This is an example of demand-backward pricing, where the price point is determined first based on customer demand or expectation, and then the product (in this case, a bouquet of flowers) is tailored to meet that price point.

Question 4

A firm is looking to construct a new office. It puts out a request for proposals from contractors inviting their price quotations given certain defined specifications. This is an example of:

Accepted Answer

This scenario is an example of bid pricing, where contractors are invited to submit price quotations based on specific project specifications.

Question 5

"Demand-backward" pricing:

Accepted Answer

Demand-backward pricing starts with an acceptable final consumer price and works backward to what producers can charge. This approach takes into account demand estimates and aims to find a price point that aligns with consumer demand and producer profitability. It can be used by any channel captain, not just large retailers, and is not necessarily an average-cost pricing approach.

Question 6

Price lining:

Accepted Answer

Price lining is a strategy in which products are grouped into specific price points, making it easier for both buyers and sellers to understand the pricing structure. This can simplify the buying process for consumers, as they can quickly identify which products fit within their budget. Similarly, it can simplify the selling process for retailers, as they can focus on selling products within specific price ranges. However, price lining does not necessarily result in reduced turnover rates or larger inventories, and it is not the same as prestige pricing (which is a strategy of pricing products high in order to convey a sense of exclusivity or luxury).

Question 7

When Walgreens Drugstore advertises one price for the cost of a roll of film and the cost of processing it, it is using

Accepted Answer

Product-bundle pricing involves offering several products for sale as one combined product. This strategy is used by Walgreens when it advertises a single price for both a roll of film and the cost of processing it, effectively bundling two complementary services into one package deal.

Question 8

Some consumers maintain a "price-quality association," meaning that if a product has a high price, they assume the product must have high quality. This "price-quality association" is the basis for the use of:

Accepted Answer

Prestige pricing is the use of a higher price to signal higher quality and exclusivity to consumers who believe in the "price-quality association."

Question 9

When CenturyLink attracts residential customers by setting one monthly fee for high-speed Internet, cable TV, and long-distance phone services that is $40 less than the price of purchasing these three services separately, this is an example of:

Accepted Answer

CenturyLink is offering a bundle price, where they are combining three services and offering them at a discounted price as compared to purchasing them separately.

Question 10

Regarding "full-line pricing," which of the following statements is TRUE?

Accepted Answer

Full-line pricing involves setting prices for an entire line of products in a way that reflects their relative value and cost, and is logically coherent to customers. It aims to cover all costs across the product line, and while not mandatory for all companies, it is a common practice. Customers often expect prices within a product line to be related to the cost and value of the products, making this approach sensible for marketing managers.

Question 11

Fly-Right Travel Agency arranges vacation packages to Disney World in Florida. The price includes airfare, a rental car, deluxe accommodations, and tickets to Disney World and other attractions. Fly-Right is using:

Accepted Answer

Fly-Right Travel Agency is offering a package deal that includes several products, such as airfare, rental car, accommodations, and tickets to Disney World and other attractions. This is an example of product-bundle pricing, where several products are combined and offered at a single price. Therefore, option A is the best choice.

Question 12

When Nintendo sets a relatively low price on its game units to stimulate more demand for its game cartridges, it is using

Accepted Answer

Complementary product pricing involves setting a price for one product low to stimulate demand for its complementary products. In this case, Nintendo sets a low price for its game units (consoles) to increase demand for its game cartridges, which are complementary products.

Question 13

When consumers decide to purchase a music CD from Amazon.com, the company's website often suggests that consumers purchase an additional CD by the same artist for a combined price that is lower than the two CDs would sell for separately. Amazon.com is using:

Accepted Answer

Product-bundle pricing is a strategy used by companies to sell multiple products together as a bundle at a discounted price. In this case, Amazon.com is offering customers the option to purchase two CDs by the same artist for a lower price than if they were to buy the CDs separately. This is an example of product-bundle pricing. Complementary product pricing involves selling products that go together, such as a printer and ink cartridges, at a discounted price, and full-line pricing involves selling a complete line of products at various price points. Bid pricing involves offering a price for a particular product or service in response to a request for proposal, and demand-backward pricing involves determining the price of a product based on what customers are willing to pay.

Question 14

Alex's Knot Shop prices its ties at $5 intervals from $10 to $25 because most customers find these prices appealing and easier to compare. This is:

Accepted Answer

This pricing strategy is called price lining, where the prices are grouped in a line or range for easier comparison and customer appeal.

Question 15

Good Health Co. has set a suggested retail list price of $40 on its new vitamin tablets on the assumption that its target market will find the product attractive at this price. From this suggested retail list price, Good Health has subtracted its usual chain of markups for wholesalers and retailers to obtain its own selling price of $17. This is:

Accepted Answer

Demand-backward pricing involves setting a final price that consumers are willing to pay and then subtracting desired margins to find the price at which a manufacturer can sell the product to wholesalers or retailers. Good Health Co. used this approach by starting with a suggested retail price and working backward to determine its own selling price.

Question 16

If Macy's department store prices its men's ties at $10 intervals between $38 and $68, this is an example of:

Accepted Answer

This is an example of price lining, where products are grouped and priced based on similar characteristics such as quality or features. In this case, the ties are priced based on the price interval of $10, which is a characteristic of the product. Reference pricing refers to using a higher priced product as a comparison to make a lower priced product seem like a better deal. Bundle pricing involves offering a discount for purchasing a group of products together. Leader pricing refers to offering one product at a low price to attract customers to the store. Bait pricing involves advertising a product at a very low price to attract customers, but then offering a similar but more expensive product.

Question 17

Setting relatively high prices to suggest high-quality or high-status is:

Accepted Answer

This describes the strategy of prestige pricing, where high prices are used to signal exclusivity or luxury, and to appeal to consumers seeking status or quality.

Question 18

_____ involves setting one price for a set of products.

Accepted Answer

Product bundle pricing involves setting one price for a set of products, offering a discount for purchasing the bundle compared to buying each item separately.

Question 19

If a service firm sets a specific price for each possible job-rather than setting a price which applies for all potential customers-it is most likely using:

Accepted Answer

The pricing strategy described in the question, where a service firm sets a specific price for each possible job, is known as bid pricing. This is often used in industries such as construction or consulting, where the nature of the work can vary significantly from project to project, and therefore a standard price is not practical. With bid pricing, customers submit a request for proposal (RFP), and the firm will quote a price based on the specific requirements of the job.

Question 20

The idea that people will pay extra for "quality" and status is the idea behind

Accepted Answer

The idea that people will pay extra for "quality" and status is the concept of prestige pricing. This type of pricing strategy is used to position a product or service as a luxury item, emphasizing exclusivity and high quality in order to justify a higher price point.

Quiz 17: Price Setting in the Business World