Deck 20: Setting the Right Price

Question 1

There are two limousine services that drive customers from communities in North Georgia to the Atlanta airport.Whenever one reduces its fare,its competitor reduces its fares by the same amount.This is an example of status quo pricing.

Answer 1

True

Question 2

Proctor & Gamble entered the electric toothbrush market with the Crest SpinBrush at a price considerably lower than lesser-known competitors.It used penetration to gain market share.

Answer 2

True

Question 3

Once he compiles information on pricing objectives,market demand,quantity supplied,and the price elasticity of demand,the owner/operator of a home cleaning service will be ready to determine the optimal price for a new service offering.

Answer 3

False
He must also collect information or estimates about costs and total revenue at a variety of prices.Only then can he make reasonable estimates about profits and market share.

Question 4

Manufacturers know the approximate price level they can expect when establishing a product price.This approximate price is called the base price.

Question 5

Penetration pricing is sometimes referred to as a "market-plus" approach to pricing.

Question 6

Price discrimination can sometimes be justified.

Question 7

All pricing objectives have trade-offs that managers must weigh.

Question 8

One disadvantage of using a penetration pricing policy is that the high unit profit margins will attract potential competitors into production of similar products.

Question 9

Price fixing is only illegal in some instances.

Question 10

Functional discounts are typically calculated as the wholesale price times the accumulated margin percentages.

Question 11

The first step in setting the right price for a new product is to estimate demand,costs,and profits.

Question 12

Markdown allowances are illegal.

Question 13

Sears and John Deere run major sales on their lines of riding lawn mowers every fall.This is an example of a seasonal discount.

Question 14

A retailer of furniture for babies that is allowed to deduct 3 percent from its total bill if it pays by a specific date is receiving a promotional discount.

Question 15

The basic assumption with price skimming is that the firm is customer driven,seeking to understand the attributes customers want in goods and services they buy and the value of that bundle of attributes to customers.

Question 16

A winery that makes a huge profit on merlot wines may lower its price on pinot noir wines to cause damage to wineries that only produce pinot noir.This is an example of predatory pricing.

Question 17

It makes the most sense to use price skimming as a pricing policy when supply is greater than demand.

Question 18

Functional discounts,noncumulative quantity discounts,and promotional allowances are examples of rebates given to the trade customer.

Question 19

The manufacturer of Trek Natural sports drink would like to introduce a Trek Natural brand energy drink in the already crowded energy drink category. This company would have a great amount of freedom in choosing a price for its new energy drink.

Question 20

Evergreen Lighting,a manufacturer of decorative,energy-efficient lighting products,requires its buyers to pay for the cost of transportation from the manufacturing site to their place of businesses.Evergreen Lighting uses FOB origin pricing.

Question 21

For which of the following situations would a price-skimming strategy be most appropriate?

A) the addition of a new comic book series with an obviously gay hero
B) the introduction of a new brand of bottled water
C) the elimination of demand for low wattage light bulbs
D) the introduction of a unique, roomy automobile model that has extremely low energy and fuel costs
E) the introduction of a Barbie Olympic champion doll by Mattel and the International Olympic Committee

Question 22

The DCS Stainless Steel Gas Grill for outside cooking costs $3,995.The market for a grill that could easily replace a kitchen range is limited even though a lot of people have seen articles about this grill in cooking magazines and in the cooking section of newspapers.There is no potential competitor for this grill.The _____ strategy is probably best.

A) price-skimming
B) penetration pricing
C) status quo
D) cost bundling
E) price-lining

Question 23

Rag fibers for paper and cotton seeds for cottonseed oil are two by-products of the cotton textile industry.Because these products are produced together,they are complementary products.

Question 24

One example of price bundling occurs when Nintendo sells the Wii Fit balance board with the Wii game system at a lower price than the total price of each if bought separately.

Question 25

A retail store implements a single-pricing tactic as a way to remove price comparisons from the buyer's decision-making process.

Question 26

Which of the following is a pricing policy whereby a firm charges a high introductory price,often coupled with heavy promotion?

A) penetration pricing
B) price skimming
C) price capping
D) profit pricing
E) price maximization

Question 27

Costs that are shard in the manufacturing and marketing of several products in a product line are called joint costs.

Question 28

A 16-ounce bottle of Prairie Herb vinegar sells for $4.95,and a 16-ounce bottle of Heinz vinegar costs $1.05.Prairie Herb vinegar is new to the market,perceived to be of higher quality,and provides a unique flavor to foods even though it is used in the same way as Heinz vinegar.Prairie Herb vinegar is most likely using a _____ policy.

A) penetration pricing
B) status quo pricing
C) price-skimming
D) bundling cost pricing
E) geodemographic pricing

Question 29

A catalog retailer offers three styles of khaki pants at three price levels.The special pricing tactic used by the catalog retailer is best described as variable psychological pricing.

Question 30

Loss-leader pricing is a tactic that prices products below cost in an attempt to run competitors out of business.

Question 31

The price-skimming strategy is sometimes called a "market-plus" approach to pricing because it denotes a high price relative to the prices of competing products.This strategy works best when:

A) competition is abundant
B) revenues are equal to expenses
C) supply is greater than demand
D) production capacity is large and flexible
E) demand is greater than supply

Question 32

When a firm introduces a new product at a relatively low price because it hopes to reach the mass market,it is following a _____ strategy.The low price is designed to capture a large share of a substantial market and produce lower production costs.

A) penetration pricing
B) price-insensitive demand
C) price-skimming
D) price elasticity
E) cost bundling

Question 33

The marketing manager of icruise.com (a travel Web site targeted to consumers who want a luxury vacation)finds that the firm can gain market share and become the industry leader if it slashes prices by 50 percent during the month of December.However,the vice president of finance is committed to reporting a 25 percent return on investment at all times.This conflict illustrates:

A) a need to eliminate low-profit products
B) a lack of corporate concentration on the marketing concept
C) how pricing operates in a mature marketplace
D) the need for trade-offs in pricing objectives
E) how target markets can be ignored

Question 34

Many businesses find recessions to be an excellent time to build market share through the use
of price shading.

Question 35

After establishing pricing goals,managers should estimate total revenue at a variety of prices.Next,they should _____.Only after performing this task are they are ready to estimate how much profit and how much market share can be earned at each possible price.

A) choose the ROI target
B) determine corresponding costs for each price
C) estimate industry supply
D) implement pricing segmentation
E) establish geographic pricing heuristics

Question 36

A shortage of blood for transfusions for injured animals has resulted in the introduction of a synthesized product called Oxyglobin,which can be used effectively as a blood replacement.The manufacturer of the product has put a high price on the product in order to recoup its research and development costs.The manufacturer of Oxyglobin is using a _____ policy.

A) price-banding
B) penetration pricing
C) price-lining
D) bundling costs
E) price-skimming

Question 37

Private golf courses charge members an initial membership fee and monthly green fees. This is an example of two-part pricing.

Question 38

Uniform delivered pricing is illegal because it discriminates against buyers who are located close to the point of shipping because they pay the same amount as buyers located far from the point of shipping pay.

Question 39

Escalator pricing and price shading are two examples of cost-oriented pricing tactics.

Question 40

When the Mosquito Magnet was introduced,it was designed to rid the immediate area of mosquitoes and other annoying insects.The technology for the Mosquito Magnet had taken years to develop.It is a patented grill-like apparatus that emits carbon dioxide to attract bugs to a fan that draws them into the device where they die.What type of pricing policy would you recommend the company use to introduce this product to the market?

A) status quo pricing
B) penetration pricing
C) price-skimming
D) flexible pricing
E) leader pricing

Question 41

Marketers must take care when using _____ since a lower price often signals to consumers that product quality is also low.

A) price skimming
B) status quo pricing
C) penetration pricing
D) unbundling
E) cost sharing

Question 42

When Microsoft introduced its Zune MP3 player,many people thought it would capture the MP3 player market by pricing its product so low that a smaller competitor,like the Apple iPod,would be unable to compete.If Microsoft had used this approach it have been would be guilty of _____.

A) predatory pricing
B) unfair trade practices
C) channel manipulation pricing
D) price fixing
E) price discrimination

Question 43

States developed unfair trade practice acts to

A) enforce the Sherman Act that makes bait pricing illegal
B) prevent oligopoly leaders from getting together and fixing prices at the highest the market will bear
C) establish penalties for companies that break the Clayton Act by engaging in predatory pricing
D) make sure that all pricing policies are equitable
E) protect small, local firms from giant companies that operate efficiently on razor-thin profit margins

Question 44

A firm charging a price identical to or very close to the competition's price is using a _____ strategy.

A) differentiation pricing
B) penetration pricing
C) preemptive pricing
D) status quo pricing
E) leader pricing

Question 45

JC Penney sends representatives to shop at similar retailers to make sure it is charging comparable prices for its products.JC Penney probably uses a _____ strategy.

A) leader pricing
B) preemptive pricing
C) status quo pricing
D) flexible pricing
E) functional pricing

Question 46

All of the following elements must be present for a pricing practice to be considered discriminatory under the Robinson-Patman Act EXCEPT:

A) The seller must charge different prices to different customers for the same product.
B) The seller must make two or more actual sales within a reasonably short time.
C) The transaction must occur in interstate commerce.
D) The products sold must not be commodities.
E) There must be significant competitive injury.

Question 47

Pharmacies are a new addition to Sam's Clubs.They could exert a greater influence on the marketplace for prescription drugs than their newness indicates.Sam's has a stated philosophy of marking up merchandise a maximum of 14 percent.When that philosophy is applied to prescription drugs,especially generics,warehouse club prices can be dramatically lower than those of conventional drugstores,supermarkets,or discount store pharmacies.Sam's is using a _____ strategy to convince consumers to use its pharmacies rather than its competitors.

A) penetration pricing
B) price-insensitive demand
C) price-skimming
D) price elasticity
E) cost bundling

Question 48

State laws that put a lower limit on wholesale and retail prices are called _____.In states that have these laws,selling below cost is illegal.

A) unfair trade practice acts
B) price floor laws
C) protectionism acts
D) transparency laws
E) price edicts

Question 49

Which of the following prohibits any firm from selling to two or more different buyers,within a reasonably short time,commodities (not services)of like grade and quality at different prices where the result would be to substantially lessen competition?

A) Sherman Act
B) Federal Trade Commission Act
C) Food and Drug Administration Act
D) Anti-Discrimination Act
E) Robinson-Patman Act

Question 50

The market for turkey products is large.If a major producer of turkeys were to introduce a boneless fresh turkey wrapped around savory dressing,most of the large market for this new product would be aware of its existence.The market is price sensitive,and there is some potential competition.The appropriate strategy would be:

A) price skimming
B) penetration pricing
C) status quo
D) cost bundling
E) price lining

Question 51

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,the two airlines were charged with:

A) price discrimination
B) price fixing
C) bait pricing
D) unfair trade practices
E) channel control pricing tactics

Question 52

Penetration pricing means charging a relatively low price for a product as a way to reach the mass market.The low price is designed to capture a large share of a substantial market.Thus,penetration pricing:

A) tends to be more effective in a less price-sensitive market
B) tempts competitors to enter the market
C) provides a large profit per unit sold
D) recoups product development costs quickly
E) tends to lower production costs

Question 53

In 2008 United Airlines and American Airlines disclosed settlements in a class-action lawsuit over allegations of airfreight price fixing.This means the companies _____.

A) tried to charge fees for air fright that were below costs
B) charged customers different amounts for the same shipments
C) agreed on the price they would charge customers for air freight
D) used uniform geographic pricing
E) created an artificial demand for shipping

Question 54

If Dunn's Best Jams and its distributors agree that the retailers will sell Dunn's jams at a certain price,at or above the price floor,Dunn's and its distributors probably practice _____.

A) unfair pricing
B) resale price maintenance
C) deceptive pricing
D) price escalation
E) price depression

Question 55

A situation in which a manufacturer,and its distributors agree that the retailers will sell the manufacturer's products at a certain price,at or above the price floor,is called _____.

A) decoy pricing
B) resale price maintenance
C) functional pricing
D) bait pricing
E) price pressuring

Question 56

A penetration pricing strategy tends to be most effective:

A) when demand is relatively inelastic
B) under unitary conditions
C) in price-sensitive markets
D) when the company can only perform small production runs
E) if unit costs are high

Question 57

Acme Lawnmowers sells its mowers to retailers at different prices,depending on whether they are independent stores or members of a national chain.It uses _____.

A) unfair trade practices
B) price fixing
C) price discrimination
D) predatory pricing
E) bait pricing

Question 58

A penetration strategy tends to be effective in a price-sensitive market.Thus,one of the purposes of penetration pricing is to:

A) recoup product development costs quickly
B) discourage competitors from entering the market
C) produce a large margin of profit per unit
D) develop exclusive distribution
E) attract the price-insensitive buyer who demands the latest in technology

Question 59

Jones Soda Company and Big Sky Brands have introduced Jones Soda Carbonated Candy,a candy that delivers a blast of the most popular Jones Soda flavors along with an oddly enjoyable tongue-tingling sensation.Which pricing strategy would be appropriate if the company wants to convince price-sensitive consumers to try it and not buy some other brand?

A) price-lining
B) price-fixing
C) status quo pricing
D) penetration pricing
E) price-skimming

Question 60

The practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market is called:

A) price discrimination
B) predatory pricing
C) price fixing
D) price manipulation
E) anti-competitive pricing

Question 61

A discount off the base price to customers who pay immediately,or within a specified time period,is called a:

A) functional discount
B) quantity discount
C) base discount
D) cash discount
E) promotional allowance

Question 62

Which type of discount is a price reduction offered to a customer in return for prompt payment of a bill?

A) quantity discount
B) cash discount
C) rebate
D) functional discount
E) promotional allowance

Question 63

Home Depot's fall lawnmower sale is an example of which of the following pricing tactics?

A) quantity discount
B) seasonal discount
C) temporal discount
D) promotional allowance
E) functional discount

Question 64

_____ are cash refunds given for the purchase of a product during a specific period.

A) Rebates
B) Loss leaders
C) Reciprocal allowances
D) Demand discounts
E) Promotional allowances

Question 65

Quantity discounts are most often used to:

A) reward the buyer who pays in cash
B) encourage large orders
C) increase supply for a specific raw material
D) reward a channel intermediary for performing some service
E) shift the storage function backward to the supplier

Question 66

Which type of quantity discount is a deduction from the list price that applies to a single order?

A) base discount
B) cumulative discount
C) noncumulative discount
D) cash discount
E) functional discount

Question 67

_____ occurs when a firm is customer-driven and seeks to understand the attributes customers want in the goods and services they buy and the value of those attributes to customers.Thus,the price of the product is set at a level that seems to the customer to be a good price compared with the prices of other options.

A) Value-based pricing
B) Noncumulative pricing
C) CRM pricing
D) Market concept pricing
E) Price bundling

Question 68

A _____ is a price reduction that shifts the storage function forward to the purchaser and enables manufacturers to maintain steady production year-round.

A) functional discount
B) base allowance
C) promotional allowance
D) quantity discount
E) seasonal discount

Question 69

A(n)_____ discount is a deduction from list prices that applies to the buyer's total purchases made during a specific period and intended to encourage customer loyalty.

A) cumulative quantity
B) noncumulative quantitative
C) functional
D) cash
E) integrated

Question 70

An Internet picture frame manufacturer offers retailers reduced prices on any combination of size or style frames purchased.The discount is shown as they shop and adjusted as the quantity of frames purchased increases.What common form of purchase discount is the frame manufacturer using?

A) rebate
B) cash discount
C) quantity discount
D) promotional allowance
E) functional discount

Question 71

The basic assumption behind value-based pricing is that:

A) the firm is sales-driven
B) the firm is both customer-driven and competitor-driven
C) increased profitability for wholesalers will increase the number of services they are willing to perform
D) consumers are more concerned about price than quality
E) additional long-term costs to manufacturers will increase

Question 72

After managers understand both the legal and the marketing consequences of price strategies,they should set a _____ price,the general level at which a company expects to sell a good or service.

A) functional
B) zone
C) demand
D) leader
E) base

Question 73

Hunter's Alley is a chain of stores targeted to people who are proud of their NRA membership.It has agreed to set up a special display of Swartklip ammunition near its rifle and shotgun aisles and also to run an advertisement in newspapers in communities where its stores are located.Swartklip has agreed to supply the display material free and to pay for half the cost of the advertisement.This is an example of a:

A) bundled pricing tactic
B) functional discount
C) promotional allowance
D) quantity discount
E) direct allowance

Question 74

When a channel intermediary is compensated for the ordinary services and tasks performed within the channel of distribution,the compensation usually comes in the form of a discount from base price.This discount is called a:

A) seasonal discount
B) promotional allowance
C) cumulative or noncumulative quantity discount
D) functional (or trade) discount
E) rebate or refund

Question 75

Each fall,ABC Men's Wear holds a major sale,reducing the prices of suits that didn't sell.ABC Men's Wear expects the suit manufacturers to absorb some of the cost of the price reduction through _____.

A) promotional allowances
B) leader pricing reductions
C) manufacturer price skimming
D) markdown money
E) make-up allowances

Question 76

All of the following are tactics for fine-tuning the base price EXCEPT:

A) functional discounts
B) markdown money
C) rebates
D) quality discounts
E) quantity discounts

Question 77

Apple's "Back to School" program offered students who purchased an iMac computer and an iPod Touch MP3 player a $250 refund.The $250 check was essentially a _____:

A) rebate
B) reciprocal allowance
C) cash discount
D) functional discount
E) trade promotion

Question 78

When the salesperson from Affiliated Food Inc.,a grocery distributor,calls on a grocery stores,she is authorized to offer a 15 percent discount from the list price in recognition of activities (such as unpacking items and stocking shelves)that retailers perform for the distributor.This 15 percent discount is a _____.

A) quantity discount
B) promotional allowance
C) functional discount
D) seasonal discount
E) channel allowance

Question 79

When a buyer pays a lower price for buying multiple units or above a specified dollar amount for a single order,the buyer is receiving a _____ discount.

A) promotional
B) quantity
C) frequent buyer
D) functional
E) cumulative

Question 80

Last year,a single infield box ticket for an Atlanta Braves baseball game cost $40,but fans who bought a season pass for the same seat got a reduced price.This $40 price was a _____ price.

A) base
B) zone
C) demand
D) channel leader
E) functional