Question 1

In second-degree price discrimination, the seller charges ________.

Accepted Answer

In second-degree price discrimination, the seller charges different prices to buyers of different volumes. This is also known as quantity discrimination. The seller offers lower prices to buyers who purchase large volumes, in order to incentivize them to buy more and increase the seller's total revenue.

Question 2

When Coca-Cola carries a different price depending on whether the consumer purchases it in a fine restaurant, a fast-food restaurant, or a vending machine, then this form of price discrimination is known as ________.

Accepted Answer

The answer of When Coca-Cola carries a different price depending...

Question 3

The price of tickets to the opera vary depending on where the person would like to be seated-in the gallery or in the stalls. This is an example of ________.

Accepted Answer

The scenario described is an example of location pricing, where prices vary based on the location or seating choice within the theater. The other options (A) channel pricing, (B) time pricing, (C) image pricing, and (D) product-form pricing do not match the scenario described.

Question 4

________ refers to selling below cost with the intention of destroying competition.

Accepted Answer

Predatory pricing refers to selling products at a very low price with the intention of driving competitors out of business. This way, when the competitor is out of the market, the predatory seller can raise prices again to make up for the losses incurred during the period of selling below cost. This tactic is illegal in many countries.

Question 5

When a company requires the customers to pay today's price and all or part of any inflation increase that takes place before delivery, it is known as ________.

Accepted Answer

The practice of requiring customers to pay today's price and all or part of any inflation increase that takes place before delivery is known as an escalator clause. This is a way for companies to protect themselves against inflation and ensure that they are able to make a profit on the sale.

Question 6

In markets that are characterized by products that are highly homogeneous, how should a firm react to a competitor's reduction in price?

Accepted Answer

In highly homogeneous markets, it can be difficult to differentiate a product through features or services. Augmenting the product, such as by improving its quality or adding additional benefits, can help a firm stand out and compete effectively in the marketplace. Responding with a reduction in product features or services, or substituting cheaper materials, may lower costs but also undermine the product's value in the eyes of consumers. Shrinking the amount of the product available may create shortages or lead to lost sales, while reducing the price may lead to a price war that ultimately hurts profits for all firms in the market.

Question 7

When hotels drop their rates on the weekends, then this form of price discrimination is known as ________.

Accepted Answer

Time pricing refers to offering different prices for the same product or service during different times of the day, week, or year. When hotels drop their rates on weekends, they are practicing time pricing by charging different prices for the same accommodation depending on the day of the week.

Question 8

Madame Tussaud's wax museum is a popular tourist attraction in London. The museum charges higher entry rates for tourists compared to locals. This form of price discrimination is known as ________.

Accepted Answer

Customer-segment pricing is a form of price discrimination where different prices are charged to different groups of customers, such as tourists and locals, based on their willingness to pay.

Question 9

A company does not set a final price until the product is finished or delivered. This is known as ________.

Accepted Answer

Delayed quotation pricing is the practice of not setting a final price for a product until it is finished or delivered. This approach allows the company to consider all the costs and factors involved in producing and distributing the product before setting a price. It can be useful in industries where costs are hard to predict or fluctuate significantly, such as construction or manufacturing.

Question 10

When higher-priced competitors match the lower prices but have longer staying power because of deeper cash reserves, it leads to a(n)________.

Accepted Answer

The answer of When higher-priced competitors match the lower prices...

Question 11

________ reward dealers for participating in advertising and sales support programs.

Accepted Answer

Promotional allowances are incentives given to dealers for participating in advertising and sales support programs, such as providing funds for a dealer to advertise a manufacturer's product locally. Functional discounts are offered to wholesalers and retailers for performing specific marketing functions, such as warehousing and shelf stocking. Trade discounts are discounts off the list price offered to channel intermediaries for the service they provide. Rebates are refunds of a portion of the purchase price to the buyer after the sale. Quantity discounts are discounts offered to buyers who purchase large volumes of a product.

Question 12

A low price buys market share but not market loyalty. The same customers will shift to any lower-priced product that may come along. This is called the ________.

Accepted Answer

The answer of A low price buys market share but...

Question 13

In ________, the seller charges different amounts to different classes of buyers.

Accepted Answer

Third-degree price discrimination is when a seller charges different prices to different classes of buyers. This is commonly seen in things like student discounts, senior discounts, and sales targeting specific demographics.

Question 14

For price discrimination to work ________.

Accepted Answer

The answer of For price discrimination to work ________.
...

Question 15

When a company maintains its price but removes or prices separately one or more elements that were part of the former offer, such as free delivery or installation, it is known as ________.

Accepted Answer

When a company maintains its price but removes or prices separately one or more elements that were part of the former offer, such as free delivery or installation, it is known as unbundling. This can sometimes be done to give customers more control over what they are paying for or to offer different pricing options.

Question 16

When supermarkets and department stores drop the price on well-known brands to stimulate store traffic, they are said to be following ________.

Accepted Answer

This situation describes a loss-leader pricing strategy, where a product is sold below its cost to attract customers into the store in hopes they will make additional purchases at full price.

Question 17

When museums charge a lower admission fee to students and senior citizens, then this form of price discrimination is known as ________.

Accepted Answer

Customer-segment pricing is the practice of charging different prices to different groups of consumers for the same good or service. In this case, museums are charging a lower admission fee to students and senior citizens, which is an example of customer-segment pricing. Location pricing is charging different prices for a product or service based on its location, channel pricing is charging different prices for the same product sold through different channels (e.g. online vs. in-store), special-customer pricing is offering discounts or perks to specific customers (such as loyal customers), and loss-leader pricing is offering a product at a low price to attract customers to buy other items at regular prices.

Question 18

When Alan bought his car, the bank gave him 24 months to repay his car loan. But when Alan made a request to increase the time frame to 36 months, the bank granted the extension. The bank was willing to offer Alan a ________.

Accepted Answer

The question mentions that the bank gave Alan an extension on his repayment period, which means they granted him a longer payment term. Therefore, the correct answer is A) longer payment term. The other options, such as warranty contracts and service contracts, are not mentioned in the question and are unrelated to the bank's decision to extend the payment term. Similarly, there is no reference to special customer or event prices.

Question 19

In ________, the seller charges a separate price to each customer depending on the intensity of his or her demand.

Accepted Answer

First-degree price discrimination, also known as perfect price discrimination, occurs when a seller charges a different price for each unit sold or to each customer based on their willingness to pay. This approach aims to capture the maximum amount of consumer surplus for the seller by tailoring prices to the individual demand of each customer.

Question 20

The airline and hospitality industries use ________, by which they offer discounted but limited early purchases, higher-priced late purchases, and the lowest rates on unsold inventory just before it expires.

Accepted Answer

The pricing strategy described in the question is called yield pricing, which is commonly used by airlines and hotels to maximize revenue by adjusting prices based on demand and time left before the inventory expires. Special-customer pricing, cash rebates, location pricing, and customer-segment pricing do not necessarily involve the same principles as yield pricing.

Quiz 14: Developing Pricing Strategies and Programs