Question 1

Refer to the scenario below to answer the following question(s).
Champion, Inc. is a manufacturer of lunch boxes, school bags, and school stationery. Charles Payton, the CEO of Champion, hopes to sell the products at a low price to penetrate the market quickly.
-Which of the following best supports a market-penetration strategy for Champion?
A) Production costs increase as sales volume increases.
B) It is very difficult for competitors to enter the market.
C) The cost of producing a smaller volume is negligible.
D) The quality of the products supports high initial prices.
E) The market for the products is highly price sensitive.

Accepted Answer

A market-penetration strategy involves selling products at a low price to attract a large number of customers quickly. This strategy is most effective in markets where customers are highly price sensitive. Therefore, option E best supports a market-penetration strategy for Champion. Options A, B, and D do not support the strategy because production costs, market entry barriers, and product quality are not related to price. Option C indicates that the cost of producing a smaller volume is negligible, but does not necessarily support a market-penetration strategy.

Question 2

When The Candy Store sets a low initial price in order to get its "foot in the door" and to quickly attract a large number of buyers, the company is using market-skimming pricing.

Accepted Answer

The statement describes a penetration pricing strategy, not a market-skimming pricing strategy. Market-skimming pricing involves setting a high initial price to target customers who are willing to pay a premium for a new or innovative product.

Question 3

Companies set not a single price, but a pricing ________ that covers different items in its line and changes over time as products move through their life cycles.
A) by-product
B) structure
C) loop
D) cycle
E) bundle

Accepted Answer

Companies use a pricing structure that covers different items in its product line and changes over time as products go through their life cycles. This allows for flexibility in pricing and the ability to appeal to different market segments.

Question 4

A market-penetration pricing policy should LEAST likely be used for a new product when ________.
A) the market is highly price sensitive
B) production and distribution costs fall as sales volume increases
C) the product's quality and image support a high price
D) a high price helps keep out the competition
E) there are few or no competitors in the market

Accepted Answer

A market-penetration pricing policy involves setting a low price initially to quickly gain market share. This strategy is appropriate when the market is price sensitive, production costs decrease as sales volume increases, and a low price helps keep out competition. However, if the product's quality and image support a high price, it is unlikely that a market-penetration pricing strategy would be effective.

Question 5

Companies facing the challenge of setting prices for the first time can choose between two broad strategies: market-penetration pricing and ________ pricing.
A) comparative
B) competitive
C) market-skimming
D) market-segmentation
E) cost-plus

Accepted Answer

Market-skimming pricing is the best choice for companies facing the challenge of setting prices for the first time because it involves setting a high price for a new product or service to skim maximum revenues layer by layer from segments willing to pay the high price. This strategy works best when the product is perceived to be highly innovative, offers unique benefits, or has a strong brand image. This pricing strategy also helps to recover high research and development costs quickly.

Question 6

Companies that set a low price for a new product in order to attract a large number of buyers and a large market share are using the ________ strategy.
A) market-skimming pricing
B) market-penetration pricing
C) cost-plus pricing
D) inclusive pricing
E) exclusive pricing

Accepted Answer

Market-penetration pricing is when a company sets a low price for a new product in order to attract a large number of buyers and gain a large market share. This strategy is commonly used when a company wants to quickly establish itself in a new market or when there is a lot of competition. Market-skimming pricing, on the other hand, involves setting a high price for a new product in order to maximize profits from early adopters before gradually lowering the price over time. Cost-plus pricing involves calculating the total cost of producing a product and then adding a markup to determine the final price. Inclusive pricing is when a company bundles multiple products or services together and sells them as a package for a single price. Exclusive pricing involves setting a high price for an exclusive product or service that is only available to a select group of customers.

Question 7

Differentiate between market-skimming and market-penetration pricing strategies. Explain the conditions within which they are effective.

Accepted Answer

The answer of Differentiate between market-skimming and market-penetration pricing strategies....

Question 8

Whizz Corp. wishes to introduce a new hybrid car into mature markets in developed countries with the goal of gaining mass-market share quickly. Which of the following pricing strategies would help the firm meet its goal?
A) market-skimming pricing
B) market-penetration pricing
C) market-segmentation pricing
D) cost-plus pricing
E) captive-product pricing

Accepted Answer

Market-penetration pricing strategy involves setting a low price for a new product to quickly gain market share. This strategy is most suitable for introducing a new product in mature markets, where companies need to capture market share quickly. Therefore, it would be the best choice for Whizz Corp. to introduce its new hybrid car in developed countries' mature markets.

Question 9

Pricing strategies tend to change and evolve as the average product passes through its life cycle.

Accepted Answer

Pricing strategies are not static and need to adapt to changing market conditions and the product's life cycle. As a product moves through its life cycle, its pricing strategy may shift from penetration pricing to skimming pricing, or from a value-based pricing approach to a cost-plus pricing approach, among other options. Furthermore, pricing can be influenced by factors such as competition, marketing campaigns, and changes in consumer demand.

Question 10

In a bid to attract more customers in a market that has several competitors, Barrymore's Bakery slashed the prices of all its products by 50 percent. Managers at the firm reasoned that lower prices would draw in even more customers, making up for the reduction in price several times over. Which of the following pricing strategies are they using?
A) market-skimming pricing
B) market-penetration pricing
C) captive-product pricing
D) cash discount pricing
E) by-product pricing

Accepted Answer

Barrymore's Bakery is using market-penetration pricing strategy by lowering the prices of all their products to attract more customers and gain a larger market share. This strategy can be effective in a competitive market where customers are price-sensitive and are more likely to switch to a lower-priced alternative.

Question 11

After entering a market by using market-penetration pricing, a company can easily raise its price and maintain its market share.

Accepted Answer

Customers may become accustomed to the lower price and may resist any price increases. Additionally, competitors may have lowered their prices to match the company's initial market-penetration price, making it difficult for the company to raise its price without losing market share.

Question 12

For a market penetration-price strategy to succeed, which of the following is LEAST likely to be true?
A) Production costs decrease as sales volume increases.
B) A low price triggers market growth.
C) Distribution costs decrease as sales volume increases.
D) Low prices must inhibit competition from entering the market.
E) The strategy can be changed quickly, to a higher-priced position, with no negative impact.

Accepted Answer

A market penetration pricing strategy often involves setting low prices to enter a competitive market and attract customers. Changing this strategy quickly to a higher-priced position could alienate the newly acquired customer base and have a negative impact, making it the least likely to be true for such a strategy to succeed.

Question 13

For market skimming to be successful, the costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more.

Accepted Answer

Market skimming involves charging a higher price for a product in order to capitalize on its uniqueness or newness, but this strategy only works if the higher price can be justified by the perceived value of the product. However, if the costs of producing a smaller volume are too high, the increased revenue from the higher price may not be enough to offset those costs, and the strategy may not be successful.

Question 14

Which of the following is true of market-penetration pricing?
A) It should be used when the product's quality and image support a high price.
B) It involves setting a high price for a new product to appeal to the elite in society.
C) It results in drawing in large numbers of buyers quickly, winning a large market share.
D) It is best used in conjunction with a market-skimming pricing strategy.
E) It results in the company making fewer and less profitable sales.

Accepted Answer

Market-penetration pricing involves setting a low price for a new product to attract a large number of buyers quickly and gain a large market share. Option A is incorrect as market-penetration pricing involves setting a low price, not a high price. Option B is incorrect as it describes a high-price strategy, which is not market-penetration pricing. Option D is incorrect as market-skimming pricing involves setting a high price initially to target early adopters and product enthusiasts, which is the opposite of market-penetration pricing. Option E is incorrect as market-penetration pricing aims to increase sales volume, even if the profit margin per unit is lower.

Question 15

Which of the following is true of price skimming?
A) It is effective in situations in which competitors are able to undercut prices easily.
B) It can be profitably used when the product's quality and image support its price.
C) It involves underpricing products so that companies make larger sales.
D) It is ineffective in situations in which competitors are unable to enter the market easily.
E) It leads to a situation in which the company completes more, though less profitable, sales.

Accepted Answer

Price skimming is a strategy in which a company sets a high price for a new product with the intention of maximizing profits before competitors enter the market. This strategy is effective when the product's quality and image support its high price. Option A is incorrect because price skimming is actually less effective when competitors can easily undercut prices. Option C is incorrect because price skimming involves setting a high price, not underpricing. Option D is incorrect because price skimming is actually more effective when competitors are unable to enter the market easily. Option E is incorrect because price skimming leads to fewer, but more profitable, sales.

Question 16

For what types of products might marketers use market-skimming pricing?

Accepted Answer

The answer of For what types of products might marketers...

Question 17

When a company sets a high price for a new product with the intention of reducing the price in the future, it is using the ________ pricing strategy.
A) market-skimming
B) cost-plus
C) market-segmentation
D) market-penetration
E) competitive

Accepted Answer

This is because market-skimming pricing involves setting a high initial price to 'skim' revenue layers from the market before lowering the price to attract more price-sensitive consumers. This strategy is commonly used for new and innovative products that have unique features or benefits.

Question 18

A market-skimming pricing strategy should NOT be used for a new product when ________.
A) the product's quality and image support its higher price
B) enough buyers want the products at that price
C) competitors are unable to enter the market
D) competitors can undercut prices easily
E) producing a smaller number of goods is feasible

Accepted Answer

A market-skimming pricing strategy involves setting a high price for a new product to skim maximum revenues layer by layer from segments willing to pay the high price. This strategy may not be advisable if competitors can easily undercut prices, as this may lead to the loss of the high-priced segment of customers. Thus, in this case, a market penetration pricing strategy may be more suitable. Factors such as product quality, buyer demand, market entry barriers, and production feasibility may support or hinder both pricing strategies.

Question 19

Electrowhip, a company that manufacturers blenders and electric whisks, has decided to use a market penetration pricing strategy. Which of the following, if true, proves their decision to be a wise one?
A) Electrowhip's competitors utilize social media for marketing their products.
B) Electrowhip sells products whose image and quality support high prices.
C) Electrowhip operates in a market with many competitors.
D) Electrowhip does not operate in a price sensitive market.
E) Electrowhip's products are intended to appeal to the elite in society.

Accepted Answer

Market penetration pricing is most effective in markets with many competitors, as it helps a company to attract customers by offering lower prices than those of its competitors.

Question 20

Midnight Magic, a perfume manufacturing company, plans to release a new fragrance during the holiday season at $99 per bottle. The company intends to bring the price down to $49 within six months of its release to attract buyers who couldn't afford the initial price. Which of the following pricing strategies is Midnight Magic using?
A) market-penetration pricing
B) market-skimming pricing
C) competitive pricing
D) cost-plus pricing
E) product-line pricing

Accepted Answer

Market-skimming pricing involves setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price. Midnight Magic is using this strategy by initially setting a high price and planning to lower it later to capture another layer of the market.

Quiz 11: Pricing Strategies: Additional Considerations

When The Candy Store sets a low initial price in order to get its "foot in the door" and to quickly attract a large number of buyers, the company is using market-skimming pricing.

Companies set not a single price, but a pricing ________ that covers different items in its line and changes over time as products move through their life cycles.

A market-penetration pricing policy should LEAST likely be used for a new product when ________.

Companies facing the challenge of setting prices for the first time can choose between two broad strategies: market-penetration pricing and ________ pricing.

Companies that set a low price for a new product in order to attract a large number of buyers and a large market share are using the ________ strategy.

Differentiate between market-skimming and market-penetration pricing strategies. Explain the conditions within which they are effective.

Whizz Corp. wishes to introduce a new hybrid car into mature markets in developed countries with the goal of gaining mass-market share quickly. Which of the following pricing strategies would help the firm meet its goal?

Pricing strategies tend to change and evolve as the average product passes through its life cycle.

After entering a market by using market-penetration pricing, a company can easily raise its price and maintain its market share.

For a market penetration-price strategy to succeed, which of the following is LEAST likely to be true?

For market skimming to be successful, the costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more.

Which of the following is true of market-penetration pricing?

Which of the following is true of price skimming?

For what types of products might marketers use market-skimming pricing?

When a company sets a high price for a new product with the intention of reducing the price in the future, it is using the ________ pricing strategy.

A market-skimming pricing strategy should NOT be used for a new product when ________.

Electrowhip, a company that manufacturers blenders and electric whisks, has decided to use a market penetration pricing strategy. Which of the following, if true, proves their decision to be a wise one?