Question 1

What determines whether a quantity discount is cumulative or noncumulative?

Accepted Answer

The frequency of purchase determines whether a quantity discount is cumulative or noncumulative. Cumulative discounts are based on the quantity purchased over a period of time, while noncumulative discounts are based on the quantity purchased in a single order.

Question 2

What should customers submit to the creditor if they want to take the discount on an invoice for $300 dated April 1 with terms of 3/10 net 30?

Accepted Answer

The terms 3/10 net 30 mean the customer can take a 3% discount if they pay within 10 days. 3% of $300 is $9, so the customer should pay $291 ($300 - $9) by April 10 to take advantage of the discount.

Question 3

What term refers to penetration pricing?

Accepted Answer

Penetration pricing, also known as market-minus pricing, involves setting a low price for a new product to attract customers and gain market share quickly.

Question 4

When General Motors introduced the Saturn, it priced the SL sports sedan at $2,000 less than the Toyota Corolla DLX and $1,500 less than comparable Nissan and Honda automobiles. What pricing strategy is this an example of?

Accepted Answer

Penetration pricing strategy involves setting the price of a product lower than the competitors' prices to gain market share quickly. By pricing the Saturn lower than its competitors, General Motors was using penetration pricing to attract customers who might otherwise purchase from Toyota, Nissan, or Honda.

Question 5

Many credit cards offer so-called "teaser" rates-low introductory rates that rise after a few months. What pricing strategy is the use of introductory rates an example of?

Accepted Answer

Penetration pricing strategy involves setting a low price to enter a competitive market and attract customers. The use of low introductory rates on credit cards is an example of this, as it aims to draw in customers initially with attractive rates before increasing prices later on.

Question 6

What type of price is normally quoted to potential buyers before any discounts or allowances are allowed?

Accepted Answer

List price is the price of a product as advertised or displayed before any discounts or allowances are applied. It's the initial price quoted to potential buyers.

Question 7

Which of the following is NOT a characteristic of everyday low pricing?

Accepted Answer

Everyday low pricing (EDLP) strategy focuses on providing customers with consistently low prices without relying on short-term price-cutting tactics such as cents-off coupons, rebates, and special sales. This approach contrasts with promotional pricing strategies that involve temporary price reductions to stimulate sales.

Question 8

What type of demand for a product would penetration pricing work best for?

Accepted Answer

Penetration pricing is most effective for products with highly elastic demand because consumers are very sensitive to price changes. Lowering prices can significantly increase the quantity demanded.

Question 9

What makes up a product's market price?

Accepted Answer

The market price of a product is typically the list price minus any discounts and allowances, plus any geographic considerations that may affect the final price.

Question 10

What term refers to the skimming pricing strategy?

Accepted Answer

Skimming pricing strategy is also known as market-plus pricing, where a high price is set initially and then gradually lowered. This approach is often used to recover the investment on a new product quickly.

Question 11

What type of discount is given off the list price for prompt payment of the invoice?

Accepted Answer

Cash discounts are offered to buyers as an incentive for timely payment of their invoices. This type of discount is deducted from the list price before any other calculations.

Question 12

What is it called when a manufacturer offers an intermediary a percentage discount off the list price of products it handles in exchange for performing certain wholesaling activities?

Accepted Answer

A trade discount is offered by manufacturers to intermediaries for performing certain functions like stocking, selling, and record keeping. It's a percentage reduction from the list price of goods.

Question 13

Why does a seller use a negative cash discount?

Accepted Answer

Negative cash discounts are used to improve a seller's liquidity position and cut collection expenses by encouraging early payment from buyers.

Question 14

Which pricing strategy tries to remove price as a strategic weapon?

Accepted Answer

The answer of Which pricing strategy tries to remove price...

Question 15

In order to recover research and development costs rapidly and earn initial high profits, Sony set a high price for its plasma TVs. What is the pricing strategy Sony used?

Accepted Answer

Sony used a price skimming strategy, which involves setting high initial prices to "skim" revenue layers from the market willing to pay the high price, thus recovering research and development costs quickly while making high profits.

Question 16

What pricing strategy offer prices that are consistently lower than those of competitors?

Accepted Answer

Everyday low pricing strategy involves setting prices lower than those of competitors on a consistent basis, not just for promotions or sales events. This approach aims to attract price-sensitive customers and build loyalty by offering them the assurance of low prices every time they shop.

Question 17

What is a one-time reduction in list price, typically offered at time of sale, referred to as?

Accepted Answer

A noncumulative discount is a one-time reduction in the list price offered at the time of sale, typically to encourage immediate purchase.

Question 18

What type of discount is given off the list price for large-volume purchases?

Accepted Answer

Quantity discounts are offered to buyers for purchasing large volumes, incentivizing bulk purchases by reducing the price per unit.

Question 19

Which of the following is NOT an advantage of skimming pricing?

Accepted Answer

Skimming pricing is a strategy where a high initial price is set for a new product, primarily to recover R&D costs quickly and target early adopters. The disadvantage mentioned in option C is that high profits can attract competitors, which is not an advantage but a potential drawback of this pricing strategy.

Question 20

How would the terms be stated if a business was offering a cash discount of five percent if consumers pay the invoice within 30 days with the full face amount of the invoice due 30 days after that?

Accepted Answer

The correct term is "5/30, net 60," which means a 5% discount is offered if the invoice is paid within 30 days, and the full amount is due 60 days from the invoice date.

Quiz 16: Pricing Concepts and Strategies