Exam 16: Pricing Concepts and Strategies

Since many firms begin penetration pricing with the intention of increasing prices in the future, success depends on generating numerous trial purchases.

When is demand said to be inelastic?

Flexible cost-plus global pricing allows companies to grant discounts or change prices according to shifts in the competitive environment or fluctuations in international exchange rates.

What is the recommended price approach for a company that is expanding into the global market and will face rather low foreign marketing costs?

A Swedish telephone maker transfers phones costing $10 to produce to its Canadian subsidiary for a transfer price of $20. The Canadian subsidiary sells the phones to retailers for $25 each and spends $5 per phone in promotion and distribution expenses. What is the outcome for the Canadian subsidiary?

What should Proctor & Gamble in order to introduce a value-priced brand of laundry detergent?

Bundling is common in the telecommunications industry, although many customers would prefer prices to be listed individually.

Penetration pricing is likely to be used when demand for a good or service is highly inelastic.

What must estimated demand curves be based on?

Firms using a competitive pricing strategy try to reduce the emphasis on price competition by matching other firms' prices and concentrating their own marketing efforts on the product, distribution, and promotion elements of the marketing mix.

Discuss the practice of promotional pricing and the role played by loss leaders and leader pricing.

Under competitive pricing, when firms follow suit after a competitor has lowered its price, the price cut will leave all competitors with less revenue unless the lower price attracts new customers and expands the overall market enough to offset the per-unit loss of revenue.

A company that has adopted a volume objective for its pricing will typically attempt to maximize sales, given that it can achieve some stated minimum acceptable profit level on those sales.

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

What would be used to calculate the number of units of product that must be sold at a certain price in order to recover fixed costs?

Extensive research related to psychological pricing consistently indicates that certain prices or price ranges make products more appealing to buyers.

A retailer is considering expanding to a second location. What might the retailer use in a breakeven analysis to examine the sales level needed to achieve expansion?

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

Explain the concept of elasticity of demand.

What is demand or supply said to be when the calculated elasticity of demand or supply is greater than 1.0?