Exam 20: Setting the Right Price

_____ tries to get customers into the store with misleading advertising and then uses high-pressure selling to persuade the consumer to buy something else more expensive.

Apple iPhone Apple Inc. iPhone went on sale on June 29, 2007. Apple's loyal and enthusiastic customer base is known for rushing to purchase its new products and the iPhone enjoyed a tremendous amount of "buzz" before its introduction. As expected, the iPhone entered the market at what many believed to be a high price ($599). However, within weeks the price was reduced to $399. By the end of 2007 over 8 million iPhones had sold in the U.S. marketplace. By most, if not all measures, the original iPhone was a huge success for Apple and it exclusive U.S. carrier AT&T. On July 11??, 2008, Apple Inc. released the iPhone 3G, which it advertised as twice as fast as the original iPhone for half the cost. However, in order to obtain an iPhone at the new price of $199, buyers had to agree to a two-year service contract with AT&T. This allows iPhone users to receive phone calls and email, and search the web on the same device. A single charge of $59.99 from AT&T included 450 minutes of cellular calls, with free nights and weekend minutes, unlimited data, visual voicemail, 200 text messages, rollover minutes, and unlimited mobile-to-mobile service within the AT&T network. This approach succeeded and over a million iPhone 3Gs were sold during the introductory weekend. -Refer to Apple iPhone.When Apple Inc.introduced the iPhone at a high price it was probably using a _____ strategy to maximize profits.

List the three basic pricing methods.Name one advantage and one disadvantage associated with using each method.

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.

Consumers sometimes prefer two-part pricing because:

E-Books With the explosive growth of electronic book, or e-book, readers like Amazon's Kindle and Barnes & Noble's Nook and even smart phones like the iPhone and BlackBerry devices, book pricing is becoming a significant concern for book publishers. Digital book sales have grown exponentially from almost non-existent in 2002 to more than $120 million in 2009. While these sales are still small compared to industry sales, they are expected to grow even more in the coming years due to the plethora of e-book readers coming on the market. This creates a dilemma for publishers, though, because the average price of a hardcover book, which is the bread-and-butter of publishers' profits, is $27.00, whereas the price of an e-book is $9.99. To protect profits, some publishers, like Simon & Schuster, are delaying the electronic editions by four months. Other publishers are following suit, claiming consumers will not buy the hardcover at $27.00 if they can purchase it at a much lower price electronically. -Refer to E-Books.Prices for new releases average $27.00. Publishers price books this high to maximize profits and is an example of which pricing strategy?

Reducing the services that come with the basic product is called:

Alissa Dunn is the owner and operator of Dunn's Best Jams,which she sells at craft festivals.She only makes and sells three types of jams--pecan pie jam,chocolate pie jam,and lemon tart jam.The costs of leasing her professional kitchen for manufacturing,travel to craft shows,insurance,and so on are allocated on an equal basis to the three types of jam sold.In other words these costs are:

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

Marketing managers can use a wide variety of special pricing tactics beyond discounts and allowances to fine-tune prices.Name and define five of the other pricing tactics that are legal.For each tactic,give an example of a specific company,industry,or product that would use the tactic.

Consumers are required to pay consumer fees because businesses allegedly:

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:

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.

Kule,Inc.produces three different lines of car racks for transporting large,bulky items. Total company net annual profit = $40,000 Included in the cost of goods sold is $12,000 of annual rent (a fixed cost)that is distributed equally among the three product lines.As a consultant to Kule,will you recommend that it drop the luggage rack line?

_____ 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.

Escalator pricing is:

Apple iPhone Apple Inc. iPhone went on sale on June 29, 2007. Apple's loyal and enthusiastic customer base is known for rushing to purchase its new products and the iPhone enjoyed a tremendous amount of "buzz" before its introduction. As expected, the iPhone entered the market at what many believed to be a high price ($599). However, within weeks the price was reduced to $399. By the end of 2007 over 8 million iPhones had sold in the U.S. marketplace. By most, if not all measures, the original iPhone was a huge success for Apple and it exclusive U.S. carrier AT&T. On July 11??, 2008, Apple Inc. released the iPhone 3G, which it advertised as twice as fast as the original iPhone for half the cost. However, in order to obtain an iPhone at the new price of $199, buyers had to agree to a two-year service contract with AT&T. This allows iPhone users to receive phone calls and email, and search the web on the same device. A single charge of $59.99 from AT&T included 450 minutes of cellular calls, with free nights and weekend minutes, unlimited data, visual voicemail, 200 text messages, rollover minutes, and unlimited mobile-to-mobile service within the AT&T network. This approach succeeded and over a million iPhone 3Gs were sold during the introductory weekend. -Refer to Apple iPhone.For one fee,the basic AT&T cellular package includes 450 minutes of cellular calls,with free nights and weekend minutes,unlimited data,visual voicemail,200 text messages,rollover minutes,and unlimited mobile-to-mobile service within the AT&T network.AT&T is using price _____.

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 _____.

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: