Exam 18: Setting the Right Price

SCENARIOS Art Supplies It's September and Sophia wants to buy some arts and crafts supplies for an after-school program she is developing for her daughter's elementary school.In her Sunday newspaper was a flyer from Michael's,an arts and crafts retailer.As she looked through the newspaper insert,she noticed that if she purchased three or more bottles of Alene's Tacky Glue,the regular price of $1.50 each was reduced to $1.15 each.She also saw that the store priced its plastic storage boxes at $1.99,$3.99,and $5.99.She thought they would be useful for storing each individual child's projects.On the front page of the flyer was an ad for Funky Girls Gel Pens,something she knew her daughter would love to use.The price at Michael's was $6.99 lower than the price she had found at the other stores that carried the pens.She thought that some of the older girls might like to start a scrapbook and was pleased to find that Michael's had a scrapbook starter kit,which includes scissors,book,pages,and stickers for only $15.The items could be purchased separately for $19.99.The flyer also announced that all flag-related items leftover from its Fourth of July sale were reduced by 40 percent. -Refer to American Girl Catalog.In order to determine how to price the doll,American Girl most likely used a four-step process.The first step in this process was to:

When a firm introduces a new product at a relatively low price because it hopes to reach the mass market,it is following a _____ strategy.The low price is designed to capture a large share of a substantial market and produce lower production costs.

Distinguish between a cumulative and a noncumulative discount.

The basic assumption with price skimming is that the firm is customer driven,seeking to understand the attributes customers want in goods and services they buy and the value of that bundle of attributes to customers.

During a recent recession,many manufacturers determined that their suppliers were an excellent source of cost savings.Specific cost-reduction strategies manufacturers have used with their suppliers include:

Two effective pricing tactics,which can be used during a recession,to hold or build market share are:

The Raver-Smythe Corporation (RSC)has introduced mylar-based artificial fingernails.It earns a low profit margin on the sale of each box of its new fingernails and is still able to meet its revenue objectives due to economies of scale.RSC is using a penetration pricing policy.

After establishing pricing goals,managers should estimate total revenue at a variety of prices.Next,they should _____.Only after performing this task are they are ready to estimate how much profit and how much market share can be earned at each possible price.

If the seller pays all or part of the actual freight charges and does not pass them on to the buyer,the seller is using _____ pricing.

Escalator pricing is:

Name five of the special pricing tactics.Give one advantage and one disadvantage associated with using each of the tactics you have named.

Many businesses find recessions to be an excellent time to build market share through the use of price shading.

What type of geographic pricing policy would a marketing manager most appropriately choose for the following products: (1)nationally advertised bubble gum,(2)rebuilt engines for jet airplanes,and (3)bulk amounts of a rare spice harvested from a single mountain in Canada and used in high-priced restaurants.Justify your answers,and specify any assumptions you used to arrive at your answer.

Under what conditions is each of the three basic pricing methods successful?

SCENARIOS Art Supplies It's September and Sophia wants to buy some arts and crafts supplies for an after-school program she is developing for her daughter's elementary school.In her Sunday newspaper was a flyer from Michael's,an arts and crafts retailer.As she looked through the newspaper insert,she noticed that if she purchased three or more bottles of Alene's Tacky Glue,the regular price of $1.50 each was reduced to $1.15 each.She also saw that the store priced its plastic storage boxes at $1.99,$3.99,and $5.99.She thought they would be useful for storing each individual child's projects.On the front page of the flyer was an ad for Funky Girls Gel Pens,something she knew her daughter would love to use.The price at Michael's was $6.99 lower than the price she had found at the other stores that carried the pens.She thought that some of the older girls might like to start a scrapbook and was pleased to find that Michael's had a scrapbook starter kit,which includes scissors,book,pages,and stickers for only $15.The items could be purchased separately for $19.99.The flyer also announced that all flag-related items leftover from its Fourth of July sale were reduced by 40 percent. -Refer to Art Supplies.Which of the following merchandise is offered in the flyer with a seasonal discount?

The owner of a flower shop decided to sell a dozen red roses for $13.50.He hopes the below-cost price for the roses will attract current and new customers who will also buy regularly priced items.The manager is encouraging store patronage through:

Merchants frequently offer a _____,a discount off the base price to customers who pay immediately,or within a specified time period.

Lipton makes several easy-to-prepare side dishes all using macaroni shells.In promoting this product line,Lipton offers a 50-cents-off coupon that can be used for any of its macaroni-based mixes.Therefore,Lipton must consider _____ when pricing its mixes.

What is product line pricing? What three relationships among products in the line must managers be aware of before setting prices? For each relationship,give an example of a product that fits the situation.

One popular cost-oriented pricing tactic is culling low-profit margin products from the product line.Which of the following statements does NOT describe a reason why a marketing manager would want to avoid this tactic?