Deck 14: Pricing Strategies

Question 1

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

Answer 1

True

Question 2

Citibank offers an opportunity for credit card customers to transfer balances from competitive cards and pay low financing for a six-month period. After the introductory period is over, the rate will increase to the normal interest rate. Citibank's strategy is to penetrate the market and obtain increased market share.

Answer 2

True

Question 3

Product line pricing is the practice of marketing merchandise at variable prices negotiated between buyer and seller.

Answer 3

False

Question 4

Most companies set prices using competitive pricing as their primary pricing strategy.

Question 5

Tiffany, Rolex, Gucci, and Prada represent exclusivity, meaning their prices are mostly inelastic.

Question 6

A leader merchandise is a product offered by retailers to customers at less than cost to attract them to stores.

Question 7

A skimming pricing strategy is commonly used as a market entry price for distinctive goods and services with high initial competition.

Question 8

Skimming is an effective strategy to use when products are distinctive or have little competition.

Question 9

Skimming pricing strategies are also known as "market-plus pricing."

Question 10

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.

Question 11

Penetration pricing is often used in a market in which a new product is likely to face strong competition when introduced.

Question 12

In the absence of other cues, price is an important indicator of a product's quality to prospective purchasers.

Question 13

A low price is a sure sell because the demand for many goods is highly elastic.

Question 14

Setting prices is a one-time decision for most products in most companies.

Question 15

Lysol sanitizing wipes entered the market at a low sales price and was supported by heavy couponing. As the initial trial period passed, the pricing slowly rose and the couponing became more infrequent. This activity is an example of penetration pricing.

Question 16

A skimming pricing strategy is ineffective in marketing higher-end goods.

Question 17

A private-label product priced below the lower limit can be regarded as too cheap by potential customers.

Question 18

While price offers a dramatic means of achieving competitive advantage, it is the most difficult marketing variable for competitors to match.

Question 19

Marketers who have adopted a product-line pricing strategy have one major advantage in that they have no difficulty making price changes on individual items.

Question 20

A price of $ 9.97 is less likely to appeal to customers than $ 9.95 or $ 9.99.

Question 21

A penetration pricing strategy is called _____ pricing when it implements the premise that a lower-than-market price will attract buyers and move a brand from an unknown newcomer to brand-recognition or brand-preference stage.

A) market-plus
B) market-minus
C) EDLP
D) FOB

Question 22

When the elasticity of demand is greater than 1.0, then that demand is said to be inelastic.

Question 23

Since it involves the use of a high price relative to prices of competing products or services, the skimming pricing strategy is sometimes referred to as _____ pricing.

A) penetration
B) competitive
C) market-plus
D) functional

Question 24

Brands that are seeking to be associated with prestige and exclusivity often set higher prices.

Question 25

The price elasticity of demand (or elasticity of demand) is the percentage change in the quantity of a good or service demanded divided by the percentage change in its price.

Question 26

Unfair-trade laws were intended to protect small specialty shops, such as dairy stores, from loss-leader pricing tactics.

Question 27

The ticket reselling market is both highly fragmented and susceptible to fraud and distorted pricing.

Question 28

Most states supplement federal legislation with their own unfair-trade laws, which require sellers to maintain minimum prices for comparable merchandise.

Question 29

A _____ pricing strategy helps manufacturers to distinguish their high-end products from similar products of their competitors.

A) skimming
B) market share
C) competitive
D) penetration

Question 30

Pricing decisions are influenced by a variety of legal constraints imposed by federal, state, and local governments.

Question 31

The price of products only includes the costs incurred by the manufacturer for procuring the raw material and for processing the products.

Question 32

If consumers can easily find close substitutes for a good or service, the product's demand tends to be inelastic.

Question 33

Paul and Amanda have six season tickets to the St. Louis Cardinals, a major league baseball team. During the season, they often offer their unused tickets to the highest bidder, especially when the Cardinals play the Chicago Cubs. This practice, known as "scalping," is illegal in all U.S. cities.

Question 34

In order to recover research and development costs rapidly and earn high initial profits, SenseTV is setting a high price for its plasma TVs. The pricing strategy SenseTV is using is called _____ pricing strategy.

A) market-minus
B) skimming
C) penetration
D) competitive

Question 35

Defense based on cost differentials against charges of price discrimination under the Robinson-Patman Act works only if the price differences exceed the cost differences resulting from selling to various classes of buyers.

Question 36

When a chain store sells certain products below cost to attract customers, it is practicing a loss-leader price tactic.

Question 37

A skimming pricing strategy is more commonly used by firms to:

A) reduce the raised prices of products to the original level.
B) set a market-entry price for distinctive goods or services with little or no initial competition.
C) set a relatively low price for a product when they enter new markets characterized by dozens of competing brands.
D) set stable wholesale prices that undercut offers competitors make to retailers.

Question 38

High-demand sporting or concert events have encountered an expensive, often illegal, form of pricing where tickets are resold at a much higher price than what it was originally bought for. This practice is called ticket scalping.

Question 39

Companies can avoid penalties under the Robinson-Patman Act as long as they can demonstrate that their price discounts and promotional allowances restrict competition.

Question 40

Price is an important indicator of quality for many consumers.​

Question 41

A smartphone manufacturer introduced a new device into the marketplace with pricing set according to the skimming approach. The CEO of the company reviews financial reports from the device and notes that the pricing approach used is not cost-effective for the company. How should the CEO adjust the pricing strategy for this device? ​

A) Drop the price
B) Increase the price
C) Offer an everyday low price option
D) Remarket the device under a private label
E) Match the price to the competitions' price

Question 42

Retailers such as Home Depot and Lowe's, who offer to meet and beat the best price offered by their competitors, use the strategy of _____ pricing.

A) skimming
B) penetration
C) competitive
D) cost-plus

Question 43

A newly opened seafood restaurant advertises various deals on meal packages and special prices on dinner packages to attract customers. This is an example of _____ pricing.

A) leader
B) promotional
C) competitive
D) list

Question 44

In the absence of other cues:

A) many buyers interpret low prices as signals of high-quality products.
B) price offers no clue of a product's quality to prospective purchasers.
C) price is an important indicator of product quality to consumers.
D) the relationship between price and quality holds true only in declining economies.

Question 45

A pricing policy that assumes that some prices are more appealing than others is known as _____ pricing.

A) leader
B) product-line
C) psychological
D) prestige

Question 46

A retailer wants to increase the number of customers shopping in her store. Which of the following has the greatest potential for success?

A) Promotional pricing
B) Price flexibility
C) Prestige pricing
D) Unit pricing

Question 47

Psychological pricing is based on the premise that:

A) certain prices or price ranges make products more appealing to buyers than others.
B) one-price policies appeal to most people and suit mass-marketing programs.
C) setting a limited number of prices for a selection of merchandise has a certain appeal.
D) lower-than-normal prices as part of recurring marketing initiatives creates demand.

Question 48

Which of the following pricing strategies tries to reduce the emphasis on price as a competitive weapon?

A) Penetration pricing
B) Everyday low pricing
C) Skimming pricing
D) Competitive pricing

Question 49

The manufacturer of safety wallets is determining the retail price to charge for each unit sold. Which approach should the manufacturer use that supports the psychological pricing strategy? ​

A) Set the price at $24.97
B) Set the price at $25.00 for the first item and $5 for the second
C) Set the price according to the number of unrelated products sold
D) Set the price according to the number of variations of the wallet style
E) Set the first unit sold at full price and the second purchased at half price

Question 50

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. This is an example of the _____ pricing strategy.

A) skimming
B) penetration
C) competitive
D) leader

Question 51

Which of the following is true of promotional pricing?

A) It promotes goods and services at specific price ranges based on the belief that certain prices are more appealing to consumers.
B) It uses lower-than-normal price as a temporary component in the selling strategy.
C) It sets a high price for products that offer unique potential ability.
D) It uses extensive promotional allowances to get channel members to promote the product.

Question 52

Which of the following is a disadvantage associated with product-line pricing?

A) It does not provide flexibility for making price changes on individual items.
B) It results in consumers having difficulty in making purchase decisions.
C) It is ineffective in differentiating between products.
D) It does not allow shoppers to choose desired price ranges.

Question 53

An example of odd pricing would be:

A) a buy-two-get-one-free promotion.
B) selling a radar detector for $129.99 instead of $130.
C) subtracting trade-ins from the list price.
D) rebates that lower total price.

Question 54

When a men's clothing store sells suits at four price levels ($295, $455, $525, and $650), the store's retail policy is _____ pricing.

A) unit
B) promotional
C) product-line
D) psychological

Question 55

"Buy three shock absorbers and get the fourth free," as advertised by an auto repair shop, is an example of _____ pricing.

A) unit
B) variable
C) promotional
D) product-line

Question 56

A manufacturer of tablet computers has designed a unique new product that can network with satellites to access streaming video and television channels. This device does not need a Wi-Fi connection and can be accessed anywhere in the world by logging onto the site. Besides serving as a portable computer, this device bypasses the need for a consumer to purchase cable or personal satellite dish access. Which approach to pricing makes the most sense for the company to use first? ​

A) Set the price extremely high until competing products are developed
B) Set the price to match the manufacturing of the device under a private label
C) Set the price extremely low in order to capture more of the current market share
D) Set the price to match other computer and television devices sold by competitors
E) Set the price extremely low in order for consumers to purchase it without needing a coupon

Question 57

The practice of marketing merchandise at a limited number of prices is called _____ pricing.

A) product-line
B) odd
C) one-price
D) unit

Question 58

Consumers today perceive that, within price limits, there is:

A) a need for discounts and incentives.
B) obvious opportunity for psychological pricing.
C) a direct relationship between the quality and price of a product.
D) no perceivable difference in major product brands.

Question 59

_____ pricing is a pricing policy in which products are offered to consumers at less than cost to attract them to stores in the hope that they will buy other merchandise at regular prices.

A) Skimming
B) Loss leader
C) Odd
D) Variable

Question 60

A car manufacturer has developed different models of a car to suit the pricing needs of different classes of customers. It offers a low-end version for price conscious customers and luxury cars for high-end customers. This is an example of _____ pricing.

A) promotional
B) psychological
C) leader
D) product-line

Question 61

A 5 percent increase in the price of corn flour that results in a 15 percent increase in the quantity supplied yields a price elasticity of supply for corn flour of:

A) 2.0.
B) 2.5.
C) 3.0.
D) 3.5.

Question 62

Brandon recently completed law school, passed the bar exam and began working for a prestigious law firm in Dallas, TX. The firm has a strict dress code and Brandon is required to wear business suits, dress shirts, ties, and dress shoes. He is investing in a new wardrobe and visited Men's Discount Warehouse to purchase new clothes. He shared his situation with Tim, his sales representative, and Tim told him that if he bought 2 suits, he would receive 2 dress shirts, 3 ties, and 2 pairs of socks for free. Which of the following statements is TRUE regarding this example?

A) Promotions such as this are legal when differences in price reflect cost differentials
B) The Robinson-Patman Act prohibits this activity as it would be considered price discrimination
C) Retailers are restricted from using bundled pricing
D) This practice would likely drive competitors out of business

Question 63

Lenovo is developing a new tablet computer that they believe will revolutionize mobile computing. Since the company believes there is little direct competition for this new product, they plan to set a high price in comparison to other computer models. Lenovo is using a _____ pricing strategy. ​

A) ​skimming
B) ​market-minus
C) ​penetration
D) ​competitive

Question 64

Under which of the following conditions is a product most likely to have an elastic demand?

A) Consumers can easily find close substitutes for the product.
B) The marginal cost of producing the product is equal to its marginal revenue.
C) A large portion of a person's budget is spent on the product.
D) The fixed costs associated with producing the product are higher than the variable costs associated with it.

Question 65

Which of the following is the best example of demand?

A) 4,000 pairs of Nike running shoes sold on Amazon.com this year
B) Six months' worth of an accountant's time billed at $100 per hour
C) 5,000 people willing to buy muffin tins for $8 each
D) 6,000 muffin tins sold for $8 each this year

Question 66

State laws requiring sellers to maintain minimum prices for comparable merchandise are called _____ laws.

A) tax-exemption
B) unfair-trade
C) price-discrimination
D) loss-leader

Question 67

You begin every work day by stopping by the local premium coffee shop for a latte. They recognize you when you come in and just hand you your regular order. Recently, a number of events happened at the same time: you got a promotion with a higher salary; your regular coffee shop increased its prices; and a competitor moved into the same shopping center, offering lower prices. ​
Required:
During your vacation, you have the luxury of time to reflect on your workday pattern of coffee consumption. Looked at from a marketing perspective, which action could you choose to show that your demand is more elastic?

A) Spending some of your higher income after the promotion
B) Demonstrating that you are a loyal customer of your current coffee shop
C) Asking for a good-customer discount from your regular place
D) Discovering that you enjoy the taste of the competitor's coffee
E) Returning to the comfort of your established routine

Question 68

Market ___, which refers to the condition when suppliers make just enough of a product and price it in a way that consumers buy it all, rarely happens and is usually temporary.

A) balance
B) equality
C) equilibrium
D) sensitivity

Question 69

The amounts of a product that will be offered for sale at different prices during a specified period is referred to as:

A) supply.
B) demand.
C) inventory.
D) stock.

Question 70

Oscar Mayer has recently developed a new snack product that's targeted to kids and young adults as a healthy, protein-based after-school or pre-dinner snack. They expect the product to complement their Lunchables product line and appeal to teen-age or college-age consumers who think of Lunchables as just for younger kids. In order to promote product trial and subsequent adoption, the company plans to use a relatively low entry price compared to the competition. What type of pricing strategy does Oscar Mayer plan to utilize?

A) Penetration
B) Everyday low pricing
C) Skimming
D) Competitive pricing

Question 71

Jamal needed a new cell phone but didn't have a lot of money. He went to TechBargains.com and typed "cheap cell phones" into the search bar. As he was scrolling through his options, he noticed very few brands under $50 and far more brands selling for $100 or more. Which of the following statements best describes what Jamal has observed?

A) Generally speaking, the higher the price point, the greater the demand.
B) Generally speaking, the higher the price point, the more supply is available.
C) In general, as price goes down, demand goes up.
D) In general, as price goes down, supply goes up.

Question 72

The _____ of demand is the percentage change in the quantity of a good or service demanded divided by the percentage change in its price.

A) volume elasticity
B) competition sensitivity
C) price elasticity
D) volume sensitivity

Question 73

You are a staunch environmentalist. When hybrid vehicles were introduced, the supply was very limited. Buyers were paying a premium over the listed manufacturer's suggested retail price (MSRP). At that time, your budget could not stretch that far, but you still wanted to own a car that does not depend on petroleum products. By waiting, you find that the automobile dealers have announced that their shipments of new hybrid cars have increased by 10 percent. Meanwhile, the average price of regular gasoline rose from $3.30 to $3.63 per gallon. ​
​Required:
If the price elasticity of demand for new hybrid cars is 1.25 and for gasoline is 1.0, what was the effect on the prices of a new hybrid car and on gasoline?

A) ​The price of the hybrid car fell by 2.5 percent and the price of gasoline increased by 1.1 percent.
B) ​The price of the hybrid car rose by 12.5 percent and the price of gasoline increased by 11.1 percent.
C) ​The price of the hybrid car fell by 10 percent as did the price of gasoline.
D) ​The price of the hybrid car rose by 8 percent, and the price of gasoline increased by 10 percent.
E) ​The price of the hybrid car fell by 8 percent, and the price of gasoline increased by 10 percent.

Question 74

Which of the following terms represents the measure of responsiveness of purchasers and suppliers to a change in price?

A) Selectivity
B) Captivity
C) Elasticity
D) Sensitivity

Question 75

A demand is said to be inelastic when the:

A) demand curve and the supply curve do not intersect.
B) total cost and total revenue are equal at all levels of demand.
C) elasticity of demand is less than 1.
D) elasticity of demand is greater than 1.

Question 76

The amounts of a product that consumers will purchase at different prices during a specified period is referred to as:

A) volume.
B) demand.
C) inventory.
D) supply.

Question 77

Demand for the hiking sandals marketed by the SoftShoe Company is highly elastic. As a pricing strategy consultant, you have been hired to help the firm reduce this elasticity. Choose the recommendation you would be least likely to make.

A) Introduce a unique sandal that is custom-made for hikers with significant foot problems, such as deformed toes or large bunions.
B) Promise to undercut the price of any comparable brand.
C) Market the sandal as a necessity for hikers.
D) Market the sandal as a prestigious luxury for hikers.
E) Increase the sandal's price.

Question 78

A 5 percent increase in the price of milk that results in a 2 percent decrease in the quantity of milk demanded yields a price elasticity of demand for milk of:

A) 0.5.
B) 0.4.
C) 1.0.
D) 1.4.

Question 79

Which of the following is the best example of supply?

A) All of the fan belts available for sale at AutoZone this year
B) All of a lawyer's billable hours at $400 per hour
C) All of the women's shoes available for sale for $100 a pair this year
D) All of the people willing to buy women's shoes for $100 a pair this year

Question 80

Dish Network has recently advertised a bundled package of 50 channels plus Internet for $59.99 per month but in the fine print, the advertisement notes that this offer is applicable for new subscribers only. What type of pricing policy is Dish Network using with this promotion?

A) Promotional pricing
B) Odd pricing
C) Penetration pricing
D) Flexible pricing