Deck 8: Pricing Strategy

Question 1

The Club is a local hair salon and day spa that caters to an upper-middle class clientele. Although price competition in the local area has been increasing, the owners of The Club have decided to focus their marketing efforts on quality, service, and value, and to resist the temptation to compete on price. In pursuing this non-price strategy, managers of The Club are ascribing to which of the following assumptions?

A) Customers see all salons as being about the same.
B) The market for salon services is very price sensitive.
C) Customers of The Club are so loyal that price competition is not necessary.
D) It is difficult for competitors to copy The Club's differentiating characteristics.
E) The managers are ascribing to all of these assumptions.

Answer 1

D

Question 2

From the buyer's perspective, two key issues determine pricing strategy for most firms: perceived value and:

A) competitors' prices.
B) the firm's cost structure.
C) market demand.
D) economic conditions.
E) price sensitivity.

Answer 2

E

Question 3

Price elasticity is defined as:

A) a situation where prices routinely move up and down in a short period of time.
B) customers' responsiveness or sensitivity to changes in price.
C) the impact on a product's demand when customers are in unique buying situations.
D) the relative ease with which prices can be changed.
E) price flexibility-a pricing strategy used by startup firms.

Answer 3

B

Question 4

In a price negotiation, the number that each side will use to distinguish between a successful and an unsuccessful negotiation is called the:

A) concession
B) opening position
C) aspiration price
D) limit
E) breakeven position

Question 5

Which of the following statements is TRUE with respect to the relationship between price and revenue?

A) When business is good, a price increase will increase revenue.
B) When business is bad, a price increase will increase revenue.
C) Price cuts must be offset by an increase in sales volume to keep the same level of revenue.
D) In highly differentiated markets, price cuts will capture greater market share.
E) In highly commoditized markets, price cuts will increase revenue.

Question 6

While following a competitor's lead in pricing is acceptable, there can be no signaling of prices to a competitor. This illegal practice, called _____, occurs when two or more competitors collaborate in setting prices.

A) indirect pricing
B) reference pricing
C) collaborative pricing
D) price fixing
E) price signaling

Question 7

The Fairmont Hotel is widely known for its exceptional quality and impeccable customer service. Not surprisingly, the Fairmont sets prices at the top end of all competing hotels. Which pricing strategy is the Fairmont using?

A) exclusive pricing
B) image pricing
C) psychological pricing
D) prestige pricing
E) service-based pricing

Question 8

Why are firms so obsessed with the pricing element of the marketing mix?

A) because pricing is the most difficult element of the marketing mix to change
B) because the firm's pricing has a direct bearing on its ability to increase revenue
C) because pricing is the only marketing element that matters to customers
D) because pricing is the best part of the marketing mix in which to make an educated guess about the most appropriate strategy
E) because pricing is directly responsible for demand

Question 9

Despite the rising costs of medical care in the United States, customers continue to increase their purchases of medical goods and services, particularly in elective procedures. It seems that no matter how much prices increase, customer demand for medical services stays the same or increases. This situations describes an example of:

A) inelastic demand.
B) direct demand.
C) irrational demand.
D) elastic demand.
E) unitary demand.

Question 10

Retailers use _____ extensively. This occurs when the retailer compares sale prices to regular prices, such as when Best Buy promotes a DVD player as "Regularly $99, Now $49."

A) reference pricing
B) EDLP
C) odd pricing
D) value-based pricing
E) sale pricing

Question 11

Which of the following pricing practices is widely used in business markets but not in consumer markets?

A) geographic pricing
B) reference pricing
C) EDLP
D) price lining
E) value-based pricing

Question 12

Which of the following IS NOT a situation that can cause customers to be less sensitive to price increases?

A) when customers have few product choices
B) when products are highly differentiated
C) when the product is a real or a perceived necessity
D) when the total expenditure is high
E) when the product is considered to be "worth it"

Question 13

Firms such as IKEA and The Home Depot are known for their use of _____ because they set reasonably low prices but still offer high-quality products and adequate customer services.

A) penetration pricing
B) market equity pricing
C) prestige pricing
D) relational pricing
E) value-based pricing

Question 14

Rather than cutting prices to generate sales, most firms would be better off adjusting their marketing strategy to:

A) build value into the product and justify the current price or even a price increase.
B) decrease the supply of the product to keep prices high.
C) heavily promote the product to stimulate sales.
D) move toward an exclusive distribution strategy to increase the product's image.
E) increase the availability of the product so more customers can purchase it.

Question 15

Which of the following IS NOT a situation when buyers will have increased power over sellers in a market?

A) when there are a large number of sellers in the market
B) when there are many substitutes for the product
C) when product demand is high
D) when the economy is weak
E) when product supply is plentiful

Question 16

What is the basic difference between the seller's and the buyer's perspectives on pricing?

A) Buyers see pricing as negotiable; sellers do not.
B) Buyers are very concerned about price elasticity; sellers are not.
C) Sellers tend to inflate prices; buyers tend to see prices as being lower.
D) Buyers are quite concerned about competitors' prices; sellers are not.
E) Buyers tend to inflate prices; sellers tend to see prices as being lower.

Question 17

The goal of _____ is to maximize sales, gain widespread market acceptance, and capture a large market share quickly by setting a relatively low initial price.

A) price skimming
B) odd pricing
C) penetration pricing
D) first-mover pricing
E) market acceptance pricing

Question 18

The inherent goal of product differentiation is to make the demand curve for a product more inelastic. This happens because increased differentiation:

A) reduces the number of perceived substitutes for a product.
B) makes the product more expensive than its competitors.
C) increases the quality of the product making it worth the expense.
D) reduces the time and effort required to obtain the product.
E) increases the just noticeable differences among competing products.

Question 19

Because service capacity is perishable and service demand is highly time dependent, service firms employ yield management strategies in an effort to:

A) control demand by limiting capacity.
B) control capacity through price changes over time.
C) establish fair guidelines for overbooking capacity.
D) shift customer demand to other firms that can handle the excess business.
E) balance price and revenue considerations with their need to fill unused capacity.

Question 20

Although break-even analysis and cost-plus pricing are important tools in setting prices based on the firm's cost structure, they should never be the driving force behind pricing strategy. Why?

A) because firms want to make a profit, not just break even
B) because customer expectations are far more important in setting prices
C) because prices should be based on demand, not costs
D) because different firms have different cost structures
E) because competitor's prices are far more important in setting prices

Question 21

In many (if not most) circumstances, cutting prices to increase sales volume is not a good idea. Explain why this is so. What are some alternatives that are preferable to cutting prices?

Question 22

Discuss the process of negotiated pricing. Be sure to explain the goals and process from both sides of the negotiation.

Question 23

Explain how competition and industry structure are related to pricing strategy. In your answer, identify the four basic competitive market structures and how pricing differs across each one.

Question 24

Discuss the challenges associated with pricing services. How do service firms use yield management systems to balance price with revenue and maximize capacity utilization?

Question 25

Identify and discuss reasons why firms become so infatuated with pricing.