Deck 17: Setting the Right Price

Question 1

The price-skimming strategy is sometimes called a "market-plus" approach to pricing because it denotes a high price relative to the prices of competing products.When does this strategy work best?

A) when production capacity is large and flexible
B) when demand is greater than supply
C) when supply is greater than demand
D) when revenues are equal to expenses

Answer 1

B

Question 2

A company's pricing strategy should do all of the following EXCEPT which one?

A) define the initial price
B) give direction for price movements over the product life cycle
C) ignore the targeting and positioning strategy of the company
D) set a competitive price

Answer 2

C

Question 3

For which of the following situations would a price-skimming strategy be most appropriate?

A) the elimination of demand for low-wattage light bulbs
B) the introduction of a Barbie Olympic champion doll by Mattel and the International Olympic Committee
C) the introduction of a unique,roomy automobile model that has extremely low energy and fuel costs
D) the introduction of a new brand of bottled water

Answer 3

C

Question 4

After establishing pricing goals,managers should estimate total revenue at a variety of prices.What should they do next? (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. )

A) Implement pricing segmentation.
B) Set a corresponding cost for each price.
C) Choose the ROI target.
D) Estimate industry supply.

Question 5

As production experience increases,the average cost per unit produced decreases.What is this drop called?

A) the cost curve
B) the experience curve
C) the demand curve
D) the short-run average cost curve

Question 6

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,which of the following BEST describes penetration pricing in this case?

A) It tends to lower production costs.
B) It recoups product development costs quickly.
C) It tempts competitors to enter the market.
D) It provides a large profit per unit sold.

Question 7

A penetration strategy tends to be effective in a price-sensitive market.Thus,one of the purposes of penetration pricing is to do which of the following?

A) recoup product development costs quickly
B) discourage competitors from entering the market
C) produce a large margin of profit per unit
D) attract the price-insensitive buyer who demands the latest in technology

Question 8

Dell's new line of computers is selling for up to 20 percent lower than similar computers sold by its largest competitors.Since Dell's goal is to maximize its sales,it is probably using which type of strategy?

A) status quo pricing
B) price lining
C) penetration pricing
D) price skimming

Question 9

The DCS Stainless Steel Gas Grill for outside cooking costs $3,995.The market for a grill that could easily replace a kitchen range is limited even though a lot of people have seen articles about this grill in cooking magazines and in the cooking section of newspapers.There is no potential competitor for this grill.Which strategy is probably best?

A) price lining
B) price skimming
C) status quo
D) penetration pricing

Question 10

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

A) price elasticity
B) penetration pricing
C) price skimming
D) cost bundling

Question 11

Leupold & Stevens,Inc.makes Leupold scopes for rifles and has introduced a new scope that has the quality and performance for which Leupold & Stevens is famous at a price much lower than it has ever sold a rifle scope before.The new scope offers several different magnifications and is the only scope in the $200 range that is made in the United States.(All similar scopes are priced much higher. )Which pricing strategy is Leupold & Stevens using to appeal to a larger market?

A) status quo pricing
B) penetration pricing
C) cost sharing
D) price skimming

Question 12

What is the easiest pricing goal for a firm to implement?

A) meeting competition
B) return on investment
C) profit-based
D) sales volume-based

Question 13

The marketing manager of icruise.com (a website 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 December.However,the vice-president of finance is committed to reporting a 25 percent return on investment at all times.What does this conflict illustrate?

A) how target markets can be ignored
B) how pricing operates in a mature marketplace
C) a lack of corporate concentration on the marketing concept
D) the need for tradeoffs in pricing objectives

Question 14

A 16-ounce bottle of Prairie Herb vinegar sells for $4.95,and a 16-ounce bottle of Heinz vinegar costs $1.05.Prairie Herb vinegar is new to the market,perceived to be of higher quality,and provides a unique flavour to foods even though it is used in the same way as Heinz vinegar.Prairie Herb vinegar is most likely using which type of policy?

A) price skimming
B) bundling cost pricing
C) penetration pricing
D) status quo pricing

Question 15

When the Mosquito Magnet was introduced,it was designed to rid the immediate area of mosquitoes and other annoying insects.The technology for the Mosquito Magnet took years to develop.It is a patented grill-like apparatus that emits carbon dioxide to attract bugs to a fan,which draws them into the device where they die.What type of pricing policy would you have recommended the company use to introduce this product to the market?

A) price skimming
B) leader pricing
C) penetration pricing
D) status quo pricing

Question 16

The introductory price for the Nintendo Gamecube video game console was $100 lower than the list price of Xbox and Playstation 2,its only two competitors.Given this information,you can assume Nintendo used what type of policy for its Gamecube?

A) cost bundling
B) flexible pricing
C) penetration pricing
D) competitive skimming

Question 17

A shortage of blood for transfusions for injured animals has resulted in the introduction of a synthesized product called Oxyglobin,which can be used effectively as a blood replacement.The manufacturer of the product has put a high price on the product in order to recoup its research and development costs.Which type of policy is the manufacturer of Oxyglobin using?

A) price skimming
B) price banding
C) price lining
D) penetration pricing

Question 18

A firm charging a price identical to or very close to the competition's price is using which type of strategy?

A) differentiation pricing
B) leader pricing
C) preemptive pricing
D) status quo pricing

Question 19

When does a penetration pricing strategy tend to be most effective?

A) under unitary conditions
B) in price-sensitive markets
C) when the company can perform only small production runs
D) if unit costs are high

Question 20

The market for turkey products is large.If a major producer of turkeys were to introduce a boneless fresh turkey wrapped around savory dressing,most of the large market for this new product would be aware of its existence.The market is price sensitive,and there is some potential competition.What would be the appropriate strategy?

A) price skimming
B) cost bundling
C) penetration pricing
D) price lining

Question 21

One order of over $500 from The Baker's Catalogue earns a 5 percent discount,and one order of $1,000 and over earns a 10 percent merchandise discount.What are these discounts examples of?

A) promotional allowances
B) noncumulative quantity discounts
C) frequent buyer discounts
D) cumulative quantity discounts

Question 22

The Association of Specialty Surgical Practice has published a minimum fee schedule for services and distributed this schedule throughout the medical profession.What is Specialty Surgical encouraging?

A) bait pricing
B) price fixing
C) predatory pricing
D) unfair trade practices

Question 23

In Canada,federal legislation prohibits firms from selling to two or more competing buyers on an ongoing basis,within a short period of time,goods of like grade and quality at different prices where the result would be to lessen competition in the marketplace.What is this infraction known as?

A) resale price maintenance
B) predatory pricing
C) price discrimination
D) deceptive pricing

Question 24

General Electric Co.was accused of conspiring with De Beers Centenary AG to set a price for industrial diamonds,which are used on industrial cutting tools.As a result,what were the two companies charged with?

A) channel control pricing tactics
B) unfair trade practices
C) price discrimination
D) price fixing

Question 25

What is the illegal practice of manufacturers controlling prices at the retail level?

A) price discrimination
B) deceptive pricing
C) price fixing
D) resale price maintenance

Question 26

Imagine you have developed a device that can be used to tell whether uncooked meat has been irradiated.Several smaller retail chains have agreed to carry your product,but a large discount retailer has asked you to sell the device to it for a substantially lower price.What is the large discount retailer asking you to practise?

A) price discrimination
B) channel control pricing
C) unfair trade practices
D) price fixing

Question 27

In Canada,most of the legal issues regarding pricing are covered by which of the following?

A) the Better Business Bureau
B) the Competition Act
C) the Consumer Protection Act
D) the Advertising Act

Question 28

Which type of discount is a deduction from list prices that is aimed at encouraging customer loyalty?

A) noncumulative quantitative
B) cumulative quantitative
C) frequent-buyer
D) cash

Question 29

In Canada,under federal legislation,it is unlawful for a firm to price below its costs with the intent of driving the competition out of business.What is this practice known as?

A) price discrimination
B) predatory pricing
C) price fixing
D) resale price maintenance

Question 30

Why are quantity discounts most often used?

A) to increase the sales potential of slow-moving items
B) to reward a channel intermediary for performing some service
C) to reward the buyer who pays in cash
D) to shift the storage function backward to the supplier

Question 31

When Microsoft introduced its Windows NT network operating system,it gave buyers free Web server software.At the same time,Netscape was trying to sell similar Web server software for $4,999.Once Microsoft got a lion's share of the market,and Netscape's market share declined substantially,Microsoft began charging above-market price for its Web server software.Many people thought Microsoft was guilty of which of the following?

A) unfair trade practices
B) price discrimination
C) price fixing
D) predatory pricing

Question 32

K&G Restaurant Supplies sells paper products and commodity items such as flour to for-profit businesses.It charges a substantially lower price to companies that operate multiple locations such as a restaurant chain.It charges a higher price to small or independent operations because they are less profitable customers.What is K&G Restaurant Supplies engaging in?

A) unfair trade practices
B) price fixing
C) bait pricing
D) price discrimination

Question 33

Sellers must carry adequate levels of merchandise that has been price promoted or offer "rain cheques" if the product sells out.What will failure to comply result in a charge of?

A) deceptive pricing
B) price fixing
C) resale price maintenance
D) price discrimination

Question 34

Merchants frequently offer a discount off the base price to customers who pay immediately,or within a specified time period.What is this called?

A) a cash discount
B) a functional discount
C) a promotional allowance
D) a base discount

Question 35

Super-Sav supermarket employees regularly shop at other local supermarkets in order to make certain that Super-Sav is charging prices comparable to the other supermarkets.What type of pricing strategy is Super-Sav using?

A) status quo pricing
B) leader pricing
C) preemptive pricing
D) flexible pricing

Question 36

After managers understand both the legal and the marketing consequences of price strategies,they should set a price,the general level at which a company expects to sell a good or service.What is this price?

A) base
B) demand
C) leader
D) functional

Question 37

Current is a catalogue retailer that sells greeting cards,wrapping paper,and decorative bows.Since its inception,the catalogue retailer has offered three separate prices on each item purchased.The highest price is for purchases of a single item.The middle price is for purchases between two and five of the same item.The lowest price is for purchases over five of the same item.What common form of purchase discount is Current using?

A) quantity discount
B) cash discount
C) functional discount
D) promotional allowance

Question 38

What is an agreement between two or more businesses on the price they will charge for a product?

A) price discrimination
B) resale price maintenance
C) deceptive pricing
D) price fixing

Question 39

Razer-Edge makes machines for sharpening the blades used by butchers to slice meat.When Razer-Edge priced its Primary Sharpener,its salespeople were told that it would be sold for $1,700,but that there would be room for discounts and flexibility.The $1,700 price is which of the following prices for the Primary Sharpener?

A) functional
B) base
C) channel leader
D) demand

Question 40

When a buyer pays a lower price for buying in multiple units or above a specified dollar amount,what is the buyer receiving?

A) a quantity discount
B) a functional discount
C) a promotional allowance
D) a cash discount

Question 41

If a company decides to divide its market area into segments or regions and charge a flat rate for freight to all customers in a given region,what type of pricing is the company using?

A) freight absorption
B) basing-point
C) zone
D) uniform delivered

Question 42

What are cash refunds given for the purchase of a product during a specific period?

A) reciprocal allowances
B) rebates
C) demand discounts
D) promotional allowances

Question 43

If your favourite mail-order catalogue lists freight charges according to the dollar amount of merchandise purchased,you know that it is using which of the following pricing?

A) freight absorption
B) uniform delivered
C) zone
D) FOB origin

Question 44

A Toronto-based catalogue retailer features cast-iron skillets.Its customers in New Brunswick are charged one shipping rate,and customers in B.C.are charged a different rate.Customers in Quebec are charged yet another rate.What kind of geographical pricing is the catalogue using?

A) zone pricing
B) FOB origin pricing
C) freight absorption pricing
D) FOB factory

Question 45

One price tactic requires the purchaser to absorb the freight costs from the shipping point.In this case,the farther buyers are from sellers,the more they pay because transportation costs generally increase with the distance merchandise is shipped.What is being described?

A) uniform delivered pricing
B) FOB origin pricing
C) zone pricing
D) freight absorption pricing

Question 46

When a channel intermediary is compensated for the ordinary services and tasks performed within the channel of distribution,the compensation,usually in the form of a discount from base price,is called which of the following?

A) a functional (or trade)discount
B) a rebate or refund
C) a promotional allowance
D) a cumulative or noncumulative quantity discount

Question 47

Shipping fresh-cut flowers to international buyers can be risky because of price changes during the time required for shipment,expense incurred over long distances,and quality of product delivered.To minimize costs,what would a seller likely employ?

A) basing-point pricing
B) freight absorption pricing
C) FOB origin pricing
D) uniform delivered pricing

Question 48

With which of the following does the seller pay the actual freight charges and bill every purchase with an identical,flat freight charge?

A) uniform delivered pricing
B) FOB origin pricing
C) basing-point pricing
D) freight absorption pricing

Question 49

Supposed a firm is customer-driven and seeks to understand the attributes customers want in the goods and services they buy and the value customers contribute to those attributes.The firm sets the price of the product at a level that seems to the customer to be a good price compared with the prices of other options.What is this pricing?

A) price
B) value-based
C) market concept
D) noncumulative

Question 50

What is a price reduction that shifts the storage function forward to the purchaser and enables manufacturers to maintain steady production year-round?

A) a base allowance
B) a promotional allowance
C) a seasonal discount
D) a quantity discount

Question 51

When the salesperson from R.W.Hunt & Sons,a distributor of rifles and other items needed for hunting or target practice,calls on retail sporting goods stores,she is authorized to offer the retailers a 15 percent discount from the list price in recognition of activities retailers perform for the distributor.These activities include unpacking,floor display setup,and a repair service.What is this 15 percent discount called?

A) a trade discount
B) a quantity discount
C) a promotional allowance
D) a channel allowance

Question 52

What does uniform delivered pricing enable a firm to do?

A) maintain a nationally advertised price
B) charge each customer the actual cost of shipping its products
C) charge each customer its fair share of the cost of shipping
D) discriminate in favour of buyers that are geographically closer to the seller

Question 53

What is the basic assumption behind value-based pricing?

A) Consumers are more concerned about price than quality.
B) Additional long-term costs to manufacturers will increase.
C) Increased profitability for wholesalers will increase the number of services they are willing to perform.
D) The firm is both customer-driven and competitor-driven.

Question 54

When a coffee shop in a suburban mall and an upscale cafe in a luxury hotel charge different prices for the same cup of coffee served to customers who find the atmosphere in the hotel worth the difference,what is the pricing method used?

A) demand-based
B) break-even
C) value-based
D) cost-based

Question 55

Which of the following BEST describes uniform delivered pricing?

A) It is prevalent in the steel,cement,corn oil,and lead industries.
B) It is common where freight costs are a large portion of total costs.
C) It is sometimes called "postage stamp pricing."
D) It creates no geographical price discrimination.

Question 56

Which of the following uses buyers' perceptions of a product's worth,not the sellers' costs,as the basis of pricing?

A) price elasticity
B) demand management
C) everyday low pricing
D) value-based pricing

Question 57

When Janeka purchased a pair of walkie-talkies so she could stay in contact with her 10-year-old son when he was playing in the neighbourhood,she noticed that if she mailed the manufacturer a proof-of-purchase and the cash register receipt showing where and when she had purchased the two-way radio system and how much she had paid,she would receive a cheque for $25.What is this $25 an example of?

A) a rebate
B) a trade promotion
C) a cash discount
D) a reciprocal allowance

Question 58

FOB is an acronym for which of the following?

A) first on board
B) free on board
C) freight on board
D) fee on buyer

Question 59

When a customer of Vegas Sign Company chooses to pay immediately on delivery rather than wait to be billed in 30 days,the buyer receives a 5 percent discount.What is this 5 percent discount an example of?

A) a rebate
B) a promotional allowance
C) a cash discount
D) a functional discount

Question 60

A June sale on chocolate eggs,an Easter staple for many people,is an example of which of the following pricing tactics?

A) a promotional allowance
B) a functional discount
C) a quantity discount
D) a seasonal discount

Question 61

A manufacturer of lighting fixtures has six warehouses and a pricing policy of charging freight from the closest warehouse to the customer,regardless of where parts are shipped.For instance,if the customer is in Vancouver,British Columbia,the closest warehouse to the customer is in Seattle,Washington.If the ordered car part actually comes from the Toronto warehouse,the customer still pays freight from Seattle.Which type of pricing is the manufacturer using?

A) freight absorption
B) uniform delivered
C) zone
D) basing-point

Question 62

What is an advantage associated with a flexible pricing policy?

A) It enables a seller to close a sale with a price-conscious customer.
B) It causes inconsistent profit margins.
C) It causes ill will among customers if they discover that other customers are paying lower prices.
D) It enables salespeople to automatically lower the price to make a sale.

Question 63

The Hagarty & Adolph funeral home has coffins priced at $1,200,$2,000,$3,500,and $5,000.Why have the owners of the funeral home chosen price lining?

A) It will enable them to carry a larger total inventory
B) It will maintain all of the product line at the same stage in the product life cycle.
C) It will reach several different target market segments.
D) It will thwart competitors that are trying to sell similar products.

Question 64

Merck & Co. ,the manufacturer of the AIDS drug Crixidan,distributes exclusively to one distributor,Stadtlanders Pharmacy.The pharmacy has been criticized for charging too high a price for the drug and exploiting inelastic demand.Stadtlanders claims the charges are ethical because of high staffing costs and associated discounts with various health plans.This situation describes issues associated with which of the following?

A) uniform delivered pricing
B) flexible pricing
C) professional services pricing
D) resale price maintenance

Question 65

The Dollar Tree is a small chain of discount stores where all of the merchandise is priced at $1.What does the Dollar Tree use?

A) flexible pricing
B) a single-price tactic
C) leader pricing
D) price lining

Question 66

One tactic allows different customers to pay different prices for essentially the same merchandise bought in equal quantities This tactic is often found in the sale of shopping goods,specialty merchandise,and most industrial goods except supply items.What is it?

A) psychological (or odd-even)pricing
B) flexible (or variable)pricing
C) zoning (or basing)pricing
D) price maintenance

Question 67

Eustis Lee is a lawyer who handles only drunk-driving cases.No matter how quickly he resolves the case,he charges each customer $5,000.Lee justifies the fee because of his lengthy education and the years he has spent learning how the judicial system operates.Which pricing policy is the lawyer using?

A) price maintenance
B) potential (or base)pricing
C) flexible (or variable)pricing
D) professional services pricing

Question 68

Suppose price is not set on the product until the item is either finished or delivered.Which of the following is being used?

A) price shading
B) delayed-quotation pricing
C) escalator pricing
D) bid pricing

Question 69

Why is price lining a valuable tactic for marketing managers?

A) A company that uses price lining is able to carry a smaller total inventory and reduce confusion for its customers.
B) The price lining strategy allows the company to gain brand loyalty from its targeted segments.
C) A company that uses price lining has more price markdowns and greater markup.
D) Price lining tends to confuse customers and requires them to listen closely to the salesperson pitch.

Question 70

Often a seller will establish a series of prices for a family of merchandise items.There may be several different models at specific price points but no prices in between.What is this policy called?

A) price bracketing
B) price lining
C) price bundling
D) family pricing

Question 71

Ahmad Jing operates a wedding consultant service.He will often provide essentially the same service to different customers at distinctly different prices depending on how he likes the customer and how much he thinks the customer needs his services.What does Jing use?

A) two-part pricing
B) price maintenance
C) an illegal pricing policy
D) flexible pricing

Question 72

In a catalogue targeted to people who like to bake,customers can buy a single yeast bread mix designed specifically to be baked in bread machines for $3.95 each or 12 different mixes for $37.50.What is this an example of?

A) status quo pricing
B) penetration pricing
C) psychological pricing
D) price bundling

Question 73

If a manufacturer designates a shipping point from which to calculate all freight charges and charges customers freight from that point (even if the goods were shipped from another location),which type of pricing is the manufacturer using?

A) zone
B) freight absorption
C) basing-point
D) FOB origin

Question 74

Green Earth Marketing sells containers for temporary storage of recyclables nationally through its catalogue.The company wants to simplify pricing and reduce its risk.Green Earth also desires some type of difference in price due to distance.Which type of pricing should the company use?

A) freight absorption
B) two-part
C) flexible
D) zone

Question 75

Landover Carpentry,Inc.currently markets its garden benches in the Ontario market.It would like to expand into the Western Canada market,but the competition there is intense.Which geographic pricing tactic should the Landover use?

A) freight absorption pricing
B) zone pricing
C) FOB origin pricing
D) basing-point pricing

Question 76

Which of the following is an attempt by the marketing manager to induce store patronage through selling a product near cost or even below cost?

A) leader pricing
B) price skimming
C) odd-even pricing
D) price lowballing

Question 77

Lee Valley,Inc.is a catalogue retailer of woodworking tools used by craftspeople.It uses two different shipping prices.All customers west of Manitoba pay $6.99 shipping and handling costs per order,while all east of Manitoba pay $8.99.This is an example of which type of pricing?

A) zone
B) skimming
C) freight absorption
D) basing-point

Question 78

Which of the following BEST describes single-price selling?

A) It does not benefit the retailer.
B) It is most effective when used during an inflationary period.
C) It encourages clerical errors.
D) It removes price comparisons from the buyer's decision-making process.

Question 79

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

A) freight absorption
B) uniform delivered
C) FOB origin
D) basing-point

Question 80

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 which of the following?

A) price lowballing
B) leader pricing
C) psychological pricing
D) variable pricing