Deck 18: Setting the Right Price

Question 1

Gary Thrower is a chimney sweep.He gives large discounts to homeowners that use his services in June and July.This is an example of a seasonal discount.

Answer 1

True

Question 2

If the world's largest manufacturer of door knobs and dead bolt locks set wholesale prices below its cost,with the intention of driving its competitors out of business,the manufacturer would be engaged in predatory pricing.

Answer 2

True

Question 3

Once he compiles information on pricing objectives,market demand,quantity supplied,and the price elasticity of demand,the marketing manager for a firearms training system will be ready to determine optimal price for a new product extension.

Answer 3

False

Question 4

Price penetration is sometimes referred to as a "market-plus" approach to pricing.

Question 5

A company that is allowed to deduct 3 percent from its total bill if it pays by a specific date is receiving a cash discount.

Question 6

Manufacturers know the approximate price level they can expect when establishing a product price.This approximate price is called the base price.

Question 7

Hasbro wants to introduce a new brand of flying disc similar to Wham-O's Frisbee.Hasbro would have a great amount of freedom in choosing a price for its new toy.

Question 8

Price discrimination can sometimes be justified.

Question 9

Chicago Metallic Company,a manufacturer of baking pans,requires its buyers to pay for the cost of transportation from the manufacturing site to their place of businesses.Chicago Metallic uses FOB origin pricing.

Question 10

One disadvantage of using a penetration pricing policy is that the high unit profit margins will attract potential competitors into production of similar products.

Question 11

It makes the most sense to use price skimming as a pricing policy when demand is relatively elastic in the upper ranges of the demand curve.

Question 12

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.

Question 13

The first step in setting the right price for a new product is to estimate demand,costs,and profits.

Question 14

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.

Question 15

The two operators of carriage tours in Greenville are in a price war with each other.Whenever one reduces its fare,its competitor reduces its fares by the same amount.This is an example of status quo pricing.

Question 16

Price fixing is clearly illegal in all instances.

Question 17

Functional discounts,non-cumulative quantity discounts,and promotional allowances are examples of rebates given to the trade customer.

Question 18

A manufacturer using uniform delivered pricing is legally discriminating against buyers who are located close to the point of shipping because they pay the same amount as buyers located far from the point of shipping pay.

Question 19

Functional discounts are simple to calculate.The total discount is the retail list price times the accumulated margin percentages.

Question 20

All pricing objectives have trade-offs that managers must weigh.

Question 21

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.The _____ strategy is probably best.

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

Question 22

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.This strategy works best when:

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

Question 23

The marketing manager of icruise.com (a Web site travel 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:

A) a need to eliminate low-profit products
B) a lack of corporate concentration on the marketing concept
C) how pricing operates in a mature marketplace
D) the need for trade-offs in pricing objectives
E) how target markets can be ignored

Question 24

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.The manufacturer of Oxyglobin is using a _____ policy.

A) price-banding
B) penetration pricing
C) price-lining
D) bundling costs
E) price skimming

Question 25

Rag fibers for paper and cotton seeds for cottonseed oil are two byproducts of the cotton textile industry.Because these products are produced together,they are complementary products.

Question 26

Hannah's cable system has offered her a deal for basic cable plus 6 premium channels for less than she is currently paying for basic cable.The cable system is using price lining to increase its overall profits.

Question 27

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.

A) choose the ROI target
B) set corresponding cost for each price
C) estimate industry supply
D) implement pricing segmentation
E) establish geographic pricing heuristics

Question 28

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.

A) penetration pricing
B) price-insensitive demand
C) price skimming
D) price elasticity
E) cost bundling

Question 29

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 a _____ strategy.

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

Question 30

When the Mosquito Magent was introduced,it was designed to rid the immediate area of mosquitoes and other annoying insects.The technology for the Mosquito Magnet had taken 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 recommend the company have used to introduce this product to the market?

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

Question 31

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

Question 32

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 flavor to foods even though it is used in the same way as Heinz vinegar.Prairie Herb vinegar is most likely using a _____ policy.

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

Question 33

Escalator pricing and price shading are two examples of cost-oriented pricing tactics.

Question 34

A company's pricing strategy should do all of the following EXCEPT:

A) give direction for price movements over the product life cycle
B) define the initial price
C) ignore the targeting and positioning strategy of the company
D) set a competitive price
E) interact with the other elements of the marketing mix

Question 35

One example of price bundling occurs when theaters sell season tickets at a lower price than individual tickets for the same show.

Question 36

A retail store implements a single-pricing tactic as a way to remove price comparisons from the buyer's decision-making process.

Question 37

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

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

Question 38

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

A) the addition of a new comic book series with an obviously gay hero
B) the introduction of a new brand of bottled water
C) the elimination of demand for low wattage light bulbs
D) the introduction of a unique,roomy automobile model that has extremely low energy and fuel costs
E) the introduction of a Barbie Olympic champion doll by Mattel and the International Olympic Committee

Question 39

A catalog retailer offer three styles of khaki pants at three price levels.Customers can buy khaki pants for $26.00,$32.00,or $38.00 and at no other prices but these.The special pricing tactic used by the catalog retailer is best described as variable psychological pricing.

Question 40

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.The appropriate strategy would be:

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

Question 41

A penetration pricing strategy tends to be most effective:

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

Question 42

Quantity discounts are most often used to:

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

Question 43

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:

A) tends to be more effective in a less price-sensitive market
B) tempts competitors to enter the market
C) provides a large profit per unit sold
D) recoups product development costs quickly
E) tends to lower production costs

Question 44

After mangers understand both the legal and the marketing consequences of price strategies,they should set a(n)_____ price,the general level at which a company expects to sell a good or service.

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

Question 45

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 them for a substantially lower price.The large discount retailer is asking you to practice:

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

Question 46

K&G Restaurant Supplies sells paper products and commodity items like 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.K&G Restaurant Supplies is engaging in:

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

Question 47

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) price skimming
B) status quo pricing
C) penetration pricing
D) unbundling
E) cost-sharing

Question 48

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,the two companies were charged with:

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

Question 49

States developed unfair trade practice acts to

A) enforce the Sherman Act that makes bait pricing illegal
B) prevent oligopoly leaders from getting together and fixing prices at the highest the market will bear
C) establish penalties for companies that break the Clayton Act by engaging in predatory pricing
D) make sure that all pricing policies are equitable
E) protect small,local firms from giant companies that operate efficiently on razor thin profit margins

Question 50

State laws that put a lower limit on wholesale and retail prices are called _____.In states that have these laws,selling below cost is illegal.

A) unfair trade practice acts
B) price fixing laws
C) predatory pricing acts
D) price discrimination rulings
E) channel controls

Question 51

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:

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

Question 52

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) leader pricing
B) preemptive pricing
C) status quo pricing
D) flexible pricing
E) functional pricing

Question 53

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

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

Question 54

A _____ discount is a deduction from list prices that is aimed at encouraging customer loyalty.

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

Question 55

One order of over $500 from The Baker's Catalog earns a five percent discount,and one order of $1,000 and over earns a 10 percent merchandise discount.These discounts are examples of:

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

Question 56

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

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

Question 57

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 the _____ price for the Primary Sharpener

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

Question 58

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 a _____ policy for its Gamecube.

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

Question 59

A firm charging a price identical to or very close to the competition's price is using a _____ strategy.

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

Question 60

DeBeers and General Electric were accused of price fixing of industrial-grade diamonds.This means the companies:

A) tried to sell diamonds at below costs
B) charged customers different amounts for the same number of diamonds
C) colluded on the price they would charge customers for the diamonds
D) used uniform geographic pricing
E) created an artificial demand for the diamonds

Question 61

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 a:

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

Question 62

A Rhode Island-based catalog retailer features cast-iron skillets.Its customers in New England are charged one shipping rate,and customers west of the Rocky Mountains are charged a different rate.Customers in the Southeastern states are charged yet another rate.What kind of geographical pricing is the catalog using?

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

Question 63

Hunter's Alley is a chain of stores targeted to people who are proud of their NRA membership.It has agreed to set up a special display of Swartklip ammunition near its rifle and shotgun aisles and also to run an advertisement in newspapers in communities where its stores are located.Swartklip has agreed to supply the display material free and to pay for half the cost of the advertisement.This is an example of a:

A) bundled pricing tactic
B) functional discount
C) promotional allowance
D) quantity discount
E) direct allowance

Question 64

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.This 15 percent discount is called a:

A) quantity discount
B) promotional allowance
C) trade discount
D) seasonal discount
E) channel allowance

Question 65

In a catalog 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.This is an example of:

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

Question 66

If an item purchased under FOB origin terms is damaged in transit,against whom can the purchaser file its damage claim?

A) against the manufacturer
B) against the common carrier
C) against all of the supply chain members
D) against the buyer
E) no damage claim may be filed

Question 67

When Janeka purchased a pair of walkie-talkies so she could stay in contact with her ten-year-old son when he was playing in the neighborhood,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 check for $25.This $25 is an example of a:

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

Question 68

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 risks and costs,a seller would likely employ:

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

Question 69

_____ 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 customers contribute to those attributes.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.

A) Value-based pricing
B) Noncumulative pricing
C) CRM pricing
D) Market concept pricing
E) Price bundling

Question 70

With _____,the seller pays the actual freight charges and bills every purchase with an identical,flat freight charge.

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

Question 71

A price tactic that requires the purchaser to absorb the freight costs from the shipping point is called _____.In this case,the farther buyers are from sellers,the more they pay because transportation costs generally increase with the distance merchandise is shipped.

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

Question 72

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

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

Question 73

Uniform delivered pricing enables a firm to:

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

Question 74

The basic assumption behind value-based pricing is that:

A) the firm is sales-driven
B) the firm is both customer-driven and competitor-driven
C) increased profitability for wholesalers will increase the number of services they are willing to perform
D) consumers are more concerned about price than quality
E) additional long-term costs to manufacturers will increase

Question 75

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.This 5 percent discount is an example of a:

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

Question 76

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

A) functional discount
B) base allowance
C) promotional allowance
D) quantity discount
E) seasonal discount

Question 77

_____ are cash refunds given for the purchase of a product during a specific period.

A) Rebates
B) Loss leaders
C) Reciprocal allowances
D) Demand discounts
E) Promotional allowances

Question 78

The term FOB is an acronym for:

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

Question 79

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

A) quantity discount
B) seasonal discount
C) temporal discount
D) promotional allowance
E) functional discount

Question 80

Current is a catalog retailer that sells greeting cards,wrapping paper,and decorative bows.Since its inception,the catalog 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) rebate
B) cash discount
C) quantity discount
D) promotional allowance
E) functional discount