Deck 11: Pricing Strategy

Question 1

Which of the following is a psychological factor that might be important to pricing decisions?

A) How many loaves of bread will a potential buyer consume every month?
B) Are the consumers organizational buyers or final consumers?
C) Will a low price indicate inferior quality to the potential buyer?
D) How many potential buyers for bread mixes are there?

Answer 1

C
Explanation: Psychological factors related to pricing concern primarily how consumers will perceive various prices or price changes. Customers believe that quality is related to price and see themselves as good judges of product quality.

Question 2

Which of the following is an example of a psychological factor that is important to the pricing decisions made for collectible dolls that sell for $299?

A) What is the discretionary income of prospective buyers of the doll?
B) Will prospective buyers view the doll's high price as an indicator of high quality?
C) Are the prospective buyers of the doll geographically clustered?
D) How many prospective buyers can afford to pay this much for a doll?

Answer 2

B
Explanation: Research has found that persons who choose high-priced items usually perceive large quality variations within product categories and see the consequences of a poor choice as being undesirable

Question 3

Frito-Lay's potato chips are priced at 69 cents a bag rather than 70 cents. This is to

A) encourage consumers to think these chips are less expensive.
B) gain more consumers who are not too keen about the quality of the chips.
C) create a signal that these chips are exceptionally fine.
D) increase sales by giving discount offers.

Answer 3

A
Explanation: Frito-Lay's potato chips are priced at 69 cents a bag rather than 70 cents to encourage consumers to think of them as less expensive (60 some-odd cents) rather than 70 cents.

Question 4

Which of the following is a factor pertaining to the expected consumption rate of potential buyers, location of potential buyers, and position of potential buyers and is particularly important for pricing decisions?

A) Psychological
B) Political
C) Demographic
D) Price elasticity

Question 5

Which of the following is not a demographic factor affecting pricing decisions?

A) Expected consumption rates of potential buyers.
B) Location of potential buyers.
C) Chances of a buyer being favorably attracted by odd pricing.
D) Economic strength of consumers.

Question 6

The three primary considerations pertaining to demand influences for a product are

A) segmentation variables used, breakeven point, and required discounts.
B) internal rate-of-return, target pricing and cost-plus pricing.
C) required discounts, price elasticity, and breakeven point.
D) demographic factors, psychological factors, and price elasticity.

Question 7

Hertz economy cars are rented for $129 rather than $130 to appear less expensive. This best describes

A) prestige pricing.
B) bundle pricing.
C) mark-up pricing.
D) odd-even pricing.

Question 8

_____ on pricing decisions concern primarily the nature of the target market and expected reactions of consumers to a given price or change in price.

A) Government influences
B) Environmental influences
C) Supply influences
D) Demand influences

Question 9

Which of the following is a type of psychological pricing strategy?

A) Cost plus pricing
B) Reference rate pricing
C) Portfolio pricing
D) Bundle pricing

Question 10

Which of the following is an example of a demographic factor that is important to the pricing decisions made for a new type of low-fat cereal for children?

A) How many boxes of the low-fat cereal will be consumed by a household in a month?
B) What price will indicate the quality of the cereal?
C) How will price elasticity affect the pricing?
D) Will potential buyers be attracted to the cereal if its manufacturer uses odd pricing?

Question 11

Under a single policy, Assurance Inc., an insurance company, provides insurance such as fire, engineering, healthcare and property, to companies. This is to

A) connote value and convenience for customers.
B) create a signal that the service is exceptionally fine.
C) increase sales by giving discount offers.
D) encourage consumers to think of them as high quality maintainers.

Question 12

Which of the following is a demographic factor that influences the pricing decision of a product?

A) Buyers use price as an indicator of product quality.
B) Will potential buyers be favorably attracted by odd pricing?
C) Are buyers willing to pay higher prices for quality products?
D) Expected consumption rates of potential buyers.

Question 13

Which of the following factors related to pricing is concerned primarily with how consumers perceive various prices or price changes?

A) Environmental
B) Psychological
C) Demographic
D) Sociological

Question 14

Both Robin and Kenya went to buy a black sweater. Kenya bought hers at Dillard's and paid $79. Robin bought a similar one at Sears and paid $34.95. Kenya is convinced her sweater is much superior to Robin's because it is more expensive than his. Identify the psychological factor because of which Kenya buys a high priced item.

A) The use of odd pricing which made her feel like she got more for her money.
B) The use of prestige pricing which means the high price was used to signal high quality.
C) The use of bundle pricing which stresses both value and convenience to Kenya, and validates the high price of the sweater.
D) The use of price elasticity which determines Kenya's and Robin's price sensitivity.

Question 15

If consumers or organizational buyers perceive the price of a product to be too low, then

A) customers judge the product quality to be the best.
B) the firm will make huge profit.
C) it would help in brand building for the firm.
D) sales might increase but profitability may suffer.

Question 16

Travel agencies offer vacation packages that include travel, accommodations, and entertainment at a single price to connote value and convenience for customers. This is an example of

A) odd pricing.
B) prestige pricing.
C) bundle pricing.
D) rate of return pricing.

Question 17

Research has tentatively established that customers who choose high-priced items see the consequences of a poor choice as being undesirable as they

A) perceive large quality variations within product categories.
B) are usually insensitive to the value of prestige products.
C) are highly sensitive to changes in price.
D) incur no benefits from any pricing strategies aimed at other consumers.

Question 18

Which of the following observations is true?

A) Only demographic factors affect price elasticity.
B) Only psychological factors affect price elasticity.
C) Price elasticity is a measure of consumers' price sensitivity.
D) Price elasticity can be estimated from historical data.

Question 19

Which of the following is an example of a demographic factor that would be particularly relevant to the pricing decisions made by a company that sells insurance?

A) The number of potential buyers.
B) The types of insurance the company sells.
C) The fact that potential buyers use price as an indicator of product quality.
D) The prestige orientation of potential buyers.

Question 20

Pricing decisions must be given careful consideration when a firm is introducing a new product or planning a short- or long-term price change because

A) if the price is too low, sales and profitability will increase.
B) low pricing indicates good quality to all consumers.
C) high pricing would lead to increased profits for the firm.
D) a successful pricing strategy is important for the profitability of the firm.

Question 21

Betty went to the hardware store this morning to purchase a gallon of Round-Up weed- and grass-killer for which she expected to pay about $15. She found a gallon of Round-Up packaged with a quart of Weed-B-Gone, a new product claiming to kill weeds without killing grass. Together they were priced at $14. This example would best describe

A) odd pricing.
B) prestige pricing.
C) bundle pricing.
D) price skimming.

Question 22

Price elasticity can be estimated from historical data or from _____ data across sales districts.

A) price/quality
B) features/benefits
C) price/quantity
D) behavior patterns

Question 23

For which of the following products would the producer be most likely to use cost-plus pricing?

A) A landscaping project of a five-acre public park.
B) A kite bought at a souvenir shop.
C) A first edition novel that is valued at $125.
D) A state-of-the-art computer.

Question 24

Which of the following is not a commonly used pricing objective?

A) Establishing leader pricing for all product lines.
B) Stabilization of price and margin.
C) Pricing to meet or prevent competition.
D) Pricing to achieve a target market share.

Question 25

Prestige pricing, odd pricing and _____ are three types of psychological pricing strategies.

A) portfolio pricing
B) price skimming
C) bundle pricing
D) reference pricing

Question 26

Which of the following interpretations of price elasticity is true?

A) Price elasticity is calculated by dividing the percent change in price by the percent change in the quantity demanded.
B) Price elasticity can be estimated from historical data.
C) A sampling of consumers' buying intentions cannot be used to estimate price elasticity.
D) A crude estimate of price elasticity is not a useful input for pricing decisions.

Question 27

When Greta went to buy some bedding plants for a flowerbed she was building, she noticed that a six-pack of plants was for $.79, a 3-inch container with one plant was for $.99, and a 5-inch container was for $1.29. This example indicates that the seller is using

A) odd pricing.
B) bundle pricing.
C) prestige pricing.
D) exorbitant pricing.

Question 28

Which type of cost-oriented pricing is most closely related to markup pricing?

A) Cost-plus pricing
B) Odd pricing
C) Prestige pricing
D) Value pricing

Question 29

_____ can be estimated by sampling a group of consumers from the target market.

A) Shelf optimization
B) Inventory management
C) Promotion analyses
D) Price elasticity

Question 30

_____ is most often used to describe the pricing of services that are nonroutine and difficult to "cost" in advance of their completion.

A) Target cost pricing
B) Rate-of-return pricing
C) Bundle pricing
D) Cost-plus pricing

Question 31

For which of the following products are you most likely to see the retailer using prestige pricing?

A) Plastic storage containers
B) Fresh fruits
C) Frozen desserts
D) Bottle of Scotch whiskey.

Question 32

_____ is a measure of consumers' price sensitivity, which is estimated by dividing relative changes in the quantity sold by the relative changes in price.

A) Space optimization
B) Monopoly pricing
C) Promotion analyses
D) Price elasticity

Question 33

Which of the following businesses would be most likely to use rate-of-return or target pricing?

A) A large book store
B) A glass manufacturer
C) An independently owned clothing retailer
D) A chain of clothing retailers

Question 34

Price elasticity can be estimated by sampling a group of consumers from the target market and polling them about various price/quantity relationships. Which of the following observations concerning this approach is true?

A) This approach is limited to the consideration of price changes.
B) This approach is inexpensive.
C) There is some question as to the validity of subjects' responses.
D) The crude estimate of price elasticity is not a useful input for pricing decisions.

Question 35

Before Al and Carole started their vacation, they had budgeted $70 a night for motels. When the couple went to check-in into a motel for the night, they were pleasantly surprised to learn that the $64 they paid for their room included breakfast too. Which form of psychological pricing is the motel using?

A) Price skimming
B) Prestige pricing
C) Reference rate pricing
D) Bundle pricing.

Question 36

Price elasticity is a measure of consumer's price sensitivity, which is estimated by dividing relative changes in the quantity sold by the

A) volume consumed.
B) cost of the product or service.
C) relative quantity produced.
D) relative changes in price.

Question 37

Research has found that the most common pricing objectives are pricing to achieve a target return of investment, stabilization of price and margin, pricing to meet or prevent competition, and pricing

A) in accordance with policies and procedures.
B) to eliminate purchasing roles.
C) to achieve a target market share.
D) to increase personal selling.

Question 38

All of the following observations about pricing objectives are correct except

A) Pricing objectives should be derived from overall marketing objectives.
B) The marketing manager does not have perfect cost, revenue, and market information to be able to evaluate whether or not this objective is being reached.
C) Research has found that the most common pricing objectives include pricing to achieve a target return on investment
D) The profit maximization norm provides the operating marketing manager with a single, unequivocal guideline for selecting prices.

Question 39

The three basic variations in cost-oriented pricing are mark-up pricing, cost-plus pricing and

A) odd pricing.
B) bundle pricing.
C) rate-of-return pricing.
D) prestige pricing.

Question 40

Winnie runs an ice cream cooler at the beach each summer. Her brother doesn't charge her rent for setting up her ice cream cooler in his stand. Each bar of ice cream costs her $.20. She adds on an additional $.20 to each bar to pay for electricity for the freezer, napkins, and her time, selling the ice cream finally at $.40 per bar. Winnie uses

A) bundle pricing.
B) cost-plus pricing.
C) odd pricing.
D) markup pricing.

Question 41

In Canada, Home Depot shows it is serious about always having the lowest prices by using an animated hammer that is shown in its ads smashing prices to make them even lower. In the United States, Wal-Mart uses a smiley face in its ads because it has low prices. Both stores are promoting their use of _____ pricing strategy.

A) everyday low
B) target-return
C) rate-of-return
D) high/low

Question 42

Which of the following observations about the impact of product considerations on pricing is true?

A) A penetration policy should be used when the firm expects no competition for a product.
B) The stage of the life cycle that a product is in does not have any pricing implications.
C) A going-rate pricing is popular for distinctive products.
D) A skimming policy is useful when the firm has a temporary monopoly and when demand for the product is price inelastic.

Question 43

Which of the following statements about perishable products is incorrect?

A) High fashion products, fads, and seasonal products are perishable.
B) Perishable products are typically discounted as they approach being no longer fit for sale.
C) High fashion and fad products lose most of their value when they go out of style.
D) Perishable products will always have a high degree of distinctiveness.

Question 44

Ned buys old lawn mowers, reconditions them, and sells them for $225. He knows he needs to sell 80 mowers to break even. Calculate Ned's variable cost per lawn mower if his fixed costs are $8,000.

A) $125
B) $100
C) $80
D) $150

Question 45

The pricing strategy in which the seller charges a relatively high price on a new product is called

A) price fixing.
B) deceptive pricing.
C) price discrimination.
D) skimming.

Question 46

The estimated production and sales for a coffee table book on celebrity gardening is 50,000 volumes at a total cost of $750,000. Calculate the sales price for each book if the publisher desires a before-tax return of 25 percent.

A) $12.50
B) $15.00
C) $18.75
D) $30.00

Question 47

Some retailers augment low prices and advertising with special in-store activities like product demonstrations, giveaways, and celebrity appearances. Which advantage associated with high/low pricing does this illustrate?

A) High/low pricing reduces advertising and operating expenses.
B) High/low pricing increases profits through price discrimination.
C) High/low pricing creates excitement.
D) High/low pricing reduces stockouts and improves inventory management.

Question 48

The fixed costs for the manufacture of hand-made ceramic planters are $21,000. The variable costs to manufacture 10 planters are $800. If the potter has to sell 700 units to break even, what is the selling price of the planters?

A) 21
B) 30
C) 80
D) 110

Question 49

A retailer who uses an everyday low pricing (EDLP) strategy tends to

A) frequently use sales to increase store profits.
B) find that this method actually increases the probability of stockouts.
C) advertise more than those who rely on high/low pricing.
D) reduce stockouts and improve inventory management.

Question 50

Manufactured goods can be differentiated on the basis of certain features, such as package, trademark, engineering design, and chemical features. These features highlight the _____ of the product.

A) distinctiveness
B) perishability
C) life cycle
D) intangibility

Question 51

Kroger uses a strategy of price discrimination to increase profits. It charges higher prices to customers who are not price sensitive and low prices to price sensitive customers who will wait for sales. Identify the pricing strategy of Kroger.

A) Target pricing
B) Odd-even pricing
C) High/low pricing
D) Discount pricing

Question 52

Discounting products as they approach being no longer fit for a sale is associated with which product consideration in pricing?

A) Distinctiveness
B) Perishability
C) Elasticity
D) Stage in product life cycle

Question 53

A retailer who uses _____ pricing strategy can increase profits through price discrimination.

A) everyday low
B) prestige
C) high/low
D) odd-even

Question 54

The fixed costs for manufacturing hand-painted wooden decorative plaques are $7,000. The 5-inch oval plaques are sold at craft fairs for $2.25. Variable costs to produce 100 plaques are $100. What is the break-even point in units?

A) 1,786 plaques
B) 3,111 plaques
C) 5,600 plaques
D) 7,000 plaques

Question 55

Which of the following describes a disadvantage associated with cost-oriented approaches to pricing?

A) Extremely complex to implement.
B) Difficult to understand and put into practice.
C) Fail to adequately reflect competition.
D) Generally do not yield a good price decision.

Question 56

Which of the following describes an advantage associated with cost-oriented approaches to pricing?

A) Its methods have direct relationship to what people will be willing to pay for the product.
B) They clearly and adequately reflect competition.
C) They give adequate consideration to both supply and demand factors.
D) They are very simple to use and generally yield a good price decision.

Question 57

Large sums of money are often invested to make the products and brands distinctive in the minds of buyers so that the

A) seller will be able to charge higher prices.
B) consumer goods would be homogeneous.
C) substitute products in the market gain demand.
D) prices may be marked up and later discounts be given.

Question 58

Which of the following is a product consideration in pricing?

A) Affordability
B) Distinctiveness
C) Target return on investment
D) Target market share

Question 59

Ned buys old lawn mowers, reconditions them, and sells them for $225. His average variable cost per lawn mower is $125. He knows he needs to sell 64 mowers to break even. Calculate Ned's fixed costs.

A) $7,500
B) $6,400
C) $1,800
D) $5,540

Question 60

Which of the following statements about product distinctiveness is true?

A) All commodities have a high degree of distinctiveness.
B) Producers of fruits, vegetables and processed food cannot increase their products' distinctiveness.
C) Branding and brand equity are commonly used to make products distinctive in the minds of the customer.
D) Products can be distinctive in the sense that demand for them is confined to a specific time period.

Question 61

Pricing a product at competition is called _____ and is popular for homogeneous products.

A) sealed-bid pricing
B) bundle pricing
C) open pricing
D) going-rate pricing

Question 62

The two most important environmental influences in pricing decisions are competition, and

A) price elasticity.
B) government regulations.
C) demographic conditions.
D) psychological factors.

Question 63

Which kind of pricing strategy would you expect producers to use for pricing homogeneous products such as wool, tomatoes, wheat, coal, and bone meal?

A) Penetration pricing
B) Going-rate pricing
C) Skimming pricing
D) Sealed-bid pricing

Question 64

Game Cube video game console was launched with an introductory price of $199.95, which was quite low for products of this category. The reasoning behind this low pricing was that the game cube manufacturers expected competition to move in rapidly. Identify the pricing policy used here.

A) Penetration policy
B) Prestigious policy
C) Skimming policy
D) Going-rate policy

Question 65

The pricing strategy in which the seller charges a relatively low price on a new product is called _____ policy.

A) underscoring
B) bundle
C) penetration
D) skimming

Question 66

For which of the following products is the seller most likely to use going-rate pricing?

A) Sports cars
B) Wedding apparel
C) Whole milk
D) Designer furniture

Question 67

General Electric Company and DeBeers Company AG were charged for conspiring to keep the end user price for industrial diamonds, used in cutting tools for construction, mining and oil well drilling etc. artificially high. In other words, the two companies were charged for

A) price discrimination.
B) price fixing.
C) setting illegal price differentials.
D) deceptive pricing.

Question 68

Identify the primary device used to outlaw horizontal price fixing.

A) Sherman Antitrust Act
B) Robinson-Patman Act
C) Clayton Act
D) Federal Trade Commission Act

Question 69

Which is the primary law that is used to protect companies from price fixing?

A) Sherman Antitrust Act
B) Robinson-Patman Act
C) Federal Trade Commission Act
D) Clayton Act

Question 70

Price discrimination that lessens competition, or is deemed injurious to it, is outlawed by the

A) Robinson-Patman Act.
B) Federal laws.
C) Clayton Act.
D) Federal Trade Commission Act.

Question 71

An important legal constraint on pricing is that

A) promotional pricing, such as cooperative advertising and price deals are illegal per se.
B) price fixing is not illegal per se, but sellers must make agreements with competitors or distributors concerning the final price of the goods.
C) price discrimination that lessens competition or is deemed injurious to it is outlawed.
D) deceptive pricing practices are allowed under Section 5 of the Federal Trade Commission Act.

Question 72

Which of the following is an example of an environmental influence on pricing decisions?

A) The cost structures used by competitors.
B) The stage of the life cycle that a product is in.
C) Rate-of-return or target pricing being used by manufacturers.
D) The economic strength of potential buyers.

Question 73

Given a product or service designed for a specific target market, the pricing process normally begins with a clear statement of the

A) vision of the company.
B) mission of the company.
C) pricing objective.
D) consumer wants.

Question 74

Deceptive pricing practices are outlawed under the

A) Federal Trade Commission Act
B) Sherman-Antitrust Act
C) Uniform Commercial Code
D) Fair Pricing Act

Question 75

Gillette introduced its Mach 3 razor at a very low price to encourage more consumers to purchase it and to discourage competition. This is an example of _____ pricing.

A) penetration
B) cost-plus
C) going-rate
D) break-even

Question 76

A new device "Sniffer", used for testing alcohol levels in drunken driving suspects, is priced out of the reach of most law enforcement units. Those units that have bought the Sniffer are extremely pleased with its results and the fact that these results are readily accepted in court. There is nothing on the market today that has the accuracy and the portability of the Sniffer. The manufacturer of the Sniffer is likely to be using _____ pricing.

A) penetration
B) odd
C) skimming
D) going-rate

Question 77

Marking merchandise with an exceptionally high price and then claiming that the lower selling price actually used represents a legitimate price reduction, is an example of

A) deceptive pricing.
B) odd pricing.
C) bundle pricing.
D) mark-up pricing.

Question 78

Why would a firm price above competition?

A) Because the firm has a superior product.
B) Because it is a price follower in the industry.
C) Because the firm aims to be a price leader in the industry.
D) Because this approach represents the collective wisdom of the industry.

Question 79

A company might use penetration pricing when

A) demand for a new product is price inelastic.
B) a seller wants to charge a relatively high price on a new product.
C) the firm expects competition to move in rapidly.
D) economies of scale are not a consideration.

Question 80

_____ is an example of pricing below the competition.

A) Cost-minus pricing
B) Bundle pricing
C) Skimming pricing
D) Sealed-bid pricing