As a project for her marketing class, Emily Washington is researching how five local businesses price their products. The following are brief sketches of what she has learned about each company. At Bella Computers, Emily has discovered that the company earned a 6 percent return on investment this year and wants to increase it to 9 percent next year. To its retailer customers, Bella Computers gives cash discount terms of 2/10, net 30. It also gives retailers a 3% reduction on the invoice amount for advertising Bella products locally. Bella gives retailers' salespeople 2% of the sale price for each Bella Computer they sell.
At Ross Pharmaceuticals, she learned that the company has invested heavily in developing a new product that recently received a patent. Because cash is tight, the company wants to achieve a rapid return on its investment. The new patented product is badly needed in the market, so a very inelastic demand curve is expected.
Digital Imaging makes photographic prints for wedding photographers. It is very concerned about competitor reactions to its pricing, so it has selected prices that will not draw the attention of the competition and not start a price war. Digital Imaging offers customers an 8% discount if their purchases exceed $20,000 a year.
Jack's One Hour Cleaners recently opened for business. The company invested a lot of money in new equipment, and feels that it has to quickly get "at least 10% market share to stay in the game." This need obviously influences the company's pricing decisions. Jack's also plans to offer customers 20% discounts on any order over $20.
National Printing Equipment (NPE) produces equipment that helps to print newspapers and magazines. The company sells directly to printers and through wholesalers. Its salespeople negotiate prices with individual customers and often have to match competitors' prices. NPE has a new product, the Gutenberg NP201, with some competitive advantages now, but competitors are expected to follow quickly with similar products. The new product is being introduced into a market with elastic demand. In regard to freight charges for its equipment, NPE's invoice reads, "Seller pays the cost of loading equipment onto a common carrier. At the point of loading, title to such products passes to the buyer, who assumes responsibility for damage in transit, except as covered by the transportation agency."
The 3% price reduction Bella Computers gives its retailers is an example of:
A) push money.
B) value pricing.
C) an advertising allowance.
D) everyday low pricing.
E) a cash discount.

Which Pricing Policy Is Probably "Best" for a Profit-Oriented, Low-Cost

Multiple Choice

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