Chapter 10 Quiz

New products are vital to the growth and profits of a firm, but they also present unique pricing challenges. When a product is new to the market or when there is no established industry price norm, marketers may use a skimming pricing strategy, a penetration pricing strategy, or trial pricing. Which pricing strategy is it when a company gives its new product a low price for a limited time to generate a high level of customer interest, then increases the price after the introductory period, all in an effort to win customer acceptance first and make profits later? [Select one]

trial pricing

How do you calculate the price elasticity of demand for your product?

A) Divide the percentage change in quantity demanded by the percentage change in price.

Which of the following is/are true? A) Most products are sold directly to consumers or retailers instead of being sold to a wholesaler, distributor, or jobber. B) In organizational [i.e. B2B] markets, the manufacturer may sell his or her product to a distributor who will then sell to the business customer. Each of these members of the channel of distribution buys a product for a certain amount and adds a markup amount to create the price at which they will sell a product. C) Markup amount is the gross margin, also referred to as the retailer margin or the wholesaler margin.

B and C only

Which of the following is/are true? A) The most common cost-based approach to pricing a product is yield management pricing. B) Many retailers and wholesalers who often must set the price for tens of thousands of products use cost-plus pricing because of its simplicity. C) When a retailer simply doubles the cost of the item (100 percent markup) to determine the price, that is known as keystone pricing, a.k.a. keystoning. D) To use any of the pricing strategies based on demand, firms must determine how much product they can sell in each market and at what price.

B-D only

When a company sets a very low price for the purpose of driving competitors out of business, but turns around and increases prices later when they have a monopoly, that is called price-fixing.

False

Samsung wants you to calculate the contribution per unit for its new television so the company can determine the break-even point. Does this mean you should calculate the difference between the price the firm charges for the new TV (the revenue per unit) and the fixed costs of producing each new TV?

No

Marketers also need to know how their customers are likely to react to a price change. In particular, it is critical to understand whether a change in price will have a large or a small impact on demand... ____________ is a measure of the sensitivity of customers to changes in price.

Price elasticity of demand

Today, _________________ is more likely to be used for services such as access to Microsoft and Adobe computer programs and streaming television networks, such as Netflix, Disney+, and Hulu.

Subscription pricing

Two specific demand-based pricing strategies are target costing and yield management pricing. Read the descriptions and explanations of each in the textbook, then select which strategy Lee Iacocca and Ford Motor Company used when they designed and introduced the original Ford Mustang.

Target Costing

If Samsung increases the number units of televisions the factory manufactures, Samsung's fixed costs will not change.

True

Internet price discrimination is an Internet pricing strategy that charges different prices to different buyers for the same product based on order size or geographic location. Is Internet price discrimination legal as long as companies don't charge different prices based on a demographic characteristic such as gender or race?

Yes

Samsung has hired you to track the variable costs associated with the production of its newest television. Will those costs of production fluctuate depending on how many televisions Samsung produces?

Yes

Which of the following is/are true? A) For prestige products such as luxury cars or jewelry, a price hike may actually result in an increase in the quantity consumers demand because they see the product as more valuable. B) An upward shift in the demand curve means that at any given price, demand is greater than before the shift occurs. C) Plans for production of the product as well as marketing activities and budgets must all be based on reasonably accurate estimates of potential sales, so it's extremely important for marketers to understand and accurately estimate demand. D) Marketers predict total demand first by identifying the number of buyers or potential buyers for their product, i.e., their target market, and then multiplying that estimate times the average amount each member of the target market is likely to purchase.

all of the above

What's true about cryptocurrencies, a.k.a. digital currencies? [Select all that apply]

all of them

Not every advertised bargain is a bait-and-switch. Some retailers advertise items at very low prices or even below cost and are glad to sell them at that price because they know that once in the store, customers may buy other items at regular prices. Marketers call this loss-leader pricing; they do it to ________________.

build store traffic and sales volume

Estimating demand helps marketers to determine possible prices to charge for a product. It tells them how much of the product they think they'll be able to sell at different prices. Knowing this brings them to the third step in determining a product's price: making sure the price will cover costs. Before marketers can determine price, they must understand the relationship of _________________ for their product.

cost, demand, and revenue

The first crucial step in price planning is to develop pricing objectives... When pricing strategies are determined by profit objectives, the focus most often is on a target level of profit growth or a _____________. A profit objective is important to firms that believe profit is what motivates shareholders and bankers to invest in a company.

desired ner profit margin

Sometimes luxury goods marketers use prestige pricing, or premium pricing, in which they keep the price of the product artificially high to maintain a _________________. Prestige pricing relies on the price-quality inference that we talked about before.

favorable image of the product based on price only

The high/low pricing, or promo pricing, strategy means retailers have prices that are higher than EDLP chains, normally the MSRP or list price, but they run frequent, often weekly, promotions that ________________.

heavily discount some products

The second step in price planning is to estimate demand. Demand refers to the quantity of a good or service that consumers and business customers are willing and able to buy at a given price in a given time period. Because demand normally changes with changes in price, marketers must know _______________.

how much consumers are willing to buy at different prices

The two most common tactics for pricing multiple products are price bundling and captive pricing. Price bundling means selling two or more goods or services as a single package for one price—a price that is often less than the total price of the items if bought individually. From a marketing standpoint, price bundling makes sense. If we price products separately, it's more likely that customers will buy some but not all the items. They might choose to put off some purchases until later, or they might buy from a competitor. Whatever revenue a seller loses from the reduced prices for the total package, it often makes up for in ________________.

increased total purchases

Sometimes customers are sensitive to changes in prices, and a change in price results in a substantial change in the quantity they demand. In such instances, we have a case of elastic demand. In other situations, a change in price has little or no effect on the quantity consumers are willing to buy. We describe this as ______________.

inelastic demand

Which of the following is/are true? A) The final step in price planning is to choose a pricing strategy. B) Marketing planners seldom choose cost-based strategies because they are difficult to calculate and are high-risk. C) Cost-based pricing strategies promise that the price will guarantee that the seller will make a substantial profit.

none of the above

One of the most important opportunities the Internet offers marketers is dynamic pricing, in which the seller can quickly and easily adjust prices to meet changes in the marketplace. If a brick-and-mortar retail store wants to change prices, employees/workers must ______________, create and display new store signage and media advertising, and input new prices into the store's computer system. For B2B marketers, employees/workers must print catalogs and price lists and distribute to salespeople and customers. These activities can be very costly to a firm, so they simply don't change their prices often.

place new price tags on items

Firms that practice value pricing, or everyday low pricing (EDLP) develop a pricing strategy that promises good quality and durable products at _______________. Many successful retail chains around the world—including Walmart, Home Depot, Office Depot, and Target—all adopt a deliberate policy of EDLP. Because of their size, these firms are able to demand billions of dollars in cost efficiencies from their suppliers and pass the savings on to customers.

reasonable prices every day

Marketers of products with close substitutes are less likely to compete on price because they recognize that doing so could result in less profit as consumers _________________.

switch from one brand to another

Many times, a manufacturer builds its pricing structure around list prices. A list price, which we also refer to as a manufacturer's suggested retail price (MSRP), is the price that the manufacturer sets as _______________.

the appropriate price for the end consumer to pay

The free enterprise system is founded on the idea that the marketplace will regulate itself. Prices will rise or fall according to demand. Firms and individuals will supply goods and services at fair prices if there is an adequate profit incentive. Unfortunately, the business world includes _________________.

the greedy and the unscrupulous

Internet sales, catalog sales, home TV shopping, and other types of non-store retail sales usually add a standard preset shipping charge to the price of an item, regardless of the distance to the consumer's home. For example, when you order the latest Harry Potter book, you may pay the cost of the book plus $3.99 for shipping and handling, no matter what the actual cost of the shipping to your particular location might be. What pricing tactic is this?

uniform delivered pricing

It's not always a good idea to fight the competition with lower and lower prices. Pricing wars can change consumers' perceptions of what is a "fair" price, leaving them _________________.

unwilling to buy at previous price levels