Chapter 9: Pricing
cost-plus pricing
adding a standard markup to the cost of the product
dynamic pricing
adjusting prices continually to meet the characteristics and needs of individual customers and situations
Geographical pricing
adjusting prices to account for the geographic location of customers
Segmented pricing
adjusting prices to allow for differences in customers, products, or locations
competition-based pricing
based solely on competitors' strategies, prices, costs, and market offerings
T/F: An airline runs a 6-month promotional program where all baggage fees are waived. It is using a cost-based pricing strategy.
false
Product bundles
seller combines several products that are at a reduced rate, compared to buying them separately ex. McDonald's value menu
Product line pricing
setting prices across an entire product line ex. looking at the pricing of gas at a variety of different stores
Promotional pricing
temporarily reducing prices to spur short-run sales
International pricing
what price will a company charge for the same product in different countries
Customer value-based pricing
- based on buyers' perceptions of value rather than on the seller's cost - customer will decide if the price is right
Price Adjustment Strategies
1. Discount and allowance pricing 2. Segmented pricing 3. Psychological pricing 4. Promotional pricing 5. Geographical pricing 6. Dynamic pricing 7. International pricing
____ uses buyer's perceptions of what a product is worth as they key to pricing. A) Customer value-based pricing B) Target return pricing C) Cost-plus pricing D) Psychological pricing E) Competition-based pricing
A. Customer value-based pricing
What is most likely essential for implementing a successful market-skimming pricing strategy for a product? A) The product's quality and image must support its high price. B) Lower-priced alternatives can enter the market easily. C) Low prices promote more market growth than high prices. D) The product's price matches its manufacturing costs. E) A low-price position of the product is maintained.
A. The product's quality and image must support its high price
Each PC produced by HP involves a cost of computer chips, wires, plastic, packaging, and other inputs. Although these costs tend to be the same for each unit produced, they are called ________ costs because the total changes based on the number of units produced. A) fixed B) variable C) target D) capital E) payroll
A. fixed
Busch Stadium in St. Louis charges different prices for seats in different areas of the ball park, even though each seat costs the same for the owners of the stadium. What is this form of pricing called? A) location-based pricing B) market-skimming pricing C) product-form pricing D) time-based pricing E) market-penetration pricing
A. location-based pricing
With each new generation of Apple iPhone, iPad, or Mac computer, new models start at a high price then work their way down as newer models are introduced. Apple initially uses a ______ strategy. A) market-skimming B) target costing C) deceptive D) market-penetration E) predatory
A. market-skimming
NerdHerd Electronics sells three different sizes of televisions at three different prices. In this case, the company's pricing strategy is referred to as ________ pricing. A) product line B) optional-product C) by-product D) product bundle E) captive-product
A. product line
Los Amigos, a new Mexican restaurant, has set up shop across the street from Hot Tamales and More. Which of the following pricing strategies will Los Amigos likely use? A) cost-plus B) competition-based C) break-even D) good-value E) target costing
B. Competition-based
The first Target store opened in 1962. Its initial strategy was to set prices low to attract a large number of buyers quickly and win a large market share. This is referred to as _________. A) market-skimming pricing B) market-penetration pricing C) value-added pricing D) target costing E) deceptive pricing
B. market-penetration pricing
Computer World sells laptops separately from accessory products like docking stations, anti-virus software, and external hard drives. This is referred to as ________ pricing. A) product bundle B) optional-product C) market-penetration D) by-product E) product line
B. optional-product
The National Tree Company offers resellers half-price reductions on artificial Christmas trees if they purchase them in July. This is an example of a ________. A) functional discount B) seasonal discount C) promotional allowance D) trade-in allowance E) quantity discount
B. seasonal discount
What sets the price ceiling for a product's pricing? A) profits B) product costs C) consumer perceptions of value D) elements of the product mix E) competition
C. Consumer perceptions of value
Which of the following conditions is most likely essential for implementing a successful market-penetration pricing strategy for a product? A) The product's quality supports its high price. B) Alternative products can enter the market easily. C) The market for the product is highly price sensitive. D) Prices increase incrementally as sales volume increases. E) Production costs rise with an increase in marketing efforts.
C. The market for the product is highly price sensitive
How do firms that use captive-product pricing make up for the low prices of their main products? A) They reduce the cost of the captive products. B) They provide the captive products as freebies. C) They set high markups on the captive products. D) They increase the price of the main products. E) They offer the captive products and main products together at a reasonable price.
C. They set high markups on the captive products
Metro Museum has different admission prices for students, adults, and seniors. All three groups are entitled to the same services. This form of pricing is called ________ pricing. A) time-based B) location-based C) customer-segment D) by-product E) product form
C. customer-segment
What type of pricing is being used when a company temporarily prices its products below the list price to create buying excitement and urgency? A) segmented pricing B) psychological pricing C) geographical pricing D) promotional pricing E) dynamic pricing
D. promotional pricing
Movie theaters charge matinee pricing during the daytime, and resorts give weekend and seasonal discounts. This is illustrative of a ________ pricing strategy. A) product form B) market-penetration C) market-skimming D) time-based E) value-added
D. time-based
Vac "N" Sew, a consumer electronics outlet, offers a price reduction of $100 when customers bring in a used vacuum cleaner and exchange it for a new vacuum cleaner or sewing machine. This is an example of a ________. A) functional discount B) cash discount C) seasonal discount D) trade-in allowance E) by-product allowance
D. trade-in allowance
______ is the only element in the marketing mix that produces revenue. A) Price B) Place C) Promotion D) Product E) Profit
Price
cost-based pricing
The company designs what it considers to be a good product and sets a price that covers costs + target profit
T/F: A break-even chart shows the total cost and total revenue expected at various sales volume levels of a product
True
T/F: Dynamic pricing is particularly suitable for Internet-based companies like Amazon who want to be responsive to shoppers desires and marketplace changes.
True
T/F: When a manufacturer seeks a market for by-products and accepts a price that covers more than the cost of storing and delivering those by-products, the manufacturer is able to reduce the main product's price to make it more competitive.
True
Discount and allowance pricing
reducing prices to reward customer responses such as paying early or promoting the product
Psychological pricing
pricing a product based on consumer's reference prices
Optional Product
pricing optional or accessory products sold with the main product ex. selling options or accessories along with the main product
captive product pricing
pricing products that must be used with the main product ex. printer catridges
Price elasticity
the measure of the market's response to price changes