Exam 4: Quiz 7

Raymond estimates that the fixed costs associated with opening a new bank branch are $500,000. He expects the branch to attract 1,000 new customer accounts in the first year, each of which will cost $50 per year to service. He also expects to generate $100,000 per year in revenue. For Raymond, the total cost of opening the new branch and remaining open for one year will be: $450,000. $605,000. $500,000. $650,000. $550,000.

$550,000.

There are two primary new product pricing strategies: A) skimming, and market penetration, which focuses on selling at a low price in order to gain market share as quickly as possible. Skimming is often preferred since it is easy to gradually lower prices over time, but difficult to increase them after introduction

A) which focuses on selling at a high price to the innovators and early adopters on the diffusion of innovation curve B)which focuses on selling at a low price in order to gain market share as quickly as possible. Skimming is often preferred since it is easy to gradually lower prices over time, but difficult to increase them after introduction

If Brandon buys hats for his store for $5 each and sells them for $15 each, he is using a keystoning pricing strategy. True False

False

If a firm is engaged in monopolistic competition, it should seek a way to differentiate itself. True False

True

Price is everything

a consumer gives up to get a productmoney, time, and effort

A slotting allowance is

a fee paid by manufacturers to retailers to get new products into stores or to gain more or better shelf space for their products.

Leader pricing is

a retail pricing tactic that offers a small number of in-demand items at low prices in order to bring customers into the store, in the hopes that they will buy other items too.

Reference prices

are prices against which actual prices can be evaluated. They can come from past experience, from competitive products, and from advertising, among other things. Matt is considering how these reference prices might affect consumer responses to his product's price.

Value-based pricing methods include approaches to setting prices that focus on the overall value of the product offering as recognized by competitors. in order to minimize bundling charges. when the product is produced. relative to production costs. as perceived by the consumer.

as perceived by the consumer.

Substitutes, by offering reasonable alternatives, typically make

consumers more sensitive to price changes.

Product, promotion, and place generate_______ price generates _______

cost revenue.

Compared to other pricing methods, __________ pricing is relatively simple. cost of ownership cost-based improvement value value-based reference-based

cost-based

Total costs =

fixed costs + variable costs, or 500,000 + (1,000 50) = $550,000. Revenues are not a factor when calculating total costs.

Cost-based pricing

is relatively simple because it requires only that the firm understand its cost structure and set profit or ROI objectives.

One reason marketers of new, innovative products often start out with a price skimming strategy rather than a market penetration strategy is that price skimming is legal while price penetration is not. few marketers understand pricing. few consumers understand a penetration strategy. it is easier to lower prices than to raise them. a price skimming strategy lowers the value for consumers.

it is easier to lower prices than to raise them.

Supermarkets often offer great deals on milk, beef, or eggs to get customers into their stores, knowing that many customers will also purchase items that have higher markups for the store. These supermarkets are using a __________ pricing tactic. bundling cumulative quantity discount leader seasonal allowance price lining

leader

David manages a Shoney's restaurant. He is considering staying open later in the evening. For David, the variable costs associated with staying open longer hours will include all of the following EXCEPT hours worked by cooks. hours worked by the waiters and waitresses. ingredients used in preparing food. energy costs. monthly rent on the restaurant building.

monthly rent on the restaurant building.

Developing pricing strategies for __________ is one of the most challenging tasks a manager can undertake. cost-based pricing seasonal rebate items new products zone pricing products quantity discounts

new products

Price is the _____________ a consumer is willing to make to acquire a specific product or service. overall sacrifice target return fixed cost amount of money variable cost

overall sacrifice

In determining the price for his company's new pocket digital camera, Matt determines what consumers consider the regular or original price for similar cameras available in the market. Matt is assessing the influence of __________ on pricing strategy. reference prices improvement value odd-even prices cost of ownership everyday low pricing

reference prices

A keystoning strategy involves

selling a product for twice the price paid for it. In this case, a keystoning strategy would call for Brandon to sell the hats for $10 each.

When Burroughs-Wellcome introduced the first anti-AIDS drugs, they initially set the price at $10,000 for a year's supply. Burroughs-Wellcome was probably pursuing a __________ pricing strategy. cost-based market penetration introductory skimming

skimming

Retailers often require manufacturers to pay _________ in order to obtain shelf space for new products. slotting allowances cash discounts zone pricing shelf rental fees quantity discounts

slotting allowances

nlike product, promotion, or place, price is the only part of the marketing mix that generates revenue. that offers the opportunity for an oligopoly. that is determined by the consumer. that leads to competition. that is subject to gray market manipulation.

that generates revenue.

Value-based pricing methods consider

the consumers' perceived value.

The more substitutes that exist in a market,

the more sensitive consumers will be to changes in the price of a particular product.

New product pricing is very challenging because

there is generally little data about consumer responses to different prices. In contrast, when an updated version of an existing product is introduced, all the knowledge about pricing for the existing product can be used when pricing the new product.

Rent is

unlikely to be based on hours opened, so this will be a fixed cost. All the other costs could rise when the hours are extended.

Monopolistic competition occurs

when there are many firms competing for customers in a given market but their products are differentiated.