Exercise 6

________ can occur when a company purposefully makes pricing decisions to undercut one or more competitors and gain sales and net market share.

A price war

The fundamental philosophy behind ________ is to reduce investment in promotion and transfer part of the savings to lower price.

everyday low pricing

A variable pricing strategy makes planning and forecasting much easier than a one-price strategy

false

To use target return pricing, one must first calculate total ________ costs

fixed

________ refers to products sold at prices below cost to attract shoppers to a store.

loss leader

________ require that a certain percentage markup be applied to all products.

minimum markup laws

Firms should be careful with a ________ strategy, as price is a cue for developing customer perceptions of product quality. The value proposition may be reduced if a low price belies the product's actual quality attributes.

penetration pricing

When a firm's objective is to gain as much market share as possible, a likely pricing strategy is ________, sometimes also referred to as pricing for maximum marketing share.

penetration pricing

A strategy to intentionally sell below cost to push a competitor out of a market, then raise prices to new highs, is called ________.

predatory pricing

The Internet created a rise in ________ as more and more people decided to meet online to sell products to the highest bidder.

auction pricing

As with average-cost pricing, the effectiveness of ________ pricing is highly dependent on the accuracy of the forecast.

target return

Pricing objectives very frequently are designed to maximize profit, which necessitates a ________ pricing strategy.

target return on investment (ROI)

Michael Porter has consistently advocated that firms that are able to compete based on some extraordinary efficiency in one or more internal processes bring to the market a competitive advantage based on ________.

cost leadership

The internal processes at Southwest Airlines are highly efficient, giving it a competitive advantage over other airlines. Southwest has a very efficient maintenance process and also has a very simple process of booking passengers. Because of these efficiencies, the company is able to offer customers an appealing mileage-driven pricing structure while also increasing the airline's profit margin. In this scenario, Southwest's competitive advantage is based on ________.

cost leadership

A competitor's price is one of the most visible elements of its marketing strategy; analyzing historical and current pricing patterns may allow firms to determine the competitor's pricing objective.

true

Effectively communicating a product's differential advantages is at the heart of positioning strategy, and exposure to these elements spurs the customer to develop perceptions of value and a subsequent understanding of the value proposition.

true

Firms and brands that continually attempt to operate in the high-price/low-benefits environment do not survive over the long run as customer trust is damaged.

true

When formulating a response to a competitor's price reduction, firms should consider their offering from the perspective of its overall value proposition to customers.

true

Firms that have an objective of utilizing pricing to communicate positioning use a ________ strategy.

value pricing

Explain the tactic of product line pricing and provide three examples of this strategy in the marketplace today.

Product Line Pricing is an approach where a marketing manager develops a pricing strategy not for a single product but for a series of products within a product line. The price point established for each item reflects the difference in benefits offers as the customer moves through the product line. Examples will vary (concert ticket levels, hotel chain accommodations, car models etc.).