MKTG 351 - Chapter 19

What is gratifying?

- A big reward at a low price - thrill of getting something on sale

What are some geography-based pricing options?

- Free on board or FOB pricing - Uniformed Delivered Price - Zonal pricing

What are some common pricing tactics?

- Loss Leader Pricing - Psychological Pricing - Two-part Pricing - Price Bundling - Versioning

What are pricing objectives?

- Profits (internal focus) - Sales (Internal focus) - Status Quo Pricing (Competitor focus) - Value-Based Pricing (Customer focus)

Another name of cost volume profit chart

- breakeven chart - show sales, costs, and the related profit or loss for various levels of units sold

What is FOB pricing?

- buyers pay the freight charges - the price is the same at the origin and varies for all customers

Which metric is measured by change in demand for a unit change in price?

Elasticity of Demand

What does FOB stand for?

Free on board

Which products have increased demand when increasing price?

Giffen goods, inferior goods, and some luxury goods

How does Loss Leader Pricing strategy generate profit?

Heavily advertise a super low price product with the hope to create higher traffic in the store --> profits are generate when customers buy other items.

What is the formula to find break-even point?

N = TFC / Contribution Margin

Which pricing strategy focuses on the amount of profit that companies can make?

Profit Oriented Pricing

What does high price elasticity mean?

a small change in price has a large impact on demand

What is the benefit of sales-oriented pricing? a. Companies with the highest sales can claim leadership status in the marketplace b. Inventory is kept to a minimum c. It maximizes profits d. It ensures that no losses are made

a. Companies with the highest sales can claim leadership status in the marketplace

When the freight cost component is high, the seller may want to use ________. a. FOB pricing b. Uniformed delivered pricing c. Zone based pricing d. All options are correct

a. FOB pricing

Why is the supply curve an upward sloping curve? a. Higher prices induce the sellers to create additional supply b. Lower prices induce the seller to create additional supply c. The higher the prices, the more likely consumers will buy d. The higher the prices, the less likely consumers will buy

a. Higher prices induce the sellers to create additional supply

What goods may have higher demand if they have a higher price? a. Luxury goods b. Necessary goods c. Normal goods d. Substitute goods

a. Luxury goods

How does one calculate the return on investment? a. Net profits after taxes divided by total investment b. Total investment divided by net profits after taxes c. Revenue minus costs d. Sales times units sold

a. Net profits after taxes divided by total investment

When the companies get together to set a higher price, it is called ___________________. a. Price fixing b. Price discrimination c. Price bias d. Predatory pricing

a. Price fixing

In what type of pricing are prices set with an exclusive eye on profits? a. Profit maximization b. Breakeven pricing c. Targeted return on investment d. Markup

a. Profit maximization

Which of the following pricing strategy selling products by registering in customers' minds as a bargain? a. Psychological Pricing b. Two-part Pricing c. Loss Leader Pricing d. Price Bundling

a. Psychological Pricing

If customers buy two packs of coke cans, they will get 20% off. Which promotion method is being used? a. Quantity discount b. Cash discount c. Trade allowance d. Rebate

a. Quantity discount

Price fixing is illegal in most countries under the antitrust laws. a. True b. False

a. True

Costs that vary in proportion to changes in the level of activity are: a. Variable b. Fixed c. Variance d. Margin

a. Variable

How the sellers in Monopolistic Competition market set prices? a. based on the product differentiation. b. based on the market price c. based on the competitors' price. d. based on customers' value

a. based on the product differentiation.

What is Dynamic Pricing?

ability to change pricing frequently; often in real-time ex: Uber

A travel company may sometimes sell not only airline tickets but also provide car rental and hotel booking services. This is an example of: a. Two-part pricing b. Bundling c. Loss leader pricing d. Versioning

b. Bundling

Where the supply curve and the demand curve meet, is called: a. Elasticity b. Equilibrium c. Inelasticity d. Breakeven

b. Equilibrium

An increase in price always reduces demand. a. True b. False

b. False

The price of a product is always higher than its cost in any circumstances. a. True b. False

b. False in short-run, it can be lower than TC.

Costs that remain the same in total dollar amount as the activity base changes are: a. Variable b. Fixed c. Variance d. Margin

b. Fixed

What is revenue? a. Price times sales b. Price times units c. Sales times profits d. Profits times price

b. Price times units

In which market structure with numerous buyers and sellers, the sellers have to price their product as market price? a. Pure monopoly b. Pure competition c. Oligopoly d. Monopolistic competition

b. Pure competition

Products such as retail gasoline is usually sell in a(n) ___________ market structure. a. Pure monopoly b. Pure competition c. Oligopoly d. Monopolistic competition

b. Pure competition

Which of the following pricing strategy focus on maximizing market share? a. Profit-oriented b. Sales-oriented c. Status Quo Pricing d. Value-Based

b. Sales-oriented

Which of the following strategy doesn't explicitly take into account sales or profit objectives? a. Sales Oriented Pricing b. Status Quo Pricing c. Value-Based Pricing d. Profit Oriented Pricing

b. Status Quo Pricing

Which of the following is false about monopoly? a. It is considered illegal b. The sellers watch their competitors very closely c. It is not good for the consumer d. The seller can charge any price

b. The sellers watch their competitors very closely

For Prestige pricing, higher price will_________ a. increase buyer's sensitivity to price b. reduce buyer's sensitivity to price c. increase price elasticity d. decrease demand

b. reduce buyer's sensitivity to price (decreases price elasticity)

What is Uniformed Delivered Price?

buyers pay the same price regardless of location and seller pays shipping Ex: Amazon Prime

Which of the following is a market entry pricing strategy? a. Markup pricing b. Target return on investment c. Penetration Pricing d. Status Quo Pricing

c. Penetration Pricing

What is Rebate?

cash refund for purchasing a product during a specified period

What will be affected when changing prices?

company's top line, sales, and the bottom line, profits

What is Marginal cost?

cost of producing an additional unit

Products such as home goods, clothing, furniture are usually sell in a(n) ___________ market structure. a. Pure monopoly b. Pure competition c. Oligopoly d. Monopolistic competition

d. Monopolistic competition

What price strategy should be used when introducing frequently purchased non-durable products? a. Premium pricing b. Price skimming c. Value pricing d. Penetration pricing

d. Penetration pricing (for price sensitive market)

Which of the following is the discount option made to channel members for performing certain actions? a. Quantity Discount b. Cash discount c. Seasonal Discount d. Promotional or Trade allowances e. Rebate

d. Promotional or Trade allowances

Products such as utility, public services sell in a(n) ___________ market structure. a. Pure monopoly b. Pure competition c. Oligopoly d. Regulated monopoly

d. Regulated monopoly

Which of the following pricing strategy most aligned with marketing philosophy? a. Profit-oriented b. Sales-oriented c. Status Quo Pricing d. Value-Based

d. Value-Based

How Availability of Substitutes affects elasticity?

decreases elasticity

What is the drawback of FOB pricing?

discriminatory to customers living in distant locations

What is the purpose of cash discount?

encourage prompt payments

What decides whether Sales Oriented strategy effective?

higher profits in the long run

Which of the following is right when changes in price do not impact the demand much? a. elasticity b. inelasticity or low price elasticity

inelasticity or low price elasticity

If it is difficult to evaluate the quality of the product, buyers tend to be _____________

less sensitive to price

If the price of the product is small compared to the purchasing power of buyers, they tend to be _____________

less sensitive to price

What is a benefit of Price bundling strategy?

lock the customers into purchasing all item from the same seller, avoid losing any sales to the competitors

What is Status Quo Pricing?

maintain a balance with competitors' pricing

What is the purpose of price modification?

maximize sales or profitability

What is predatory pricing?

practice of undercutting competitors' prices with an intent on driving them out of business

When Price discrimination is considered legal?

price differentiation can be justified on the basis of market conditions, competition, or costs

What is Two-part Pricing?

setting a relatively low base price for the 1st product, but higher prices on subsequent options ex: razor & blade; printer & cartridge

What is Markup pricing strategy?

takes the costs and adds a markup on that as profits

What is the sacrifice effect of price?

the amount buyers pay

What is Marginal revenue?

the revenue created from the sale of an additional unit

Which elasticity indicates an increase in price is compensated by a decrease in demand?

unitary elasticity or an elasticity value of one

What is the reward effect of price?

what buyers get

Factors effecting elasticity

•Availability of substitutes - more easily available, the higher the price elasticity •Price relative to purchasing power - low priced goods are less elastic •Ease of evaluating quality - if hard to evaluate quality, then product is less elastic b/c can't easily compare to other products •Use of prestige pricing - higher pricing can be used to signal higher quality

What does Target return on investment focus on?

- creating enough profits to justify a certain return on investment - Ensure the investments are getting a fair rate of return

What is the perceived value?

- difference between sacrifice and reward effect - is tied to the buyer's satisfaction with the purchase

What condition makes the classic supply and demand curve valid?

- pure competition Ex: - infinite buyers and sellers - ready availability of substitutes

What is Zonal pricing?

- the market is divided into geographic zones - customers within a zone pay the same final price

04 categories of Profit Oriented Pricing

1. Profit Maximization 2. Breakeven Pricing 3. Target return on investment 4. Markup pricing

Some discounting options

1. Quantity Discount 2. Cash discount 3. Seasonal Discount 4. Promotional or Trade allowances 5. Rebate

02 benefits of Sales-oriented strategy

1. claim leadership status in the marketplace 2. greater economies of scale

Which of the following discount method is typically used for business customers? a. Quantity discount b. Cash discount c. Trade allowance d. Rebate

b. Cash discount

Which of the following is not a benefit of selling the product at a lower price? a. Create economic of scale b. Create a shortage in the market c. Increase purchase volume d. Penetrate the market more easily

b. Create a shortage in the market

A company is using ___________ when charging a high price when introducing the product and then lowering the price after some time. a. Premium pricing b. Price skimming c. Value pricing d. Penetration pricing

b. Price skimming

Which of the following pricing strategy is often followed in the pricing of consumer electronics products? a. Penetration b. Skimming c. Premium pricing d. Value pricing

b. Skimming

Why is price-fixing illegal? a. Because it will lower the entry barrier b. The product may be in high demand c. Because the companies can collaborate and create a form of monopoly d. Because it encourages competition

c. Because the companies can collaborate and create a form of monopoly

Which of the following is the difference between price and variable cost? a. Revenue b. Profit c. Contribution margin c. Revenue margin

c. Contribution margin

Which of the following serves as a floor for pricing? a. Revenue b. Profit c. Cost d. Marginal Revenue

c. Cost

Which of the following is true about price skimming strategy? a. It is better suited for non-durable goods. b. It starts with a low price. c. It starts with a high price. d. It is meant to help repeat purchase.

c. It starts with a high price.

Which of the following pricing strategy is used most often by retailers? a. Psychological Pricing b. Two-part Pricing c. Loss Leader Pricing d. Price Bundling

c. Loss Leader Pricing

In ______________, retailers sell a product at a low price, with the hopes of making up the profit from the sales of other products. a. Two-part pricing b. Price bundling c. Loss leader pricing d. Versioning

c. Loss leader pricing

In which market structure sellers watch their competitors very closely? a. Pure monopoly b. Pure competition c. Oligopoly d. Monopolistic competition

c. Oligopoly

In which market structure with very few sellers, the sellers have to price their product at a going rate? a. Pure monopoly b. Pure competition c. Oligopoly d. Monopolistic competition

c. Oligopoly

Which market structure does the airline industry belong to? a. Pure monopoly b. Pure competition c. Oligopoly d. Monopolistic competition

c. Oligopoly

If a retailer does not want to carry its leftover inventory to the next year, which discount method should be used? a. Quantity discount b. Trade discount c. Seasonal discount d. All options are correct

c. Seasonal discount

Which pricing strategy is particularly suitable for durables? a. Penetration Pricing b. Status Quo Pricing c. Skimming d. Sales Oriented Pricing

c. Skimming

Which of the following is illegal price discrimination? a. The museum ticket is cheaper for children b. Movie tickets are cheaper for premium members c. The "I love NY" products costs more for a foreigner compared to locals d. When a bar provides free drinks at "ladies night."

c. The "I love NY" products costs more for a foreigner compared to locals