Chapter 20: Setting Prices

Identify the reason for selecting a basis for pricing: It's a good way to avoid overcrowding during busy periods

Demand-based pricing

Identify the pricing objective: To signal that goods are well made

Product quality

Identify the pricing objective: To earn a certain percentage of sales revenues or a certian dollar amount

Profit

Identify the pricing objective: To keep the firm's situation the same

Status quo

Kosal always likes to purchase popcorn when he goes to the movies. Popcorn is marked up 1,275 percent. However, Kosal is willing to pay this price. For Kosal the ___________ is impacting his view of price. a. type of product b. product quality c. purchase situation d. target market

c. purchase situation

For the launch of Disney+, the company set a price to directly compete with other streaming services like Netflix and HBO Max. The strategy used was to set the 1. ______________price, using the pricing strategy of 2. ___________________________. 1. a. high b. low c. moderate d. competitive 2. a. demand-based pricing b. cost-based skimming c. cost-plus pricing d. competition-based pricing

1. b. low 2. d. competition-based pricing

Identify the reason for selecting a basis for pricing: It looks primarily at how rivals price their products

Competition-based pricing

Identify the reason for selecting a basis for pricing: It's helpful when a firm can't easily predict what its costs will be

Cost-plus pricing

Identify the psychological pricing strategy: Pricing products low consistently

Everyday low pricing

In industries where price competition prevails, a firm should always price its products much lower than competitors. True False

False

Identify the pricing objective: To keep or buld the firm's product sales relative to overall industry sales

Market share

Identify the reason for selecting a basis for pricing: It's a quick and easy way to determine prices for a wide variety of products

Markup pricing

Identify the factors that affect the importance of price in the minds of the target market: Customers will pay more for popcorn bought in a movie theater

Purchase situation

Identify the pricing objective: To earn a specific gain on money spent

Return on investment

Value does not necessarily have to connote a low price. True False

True

The PlayStation 5 retails for $499 at GameStop, and the cost to GameStop is $400. What is the markup as a percentage of the selling price? a. 19.8 percent b. 24.8 percent c. 80.2 percent d. 50.3 percent

a. 19.8 percent

When a company sets a high price for the introduction of a new product, it is using which type of pricing? a. Price skimming b. Demand-based pricing c. Differential pricing d. Penetration pricing

a. Price skimming

The electronics manager at Best Buy just saw an advertisement for Walmart offering the iPad mini for $399 and up. They contacted the regional manager for Best Buy and got approval to meet the price on the product at their Best Buy store location. What type of pricing strategy does this represent? a. Random discounting b. Status quo pricing c. Demand-based pricing d. Secondary-market pricing

a. Random discounting

If a retailer purchases a can of soup for 60 cents and sells it for 99 cents, what is the markup as the percentage of cost? The percentage of selling price? a. The markup is 65% and the percentage of the selling price is 39.4%. b. The markup is 99% and the percentage of the selling price is 60%. c. The markup is 39.4% and the percentage of the selling price is 65%. d. The markup is 69% and the percentage of the selling price is 45.3%. e. The markup is 60% and the percentage of the selling price is 99%.

a. The markup is 65% and the percentage of the selling price is 39.4%.

When a company looks at its product's sales relative to total sales for that industry, it is calculating its _______. a. market share b. price c. profit d. revenue

a. market share

Nike setting their prices high in order to convey quality is an example of _______. a. prestige pricing b. reference pricing c. multiple-unit pricing d. odd-even pricing

a. prestige pricing

Value is a combination of price and _______. a. quality b. consistency c. aesthetics d. functionality e. elasticity

a. quality

Which of the following is the final step in the process of establishing prices? a. Selection of a basis for pricing b. Determination of a specific price c. Assessment of target market's evaluation of price d. Selection of a pricing strategy

b. Determination of a specific price

_______ pricing applies a specific dollar amount or percentage of the cost that is added to the seller's cost to establish the final price of a product or service. This type of pricing is frequently utilized in government and defense contracts. a. Demand-based b. Competition-based c. Cost-plus d. Markup

c. Cost-plus

Mai has a dilemma. She works for a chocolate company and the price of chocolate is going up. The most logical solution would be to raise the price. However, Mai knows from her history in the business that their loyal customers would not look favorably on a price increase. For customers, candy bars are one of those items where the price rarely changes. Mai's firm has sold its candy bars for $0.99 for the past two decades. Mai feels that the next best solution to absorbing the extra costs is to make the candy bars slightly smaller without lowering the price. Mai's company is most likely using which of the following pricing strategies? a. Price leader b. Everyday low price c. Customary d. Bait e. Product-line

c. Customary

Which of the following are advantages of penetration pricing? (Select two) a. Holds down demand when the firm has limited production capability at the introduction b. Helps recover high research and development costs more quickly c. Helps increase sales volume, which leads to production economies of scale d. Allows more flexibility in making price changes e. Encourages customers to try the new product

c. Helps increase sales volume, which leads to production economies of scale e. Encourages customers to try the new product

_______ pricing, which is typically used by retailers such as Best Buy, calculates the retail price by adding a predetermined percentage of the cost to the cost of the product. a. Competition-based b. Demand-based c. Markup d. Cost-plus

c. Markup

Blue Ribbon Farms is a family-owned farm and sells its seasonal produce, meat, eggs, and bakery items at several farmers' markets within a 60-mile radius of the farm. The owners utilize a Square payment system for credit cards, which is conveniently attached to a digital device such as an iPhone or iPad; however, the farm is charged a credit card fee of 8 percent of the retail price to process each credit card transaction. To encourage shoppers to pay with cash, Blue Ribbon Farms offers a 10 percent discount on purchases for consumers who pay by cash or check. Blue Ribbon Farms is utilizing a _______ pricing strategy. a. premium b. penetration c. differential d. random discounting

c. differential

With demand-based pricing, a company will typically set a _______ price during slow periods to boost demand. a. lower than competitors b. higher c. lower d. equal to competitors

c. lower

Assessing how customers in the target market evaluate price is the _______ stage in the pricing process. a. sixth b. first c. second d. third

c. second

Miguel is pricing a new couch. This couch is higher quality and expected to last longer than your traditional couch. Miguel prices the couch high because he knows that consumers anticipate paying more for longer-lasting products. What stage of the pricing process is Miguel currently? a. Determining the final price b. Developing pricing objectives c. Evaluating competitors' prices d. Assessing the target market's evaluation of price e. Choosing a basis for setting prices

d. Assessing the target market's evaluation of price

As the Walt Disney Company entered their new market of streaming services, the company had to decide how they were going to appropriately price their service. One way to do this was to compare other streaming service prices in order to understand the average price range for the industry. For which stage of the price establishment process would this service be most appropriate? a. Selecting a basis for pricing b. Developing pricing objectives c. Assessing the target market's evaluation of price d. Evaluating competitors' prices

d. Evaluating competitors' prices

The Black Friday sale is highly anticipated by shoppers, and many online and brick-and-mortar retail stores offer extreme discounts on items ranging from laptop computers to televisions to attract consumers to their stores. Some consumers even arrive at the retail location several hours before the store opens to wait in line and be one of the first shoppers allowed in the store. The Black Friday sale is an example of a _______ pricing strategy. a. bait b. random discounting c. price lining d. periodic discounting

d. periodic discounting

Occasionally, firms may utilize a _______ pricing objective by temporarily setting prices low, even below costs, to generate higher levels of sales. a. return on investment b. cash flow c. status quo d. survival

d. survival

The use of comparative shoppers would generally occur during which step of the pricing process? a. Choosing a basis for setting prices b. Assessing the target market's evaluation of price c. Determining the final price d. Developing pricing objectives e. Evaluating competitors' prices

e. Evaluating competitors' prices

Scenario 20.1. Maricela's company is about to release a new electronics product. The electronics product is estimated to have a short life cycle before it is replaced by an upgraded one. The company would like to recover the capital spent to produce the product. It therefore decides to charge the highest possible price for the product upon release. Maricela's firm recognizes this might provide an advantage to competitors who may release the product at a lower price, but it believes customers will feel that the higher price signals higher quality. Refer to Scenario 20.1. What type of pricing strategy is Maricela's company using for this product? a. Bait pricing b. Price lining c. Penetration pricing d. Captive pricing e. Price skimming

e. Price skimming

Identify the psychological pricing strategy: A firm sells two or more identical products for a single price

Multiple-unit pricing

Identify the psychological pricing strategy: Puts certain numbers at the end of a price

Odd-even pricing

Identify the factors that affect the importance of price in the minds of the target market: Buyers are less sensitive to items purchased occasionally, such as luggage

Type of product

Sam Walton, founder of Walmart, was a retail genius. One thing he would do is advertise a product such as a microwave at a knock-down price. Consumers would come into the store to examine the low-priced microwave. Next to the low-cost microwaves, Walmart would position some better quality, higher-priced microwaves. The idea is that consumers will be attracted to the store due to the low-priced product but that they often upgrade and purchase a higher-priced product once they realize that it offers better quality. Such a method is completely legal as long as there are enough low-priced products available that consumers can choose from if they desire. Sam Walton used what type of pricing strategy? a. Bait pricing b. Reference pricing c. Premium pricing d. Captive pricing e. Price lining

a. Bait pricing

Companies such as airlines utilize _______ pricing where they charge higher prices for airline fares during peak travel periods, such as holidays, when many consumers will likely be traveling. However, they price fares lower during off-peak days. a. demand-based b. competition-based c. cost-plus d. markup

a. demand-based

In the absence of ___________________ , pricing remains a flexible and convenient way to adjust the marketing mix. a. government controls b. competition c. pricing objectives d. elasticity

a. government controls

Scenario 20.3. Li Jang works at a firm that wants to develop a new pricing strategy for one of its products. The company has decided that its main objective for this product is to increase the product's sales in relation to industry sales. Li Jang has obtained a list of prices that tell him how much similar products are being sold for. Li Jang is particularly interested in the industry's top competitor because it has so much market share. After determining the price of its major competitor, Li Jang decided to undercut their price by several dollars. He believes putting a sign in their stores that features his company's discounted price next to the price of their major competitor for the same product will show consumers that Li Jang's company offers them a much better deal. However, he knows that he has to be careful not to misrepresent the competitor's price in the process. Refer to Scenario 20.3. Li Jang's firm has adopted a _______ pricing objective. a. status quo b. market share c. profit d. cash flow e. return on investment

b. market share

Nike's goal in setting a price is not to match competitors' prices or to gain market share. More than anything, Nike wants to create a strong image that shows the quality of their product to all customers. Which pricing objective best fits this goal? a. Survival b. Status quo c. Product quality d. Cash flow

c. Product quality

_______ pricing objectives generally require some amount of trial and error since not all data and inputs are available when first setting prices. a. Market share b. Profit c. Return on investment d. Status quo

c. Return on investment

Procter & Gamble's (P&G) Bounty paper towels are a cash cow for the company. Assume that P&G is adjusting the prices of Bounty paper towels sold in the United States. Viewing the United States as a saturated market, the marketing manager of Bounty believes that P&G should adopt a pricing strategy that will serve to maintain its current market share. What type of objective is this manager adopting? a. Product quality b. Profit c. Status quo d. Survival e. Cash flow

c. Status quo

A recent consumer trend has led grocery stores to expand their offering of organic produce, grass-fed beef, free-range chicken, and other products that consumers view as highly desirable given their attributes related to the use of pesticides, ethical treatment of animals, and environmental impact of the products. Consumers are willing to pay more for products that possess these positive attributes. What pricing concept best characterizes consumers' willingness to pay higher prices for products that possess desirable features or characteristics? a. Demand b. Competitive differentiation c. Value d. Supply

c. Value

In Fall 2019, Disney+ announced an option to get three streaming services for one price. The offer was to get Disney+, Hulu, and ESPN+ for $12.99 per month. This is an example of ________. a. reference price b. multiple-unit pricing c. bundle pricing d. customary pricing

c. bundle pricing

AutoZone recently placed a newspaper and Facebook advertisement for a sale on tires that included the statement "up to 40 percent off" on certain brands such as Pirelli, Michelin, and Yokohama. This added statement is an example of _______ pricing. a. captive b. bait c. penetration d. tensile

d. tensile

Marketers improve their ability to establish prices appropriately when _______. a. the main objective is image building b. their products are of better quality than the competition's c. there is nonprice competition d. they know the prices charged for competing brands

d. they know the prices charged for competing brands

Scenario 20.3. Li Jang works at a firm that wants to develop a new pricing strategy for one of its products. The company has decided that its main objective for this product is to increase the product's sales in relation to industry sales. Li Jang has obtained a list of prices that tell him how much similar products are being sold for. Li Jang is particularly interested in the industry's top competitor because it has so much market share. After determining the price of its major competitor, Li Jang decided to undercut their price by several dollars. He believes putting a sign in their stores that features his company's discounted price next to the price of their major competitor for the same product will show consumers that Li Jang's company offers them a much better deal. However, he knows that he has to be careful not to misrepresent the competitor's price in the process. Refer to Scenario 20.3. Which of the following pricing strategies is Li Jang planning to adopt? a. Customary pricing b. Bait pricing c. Pricing lining d. Special-event pricing e. Comparison discounting

e. Comparison discounting

Scenario 20.3. Li Jang works at a firm that wants to develop a new pricing strategy for one of its products. The company has decided that its main objective for this product is to increase the product's sales in relation to industry sales. Li Jang has obtained a list of prices that tell him how much similar products are being sold for. Li Jang is particularly interested in the industry's top competitor because it has so much market share. After determining the price of its major competitor, Li Jang decided to undercut their price by several dollars. He believes putting a sign in their stores that features his company's discounted price next to the price of their major competitor for the same product will show consumers that Li Jang's company offers them a much better deal. However, he knows that he has to be careful not to misrepresent the competitor's price in the process. Refer to Scenario 20.3. When Li Jang is examining the list of prices, he is most likely in which of the following stages? a. Choosing a basis for setting prices b. Determining the final price c. Assessing the target market's evaluation of price d. Developing pricing objectives e. Evaluating competitors' prices

e. Evaluating competitors' prices

Felipe goes to a Toyota dealership looking for a new car. He finds a Toyota Corolla he really likes. The time has come to meet with the salesperson. What type of pricing strategy is the salesperson likely to adopt with Felipe? a. Customary pricing b. Penetration pricing c. Professional pricing d. Secondary-market pricing e. Negotiated pricing

e. Negotiated pricing

Scenario 20.2. Kione has decided that he wants to open up his own law practice. The time has come to establish prices for his services. Due to his extensive experience and legal background, he believes that his fees should not relate directly to the time or effort spent on specific cases. Refer to Scenario 20.2 What type of pricing will Kione most likely choose? a. Price lining b. Price skimming c. Premium pricing d. Differential pricing e. Professional pricing

e. Professional pricing

Demand-based pricing is best used when the company has _______. a. different products that can be substituted for one another b. heterogeneous products that are difficult to value c. a product line with great diversity in quality d. a large amount of variable costs for product development e. a fixed amount of available resources that are perishable

e. a fixed amount of available resources that are perishable

Identify the pricing objective: To attract more sales by pricing low, even if this means temporatry losses

survival

The first stage in the pricing process is to set pricing 1. _______________, and the final stage is to determine the product's 2. __________ price. 1. a. promotions b. strategies c. references d. objectives 2. a. competitive b. comparison c. specific d. bundling

1. d. objectives 2. c. specific

Identify the psychological pricing strategy: Packaging two complementary products together for a single price

Bundle pricing

Identify the pricing objective: To quickly recover captial spent

Cash flow

Identify the psychological pricing strategy: Pricing items on the basis of tradition

Customary pricing

Identify the factors that affect the importance of price in the minds of the target market: Different customers pay different prices for goods and services, such as meals

Target market

What is the first step in establishing prices? a. Development of pricing objectives b. Determining a basis for pricing c. Determination of a specific price d. Evaluating competitors' prices

a. Development of pricing objectives

Recently, Walmart utilized a commercial showing employees using a big pair of scissors to cut prices and stated, "Low Price Guarantee." Walmart also utilizes signage throughout the store on various items that say, "Low Prices" or "Low Price Guarantee." What type of pricing strategy is Walmart utilizing? a. Everyday low pricing (EDLP) b. Bundle pricing c. Odd-even pricing d. Customary pricing

a. Everyday low pricing (EDLP)

To more accurately gauge the target market's evaluation of price, firms should look at which of these? (Select three) a. The importance customers place on a product b. How much value customers expect from a product c. What product quality customers expect d. How sensitive a customer is to the purchase situation e. How different customers respond to the marketing mix

a. The importance customers place on a product b. How much value customers expect from a product c. What product quality customers expect

What type of pricing involves a firm setting a low price for a basic product and a higher price for something needed to operate that product? a. Bundle b. Captive c. Premium d. Customary

b. Captive

Scenario 20.1. Maricela's company is about to release a new electronics product. The electronics product is estimated to have a short life cycle before it is replaced by an upgraded one. The company would like to recover the capital spent to produce the product. It therefore decides to charge the highest possible price for the product upon release. Maricela's firm recognizes this might provide an advantage to competitors who may release the product at a lower price, but it believes customers will feel that the higher price signals higher quality. Refer to Scenario 20.1. What type of pricing objective has Maricela's firm adopted? a. Profit b. Cash flow c. Survival d. Status quo e. Product quality

b. Cash flow

Scenario 20.2. Kione has decided that he wants to open up his own law practice. The time has come to establish prices for his services. Due to his extensive experience and legal background, he believes that his fees should not relate directly to the time or effort spent on specific cases. Refer to Scenario 20.2. Now that Kione has chosen the pricing strategy he wants to use, what is his next step? a. Evaluating competitors' prices b. Determining the final price c. Choosing a basis for setting prices d. Developing pricing objectives e. Assessing the target market's evaluation of price

b. Determining the final price

LEGOLAND is implementing a new type of pricing. When demand increases and more customers visit the parks, the price will increase. When demand dips during the slow season, prices will decrease. This is a way to help balance out supply and demand. What is another name for the type of pricing that LEGOLAND is using? a. Cost-plus pricing b. Dynamic pricing c. Cost-based pricing d. Markup pricing e. Competition-based pricing

b. Dynamic pricing

Which of the following are not examples of promotional pricing? (Select two) a. Price leaders b. Reference pricing c. Price lining d. Comparison discounting e. Special-event pricing

b. Reference pricing c. Price lining

When a firm sets one price in its home market and a different, higher price in a higher-cost market far away, it is using which type of pricing? a. Skim pricing b. Secondary-market pricing c. Negotiated pricing d. Periodic pricing

b. Secondary-market pricing

Which one of the following is not an element that a firm should consider when it determines a specific price for its product? a. Governmental actions b. Target market elasticity c. Changes in demand d. Current economic conditions

b. Target market elasticity

Alamo Rent a Car uses _______ depending on the number of reservations it has, how many cars are on the lot, and how many cars it expects to be returned. It can change its prices based on these factors several times throughout the day. a. markup pricing b. dynamic pricing c. status quo pricing d. cost-plus pricing

b. dynamic pricing

______________ is unique to price in the marketing mix. a. complexity b. flexibility c. consistency d. quality

b. flexibility

Pricing is a unique component to the marketing mix because _______. a. of its ability to create relationships with consumers b. of its flexibility c. it is the only thing that marketers can control d. it is often the first thing that consumers notice about a product

b. of its flexibility

Anheuser-Busch, Inc often gathers market research information to determine the prices that MillerCoors, Heineken, and various craft breweries such as New Belgium Brewing Co. and Sierra Nevada Brewing Co. are charging for their products. Anheuser-Busch then attempts to set prices at a similar level as these other companies' products. What type of method is Budweiser utilizing? a. Demand-based pricing b. Cost-plus pricing c. Competition-based pricing d. Status quo pricing

c. Competition-based pricing

Valerie is attempting to price a piece of custom-made equipment for a gym. The production costs of the equipment are hard to assess. She decides it would just be easier to add a specified dollar amount to the total cost. What type of pricing is Valerie using? a. Yield management b. Dynamic c. Cost-plus d. Demand-based e. Markup

c. Cost-plus

Camila is undergoing the six-step process for establishing prices for a newly launched product. She has just finished assessing the target market's evaluation of possible prices. What is Camila's next step? a. Selection of a basis for pricing b. Development of pricing objectives c. Determination of a specific price d. Evaluation of competitors' prices e. Selection of a pricing strategy

d. Evaluation of competitors' prices

The manufacturers of a tablet computer are planning to increase the price of the product above the price used during product launch to cover costs associated with product development and increased shipping costs related to overseas production. They are concerned that consumers will respond negatively to a price increase. Which type of initial pricing strategy did the company most likely utilize? a. Price skimming b. Product-line pricing c. Captive pricing d. Penetration pricing

d. Penetration pricing

What are the two ways that markup percentage can be calculated? a. Percentage of revenue and percentage of profit b. Percentage of contribution margin and percentage of selling price c. Percentage of cost and percentage of revenue d. Percentage of cost and percentage of selling price

d. Percentage of cost and percentage of selling price

If Peloton seeks to lead the electronics industry in innovation, what type of pricing objective will it most likely adopt? a. Survival b. Return on investment c. Cash flow d. Product quality e. Status quo

d. Product quality

Nike plans on putting a pair of shoes on sale for a high price. After six months of being on sale for this price, the company wants to gradually start reducing the price of the shoes. What would be a disadvantage of this pricing strategy? a. It allows less flexibility in making price changes. b. The strategy helps recover high costs of research and development more quickly. c. Lowering the price holds down demand in cases where the firm has limited production capability. d. The high price may make the product seem so lucrative that competitors consider entering the market.

d. The high price may make the product seem so lucrative that competitors consider entering the market.

In a competitive marketplace, why would a firm price its product slightly higher than those of its rivals? a. To increase market share b. To deliver revenue in the long term c. To achieve a certain markup d. To send a signal of high quality

d. To send a signal of high quality