MKTG 3213 Ch.9
Firm A is selling a product for $40, while their major competition is selling the same product for $50. Firm A is trying to decide whether to market their price as "$10 off" or "20% off." According to the majority of research, which strategy would be the most effective?
20%
A grocer has purchased a truckload of frozen dinners for $3 each. The grocer operates on a margin of 30% for frozen food items. What is the retail price to the consumer?
4.29
What is defined as the marketing of two or more different products in a single package price?
Bundle pricing
Which of these is not part of the Three C's Model for Price Setting?
Capitalization
If a company is using Reference pricing in an advertisement and lists their competitor's price for comparison inside that ad, what is this competitor's price called?
External reference
What is defined as the idea that people would try to avoid choosing extreme options and rather choose the "safe option" and take a middle path?
Extremity avoidance
T/F: More than 90% of Fortune 500 companies have a full-time job dedicated to pricing.
False
T/F: Small changes in price do not have a very large impact on bottom line profits.
False
T/F: You do not need to understand margin and markup if you are using value-based pricing.
False
T/F: You should quote prices of related items for consumers to use as anchors, because using unrelated product prices is always ineffective.
False
A change in price in an elastic market is likely to show _______ change in demand when compared to a similar change in an inelastic market.
Greater
What is the first step in strategic pricing?
Knowing how your industry behaves
What is defined as setting a popular item at an extremely low price to attract people to the store?
Loss Leader
What is Black Friday an example of?
Loss leader pricing
What is the main difference between the equations for margin and mark-up?
Margin is (Price - Cost)/Price and Mark-up is (Price - Cost)/Cost
What is defined as a strategy to encourage people to buy more by offering price breaks for purchasing more than one unit of a particular product?
Multiple Unit pricing
What is defined as responsiveness of demand to changes in price?
Price elasticity
Consumers compare an observed price to an internal reference price or external frame of reference. What is this called?
Reference pricing
The competitive retail price for a stereo system is $300. Retail stores normally have a margin of 30% for such items. Wholesalers normally have a margin of 20% for such items. The manufacturer's price is unknown. What steps should be taken to determine the manufacturer's highest price?
Solve for Retail price, then Wholesale price, then Manufacturer price
T/F: Mark-up can be greater than 100%.
True
T/F: Value-based pricing will always be more profitable than cost-based pricing.
True
_______ is not about what we put into our product, it's what our customers get out of it.
Value
The principle of extremity avoidance suggests that to increase sales of one product:
a company should have both cheaper and more expensive options
What is the attraction effect?
a target brand appears more attractive when it is compared to inferior brands
Which of these does not happen in a "dumb industry"?
barriers to entry are increased
Assume that Netflix has introduced a new bundle service for their streaming services. Bundle 1 includes a base price of $9 to cover 25 hours of streaming for the month and variable price of $0.10 for every 30 minutes over that 25 hours. Bundle 2 includes no base price, but a variable price of $0.25 for every 30 minutes of streaming per month. When a consumer attempts to decide which bundle to use, what is he or she determining?
breakeven point
Which of these does not happen in a "smart industry"?
companies fight with price only
The "value created" of a product or service is determined from the perspective of the:
customer
What is the key difference between cost-based pricing and value-based pricing?
here you start the process
Psychological pricing is primarily concerned with:
how consumers perceive the price
Are companies using prestige pricing more or less likely to use the odd/even pricing strategy than standard retail companies?
less
What is ala carte pricing?
price assembled as you add options
When pricing a product in other countries, what should companies be sure to do?
set prices that cater to cultural beliefs
What is price skimming?
setting a high price for a new product to skim maximum revenues
What is prestige pricing?
setting a high price so quality or status-conscious consumers will be attracted to the product
What is market penetration pricing?
setting a low price for a new product to penetrate the market
What is odd-even pricing?
setting prices a few dollars or cents under an even number
What is a key feature of decoy products that consumers are intended to use as reference points?
should share similar characteristics to the target product can be priced higher than the target product to make target more accessible should be less attractive than the target product All of these are correct
What is flat-rate pricing?
single rate per time period
Which of the following describes peak load or congestion pricing?
variable rate depending on time of day or week
What is dynamic pricing?
variable rate for each customer
What is the definition of Price?
what is exchanged for the product, service, or idea
What is the breakeven point?
where profits just cover costs