BA370 Ch 15

Chris works for a hardware store. His boss directs him to make a list of manufacturers whose brand names were included in the store's recent newspaper ads and to put copies of the ads with the invoices from each manufacturer. Chris's boss is documenting a(n)

Advertising allowance Advertising allowances are price reductions given to channel members if they agree to feature the manufacturer's product in advertising.

Bill desperately needed tires for his car, and he found an ad with an incredibly low price. When he got there, he found out that those had been sold out, and he was pressured into buying tires that were more expensive than he wanted. Bill found out later that Marcelo had had the same experience at the store a few weeks earlier. It's quite possible that both Bill and Marcelo had become the victim of a deceptive pricing tactic known as

Bait and Switch Bait and switch tactics lure customers into the store with promises of low prices—often for products that are not even available in the store.

The Top Quality electronics store has advertised a very low price for a printer it carries. Once customers arrive at the store to purchase the low-priced printer, the salesperson aggressively pressures these customers into purchasing a higher-priced model by disparaging the low-priced item, comparing it unfavorably with the higher-priced model, or professing an inadequate supply of the lower-priced item. The store is engaging in a _______ tactic.

Bait-and-swtich

are expressed in the form of a percentage, such as "3/10, n/30," or "3%, 10 days, net 30."

Cash Discounts

When Greenbelt Construction Company began building houses in a large subdivision with many other builders, they priced their homes slightly higher than their competitors and promoted the added quality features in their homes. Greenbelt was using a(n) __________ pricing strategy.

Competitor- based Greenbelt was using a competitor-based strategy, setting prices slightly above those of the competition.

Supermarket A always waits until Thursday to price their canned beans in an effort to match Supermarket B's prices, which are advertised on Wednesday. This demonstrates what type of pricing strategy?

Competitor-Based Price In the competitor-based pricing method, a firm sets prices to reflect competitors' prices

In determining the price for his company's new personal computer photography printer, Raymond is assessing the total cost of owning his printer as compared to alternative products available in the market. Raymond is using __________ pricing.

Cost of ownership Cost of ownership pricing considers, not just the price initially paid, but the cost of owning the product across its lifetime. The costs of owning a printer would include supplies like ink, whose cost might vary across different printers.

Yvonne estimates the average cost of her floral arrangements is $14 regardless of whether she is doing 5 or 20 arrangements that day. She adds a standard markup to the $14 estimate to determine her price. Yvonne is using a(n) __________ pricing method.

Cost-based Yvonne is pricing solely based on costs, and so is using a cost-based method.

Many stores now e-mail codes to their customers that can be used on their websites or printed and brought into the store to receive discounts. The customer is using a __________ to receive the discount.

Coupon A coupon offers a discount on the price of specific items when they are purchased.

Savvy consumers often purchase automobiles from dealerships at the end of the quarter or at year-end since dealers who meet their quotas during a particular time period earn _____ in the form of discounts on all the cars they purchased from the manufacturer.

Cumulative Quantity Discounts

In terms of a pricing strategy, _____ adds value by reducing consumers' search costs; consumers can spend less of their valuable time comparing prices, including sale prices, at different stores.

EDLP

Production of the DeLorean car, made famous in the film Back to the Future, never got above 25,000 units during its lifetime. Automobile industry analysts estimate that production of this car needed to reach around 300,000 units to achieve the __________, a decrease in unit cost as product volume increases.

Experience curve effect The experience curve refers to a drop in unit cost as the quantity sold increases.

When Sony released its PlayStation 3 game machines, it charged a high price, attracting the most avid game players. This was a market penetration pricing strategy.

FALSE This was a skimming pricing strategy, which starts with a high price and then gradually lowers it.

Dan is especially price sensitive. He has been known to line up on "Black Friday" (the day after Thanksgiving) at 4 a.m. in order to be among the first to buy sale items. Dan would likely respond to a __________ pricing strategy.

High/Low High/low pricing strategies adopt a regular, higher price and occasional low sales prices. This type of strategy appeals to a price-sensitive shopper who is willing to put extra effort into finding bargains.

If the Amador County Pest Control Association got together and all members agreed to charge 3 percent of the value of a home for a termite inspection letter, the association members would be engaging in

Horizontal Price Fixing Horizontal price fixing occurs among competitors; vertical price fixing occurs within a channel.

What type of pricing tactic is being used when several airlines agree to charge the same fare for a single route?

Horizontal Price Fixing Horizontal price fixing occurs when competitors that produce and sell competing products or services collude or work together to control prices.

In determining the price for his company's new small business accounting software, Raymond is assessing how much better the software is as compared to alternative products available in the market. Raymond is using __________ pricing.

Improvement value The improvement value pricing method compares a new product to an existing one and attempts to estimate the increase in overall value the new product represents, in order to set the price accordingly.

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

Leader 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.

Supermarket chains often implement _____, a pricing tactic of selling leading brands of products below their own cost to build store traffic.

Leader Pricing

When HP first introduced their inkjet printers, consumers could only buy refill cartridges from HP. HP made significant profits from the sale of replacement cartridges. In this situation, HP logically used a __________ pricing strategy for their printers.

Market Penetration In this case, a market penetration strategy makes sense because the sooner customers start using the printers, the sooner HP will start selling ink cartridges.

In addition to offering the potential to build sales, market share, and profits, _____ discourages competitors from entering the market because the profit margin is relatively low.

Penetration Pricing

The Top Choice Vacuum Cleaning company has set a very low price for its vacuum with the intent to drive its competition out of business. It is using the illegal practice of

Predatory Pricing

If a telecommunications company drastically cuts the price for cellular phone service in order to eliminate local competitors, the company could be charged with

Predatory Pricing Predatory pricing is the setting of artificially low prices for products with the intention of driving competitors out of business. Predatory pricing is difficult to prove.

A major airline sells an aggressively low priced ticket compared to a new low-fare airline, which is trying to enter the market. The airline may be accused of engaging in the unethical practice of

Predatory Pricing When a firm sets a very low price for one or more of its products with the intent to drive its competition out of business, it is considered predatory pricing.

Cosmetic retailers often have one price for each item but another price for three or four similar items with the same brand, all attractively packaged together. These retailers are using

Price Bundling Bundling offers special combinations, either of multiples of one item, or of several related items.

A video gaming system is being sold. The package includes one game console, two gaming accessories, and one video game for $200, which is $60 less than what it would cost to purchase the items separately. This type of pricing is known as

Price Bundling This practice of selling more than one product for a single, lower price is called price bundling

Mona is selling her artwork at a local festival. Her art is selling well, but t-shirts she had made up with her artwork are not selling. She decides to offer a package price for her art with a t-shirt included. Mona is using

Price Bundling Bundling offers special combinations, either of multiples of one item, or of several related items. This is an example of the use of bundling to sell less desirable items along with more desirable ones.

When Toyota introduced its Scion line of cars, the lowest priced model was listed for $15,000 while the highest priced model was listed for $21,000, with two or three other list prices in between. Toyota used a __________ pricing approach.

Price Lining Price lining offers products across a range of prices

is used to market products to innovators who are willing to pay the very highest prices to obtain brand-new examples of technology advances, with exciting product enhancements.

Price Skimming

A mobile carrier decides to introduce a new cellular phone at a high price. This is known as

Price Skimming Innovative products or services are purchased by innovators and early adopters who are willing to pay a higher price to obtain the new product or service and are willing to pay a premium price to have the innovation first.

The local furniture store will only purchase outdoor furniture during winter months because the manufacturer offers a better price to the furniture store. This type of pricing tactic is known as a

Seasonal Discount A seasonal discount is an additional reduction offered as an incentive to retailers to order merchandise in advance of the normal buying season.

Consumers who purchase snowmobiles in the summer are taking advantage of

Seasonal Discounts

Marlie designs and manufactures specialty furniture. She has a number of unique products but can only produce in limited quantities. Marlie will probably NOT use a market penetration strategy because

She could not meet rapid ride in demand In this case, a skimming strategy makes more sense because the lower demand will match the limited supply Marlie can provide.

When Apple Computer Company introduced the iPhone—a combination phone, MP3 player, and Internet access device—in 2007, it was priced at $499, considerably higher than either the iPod or competing cell phones. Apple was probably pursuing a __________ pricing strategy.

Skimming There are two primary new product pricing strategies: skimming, which focuses on selling at a high price to the innovators and early adopters on the diffusion of innovation curve; and market penetration, which focuses on selling at a low price in order to gain market share as quickly as possible.

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.

Skimming There are two primary new product pricing strategies: skimming, which focuses on selling at a high price to the innovators and early adopters on the diffusion of innovation curve; and market penetration, which focuses on selling at a low price in order to gain market share as quickly as possible.

Criticized by small manufacturers, _____ are fees paid to retailers simply to get new products into stores or to gain more or better shelf space for their products.

Slotting Allowances

Kristina sells sports equipment and wants to get customers into her store. She knows from past experience that sales generate customer traffic, particularly when she puts children's baseball equipment on sale. She may consider a leader pricing strategy.

TRUE A leader pricing strategy uses a low-priced item to bring customers into the store. Since Kristina knows that sales generate traffic, this would be an appropriate strategy.

Cheryl wants to quickly establish a dominant market share for her new line of ergonomic pens. To do this, she will likely use a market penetration pricing strategy.

TRUE A market penetration pricing strategy starts with a low price in order to capture market share.

3/10, n/30 means a 3 percent discount if paid in full within 10 days, or the net amount is due in 30 days.

TRUE This is an example of a discount offered to businesses for early payment.

Some consumers make it a point to go shopping the day after Christmas in order to

Take advantage of seasonal discounts Seasonal discounts offer products outside the traditional season in which they are sold. The day after Christmas, many gift items go on sale, along with holiday cards and decorations.

Betty's Bird Seed Company charges $50 for 10 pounds of bird feed, including shipping. Betty is using __________ to determine shipping costs.

Uniform Delivery Pricing In the uniform delivered pricing tactic, the shipper charges one rate no matter where the buyer is located, which makes things simple for both the seller and buyer.

Improvement value and cost of ownership are two approaches to which method of pricing?

Value- based Pricing

Despite the economic downturn, Alban-Turner Advertising Agency has a reputation for developing campaigns that increase sales at least 10 percent. In sales presentations, Alban-Turner emphasizes its track record in order to demonstrate that its services are worth the cost. This is an example of which pricing strategy?

Value-Based Pricing Value-based pricing methods include approaches to setting prices that focus on the overall value of the product offering as perceived by the consumer.

Clark Manufactured Housing Company charges $500 for deliveries within 50 miles and $800 for deliveries 51 to 100 miles away from their factory. The company is using a ____________ pricing tactic

Zone With zone pricing, shipping costs vary based on the destination

When a manufacturer based in New York City charges more to ship to customers in Los Angeles and less to ship to customers in Memphis, it is using

Zone Pricing

When Sheila decided to sell her shoe racks on eBay, she stated the price and a shipping rate according to delivery area. Which method of pricing was Sheila using?

Zone Pricing Zone pricing sets different prices depending on geographical division of the delivery areas.

3/10, n/30 means

a 3 percent discount if paid in full within 10 days, or the net amount is due in 30 days. 3/10, n/30 is a form of cash discount, offering a 3 percent discount if paid within 10 days, or the net due in 30 days

Yurgen is opening a financial consulting service for high-income retirees in his area. This target market is used to paying for quality and associates high quality with high prices. Yurgen should probably NOT use a market penetration pricing strategy because

a low price might signal low quality In this case, since price is associated with quality, charging a low price might send the wrong kind of signal.

Ben owns a lawn care business. From experience, Ben has found that John Deere equipment lasts almost twice as long as competitors' machines. For John Deere, Ben's perception about its products makes __________ pricing possible.

cost of ownership Cost of ownership pricing considers, not just the price initially paid, but the cost of owning the product across its lifetime. Ben is likely to be willing to pay more for a John Deere lawn mower because of his beliefs about its useful life.

EDLP

every day low pricing

It is important to Joanne to get value for her money, but she does not want to spend time comparison shopping. Joanne will likely respond to __________ pricing but not __________ pricing.

everyday low; High/low Everyday low pricing focuses on providing reasonable prices all the time on all products, instead of using sale items and regular, higher prices. This allows consumers to shop in one place and know they are getting a reasonable price, instead of having to search around for bargains. By contrast, high/low pricing strategies adopt a regular, higher price and occasional low sales prices. This requires the consumer to shop around to find out which stores have which items on sale

Each generation of cell phones has provided greater clarity, range, and multi-functionality. Marketers of cell phones can use these upgrades in __________ pricing.

improvement value The improvement value pricing method compares a new product to an existing one and attempts to estimate the increase in overall value the new product represents, in order to set the price accordingly.

When the first hybrid automobiles became available on the market, manufacturers had only minimal production capacity. They used a price skimming strategy primarily to

limit demand There are two primary new product pricing strategies: skimming, which focuses on selling at a high price to the innovators and early adopters on the diffusion of innovation curve; and market penetration, which focuses on selling at a low price in order to gain market share as quickly as possible. Skimming can be used for a variety of reasons; in this case, since the manufacturers had limited production capacity, setting a high price helped to match supply and demand.

Mario is the first retailer in town to sell games for Sony's new PlayStation 3 machine. Mario wants to quickly capture as much of the market for the new games as possible. Mario will likely use a __________ pricing strategy.

market penetration There are two primary new product pricing strategies: skimming, which focuses on selling at a high price to the innovators and early adopters on the diffusion of innovation curve; and market penetration, which focuses on selling at a low price in order to gain market share as quickly as possible.

Jill knows her wholesaler will give an additional 20 percent off if she orders more than 100 new swimsuits at a time for her store. The wholesaler is using a __________ pricing tactic.

noncumulative quantity discount B2B quantity discounts can be cumulative (in which the discount is based on the quantity purchased over a period of time) or noncumulative (in which the discount is based on a single order). This is an example of a noncumulative quantity discount.

Mary decided to purchase an electronic toothbrush priced at $100 because of a special offer from the manufacturer. By sending proof of purchase and the receipt to the manufacturer, she could receive a $40 check in return, making the final price $60. This pricing tactic is known as a

rebate A rebate provides a price cut and requires buyers to fill out a form with names, addresses, and other data

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 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.

When Sony introduced its new PlayStation 3 game system, buyers who could not get them the first day bid up the price of the systems on eBay and other auction sites. As Sony provided more PlayStation 3 units to the market and early demand was satisfied, prices dropped because

the way consumers perceived their value changed Scarcity and novelty initially caused the early buyers to place a high value on owning a PlayStation 3. Later, when the units were more common, the perceived value dropped along with the price.

Christina owns and operates a shop that sells home furnishings. One of her vendors has just offered her a greatly reduced price for some traditional Christmas decorations, even though it is really too early to be thinking about holiday merchandise. One of the main pricing issues Christina will have to address as she considers the offer is

whether the cost reduction will be low enough to cover the additional inventory costs she will have to incur. Seasonal discounts are additional reductions offered as an incentive to retailers to order merchandise in advance of the normal buying season. Retailers must weigh the benefits of the discount against the additional costs of carrying inventory for a longer time