Chapter 11 Study Questions

In​ __________ pricing, the company sells a product or service at two or more​ prices, even though the difference in prices is not based on differences in costs.

In segmented​ pricing, the company sells a product or service at two or more​ prices, even though the difference in prices is not based on differences in costs (museums, movie​ theaters, and retail stores may charge lower prices for students and senior citizens)

Gillette charges a fairly low price for its razors​ (relative to​ costs) and a high price for razor blades. It is using a strategy of​ ________ pricing.

captive-product; Producers of the main products​ (razors) often price them low and set high markups on the supplies​ (blades).

​________ occurs when retailers set an artificially high​ "regular price" and then advertise a​ "sale price," which is actually close to their everyday price.

deceptive pricing

Many state colleges and universities charge one price for​ in-state students and a higher price for​ out-of-state students. Which form of segmented pricing are these schools​ using?

location-based pricing

A company has set a low price on a new product it introduced. It wants to maximize its market share and attract a large number of buyers quickly. Which new product pricing strategy should the company​ use?

market penetration

When Apple introduced its​ iPhone, it priced the new product at​ $599, considerably higher than either its iPod or competing cellular phones. Apple Computer was pursuing​ a(n) ________ new product pricing strategy.

market skimming; set high initial prices to skim revenues layer by layer from the market

A car buyer can choose a base model at one​ price, or one with a premium sound and navigation system at a higher price. This is an example of​ _______ pricing.

optional product pricing; used when companies offer to sell optional or accessory products along with the main product

Which of the following statements is true concerning new product pricing​ strategies? A. For a market penetration strategy to​ work, production and distribution costs must increase as sales volume increases. B. When using a​ market-skimming strategy, marketers do not need to focus on the​ product's quality and image. C. If competitors can easily enter the​ market, a​ market-skimming strategy should be used. D. For a​ market-skimming strategy to be​ successful, the costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more. E. A​ market-penetration strategy should be used if the market is not highly price sensitive.

D

What is the purpose of the​ Robinson-Putnam Act?

To prevent unfair price discrimination

Margaret has been invited to a fancy dinner party and wants to bring a good bottle of wine as a gift for the host. Because she does not know much about​ wine, she will likely use the price of the wines as​ ________.

an indicator of quality; When buyers cannot judge quality because they lack the information or​ skill, price becomes an important quality signal.

Market skimming prices are preferred in all of the following conditions except​ __________.

an initial low price is set by the companies; In market penetrating​ pricing, companies set a low initial price to penetrate the market quickly and​ deeply, mainly to attract a large number of buyers quickly and win a large market share

Techniques that can be used by sellers for avoiding​ customers' perception of price gouging includes all of the following except​ __________. A. ​low-price fighter items B. reduce prices C. adjust quality D. improve perceived value E. increase prices

A; This is necessary if the particular market segment being lost is price sensitive and will not respond to arguments of higher quality.

Techniques that can be used by sellers for avoiding​ customers' perception of price gouging includes all of the following except​ __________. A. price increases should be supported by company communications telling customers why prices B. rationing products to customers C. maintaining a sense of fairness surrounding any price increase D. the company should consider ways to meet higher costs or demand without raising prices E. the company can shrink the product or substitute​ less-expensive ingredients instead of raising the price

B. rationing products to customers; Rationing products will lead to further increase in pricing thereby increasing​ customer's perception of price gouging.

Companies that use​ ________ continually adjust prices to meet the characteristics and needs of individual customers and situations.

Dynamic pricing; especially prevalent online.

Which of the following statements is true regarding initiating price​ cuts? A. When faced with falling​ demand, firms should not cut prices. B. Firms never cut​ prices; they only raise them. C. If faced with excess​ capacity, a firm should not cut its price. D. Cutting price has no effect on costs. E. Cutting prices in an industry loaded with excess capacity might lead to price wars.

E

Which of the following statements is true regarding initiating price​ increases? A. Cost inflation is not a factor in price increases. B. Price increases do not impact profits. C. Prices should be increased when there is a lack of demand. D. Companies do not need to communicate to customers reasons for price increases. E. Wherever​ possible, the company should consider ways to meet higher costs or demand without raising prices.

E

Companies that make products that must be used along with a main product are using​ __________.

captive-product pricing (razor blade​ cartridges, video​ games, printer​ cartridges, single-serve coffee​ pods)

Assume a competitor has cut prices and a company determines it should respond. Potential actions that the company could initiate include​ ________.

educing​ price, raising perceived​ value, improving quality and increasing​ price, and launching a​ low-price "fighter​ brand"

Market penetration prices are preferred in all of the following conditions except​ __________.

enough buyers must want the product at a higher price; In​ market-skimming pricing, enough buyers must want to buy the product because the initial price is very high

Two-part pricing

form of captive product pricing used with services. The price of the service is broken into a fixed fee plus a variable usage rate.

Archer Daniels Midland Co is the​ world's largest processor of​ soybeans, corn, and wheat. In the​ 1990s, the Justice Department found it guilty of regularly meeting with competitors when setting prices. ADM was guilty of​ ________.

price-fixing

Federal legislation on​ __________ states that sellers must set prices without talking to competitors.

price-fixing

Bath​ & Body Works offers​ "three-fer" deals on its soaps and lotions​ (such as three antibacterial soaps for​ $10). This is an example of​ _______ pricing.

product bundle

The pricing method in which sellers combine several products and offer a reduced price is known as​ __________.

product bundle pricing

The Ford Mustang is offered in several different models. Ford will use​ ________ pricing to determine the price steps between the different models.

product line

Some sellers use​ 00-cent endings on regularly priced items and​ 99-cent endings on discount merchandise. This is an example of pricing referred to as​ __________.

psychological pricing; consumers usually perceive​ higher-priced products as having higher quality. Even small differences in price can signal product differences.

Promotional pricing is not a form of ______________

segmented pricing. With promotional​ pricing, companies will temporarily price their products below list price, and sometimes even below cost, to create buying excitement and urgency.

What is predatory​ pricing?

selling below cost with the intention of punishing a competitor or gaining higher​ long-run profits by putting competitors out of business.

One major objective associated with a​ market-penetration pricing strategy is to​ ________.

win a large market share

UPS charges different prices for shipping depending on which region of the United States the item is being shipped to. The more distant the city the package is being shipped​ to, the higher the price UPS charges. Which geographic pricing method is UPS​ using?

zone pricing; farther zone = higher price