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154. c
155. b
156. d
157. c
158. a
159. d
160. c
161. e
162. e
163. e
164. b
165. a
166. e
167. c
168. e
169. c
170. b
171. a
172. e
173. d
174. a
175. b
176. a
177. c
178. a
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179. a
180. a
181. e
182. d
183. b
184. d
185. d
186. e
187. b
188. c
189. d
190. c
191. e
192. e
193. c
194. d
195. b
196. e
197. a
198. b
199. b
200. e
201. e
202. c
203. a
204. d
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205. d
206. a
207. e
208. c
209. e
210. b
211. d
212. e
213. b
214. c
215. e
216. d
217. a
218. b
219. d
220. e
221. e
222. a
223. b
224. b
225. a
226. a
227. c
228. c
229. c
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230. b
231. e
232. e
233. c
234. c
235. e
236. d
237. e
238. a
239. d
240. a
241. e
242. c
243. b
244. d
245. a
246. c
247. c
248. a
249. a
250. d
251. b
252. d
253. b
254. a
255. d
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281. b
282. c
283. c
284. d
285. b
286. b
287. d
288. b
289. d
290. d
291. a
292. e
293. d
294. e
295. b
296. c
297. c
298. d
299. a
300. a
301. a
302. a
303. d
304. d
305. a
306. b
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307. c
308. d
309. a
310. c
311. e
312. c
313. e
314. e
315. e
316. e
317. Developing pricing objectives is an important task because they form the basis for decisions for other stages of the
pricing process. Thus, pricing objectives must be stated explicitly and in measurable terms, and should include a time
frame for accomplishing them.
Marketers must ensure that pricing objectives are consistent with the firm’s marketing and overall goals because pricing
objectives influence decisions in many functional areas of a business, including finance, accounting, and production. A
marketer can use both short- and long-term goals and can employ one or multiple pricing objectives.
318. Price skimming is the strategy of charging the highest possible price for a product during the introduction stage of its
lifecycle. A seller essentially “skims the cream” off the market, which helps a firm to recover the high costs of R&D more
quickly. A danger is that a price skimming strategy may make a product appear more lucrative than it actually is to
potential competitors. A firm also risks misjudging demand and facing insufficient sales at a high price. Penetration
pricing is the strategy of setting a low price for a new product. The main purpose of setting a low price is to build market
share quickly in order to encourage product trial by the target market and discourage competitors from entering the
market. A disadvantage of penetration pricing is that it places a firm in a less-flexible pricing position. It is more difficult
to raise prices significantly than it is to lower them.
319. Buyers can be characterized according to their degree of value consciousness, price consciousness, and prestige
sensitivity. Marketers who understand these characteristics are better able to set pricing objectives and policies. Value-
conscious consumers are concerned about both price and quality of a product. 14 During uncertain economic periods,
customers become more value and price conscious and tend to limit discretionary spending.
Price-conscious individuals strive to pay low prices. They want the lowest prices, even if the products are not of the
highest quality. Amazon.com has long been known for a willingness to sacrifice profit margins in favor of offering the
lowest prices.
Prestige-sensitive buyers focus on purchasing products that signify prominence and status. For instance, Patek Philippe &
Co. is known for its high-quality watches and has been a premier watchmaker worldwide for more than 160 years.
320. The three major dimensions on which prices can be based are cost, demand, and competition. When using cost-based
pricing, the firm determines price by adding a dollar amount or percentage to the cost of the product. Two common cost-
based pricing methods are cost-plus and markup pricing. Demand-based pricing is based on the level of demand for the
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in this context refers to what the price means or what it communicates to customers. Does the price mean “high quality”
or “low quality,” or “great deal,” “fair price,” or “rip–off”? A marketer needs to know competitors’ prices so it can adjust
its own prices accordingly. This does not mean a company will necessarily match competitors’ prices; it may set its price
above or below theirs. However, for some organizations, matching competitors’ prices is an important strategy for
survival. Legal and regulatory issues influence pricing decisions. To curb inflation, the federal government can invoke
price controls, freeze prices at certain levels, or determine the rates at which firms may increase prices.
338. Some consumers are seeking less-expensive products and shopping more selectively, enabling some manufacturers
and retailers to focus on the value of their products in communications with customers. Value is more than just a product’s
price. It combines price with quality attributes, which customers use to differentiate between competing brands.
Generally, consumers want to maximize the value they receive for their money. Consumers may even perceive products to
have great value that are not the least expensive, such as organic produce, if they have desirable features or characteristics.
Consumers are also generally willing to pay a higher price for products that offer convenience and time savings.
Companies that offer both low prices and high quality have altered consumers’ expectations about how much quality they
must sacrifice for low prices. Understanding the importance of a product to customers, as well as their expectations about
quality and value, helps marketers correctly assess the target market’s evaluation of price.
339. With cost-plus pricing, the seller’s costs are determined (usually during a project or after a project is completed), and
then a specified dollar amount or percentage of the cost is added to the seller’s cost to establish the price. When
production costs are difficult to predict, cost-plus pricing is appropriate. Projects involving custom-made equipment and
commercial construction are often priced using this technique. The government also frequently expects cost-plus pricing
from defense contractors. One pitfall for the buyer is that the seller may increase stated costs to gain a larger profit base.
Furthermore, some costs, such as overhead, may be difficult to determine. In periods of rapid inflation, cost-plus pricing is
popular, especially when the producer must use raw materials that frequently fluctuate in price. In industries in which
cost-plus pricing is common and sellers have similar costs, price competition will not be especially intense.
With markup pricing, commonly used by retailers, a product’s price is derived by adding a predetermined percentage of
the cost, called markup, to the cost of the product. For instance, most supermarkets mark up prices by at least 25 percent,
whereas warehouse clubs, like Costco and Sam’s Club, have a lower average markup of around 14 percent. 5 Markups
can vary a great deal depending on the product and the situation. Although the percentage markup in a retail store varies
from one category of goods to another—35 percent of cost for hardware items and 100 percent of cost for greeting cards,
for example—the same percentage is often used to determine the prices on items within a single product category, and the
percentage markup may be largely standardized across an industry at the retail level. Using a rigid percentage markup for
a specific product category reduces pricing to a routine task that can be performed quickly.
340. Before a product’s price can be set, an organization must determine the basis on which it will compete—whether on
price alone or some combination of factors. There are six stages that marketers can follow to establish prices. Stage 1 is
developing a pricing objective that is compatible with the organization’s overall marketing objectives. Stage 2 entails
assessing the target market’s evaluation of price. Stage 3 involves evaluating competitors’ prices, which helps determine
the role of price in the marketing strategy. Stage 4 requires choosing a basis for setting prices. Stage 5 is selecting a
pricing strategy, or determining the role of price in the marketing mix. Stage 6 involves determining the final price. This
final step depends on environmental forces and marketers’ understanding and use of a systematic approach to establishing
prices. These stages are not rigid, and not all marketers will follow all the steps. They are merely guidelines that provide a
logical sequence for establishing prices.
341. The first step in setting prices is developing pricing objectives that form the basis for decisions for other stages of the
pricing process. A firm’s objectives include survival, profit, return on investment, market share, cash flow, status quo, and
product quality.
Survival means temporarily setting prices low, even at times below costs, in order to attract more sales. Profit objectives
tend to be set at levels that the owners and top level decision makers view as satisfactory and attainable. Pricing to attain a
specified rate of return on the company’s investment is a profit related pricing objective. A return on investment (ROI)
pricing objective generally requires some trial and error. Firms establish pricing objectives to maintain or increase market
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