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Chapter 19: Pricing Concepts
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1. When a seller establishes a series of prices for a type of merchandise, a purchase agreement is violated.
a.
True
b.
False
ANSWER:
False
2. A rebate is a discount to wholesalers and retailers for performing channel functions.
a.
True
b.
False
ANSWER:
False
3. According to garment makers, the demands of large customers are nearly wiping out profits for all but the very large
suppliers.
a.
True
b.
False
ANSWER:
True
4. Yield management systems encourage airline companies to ignore the importance of demand and decide to price their
products largely or solely on the basis of costs.
a.
True
b.
False
ANSWER:
False
5. Because of its recent high growth in the national market, Mable Inc., an online cosmetics retailer, decides to divide its
market in the United States into segments and charge a flat freight rate to all customers in a given segment. In this
scenario, Mable Inc. plans to adopt freight absorption pricing.
a.
True
b.
False
ANSWER:
False
6. Prices always steadily decline for a product in the decline stage of the product life cycle.
a.
True
b.
False
ANSWER:
False
7. Price promotion alone always creates a low price image.
a.
True
b.
False
ANSWER:
False
8. An effective distribution network can overcome minor flaws in the marketing mix.
a.
True
b.
False
ANSWER:
True
9. Predatory pricing is illegal under the Robinson-Patman Act of 1936.
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a.
True
b.
False
ANSWER:
False
10. To prove predatory pricing, the predator must show that it explicitly tried to ruin a competitor and that the predatory
price was below its average variable cost.
a.
True
b.
False
ANSWER:
False
11. Product life cycles can only be measured in years.
a.
True
b.
False
ANSWER:
False
12. Shopping bots allow sellers to collect detailed data about customers' buying habits, preferences, and even spending
limits.
a.
True
b.
False
ANSWER:
False
13. A firm can charge different prices to different customers if the prices represent manufacturing or quantity discount
savings.
a.
True
b.
False
ANSWER:
True
14. As products enter the growth stage of the product life cycle, prices generally begin to stabilize.
a.
True
b.
False
ANSWER:
True
15. Extranets enable buyers to quickly and easily compare products and prices, putting them in a better bargaining
position.
a.
True
b.
False
ANSWER:
True
16. www.ebay.com is the most popular extranet in the United States.
a.
True
b.
False
ANSWER:
False
17. Psychological pricing is marketing two or more products in a single package for a special price.
a.
True
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b.
False
ANSWER:
False
18. For businesses, consumer penalties are part of doing business in a highly competitive marketplace.
a.
True
b.
False
ANSWER:
True
19. Unlike a firm that launches a new item resembling several others already on the market, a firm that introduces a totally
new product with no close substitutes will have no pricing freedom.
a.
True
b.
False
ANSWER:
False
20. Digital pricing has better equipped brick-and-mortar stores to compete with their online alternatives.
a.
True
b.
False
ANSWER:
True
21. During the maturity stage of a product life cycle, distribution channels become a significant cost factor.
a.
True
b.
False
ANSWER:
True
22. Unlike break-even pricing, markup pricing uses complicated concepts of cost.
a.
True
b.
False
ANSWER:
False
23. Gwenta Corp., a soft drink manufacturing company, pays a certain amount quarterly to its distributors who display the
soft drink's latest ad on their distribution trucks. This quarterly payment is referred to as a noncumulative quantity
discount.
a.
True
b.
False
ANSWER:
False
24. A _____ is a price reduction offered to buyers buying in multiple units or above a specified dollar amount.
a.
trade discount
b.
cash discount
c.
seasonal discount
d.
quantity discount
ANSWER:
d
25. Ava Lawnmowers Inc. is a company that manufactures and sells lawn mowers. Since it faces stiff competition in the
market, it sells its products at different prices depending on the number of lawn mowers purchased by the consumers. In
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this scenario, the company indulges in _____.
a.
penetration pricing
b.
price skimming
c.
price discrimination
d.
predatory pricing
ANSWER:
c
26. 99-Center Inc. is a retail store where all the merchandise is priced 99 cents. This retailer uses a _____.
a.
single-price tactic
b.
flexible pricing tactic
c.
price lining tactic
d.
price bundling tactic
ANSWER:
a
27. At a local supermarket, Linda saw a box of plant fertilizer that was retailed at $25 but was marked down to $20.99.
Given this information, $20.99 is the _____.
a.
dividend
b.
price
c.
margin
d.
profit
ANSWER:
b
28. Unlike a firm that strives for market share, a firm with the objective of maximizing sales:
a.
possesses adequate funds and faces an optimistic future.
b.
ignores profits, competition, and the marketing environment as long as sales are rising.
c.
benefits from maximization of cash if it is adopted as a long-run objective.
d.
seeks to maintain existing prices or to meet the competition's prices.
ANSWER:
b
29. _____ is a price tactic that tries to get consumers into a store through false or misleading price advertising and then
uses high-pressure selling to persuade consumers to buy more expensive merchandise.
a.
Leader pricing
b.
Price lining
c.
Bait pricing
d.
Price bundling
ANSWER:
c
30. Which of the following is an impact of the Internet on the shopping behavior of consumers?
a.
The Internet auction business is likely to disappear in the future.
b.
Consumer reviews on the Internet about various products tend to be equal in quality.
c.
Business-to-business auctions are likely to be the dominant form of Internet auction in the future.
d.
Extranets will provide the best price for a particular product.
ANSWER:
c
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31. Which of the following is a limitation of break-even analysis?
a.
It does not give an estimate of how much profit can be earned once the break-even point is obtained.
b.
It does not give weightage to the cost of labor that is incurred during production.
c.
Sometimes it cannot predict the effect of changes in sales price.
d.
Sometimes it is hard to know whether a cost is fixed or variable.
ANSWER:
d
32. Yield management systems are used:
a.
to eliminate the problem of simultaneous production and consumption from services.
b.
only in service industries.
c.
to establish price equilibrium.
d.
to make profitable use of the unused capacity of perishable goods.
ANSWER:
d
33. A cost that changes with the level of output is called a(n) _____.
a.
liquid cost
b.
variable cost
c.
independent cost
d.
indirect cost
ANSWER:
b
34. To consumers, value is based upon:
a.
the absolute monetary value of price.
b.
perceived satisfaction.
c.
ability to get a discount on a product.
d.
the steadiness of price over a period of time.
ANSWER:
b
35. Which of the following statements best defines dynamic pricing?
a.
It is the practice of marking up prices by 100 percent, or doubling the cost.
b.
It is a basic, long-term pricing framework that establishes the initial price for a product.
c.
It is the ability to change prices very quickly.
d.
It is the practice of charging a very low price for a product with the intent of driving competitors out of
business.
ANSWER:
c
36. Which of the following statements is true of price–quality relationships?
a.
Consumers perceive lower-priced goods to be more long lasting than higher-priced goods.
b.
Consumers believe that higher priced goods are manufactured with better quality of ingredients.
c.
Consumers lack information about the quality of lower priced goods due to poor advertising.
d.
Consumer demands for higher priced goods remain unchanged even if their quality declines.
ANSWER:
b
37. _____ does not change as output is increased or decreased.
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a.
Marginal cost
b.
Dependent cost
c.
Fixed cost
d.
Opportunity cost
ANSWER:
c
38. Consumers are more likely to perceive the value of a product to be less than its cost if:
a.
the product's price is set too high in their minds.
b.
the product's manufacturer gains very little profit from the product.
c.
the product has an inelastic demand.
d.
the product's demand and supply attain the state of price equilibrium.
ANSWER:
a
39. The newly opened Stone Restaurant was unable to attract a lot of customers. Since the owner of the restaurant had to
pay back the loan that he had taken to start the restaurant, he decided to offer a 20 percent discount on the entire menu on
weekends. In this scenario, the owner's pricing objective is a(n) _____.
a.
market share maximization objective
b.
profit maximization objective
c.
asset maximization objective
d.
sales maximization objective
ANSWER:
d
40. Diffusion Research Company specializes in conducting market research for various firms. When it receives a new
research proposal, its management first estimates the cost of conducting the research and delivering the final research
report. The management attempts to then reduce the costs through efficient operations. In this scenario, Diffusion
Research Company has a _____ objective.
a.
profit-oriented pricing
b.
cash maximization pricing
c.
status quo pricing
d.
sales-oriented pricing
ANSWER:
a
41. When Lofonift Inc. introduced its flagship product, an MP3 player, it captured the market by offering its product at a
very low price. This gradually forced many of its competitors out of business. Once its competitors were out of business,
Lofonift Inc. raised the price. In this scenario, Lofonift Inc. most likely indulged in _____.
a.
predatory pricing
b.
price discrimination
c.
status quo pricing
d.
price fixing
ANSWER:
a
42. Which of the following statements is true of yield management systems?
a.
They determine the availability of product substitutes in industries that are experiencing rapid change.
b.
They use software that employs techniques such as discounting early purchases and limiting early sales at
these discounted prices.
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c.
They predict necessary service levels required to achieve revenue goals.
d.
They determine whether it is financially more feasible to buy a new product or to repair a broken one.
ANSWER:
b
43. Which of the following statements is true of price lines?
a.
Buyers cannot be offered a wide variety of merchandise at each established price.
b.
Price lines enable a seller to reach several market segments.
c.
Firms have to carry a larger total inventory than it could without price lines.
d.
Price lines are advantageous when costs rise continually.
ANSWER:
b
44. _____ is sometimes called a "market-plus" approach to pricing because it denotes a high price relative to the prices of
competing products.
a.
Price skimming
b.
Price fixing
c.
Status quo pricing
d.
Bait-and-switch pricing
ANSWER:
a
45. Which of the following pricing strategies is subject to government regulation?
a.
Penetration pricing
b.
Status quo pricing
c.
Price skimming
d.
Price fixing
ANSWER:
d
46. _____ is a price tactic in which different customers pay different prices for essentially the same merchandise bought in
equal quantities.
a.
One-part pricing
b.
Price lining
c.
Flexible pricing
d.
Price skimming
ANSWER:
c
47. Which of the following statements is true of simple break-even analysis?
a.
It does not consider the selling price of a product.
b.
It does not give weightage to the cost of labor.
c.
It is applicable only when the demand for a product is elastic.
d.
It ignores the demand for a product.
ANSWER:
d
48. Adequate distribution for a new product can often be attained by:
a.
offering a larger-than-usual profit margin to distributors.
b.
having different model or serial numbers for products.
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c.
allowing customers to get involved in showrooming.
d.
increasing the prices of the products.
ANSWER:
a
49. Which of the following statements is true of unfair trade practice acts?
a.
They prohibit any firm from selling to two or more different buyers.
b.
Unfair trade practice laws prevent oligopoly leaders from joining together and fixing prices at the highest rates
that a market will allow.
c.
They establish penalties for companies that engage in predatory pricing.
d.
State enforcement of unfair trade practice laws has been lax partly because low prices benefit local consumers.
ANSWER:
d
50. Betty, a teenager, starts a business selling cupcakes to coffee shops and restaurants. She strives to increase either the
market share in terms of the revenue generated. This illustrates the _____ objective.
a.
status quo pricing
b.
profit-oriented pricing
c.
bait pricing
d.
sales-oriented pricing
ANSWER:
d
51. Which of the following statements is true of shopping bots?
a.
The broad-based type of shopping bot searches for prices for only one type of product.
b.
They create opportunities for prestige pricing.
c.
They theoretically give pricing power to a consumer.
d.
The niche-oriented shopping bot searches a wide range of product categories.
ANSWER:
c
52. At a price of $2,000 per unit, the demand for Rancho 60 mountain bikes from Cloyd's Inc. is 300 units, which is same
as the number of bikes manufactured every year. If the marketing managers at Cloyd's Inc. decide to sell each bike at a
price lower than $2,000 per unit, _____.
a.
a shortage of bikes will be created
b.
the number of bikes produced will increase drastically
c.
an inelastic demand for the bikes will be created
d.
the demand for and the supply of the bikes will attain equilibrium
ANSWER:
a
53. To increase the popularity of its new range of smartphones, GizmoPro Inc., a mobile phone manufacturer, offered
several accessories for free to customers who bought the smartphones. However, the management of GizmoPro Inc. soon
found this an unsustainable practice. The company then decided to offer discounts on the accessories instead of giving
them for free. These actions of the management of GizmoPro Inc. are aimed at _____.
a.
market share pricing
b.
profit maximization
c.
demand orientation
d.
sales maximization
ANSWER:
b
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54. Which of the following statements is true of value-based pricing?
a.
It is a modification of uniform delivered pricing.
b.
It is sometimes called postage stamp pricing.
c.
It has grown out of the quality movement.
d.
It presents drawbacks if costs are continually rising.
ANSWER:
c
55. _____ refers to selling to two or more different buyers, within a reasonably short time, commodities (not services) of
like grade and quality at different prices where the result would be to substantially lessen competition.
a.
Price discrimination
b.
Price fixing
c.
Bait pricing
d.
Penetration pricing
ANSWER:
a
56. For convenience, pricing objectives can be divided into three categories, which are:
a.
refundable, competitive, and attainable.
b.
perceived, actual, and situational.
c.
differentiated, niche, and undifferentiated.
d.
profit oriented, sales oriented, and status quo.
ANSWER:
d
57. _____ is a method of determining what sales volume must be reached before total revenue equals total costs.
a.
Break-even analysis
b.
Markup pricing
c.
Opportunity analysis
d.
Fixed-cost pricing
ANSWER:
a
58. Profit-oriented pricing objectives include _____.
a.
target return on investment
b.
target market share
c.
meeting competitors' prices
d.
status quo pricing
ANSWER:
a
59. In _____, the seller pays all or part of the actual shipment charges and does not pass them on to the buyer.
a.
FOB origin pricing
b.
freight absorption pricing
c.
uniform delivered pricing
d.
basing-point pricing
ANSWER:
b
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60. Inelastic demand is a situation in which:
a.
an increase or a decrease in price does not significantly affect the demand for a product.
b.
prices are adjusted over time to maximize a company's revenues.
c.
demand is created for new products by aggressive brand awareness campaigns.
d.
a pricing objective maintains existing prices or meets the competition's prices.
ANSWER:
a
61. _____ is the quantity of a product that will be offered to the market by a supplier at various prices for a specified
period.
a.
Demand
b.
Supply
c.
Market share
d.
Product share
ANSWER:
b
62. Which of the following happens if demand is elastic?
a.
As price goes up, consumer demand changes.
b.
The competition between organizations reduces.
c.
Products will not have any substitutes.
d.
The purchasing power of the consumer decreases.
ANSWER:
a
63. Unlike niche-oriented shopping bots, broad-based shopping bots:
a.
give pricing power to the retailers.
b.
search for prices for only one type of product.
c.
operate using a Yellow Pages type of model.
d.
include sites like SeatGeek and Kayak.
ANSWER:
c
64. Riya saw a box of collector's edition comic books at Fournotts, a retail corporation. Each book was priced at $28.50,
but a customer who bought five books was required to pay only $19.99 for each book. Riya bought one book and her
friend bought five books. Fournotts' revenue from this purchase is _____.
a.
$158.51
b.
$19.99
c.
$28.50
d.
$128.45
ANSWER:
d
65. Univ Airlines and Mirago Airlines are competitors. They mutually agree to charge customers a certain price for
airfreight. This leads to the several lawsuits being filed against them by other airlines. In this case, Univ Airlines and
Mirago Airlines can be charged under _____.
a.
the Clayton Act
b.
the Sarbanes-Oxley Act
c.
the Sherman Act
d.
the Robinson-Patman Act
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ANSWER:
c
66. A price skimming strategy is most often used for a new product when:
a.
competition in the market is abundant.
b.
customers are unwilling to spend a large amount of money on the product.
c.
the supply of the product is greater than its demand.
d.
the product is perceived by the target market as having unique advantages.
ANSWER:
d
67. _____ is a pricing policy whereby a firm charges a relatively low price for a product when it is first rolled out as a way
to reach the mass market.
a.
Penetration pricing
b.
Price skimming
c.
Price discrimination
d.
Status quo pricing
ANSWER:
a
68. The managers at Click-to-Door, an e-commerce website, closely monitor its rival online retailers to analyze how
consumers respond to changes in the prices of certain products. They use the results of this analysis to constantly change
the prices on their website to maximize sales and profits. In this case, which of the following pricing strategies does Click-
to-Door follow?
a.
Comparative pricing
b.
Dynamic pricing
c.
Capacitive pricing
d.
Dependent pricing
ANSWER:
b
69. _____ is a price tactic that charges freight costs from a given point, regardless of the city from which the goods are
shipped.
a.
FOB origin pricing
b.
Zone pricing
c.
Uniform delivered pricing
d.
Basing-point pricing
ANSWER:
d
70. Fresnas Designs Inc. is a company known for its quality interior decorations, customized service, and affordable
prices. Given the high demand for its service, the management of Fresnas Designs Inc. could price its products higher, but
it prefers to price its products such that it will earn a reasonable revenue. The management of Fresnas Designs Inc. bases
its pricing policy on _____.
a.
sales maximization
b.
earning satisfactory profits
c.
creating retained earnings
d.
status quo pricing
ANSWER:
b
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71. Which of the following is a similarity between price fixing and predatory pricing?
a.
Both are illegal under the Federal Trade Commission Act.
b.
Both are fine-tuning techniques that do not change the general price level.
c.
Both typically discourage and block competition from entering a market.
d.
Both may ignore demand or cost or both.
ANSWER:
a
72. Return on investment (ROI) for a firm:
a.
is the margin of profit earned by the firm inclusive of the taxes payable by the firm.
b.
is its total assets multiplied by net profits after taxes.
c.
measures management's overall effectiveness in generating profits with the available assets.
d.
will be lower than the previous year if the firm performs better in the market.
ANSWER:
c
73. A _____ is a price reduction offered to a consumer, an industrial user, or a marketing intermediary in return for
prompt payment of a bill.
a.
cash discount
b.
quantity discount
c.
functional discount
d.
seasonal discount
ANSWER:
a
74. When there are many substitutes available for a particular product, consumers:
a.
judge the quality of the substitute product based on the supply of each substitute.
b.
perceive individual products to have poor durability.
c.
can easily switch from one product to another.
d.
are sensitive to changes in the supply of substitute products that belong to new brands.
ANSWER:
c
75. Identify a true statement about status quo pricing.
a.
It leads to optimal pricing of a product.
b.
It requires serious planning and is difficult to implement.
c.
It gives great importance to the demand for and the costs of a product.
d.
It can lead to a pricing disaster.
ANSWER:
d
76. Firms that indulge in price fixing:
a.
decide how much to charge for a product.
b.
undercut the price quoted by a seller to a buyer.
c.
charge different prices to different customers.
d.
do not sell to two or more different buyers.
ANSWER:
a
77. The marketing manager of Raven Golf Club finds that the club can increase its market share and become the industry
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Chapter 19: Pricing Concepts
leader if it slashes membership prices by 50 percent during the first quarter of the year. However, the club cannot achieve
its target return on investment if it slashes its membership prices during a quarter. This conflict illustrates:
a.
the need to eliminate low-profit products.
b.
a lack of competition in the marketplace.
c.
how pricing operates in an ideal marketplace.
d.
the need for trade-offs in pricing objectives.
ANSWER:
d
78. Which of the following statements is true of geographic pricing?
a.
Freight absorption pricing is a tactic that requires a buyer to absorb the freight costs from the shipping point.
b.
Uniform delivered pricing divides the United States into segments or zones and charges a flat freight rate to all
customers in a given zone.
c.
Postage stamp pricing is adopted when the marketing manager wants total costs to be equal for all purchasers
of identical products.
d.
With basing-point pricing, a seller designates a location as a basing point so that all buyers are not charged the
freight cost from that point.
ANSWER:
c
79. During the off-season, the Rues Hotel offers a 25 percent reduction on its rooms to attract guests. Given this
information, which of the following is illustrated in this scenario?
a.
The power of yield management systems
b.
The advantage of markup pricing
c.
The relationship between price and quality
d.
The use of price as a promotional tool
ANSWER:
d
80. Briefly explain how distribution strategy acts as a determinant of price.
ANSWER:
Answers will vary. An effective distribution network can sometimes overcome minor flaws in the marketing
mix. For example, although consumers may perceive a price as being slightly higher than normal, they may
buy the product anyway if it is being sold at a convenient retail outlet.Adequate distribution for a new
product can often be attained by offering a larger-than-usual profit margin to distributors. A variation on this
strategy is to give dealers a large trade allowance to help offset the costs of promotion and further stimulate
demand at the retail level.
81. Discuss with examples the factors that affect elasticity of demand.
ANSWER:
Answers will vary. Several factors affect elasticity of demand, including the following:
• Availability of substitutes:When many substitute products are available, the consumer can easily
switch from one product to another, making demand more elastic. The same is true in reverse: A
person with complete renal failure will pay whatever is charged for a kidney transplant because there
is no substitute.
• Price relative to purchasing power:If a price is so low that it is an inconsequential part of an
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Chapter 19: Pricing Concepts
• A product's other uses:The greater the number of different uses for a product, the more elastic
demand tends to be. If a product has only one use, as may be true of a new medicine, the quantity
purchased probably will not vary as price varies. A person will consume only the prescribed
quantity, regardless of price. On the other hand, a product like steel has many possible applications.
As its price falls, steel becomes more economically feasible in a wider variety of applications,
thereby making demand relatively elastic.
82. Explain how the relationship between the price and quality of a product affects a purchase decision.
ANSWER:
Answers will vary. When a purchase decision involves uncertainty, consumers tend to rely on a high price as
a predictor of good quality. Reliance on price as an indicator of quality seems to occur for all products, but it
reveals itself more strongly for some items than for others. Among the products that benefit from this
phenomenon are coffee, aspirin, shampoo, clothing, furniture, whiskey, education, and many services. In the
absence of other information, people typically assume that prices are higher because the products contain
better materials, because they are made more carefully, or, in the case of professional services, because the
provider has more expertise.Researchers have found that price promotions of higher priced, higher quality
brands tend to attract more business than do similar promotions of lower priced and lower quality brands.
Higher prices increase expectation and set a reference point against which people can evaluate their
consumption experiences. A bad experience with a higher priced product tends to increase the level of
disappointment. Finally, products that generate strong emotions, such as perfumes and fine watches, tend to
get more "bang for the buck" in price promotions.
83. Explain the concept of price lining as a pricing tactic for fine-tuning the base price.
ANSWER:
Answers will vary. When a seller establishes a series of prices for a type of merchandise, it creates a price
line. Price lining is the practice of offering a product line with several items at specific price points. Price
lining reduces confusion for both the salesperson and the consumer. The buyer may be offered a wider
variety of merchandise at each established price. Price lines may also enable a seller to reach several market
segments. For buyers, the question of price may be quite simple: all they have to do is find a suitable product
at the predetermined price. Moreover, price lining is a valuable tactic for the marketing manager, because the
firm may be able to carry a smaller total inventory than it could without price lines. The results may include
fewer markdowns, simplified purchasing, and lower inventory carrying charges.Price lines also present
drawbacks, especially if costs are continually rising. Sellers can offset rising costs in three ways. First, they
can begin stocking lower-quality merchandise at each price point. Second, sellers can change the prices,
although frequent price line changes confuse buyers. Third, sellers can accept lower profit margins and hold
quality and prices constant. This third alternative has short-run benefits, but its long-run handicaps may drive
sellers out of business.
84. Explain the significance of market share as a sales-oriented pricing objective.
ANSWER:
Answers will vary. Market share is a company's product sales as a percentage of total sales for that industry.
Sales can be reported in dollars or in units of product. It is very important to know whether market share is
expressed in revenue or units because the results may be different.Many companies believe that maintaining
or increasing market share is an indicator of the effectiveness of their marketing mix. Larger market shares
have indeed often meant higher profits, thanks to greater economies of scale, market power, and ability to
compensate top-quality management. Conventional wisdom also says that market share and ROI are strongly
related. For the most part they are; however, many companies with low market share survive and even
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Chapter 19: Pricing Concepts
85. Discuss the role of price in the evaluation of product alternatives.
ANSWER:
Answers will vary. Price is that which is given up in an exchange to acquire a good or service. Price also
plays two roles in the evaluation of product alternatives: as a measure of sacrifice and as an information cue.
To some degree, these are two opposing effects.The sacrifice effect of price:Price is, again, "that which is
given up," which means what is sacrificed to get a good or service. In the United States, the sacrifice is
usually money, but it can be other things as well. It may also be time lost while waiting to acquire the good
or service. Price might also include lost dignity for individuals who lose their jobs and must rely on
charity.The information effect of price:Consumers do not always choose the lowest-priced product in a
category, such as shoes, cars, or wine, even when the products are otherwise similar. One explanation of this
behavior, based upon research, is that we infer quality information from price. That is, higher quality equals
higher price. The information effect of price may also extend to favorable price perceptions by others
because higher prices can convey the prominence and status of the purchaser to other people.
86. Define consumer penalty and give reasons for imposing consumer penalties.
ANSWER:
Answers will vary. More and more businesses are adopting consumer penalties—extra fees paid by
consumers for violating the terms of a purchase agreement. Airlines often charge a fee for changing a return
date on a ticket. Businesses impose consumer penalties for two reasons: they will allegedly (1) suffer an
irrevocable revenue loss and/or (2) incur significant additional transaction costs should customers be unable
or unwilling to complete their purchase obligations. For the company, these customer payments are part of
doing business in a highly competitive marketplace. With profit margins in many companies increasingly
coming under pressure, organizations are looking to stem losses resulting from customers not meeting their
obligations. Some medical professionals charge a penalty fee if you don't show up for an appointment.
However, the perceived unfairness of a penalty may affect some consumers' willingness to patronize a
business in the future.
87. Discuss how shopping bots help consumers with their purchase decisions.
ANSWER:
Answers will vary. The Internet, extranets (private electronic networks), and wireless setups are linking
people, machines, and companies around the globe—and connecting sellers and buyers as never before.
These links are enabling buyers to quickly and easily compare products and prices, putting them in a better
bargaining position.A shopping bot is a program that searches the web for the best price for a particular item
that you wish to purchase. Shopping bots theoretically give pricing power to the consumer. The more
information that the shopper has, the more efficient his or her purchase decision will be. Shopping bots have
been around for quite some time, and security protocols have been developed by some Internet retailers to
limit bot trawls. Still, shopping bots remain a powerful and impactful marketing tool to this day.
88. Explain with examples how price plays a role in promotion strategies for products.
ANSWER:
Answers will vary. Price is often used as a promotional tool to increase consumer interest. In many cases,
consumer perceptions of a store's prices are more impactful than the actual prices themselves. Whole Foods
is perceived as significantly more expensive than other grocery stores despite having prices that are largely in
line with competitors. Whole Foods has made a concerted effort to change its pricing image by promoting
lower prices and adding new lower-priced options. Similarly, Nordstrom is perceived as a pricier alternative
to Macy's even though it has similar prices in many categories and lower prices in other categories. Clearly,
price promotion alone does not always create a low price image. Upscale ambiance, expensive specialty
offerings, premier locations, a high level of service, and a lack of price matching contribute to a high price
image as well.Often, the amount saved is the most important information when promoting a discount. For
example, starting with a retail price of $80, a 40 percent discount creates a savings of $32 for a net sale price
