85) What are the different price-setting methods? Briefly describe each of them.
86) Agatha’s Inc. is about to introduce a new product in the market, but is not sure as to how it
should price the product. The company is facing intense competition from five other companies.
In the past, it has also failed to keep up with the changing consumer wants. In such a situation,
what should be its main objective?
87) Bella’s Inc. has estimated the demand and costs associated with alternative prices. It has
finally chosen to price its new offering in such a way that it will maximize the rate of return on
investment. What can be deduced about the company’s objective?
88) When Juan’s company introduced its new product in the market, it introduced it at the lowest
possible price assuming that the demand for the product is going to be highly responsive to the
introduction price. It also believes that a higher sales volume will lead to lower unit costs and
higher long-run profit. What can be said about the company’s objective?
89) When Sony introduced the world’s first high-definition television to the Japanese market in
1990, it was priced at $43,000. This helped Sony to scoop the maximum amount of revenue from
the various segments of the market. The price dropped steadily through the years — a 28-inch
Sony HDTV cost just over $6,000 in 1993, but a 40-inch Sony HDTV cost only $450 in 2014.
What pricing strategy did Sony use here?
90) Daryl convinced his prospective client that Car A was the best for him. But, the client
insisted that the car cost him a good $10,000 more than Car B, the one which he was thinking of
buying. Daryl told him that the amount he would have to spend on the fuel, insurance, repairs,
and maintenance for Car B would be 5 times more than what he would have to spend on Car A.
Finally convinced, the client consented to buy Car A. What technique did Daryl use to convince
his customer?
91) A company that pays its bills each month for its rent, heat, interest, and salaries regardless of
its output is said to be incurring what type of costs?
92) Ellie’s manager has asked her to come up with ways to reduce costs of their new product by
utilizing a process called “target costing.” What should Ellie do?
93) What should a company do if its competitor’s product contains features that are not available
in its own product?
94) A toaster manufacturer who has invested $1 million in the business wants to set a price to
earn a 20 percent return on investment, specifically $200,000. What pricing method should it
choose?
95) On sites such as eBay and Amazon.com, the seller puts up an item and bidders raise the offer
price until the top price is reached. What kind of auctions are these?
96) In which of the following forms of countertrade do buyers and sellers directly exchange
goods, with no money and no third party is involved?
A) buyback arrangements
B) offsets
C) barter
D) sealed bids
E) compensation deals
97) A Japanese firm is ready to sell its recent technological innovation to the US government.
But it has asked for 80 percent in cash and the rest in mica. The Japanese firm is looking to enter
into a(n) ________ with the US government.
A) functional discount
B) compensation deal
C) buyback arrangement
D) offset agreement
E) barter deal
98) Armac Ltd. is a sluice-box manufacturer based in China. A sluice-box is used for gold
prospecting. Armac is interested in selling a few of its machines to an American mining
company, but it wants 95 percent of the machines’ price in gold and the rest in ores recovered by
using the machines. This is an example of a ________.
A) buyback arrangement
B) functional discount
C) barter deal
D) compensation deal
E) sealed bid
99) ROC Engineering, a Chinese shipbuilding company, agrees to build a fleet of submarines for
the Sri Lankan navy, for which it will be paid in the local Sri Lankan currency. As per the
agreement, ROC must also spend a substantial amount of the money it generates through this
deal within the country. In accordance with the contract, ROC buys Sri Lankan tea at a reduced
rate. This is an example of which of the following forms of countertrade?
A) descending bid
B) offset
C) barter
D) compensation deal
E) buyback arrangement
100) ________ are offered by a manufacturer to trade-channel members if they will perform
certain functions, such as selling, storing, and recordkeeping.
A) Consumer promotions
B) Quantity discounts
C) Functional discounts
D) Seasonal discounts
E) Trade-in allowances
101) When hotels, motels, and airlines offer discounts in slow selling periods, they are said to be
offering ________.
A) trade discounts
B) quantity discounts
C) functional discounts
D) seasonal discounts
E) trade-in allowances
102) A(n) ________ is an extra payment designed to gain reseller participation in special
programs.
A) seasonal discount
B) allowance
C) discount
D) quantity discount
E) functional discount
103) ________ reward dealers for participating in advertising and sales support programs.
A) Functional discounts
B) Trade discounts
C) Promotional allowances
D) Rebates
E) Quantity discounts
104) When supermarkets and department stores drop the price on well-known brands to
stimulate store traffic, they are said to be following ________ pricing.
A) value
B) loss-leader
C) special event
D) high-low
E) everyday low
105) In ________, the seller charges a separate price to each customer depending on the intensity
of his or her demand.
A) second-degree price discrimination
B) third-degree price discrimination
C) psychological discounting
D) special-customer pricing
E) first-degree price discrimination
106) In second-degree price discrimination, the seller charges ________.
A) less to buyers of larger volumes
B) different prices depending on the season, day, or hour
C) a separate price to each customer depending on the intensity of his or her demand
D) different prices for different versions of the same product
E) different prices for the same product depending on the channel through which it is sold
107) In ________, the seller charges different amounts to different classes of buyers.
A) perceived value pricing
B) third-degree price discrimination
C) first-degree price discrimination
D) second-degree price discrimination
E) psychological discounting
108) When museums charge a lower admission fee to students and senior citizens, this form of
price discrimination is known as ________ pricing.
A) location
B) channel
C) customer-segment
D) special-customer
E) loss-leader
109) Madame Tussaud’s wax museum is a popular tourist attraction in London. The museum
charges higher entry rates for tourists compared to locals. This form of price discrimination is
known as ________ pricing.
A) customer-segment
B) image
C) location
D) special customer
E) special event
110) When Coca-Cola carries a different price depending on whether the consumer purchases it
in a fine restaurant, a fast-food restaurant, or a vending machine, then this form of price
discrimination is known as ________ pricing.
A) product-form
B) loss-leader
C) special event
D) channel
E) location
111) The prices of tickets to the opera vary depending on where the person would like to be
seated — in the gallery or in the stalls. This is an example of ________ pricing.
A) channel
B) time
C) image
D) product-form
E) location
112) When hotels drop their rates on the weekends, this form of price discrimination is known as
________ pricing.
A) channel
B) image
C) product-form
D) time
E) location
113) The airline and hospitality industries use ________, by which they offer discounted but
limited early purchases, higher-priced late purchases, and the lowest rates on unsold inventory
just before it expires.
A) special-customer pricing
B) yield pricing
C) cash rebates
D) location pricing
E) customer-segment pricing
114) ________ refers to selling below cost with the intention of destroying competition.
A) Bid rigging
B) Loss-leader pricing
C) Predatory pricing
D) Price discrimination
E) Price penetration
115) For price discrimination to work ________.
A) the market must be segmentable and the segments must show similar intensities of demand
B) members in the lower-price segment must be able to resell the product to the higher-price
segment
C) competitors must be able to undersell the firm in the higher-price segment
D) the practice must not breed customer resentment and ill will
E) the extra revenue derived from price discrimination must not exceed the cost of segmenting
and policing the market
116) When a movie theater charges a lower ticket fee for children and senior citizens, it is
engaging in ________ pricing.
A) product-form
B) image
C) customer-segment
D) location
E) time
117) In a compensation deal, the seller sells a plant, equipment, or technology to another country
and agrees to accept as partial payment products manufactured with the supplied equipment.
118) Psychological discounting involves setting an artificially high price and then offering the
product at substantial savings.
119) Loss leader pricing dilutes a company’s brand image.
120) In first-degree price discrimination, the seller charges less to buyers who purchase in larger
volumes.
121) When firms charge different prices to different customer groups for the same product or
service, it is a case of second-degree price discrimination.
122) The airline industries implement yield pricing by offering discounted but limited early
purchases, higher-priced late purchases, and the lowest rates on unsold inventory just before it
expires.
123) Price discrimination in all forms is illegal in the United States.
124) When PepsiCo sold its cola syrup to Russia for rubles and agreed to buy Russian vodka at a
certain rate for sale in the United States, it was engaged in the form of countertrade known as an
offset.
125) What are the different forms of countertrade?
126) What are the different types of price discounts and allowances?
127) What are the different types of promotional pricing?
128) What is third-degree price discrimination?
129) A British aircraft manufacturer sold planes to Brazil for 70 percent cash and the rest in
coffee. This is an example of what kind of a countertrade?
130) Fred’s company has recently sold its resin-producing plant to a business in India. As part of
the sales price, his company agrees to accept as partial payment the production of the resin at an
agreed upon price for six years. This is an example of what type of countertrade?
131) PepsiCo sold its cola syrup to Russia and agreed to buy Russian vodka at a certain rate for
sale in the United States for the next five years. What kind of a countertrade did both the parties
indulge in?
132) When Indu’s company printed the ad for their perfume in the newspapers, the caption read,
“WAS $100, NOW $75.” What kind of a promotional pricing did her company use?
133) Movie matinees are priced lower than the evening shows at local theaters; television
advertising costs less when run after midnight. These are examples of what type of price
discrimination?
134) When the airline industry offers discounted but limited early purchases, higher-priced late
purchases, and the lowest rates on unsold inventory just before it expires, what kind of a pricing
technique are they said to be using?
135) A low price buys market share but not market loyalty. The same customers will shift to any
lower-priced product that may come along. This is called the ________ trap.
A) low-price
B) relative-market-share
C) shallow-pockets
D) target-market-share
E) fragile-market-share
136) When higher-priced competitors match lower prices of their competitors but have longer
staying power because of deeper cash reserves, it leads to a(n) ________ trap.
A) low-quality
B) fragile-market-share
C) price war
D) escalator
E) shallow-pockets
137) A company does not set a final price until the product is finished or delivered. This is
known as ________.
A) delayed quotation pricing
B) an escalator clause
C) special-event pricing
D) time pricing
E) the shallow-pockets trap
138) Companies sometimes initiate price cuts in an attempt to dominate the market through
lower costs.
139) In a price-war trap, higher-priced competitors match the firm’s lower prices but have longer
staying power because of deeper cash reserves.
140) Escalator clauses are found in contracts for major industrial projects, such as aircraft
construction and bridge building.
141) Generally, consumers prefer small price increases on a regular basis to sudden, sharp
increases.
142) Shrinking the amount of product instead of raising the price is a good way to counteract
consumer resistance to price increases.
143) How can companies initiate price cuts and what are the traps that companies can fall into
because of this?
144) What are some ways to respond to overdemand?
145) What techniques can a firm use to help consumers avoid sticker shock and a hostile reaction
when prices rise?
146) How can a firm anticipate a competitor’s reactions to a price change?
147) When a company requires customers to pay today’s price and all or part of any inflation
increase that takes place before delivery, it is known as ________.
A) special-customer pricing
B) an escalator clause
C) delayed quotation pricing
D) unbundling
E) time pricing
148) When a company maintains its price but removes or prices separately one or more elements
that were part of the former offer, such as free delivery or installation, it is known as ________.
A) escalating
B) differentiation
C) unbundling
D) reverse discounting
E) delayed quotation pricing
149) In markets that are characterized by products that are highly homogeneous, how should a
firm react to a competitor’s reduction in price?
A) shrink the amount of the product available
B) substitute expensive materials or ingredients
C) reduce product features
D) reduce product services
E) augment the product
150) A company must consider the product’s stage in the life cycle and its importance in the
company’s portfolio before responding to a competitor’s price cut.
151) A firm in a homogeneous market that has the ability to augment its product is more likely to
need to meet a competitive price reduction than one that does not have the ability to augment its
product.
152) What should a firm consider if it is in a nonhomogeneous market and a competitor lowers
its prices?
153) What are three possible responses to low-cost competitors?