b.
similar to delayed-quotation pricing
c.
similar to price shading
d.
a form of market penetration pricing
e.
also called postage stamp pricing
111. Business-to-business salespeople often use _____ to heighten the demand for certain items in a
product line. It is a discounting practice that is often done routinely without much forethought.
a.
decremental pricing
b.
price lining
c.
devaluation
d.
price shading
e.
consumer discounts
112. What can a marketing manager do to make demand for his or her product more inelastic?
a.
Eliminate brand equity
b.
Eliminate any unique products from the product line
c.
Cultivate selected demand
d.
Avoid making any product changes
e.
Implement escalator pricing
113. All of the following are strategies to make the demand for a good or service more inelastic EXCEPT:
a.
reduce consumer awareness
b.
cultivate selected demand
c.
change the package design
d.
make strong promotional claims and avoid discounting
e.
heighten buyer dependence
114. For sports marketers, an inelastic demand curve means they have greater flexibility in making pricing
decisions. What can a sports marketer do to make demand for his or her product more inelastic?
a.
Have a winning team that people want to see play.
b.
Sell the rights to buy a season pass.
c.
Eliminate all quantity discounts.
d.
Use discriminatory pricing.
e.
Any of these strategies will help render demand more inelastic.
115. Which of the following pricing methods can be used to build market share during a recession?
a.
Price lining
b.
Resale price maintenance
c.
Psychological pricing
d.
Bundling
e.
Variable pricing
116. During a recent worldwide recession when wine usage was declining, Nickel & Nickel launched a new
brand of wine, which it sold at $125 a bottle. The wine is allowed to age three times as long as
lower-priced wines, and the grapes used in the wine’s production are hand-picked. Wine lovers
appreciate how both production techniques improve wine quality. Nickel & Nickel used _____ to build
market share.
a.
value-based pricing
b.
unbundling
c.
price lining
d.
status quo pricing
e.
leader pricing
117. Two effective pricing tactics, which can be used during a recession, to hold or build market share are:
a.
flexible pricing and price shading
b.
price shading and price lining
c.
unbundling and price shading
d.
value-based pricing and bundling
e.
price lining and escalator pricing
118. During a recent recession, many manufacturers determined that their suppliers were an excellent
source of cost savings. Specific cost-reduction strategies manufacturers have used with their suppliers
include:
a.
offer help in boosting productivity of suppliers
b.
renegotiate contracts
c.
set annual across-the-board cost reduction targets for suppliers
d.
improve economies of scale by cutting number of suppliers
e.
all of the choices
It’s September and Sophia wants to buy some arts and crafts supplies for an after-school program she is
developing for her daughter’s elementary school. In her Sunday newspaper was a flyer from Michael’s,
an arts and crafts retailer. As she looked through the newspaper insert, she noticed that if she
purchased three or more bottles of Alene’s Tacky Glue, the regular price of $1.50 each was reduced to
$1.15 each. She also saw that the store priced its plastic storage boxes at $1.99, $3.99, and $5.99. She
thought they would be useful for storing each individual child’s projects. On the front page of the flyer
was an ad for Funky Girls Gel Pens, something she knew her daughter would love to use. The price at
Michael’s was $6.99 lower than the price she had found at the other stores that carried the pens. She
thought that some of the older girls might like to start a scrapbook and was pleased to find that
Michael’s had a scrapbook starter kit, which includes scissors, book, pages, and stickers for only $15.
The items could be purchased separately for $19.99. The flyer also announced that all flag-related
items leftover from its Fourth of July sale were reduced by 40 percent.
119. Refer to Art Supplies. Which type of discount is being using to price the tacky glue?
a.
Noncumulative quantity discount
b.
Promotional allowance
c.
Seasonal discount
d.
Cash discount
e.
Cumulative quantity discount
120. Refer to Art Supplies. Which of the following merchandise is offered in the flyer with a seasonal
discount?
a.
Tacky glue
b.
Plastic storage boxes
c.
Flag-related items
d.
Funky Girls Gel Pens
e.
Scrapbook starter kit
121. Refer to Art Supplies. What pricing practice was used to price the plastic storage boxes?
a.
Seasonal pricing
b.
Price shading
c.
Price lining
d.
Inelastic pricing
e.
Cumulative pricing
122. Refer to Art Supplies. Michael’s was trying to get consumers into the store with the Funky Girls Gel
Pen promotion in hopes that they will purchase other, higher margin items. This is an example of:
a.
seasonal pricing
b.
psychological pricing
c.
price lining
d.
price bundling
e.
leader pricing
123. Refer to Art Supplies. What pricing practice was used with the scrapbook starter kit?
a.
seasonal pricing
b.
psychological pricing
c.
price lining
d.
price bundling
e.
leader pricing
Apple Inc. iPhone went on sale on June 29, 2007. Apple’s loyal and enthusiastic customer base is
known for rushing to purchase its new products and the iPhone enjoyed a tremendous amount of
“buzz” before its introduction. As expected, the iPhone entered the market at what many believed to be
a high price ($599). However, within weeks the price was reduced to $399. By the end of 2007 over 8
million iPhones had sold in the U.S. marketplace. By most, if not all measures, the original iPhone was
a huge success for Apple and it exclusive U.S. carrier AT&T.
On July 11, 2008, Apple Inc. released the iPhone 3G, which it advertised as twice as fast as the
original iPhone for half the cost. However, in order to obtain an iPhone at the new price of $199,
buyers had to agree to a two-year service contract with AT&T. This allows iPhone users to receive
phone calls and email, and search the web on the same device. A single charge of $59.99 from AT&T
included 450 minutes of cellular calls, with free nights and weekend minutes, unlimited data, visual
voicemail, 200 text messages, rollover minutes, and unlimited mobile-to-mobile service within the
AT&T network. This approach succeeded and over a million iPhone 3Gs were sold during the
introductory weekend.
124. Refer to Apple iPhone. When Apple Inc. introduced the iPhone at a high price it was probably using a
_____ strategy to maximize profits.
a.
price-bracketing
b.
penetration pricing
c.
price-lining
d.
price-fixing
e.
price-skimming
125. Refer to Apple iPhone. When the iPhone 3G was released at half the cost of the current iPhone, it
appeared that Apple’s strategic focus had shifted from maximizing profits to gaining market share. Its
lowered price was consistent with the _____ pricing approach.
a.
price-bracketing
b.
penetration pricing
c.
price-lining
d.
price-fixing
e.
price-skimming
126. Refer to Apple iPhone. Samsung recently introduced its Instinct cellular phone, apparently to compete
directly with the iPhone. If Samsung checked the price of the iPhone at the Apple Store and AT&T
locations and then set the price of the Instinct to match the iPhone’s price, it would be using a _____
pricing approach.
a.
bracketing
b.
penetration
c.
status quo
d.
retain maintenance
e.
skimming
127. Refer to Apple iPhone. Best Buy also carries the iPhone. If Best Buy, AT&T, and Apple meet to agree
on a price for the iPhone, it could be said that _____ has occurred.
a.
price fixing
b.
retail price maintenance
c.
price discrimination
d.
penetration pricing
e.
price skimming
128. Refer to Apple iPhone. Apple and AT&T have several options available for competing with Samsung
and its Instinct phone. If Apple and AT&T choose to compete by pricing their product at a low price to
drive Samsung out of the market, this would be considered _____.
a.
price fixing
b.
retail price maintenance
c.
price discrimination
d.
predatory pricing
e.
fair competition
129. Refer to Apple iPhone. HSBC Group is the world’s largest banking group. It is considering switching
from BlackBerry handsets to iPhone 3Gs. This would mean ordering 200,000 iPhones, so HSBC
would probably receive special pricing incentives, including a _____.
a.
functional discount
b.
cash discount
c.
seasonal discount
d.
rebate
e.
quantity discount
130. Refer to Apple iPhone. Best Buy carries the Samsung Instinct for $599. If it had disappointing sales
and Best Buy decided to reduce the price and expected Samsung to absorb some of the cost of the
lowered price at the end of the season, this would require:
a.
a functional discount
b.
a cash discount
c.
markdown money
d.
a rebate
e.
a quantity discount
131. Refer to Apple iPhone. For one fee, the basic AT&T cellular package includes 450 minutes of cellular
calls, with free nights and weekend minutes, unlimited data, visual voicemail, 200 text messages,
rollover minutes, and unlimited mobile-to-mobile service within the AT&T network. AT&T is using
price _____.
a.
bundling
b.
skimming
c.
baiting
d.
leading
e.
lining
132. Refer to Apple iPhone. Consumers who agree to the two-year AT&T service contract will be required
to pay a cancellation fee if they leave AT&T prior to the end of the two-year period. This fee is a
consumer:
a.
bundling
b.
penalty
c.
lining
d.
stimulus
e.
markdown
ESSAY
1. List in order the four steps used to set the right price for a product.
2. What activities occur once the marketing manager has established pricing goals? Why are these
activities important?
3. Name and describe the three basic strategies for setting a price on a new good or service. Under what
conditions is each of the three basic pricing methods successful?
4. Name one advantage and one disadvantage associated with using each of the three basic pricing
methods.
5. Which pricing method (skimming, penetration, or status quo) would be most appropriate for each of
the following products: (1) a new kind of automatic vacuum cleaner; (2) brightly colored wooden
blocks to be used as a child’s toy; (3) a new, low-cost, no-calorie fat substitute; (4) a home computer;
and (5) a designer perfume. Briefly justify your answers.
6. Some pricing decisions are subject to government regulation. Name and define three pricing practices
that are illegal.
7. A base price may be lowered through the use of a discount. Discounts take a variety of forms and have
several different objectives. Name and define three types of discounts (do not include allowances or
rebates). State the main objective of the each type of discount you identify.
8. Distinguish between a cumulative and a noncumulative quantity discount.
9. What is a promotional allowance? What is the difference between a promotional allowance and a
functional discount? Give two specific examples of promotional allowances.
10. What is value-based pricing? What is the basic assumption marketers must make about their markets
before implementing a value-based pricing strategy?
11. Discuss the two reasons why managers sometimes price their products too low, thereby reducing
company profits.
12. Geographically dispersed sellers often result in significant freight costs. Name and describe the five
types of geographic pricing tactics that can be selected by a marketing manager to moderate the impact
of freight costs on its more dispersed customers. For each tactic defined, specify the circumstances that
would prompt the selection of that geographic pricing tactic.
13. What type of geographic pricing policy would a marketing manager most appropriately choose for the
following products: (1) nationally advertised bubble gum, (2) rebuilt engines for jet airplanes, and (3)
bulk amounts of a rare spice harvested from a single mountain in Canada and used in high-priced
restaurants. Justify your answers, and specify any assumptions you used to arrive at your answer.
14. Marketing managers can use a wide variety of special pricing tactics beyond discounts and allowances
to fine-tune prices. Name and define five of the other pricing tactics that are legal. For each tactic, give
an example of a specific company, industry, or product that would use the tactic.
15. What are consumer penalties? What two reasons do businesses give for requiring consumers to pay
them?
16. What is product line pricing? What three relationships among products in the line must managers be
aware of before setting prices? For each relationship, give an example of a product that fits the
situation.
17. Nellie Tompkins is the owner and operator of Hot Mamma Salsa, which she sells at craft festivals. She
only makes and sells three types of salsa—peach, pear, and pineapple salsa. The joint costs of leasing
her professional kitchen for manufacturing, travel to craft shows, insurance, and so on are allocated on
an equal basis to the three types of salsas sold. Last year’s sales figures and allocated joint costs follow.
Should Hot Mamma Salsa stop selling its pear salsa? Why or why not?
Pear Salsa
Peach Salsa
Pineapple Salsa
Sales
$4,000
$8,000
$9,000
Less: Cost of goods sold
5,000
5,000
5,000
Gross margin
($1,000)
$3,000
$4,000
Sales
$8,000
$9,000
Less: Cost of goods sold
5,000
5,000
5,000
Gross margin
$3,000
$4,000
Sales
$8,000
$9,000
Less: Cost of goods sold
7,500
7,500
Gross margin
$ 500
$1,500
18. When the economy is characterized by high inflation, special pricing tactics are often necessary. One
popular cost-oriented tactic is culling low-profit margin products from the product line. Why might
this tactic backfire? What two other cost-oriented tactics can be used to guard against inflation?
Describe these tactics.
19. How do value-based pricing, unbundling, and bundling help marketers hold onto market share during a
recession?