PRICING STRATEGY

Question 1

is a strategy with high initial prices to “skim” revenue layers from the market
- Product quality and image must support the price
- Buyers must want the product at the price
- Competitors should not be able to enter the market easily

Answer 1

Market-skimming pricing

Question 2

sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share
- Price sensitive market
- Inverse relationship of production and
distribution cost to sales growth
- Low prices must keep competition out of the
market

Answer 2

Market-penetration pricing

Question 3

takes into account the cost differences between products in the line, customer evaluation of their features, and competitors’ prices

Answer 3

PRODUCT LINE PRICING

Question 4

takes into account optional or accessory products along with the main product

Answer 4

Optional product pricing

Question 5

involves products that must be used along with the main product

Answer 5

Captive-product pricing

Question 6

Two-part pricing involves breaking the price into:

Answer 6

Fixed fee
Variable usage fee

Question 7

refers to products with little or no value produced as a result of the main product.

Producers will seek little or no profit other than the cost to cover storage and delivery.

Answer 7

By-product pricing

Question 8

combines several products at a reduced price

Answer 8

Product bundle pricing

Question 9

reduces prices to reward customer responses such as paying early or promoting the product

Answer 9

Discount and allowance pricing

Question 10

is used when a company sells a product at two or more prices even though the difference is not based on cost

Answer 10

Segmented pricing

Question 11

SEGMENT PRICING
To be effective:

Answer 11

• Market must be segmentable
• Segments must show different degrees of demand
• Watching the market cannot exceed the extra
  revenue obtained from the price difference
• Must be legal

Question 12

occurs when sellers consider the psychology of prices and not simply the economics

Answer 12

Psychological pricing

Question 13

Reference prices are prices that buyers carry in their minds and refer to when looking at a given product

Answer 13

Noting current prices
Remembering past prices
Assessing the buying situations

Question 14

is when prices are temporarily priced below list price or cost to increase demand

Answer 14

Promotional pricing

Question 15

Promotional pricing happen when:

Answer 15

1. Loss leaders
2. Special event pricing
3. Cash rebates
4. Low-interest financing
5. Longer warrantees
6. Free maintenance

Question 16

RISKS OF PROMOTIONAL PRICING

Answer 16

1. Used too frequently, and copies by competitors can create “deal-prone” customers who will wait for promotions and avoid buying at regular price
2. Creates price wars

Question 17

is used for customers in different parts of the country or the world

Answer 17

GEOGRAPHICAL PRICING

Question 18

Geographical pricing includes:

Answer 18

1. FOB pricing
2. Uniformed-delivery pricing
3. Zone pricing
4. Basing-point pricing
5. Freight-absorption pricing

Question 19

means that the goods are delivered to the carrier and the title and responsibility passes to the customer

Answer 19

FOB (free on board) pricing

Question 20

means the company charges the same price plus freight to all customers, regardless of location

Answer 20

Uniformed delivery pricing

Question 21

means that the company sets up two or more zones where customers within a given zone pay a single total price

Answer 21

Zone Pricing

Question 22

means that a seller selects a given city as a “basing point” and charges all customers the freight cost associated from that city to the customer location, regardless of the city from which the goods are actually shipped

Answer 22

Basing Point Pricing

Question 23

means the seller absorbs all or part of the actual freight charge as an incentive to attract business in competitive markets

Answer 23

Freight absorption pricing

Question 24

is when prices are adjusted continually to meet the characteristics and needs of the individual customer and situations

Answer 24

Dynamic Pricing

Question 25

is when prices are set in a specific country based on country-specific factors ▣ Economic conditions ▣ Competitive conditions ▣ Laws and regulations ▣ Infrastructure ▣ Company marketing objective

Answer 25

International Pricing

Question 26

Initiating Pricing Changes

Answer 26

▣ Price cuts ▣ Price increases

Question 27

Price cuts occur due to:

Answer 27

1. Excess capacity 2. Increased market share

Question 28

Price increase from:

Answer 28

1. Cost inflation 2. Increased demand 3. Lack of supply

Question 29

Sellers must set prices without talking to competitors

Answer 29

Price fixing

Question 30

Selling below cost with the intention of punishing a competitor or gaining higher long-term profits by putting competitors out of business

Answer 30

Predatory pricing

Question 31

prevents unfair price discrimination by ensuring that the seller offer the same price terms to customers at a given level of trade

Answer 31

ROBINSON PATMAN ACT

Question 32

Robinson Patman Act Price discrimination is allowed:

Answer 32

1. If the seller can prove that costs differ when selling to different retailers 2. If the seller manufactures different qualities of the same product for different retailers

Question 33

is when a manufacturer requires a dealer to charge a specific retail price for its products

Answer 33

Retail (resale) price maintenance

Question 34

occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers

Answer 34

Deceptive pricing