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Chapter 20—Setting the Right Price TRUE/FALSE 1. The first step in setting the right price for a new product is to estimate demand, costs, and profits. Answer: False Rationale: The first step in setting the right price is to establish pricing goals. 2. All pricing objectives have trade-offs that managers must weigh. Answer: True Rationale: Different pricing objectives, such as profit maximization, sales growth, or market share expansion, involve trade-offs in terms of profitability, market positioning, and customer perception. 3. After estimating how much market share and profit can be earned at each possible price point, managers should establish price goals and determine corresponding costs for each price. Answer: False Rationale: After establishing pricing goals, managers should estimate total revenue at a variety of prices. Next, they should determine corresponding costs for each price. They are then ready to estimate how much profit, if any, and how much market share can be earned at each possible price. 4. Most companies do a very good job of doing research to create a price strategy. Answer: False Rationale: In fact, only about 15 percent of companies surveyed conduct serious pricing research to support the development of an effective pricing strategy. 5. Penetration pricing means charging a relatively low price for a product as a way to reach the mass market. Answer: True Rationale: Penetration pricing aims to attract customers quickly by setting a lower price than competitors, often to gain market share rapidly. 6. It makes the most sense to use price skimming when an above-average price makes the market hesitant to buy the product. Answer: False Rationale: It makes the most sense to use price skimming when the market is willing to buy the product even though it carries an above-average price. 7. Procter & Gamble entered the electric toothbrush market with the Crest Spinbrush at a price considerably lower than those of lesser-known competitors. It used penetration to gain market share. Answer: True Rationale: This strategy describes penetration pricing, where a company sets a low initial price to penetrate the market quickly and gain market share. 8. Sometimes multinational firms will follow a penetration strategy in developed countries and a skimming strategy in developing countries. Answer: False Rationale: The opposite is true. 9. There are two limousine services that drive customers from communities in North Georgia to the Atlanta airport. Whenever one reduces its fare, its competitor reduces its fares by the same amount. This is an example of status quo pricing. Answer: True Rationale: Status quo pricing involves matching competitors' price changes without initiating pricing innovations or changes independently. 10. In the United States, price fixing is only illegal in some instances. Answer: False Rationale: Price fixing is illegal under the Sherman Act and the Federal Trade Commission Act. Price fixing is one area where the law is quite clear, and the Justice Department’s enforcement is vigorous. 11. Price discrimination can sometimes be justified if certain criteria are not met. Answer: True Rationale: Price discrimination can be legally justified if it is based on differences in production costs, market segmentation, or the nature of the product or service being offered. 12. A winery that makes a huge profit on merlot wines may lower its price on pinot noir wines to cause damage to wineries that only produce pinot noir. This is an example of predatory pricing. Answer: True Rationale: Predatory pricing involves intentionally lowering prices to harm competitors and gain market share, which can be illegal under antitrust laws. 13. Manufacturers know the general price level they can expect when establishing a product price. This general price is called the base price. Answer: True Rationale: The base price refers to the general expected price level that manufacturers consider when setting initial prices for their products. 14. An awning manufacturer that is allowed to deduct 3 percent from its total bill if it pays by a specific date is receiving a promotional discount. Answer: False Rationale: This is describing a cash discount. 15. Functional discounts are typically calculated as the wholesale price times the accumulated margin percentages. Answer: False Rationale: Functional discounts are typically a percentage discount from the base price. 16. Sears and John Deere run major sales on their lines of riding lawn mowers every fall. This is an example of a seasonal discount. Answer: True Rationale: Seasonal discounts involve temporary price reductions offered during specific times of the year to stimulate sales, such as during seasonal peaks like fall. 17. Rebates involve a cash refund for the purchase of a product during a specific period. Answer: True Rationale: Rebates offer consumers a partial refund on a purchased product after they provide proof of purchase within a specified period. 18. A markdown allowance is a payment to a dealer for promoting the manufacturer’s products. Answer: False Rationale: This is the definition of a promotional (or trade) allowance. 19. The basic assumption with price skimming is that the firm is customer driven, seeking to understand the attributes customers want in goods and services they buy and the value of that bundle of attributes to customers. Answer: False Rationale: This is the basic assumption for value-based pricing. 20. Evergreen Lighting, a manufacturer of decorative, energy-efficient lighting products, requires its buyers to pay for the cost of transportation from the manufacturing site to their place of businesses. Evergreen Lighting uses FOB origin pricing. Answer: True Rationale: FOB (Free on Board) origin pricing means that the buyer assumes responsibility for transportation costs from the seller's location, typically used to indicate when ownership of goods transfers from seller to buyer. 21. Uniform delivered pricing is illegal because it discriminates against buyers who are located close to the point of shipping because they pay the same amount as buyers located far from the point of shipping pay. Answer: False Rationale: This geographic pricing practice is not illegal. 22. Flexible pricing enables a seller to close a sale with price-conscious consumers. Answer: True Rationale: Flexible pricing allows sellers to adjust prices based on customer segments, market conditions, or negotiation, which can help attract and close sales with price-sensitive consumers. 23. A catalog retailer offers three styles of khaki pants at three price levels. The special pricing tactic used by the catalog retailer is best described as variable psychological pricing. Answer: False Rationale: The catalog retailer is using price lining as a pricing tactic. 24. Loss-leader pricing is a price tactic that tries to get consumers into a store through false or misleading price advertising. Answer: False Rationale: Leader pricing, also called loss-leader pricing, is a price tactic in which a product is sold near or even below cost in the hope that shoppers will buy other items once they are in the store. 25. One example of price bundling occurs when Nintendo sells the Wii Fit balance board with the Wii game system at a lower price than the total price of each if bought separately. Answer: True Rationale: Price bundling involves offering two or more products or services together at a lower combined price than if purchased separately, encouraging customers to buy both items. 26. Kiddieland Amusement Park charges customers an admission fee of $10. Customers must pay 50 cents for each ride they want to ride while inside the park. This is an example of two-part pricing. Answer: True Rationale: Two-part pricing involves charging customers a fee for the basic service (admission fee in this case) and then charging an additional fee for each unit of service used (rides in this example). 27. Rag fibers for paper and cotton seeds for cottonseed oil are two by-products of the cotton textile industry. Because these products are produced together, they are complementary products. Answer: False Rationale: Complementary products are those that are consumed together, whereby an increase in the sale of one causes an increase in demand for the other. 28. More and more businesses are adopting consumer penalties—extra fees paid by consumers for violating the terms of a purchase agreement. Answer: True Rationale: Consumer penalties are additional charges imposed on consumers for failing to meet the terms or conditions of a purchase agreement, becoming increasingly common in various industries. 29. Costs that are shared in the manufacturing and marketing of several products in a product line are called joint costs. Answer: True Rationale: Joint costs are costs incurred in the production and marketing of multiple products within a product line, which are shared among those products based on a common production process or marketing effort. 30. Escalator pricing and price shading are two examples of cost-oriented pricing tactics. Answer: False Rationale: Escalator pricing is an example of a cost-oriented pricing tactic; price shading is an example of a demand-oriented pricing tactic. 31. Many businesses find recessions to be an excellent time to build market share through the use of price shading. Answer: False Rationale: Recessions are an excellent time to build market share through value-based pricing, bundling, and unbundling. MULTIPLE CHOICE 1. The marketing manager of Icruise.com (a travel Web site targeted to consumers who want a luxury vacation) finds that the firm can gain market share and become the industry leader if it slashes prices by 50 percent during the month of December. However, the VP of finance is committed to reporting a 25 percent return on investment at all times. This conflict illustrates: A. a need to eliminate low-profit products. B. a lack of corporate concentration on the marketing concept. C. how pricing operates in a mature marketplace. D. the need for trade-offs in pricing objectives. E. how target markets can be ignored. Answer: D Rationale: Different individuals in an organization may have pricing objectives that are not mutually compatible and will involve trade-offs. 2. After establishing pricing goals, managers should estimate total revenue at a variety of prices. Next, they should _____. Only after performing this task are they are ready to estimate how much profit and how much market share can be earned at each possible price. A. choose the ROI target B. determine corresponding costs for each price C. estimate industry supply D. implement pricing segmentation E. establish geographic pricing heuristics Answer: B Rationale: Managers will need to know costs to determine profit. 3. Which of the following is a pricing policy whereby a firm charges a high introductory price, often coupled with heavy promotion? A. Penetration pricing B. Price skimming C. Price capping D. Profit pricing E. Price maximization Answer: B Rationale: This is the definition of price skimming, which is sometimes called a “market-plus” approach to pricing because is denotes a high price relative to the prices of competing products. 4. A 16-ounce bottle of Prairie Herb vinegar sells for $4.95, and a 16-ounce bottle of Heinz vinegar costs $1.05. Prairie Herb vinegar is new to the market, perceived to be of higher quality, and provides a unique flavor to foods even though it is used in the same way as Heinz vinegar. Prairie Herb vinegar is most likely using a _____ policy. A. penetration pricing B. status quo pricing C. price skimming D. bundling cost pricing E. geodemographic pricing Answer: C Rationale: Price skimming is common for products in the introductory stage of their product life cycle. 5. In which of the following countries is Procter & Gamble MOST likely to sell razor blades using a penetration pricing strategy? A. the United States B. France C. Bangladesh D. Japan E. Canada Answer: C Rationale: Sometimes multinational firms will follow a skimming strategy in developed countries and a penetration strategy in developing countries. 6. A shortage of blood for transfusions for injured animals has resulted in the introduction of a synthesized product called Oxyglobin, which can be used effectively as a blood replacement. The manufacturer of the product has put a high price on the product in order to recoup its research and development costs. The manufacturer of Oxyglobin is using a _____ policy. A. price banding B. penetration pricing C. price lining D. bundling costs E. price skimming Answer: E Rationale: Price skimming is a pricing policy whereby a firm charges a high introductory price. 7. The price skimming strategy is sometimes called a “market-plus” approach to pricing because it denotes a high price relative to the prices of competing products. This strategy works best when: A. competition is abundant. B. revenues are equal to expenses. C. supply is greater than demand. D. production capacity is large and flexible. E. The product is perceived as having unique advantages. Answer: E Rationale: Companies often use this strategy for new products when the product is perceived by the target market as having unique advantages. 8. When the Mosquito Magnet was introduced, it was designed to rid the immediate area of mosquitoes and other annoying insects. The technology for the Mosquito Magnet had taken years to develop. It is a patented grill-like apparatus that emits carbon dioxide to attract bugs to a fan that draws them into the device where they die. What type of pricing policy would you recommend the company use to introduce this product to the market? A. Status quo pricing B. Penetration pricing C. Price skimming D. Flexible pricing E. Leader pricing Answer: C Rationale: The price skimming strategy will recoup the research and development costs quickly. Also, patents will limit or prohibit direct competition. 9. For which of the following situations would a price skimming strategy be most appropriate? A. The addition of a new comic book series with a gay protagonist B. The introduction of a new brand of bottled water C. The elimination of demand for low-wattage light bulbs D. The introduction of a unique, roomy automobile model that has extremely low energy and fuel costs E. The introduction of a Barbie Olympic champion doll by Mattel and the International Olympic Committee Answer: D Rationale: The automobile will justify a price skimming strategy because the manufacturer will need to recoup research and development costs, and it will take several years for the competition to catch up. 10. The DCS Stainless Steel Gas Grill for outside cooking costs $3,995. The market for a grill that could easily replace a kitchen range is limited even though a lot of people have seen articles about this grill in cooking magazines and in the cooking section of newspapers. There is no potential competitor for this grill. The _____ strategy is probably best. A. price skimming B. penetration pricing C. status quo D. cost bundling E. price lining Answer: A Rationale: Like products in the introductory stage of the product life cycle, this grill has no competition. 11. When a firm introduces a new product at a relatively low price because it hopes to reach the mass market, it is following a _____ strategy. The low price is designed to capture a large share of a substantial market and produce lower production costs. A. penetration pricing B. price-insensitive demand C. price skimming D. price elasticity E. cost bundling Answer: A Rationale: Penetration pricing means charging a relatively low price for a product in order to reach the mass market. 12. Marketers must take care when using _____ since a lower price often signals to consumers that product quality is also low. A. price skimming B. status quo pricing C. penetration pricing D. unbundling E. cost sharing Answer: C Rationale: Penetration pricing uses low prices to gain market share. 13. The market for turkey products is large. If a major producer of turkeys were to introduce a boneless fresh turkey wrapped around savory dressing, most of the large market for this new product would be aware of its existence. The market is price sensitive, and there is some potential competition. The appropriate strategy would be: A. price skimming. B. penetration pricing. C. status quo. D. cost bundling. E. price lining. Answer: B Rationale: The market for the new product is price sensitive and has greater competitive pressure. 14. Jones Soda Company and Big Sky Brands have introduced Jones Soda Carbonated Candy, a candy that delivers a blast of the most popular Jones Soda flavors along with an oddly enjoyable tongue-tingling sensation. Which pricing strategy would be appropriate if the company wants to convince price-sensitive consumers to try it and not buy some other brand? A. Price lining B. Price fixing C. Status quo pricing D. Penetration pricing E. Price skimming Answer: D Rationale: Consumers are price sensitive in this market. 15. Pharmacies are a new addition to Sam’s Clubs. They could exert a greater influence on the marketplace for prescription drugs than their newness indicates. Sam’s has a stated philosophy of marking up merchandise a maximum of 14 percent. When that philosophy is applied to prescription drugs, especially generics, warehouse club prices can be dramatically lower than those of conventional drugstores, supermarkets, or discount store pharmacies. Sam’s is using a _____ strategy to convince consumers to use its pharmacies rather than its competitors. A. penetration pricing B. price-insensitive demand C. price skimming D. price elasticity E. cost bundling Answer: A Rationale: When a firm introduces a new product at a relatively low price because it hopes to reach the mass market, it is following a penetration pricing strategy. The low price is designed to capture a large share of a substantial market and produce lower production costs. 16. A penetration strategy tends to be effective in a price-sensitive market. Thus, one of the purposes of penetration pricing is to: A. recoup product development costs quickly. B. discourage competitors from entering the market. C. produce a large margin of profit per unit. D. develop exclusive distribution. E. attract the price-insensitive buyer who demands the latest in technology. Answer: B Rationale: A low price will mean a low profit margin and will only be attractive if a large volume of business can be seized. The first company on the market that uses penetration pricing has a great advantage. 17. A penetration pricing strategy tends to be most effective: A. when demand is relatively inelastic. B. under unitary conditions. C. in price-sensitive markets. D. when the company can only perform small production runs. E. if unit costs are high. Answer: C Rationale: Penetration pricing is the logical choice given an elastic demand curve. 18. Penetration pricing means charging a relatively low price for a product as a way to reach the mass market. The low price is designed to capture a large share of a substantial market. Thus, penetration pricing: A. tends to be more effective in a less price-sensitive market. B. tempts competitors to enter the market. C. provides a large profit per unit sold. D. recoups product development costs quickly. E. tends to lower production costs. Answer: E Rationale: The low price is designed to capture a large share of the market, resulting in lower production costs. Production costs are lowered because of economies of scale in production. 19. A firm charging a price identical to or very close to the competition’s price is using a _____ strategy. A. differentiation pricing B. penetration pricing C. preemptive pricing D. status quo pricing E. leader pricing Answer: D Rationale: Status quo pricing is also called meeting the competition or going rate pricing. 20. JCPenney sends representatives to shop at similar retailers to make sure it is charging comparable prices for its products. JCPenney probably uses a _____ strategy. A. leader pricing B. preemptive pricing C. status quo pricing D. flexible pricing E. functional pricing Answer: C Rationale: Status quo pricing means meeting the competition. 21. State laws that put a lower limit on wholesale and retail prices are called _____. In states that have these laws, selling below cost is illegal. A. unfair trade practice acts B. price floor laws C. protectionism acts D. transparency laws E. price edicts Answer: A Rationale: Unfair trade practice acts are laws that prohibit wholesalers and retailers from selling below cost. 22. States developed unfair trade practice acts to: A. enforce the Sherman Act that makes bait pricing illegal. B. prevent oligopoly leaders from getting together and fixing prices at the highest the market will bear. C. establish penalties for companies that break the Clayton Act by engaging in predatory pricing. D. make sure that all pricing policies are equitable. E. protect small local firms from giant companies that operate efficiently on razor-thin profit margins. Answer: E Rationale: Unfair practice acts protect small businesses. 23. In 2008, United Airlines and American Airlines disclosed settlements in a class-action lawsuit over allegations of airfreight price fixing. This means the companies: A. tried to charge fees for airfreight that were below costs. B. charged customers different amounts for the same shipments. C. agreed on the price they would charge customers for airfreight. D. used uniform geographic pricing. E. created an artificial demand for shipping. Answer: C Rationale: Price fixing is an agreement between two or more firms on the price they will charge for a product. 24. South Africa’s Competition Commission accused South African Airways of conspiring with its partner, Germany’s Lufthansa, to set prices on flights between Cape Town, Johannesburg, and Frankfurt. As a result, the two airlines were charged with: A. price discrimination. B. price fixing. C. bait pricing. D. unfair trade practices. E. channel control pricing tactics. Answer: B Rationale: Price fixing is an agreement between two or more firms on the price they will charge for a product. 25. Which of the following prohibits any firm from 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. Sherman Act B. Federal Trade Commission Act C. Food and Drug Administration Act D. Anti-Discrimination Act E. Robinson-Patman Act Answer: E Rationale: The Robinson-Patman Act also makes it illegal for a seller to offer two buyers different supplementary services and for buyers to use their purchasing power to force sellers into granting discriminatory prices or services. 26. Acme Lawnmowers sells its mowers to retailers at different prices, depending on whether they are independent stores or members of a national chain. It uses: A. unfair trade practices. B. price fixing. C. price discrimination. D. predatory pricing. E. bait pricing. Answer: C Rationale: Price discrimination occurs when sellers charge different customers different prices for the same products. 27. All of the following elements must be present for a pricing practice to be considered discriminatory under the Robinson-Patman Act EXCEPT: A. The seller must charge different prices to different customers for the same product. B. The seller must make two or more actual sales within a reasonably short time. C. The transaction must occur in interstate commerce. D. The products sold must not be commodities. E. There must be significant competitive injury. Answer: D Rationale: The products sold must be commodities or other tangible goods. 28. The practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market is called: A. price discrimination. B. predatory pricing. C. price fixing. D. price manipulation. E. anti-competitive pricing. Answer: B Rationale: This is the definition of predatory pricing. Firms using such pricing charge very low prices, and once competitors have been driven out; the firm raises its prices. 29. When Microsoft introduced its Zune MP3 player, many people thought it would capture the MP3 player market by pricing its product so low that a smaller competitor, like the Apple iPod, would be unable to compete. If Microsoft had used this approach, it would have been would be guilty of: A. predatory pricing. B. unfair trade practices. C. channel manipulation pricing. D. price fixing. E. price discrimination. Answer: A Rationale: Predatory pricing is the practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market. 30. After managers understand both the legal and the marketing consequences of price strategies, they should set a _____ price––the general level at which a company expects to sell a good or service. A. functional B. zone C. demand D. leader E. base Answer: E Rationale: One the base price is set then the marketer fine-tunes it using discounts, allowances, rebates, and value-based pricing. 31. Toyota periodically offers customers _____, allowing purchasers to borrow money to pay for new cars without incurring an interest charge. A. markdown money B. zero percent financing C. promotional allowances D. make-up allowances E. leader pricing reductions Answer: B Rationale: This tactic creates a huge increase in sales—but not without cost to the automakers. 32. All of the following are tactics for fine-tuning the base price EXCEPT: A. functional discounts. B. cash discounts. C. rebates. D. quality discounts. E. quantity discounts. Answer: D Rationale: Additional tactics include seasonal discounts, promotional allowances, zero-percent financing, and value-based pricing. 33. Last year, a single infield box ticket for an Atlanta Braves baseball game cost $40, but fans who bought a season pass for the same seat got a reduced price. This $40 price was a _____ price. A. base B. zone C. demand D. channel leader E. functional Answer: A Rationale: The base price is the general price level at which a company intends to sell its product. 34. When a buyer pays a lower price for buying multiple units or above a specified dollar amount for a single order, the buyer is receiving a _____ discount. A. promotional B. quantity C. frequent buyer D. functional E. cumulative Answer: B Rationale: A quantity discount is a price reduction offered to buyers buying in multiple units or above a specified dollar amount. 35. Redline Editorial Services sent a $1,000 invoice to a customer for copyediting a booklet. According to the terms of the invoice, the customer would receive a 3 percent discount on the invoice price if the invoice was paid within 15 days. This is an example of a: A. Quantity discount. B. Cash discount. C. Rebate. D. Functional discount. E. Promotional allowance. Answer: B Rationale: This is the definition of a cash discount. 36. When the salesperson from Affiliated Food, Inc., a grocery distributor, calls on a grocery store, she is authorized to offer a 15 percent discount from the list price in recognition of activities (such as unpacking items and stocking shelves) that retailers perform for the distributor. This 15 percent discount is a: A. quantity discount. B. promotional allowance. C. functional discount. D. seasonal discount. E. channel allowance. Answer: C Rationale: A functional, or trade, discount is a discount to wholesalers and retailers for performing channel functions. 37. Ace Hardware’s spring snow blower sale is an example of which of the following pricing tactics? A. Quantity discount B. Seasonal discount C. Temporal discount D. Promotional allowance E. Functional discount Answer: B Rationale: A seasonal discount is a price reduction for buying merchandise out of season. 38. A(n) _____ discount is a deduction from list price that applies to the buyer’s total purchases made during a specific period. A. cumulative quantity B. noncumulative quantitative C. functional D. cash E. integrated Answer: A Rationale: This is the definition of a cumulative quantity discount. 39. Which type of quantity discount is a deduction from the list price that applies to a single order? A. Base discount B. Cumulative discount C. Noncumulative discount D. Cash discount E. Functional discount Answer: C Rationale: A noncumulative discount applies to one order and is intended to encourage orders in large quantities. 40. Quantity discounts are most often used to: A. reward the buyer who pays in cash. B. encourage buying in multiple units. C. increase supply for a specific raw material. D. reward a channel intermediary for performing some service. E. shift the storage function backward to the supplier. Answer: B Rationale: Quantity discounts encourage wholesalers or retailers to buy in larger amounts. 41. An Internet picture frame manufacturer offers retailers reduced prices on any combination of size or style frames purchased. The discount is shown as they shop and adjusted as the quantity of frames purchased increases. What common form of purchase discount is the frame manufacturer using? A. Rebate B. Cash discount C. Quantity discount D. Promotional allowance E. Functional discount Answer: C Rationale: Quantity discounts offer lower prices for buying in multiple units or above a specified dollar amount. 42. A discount off the base price to customers who pay immediately, or within a specified time period, is called a: A. functional discount. B. quantity discount. C. base discount. D. cash discount. E. promotional allowance. Answer: D Rationale: A cash discount is a price reduction offered to a consumer, an industrial user, or a marketing intermediary in return for prompt payment of a bill. Prompt payment saves the seller carrying charges and billing expenses and allows the seller to avoid bad debt. 43. When a channel intermediary is compensated for the ordinary services and tasks performed within the channel of distribution, the compensation usually comes in the form of a discount from base price. This discount is called a: A. seasonal discount. B. promotional allowance. C. cumulative or noncumulative quantity discount. D. functional (or trade) discount. E. rebate or refund. Answer: D Rationale: A functional, or trade, discount is a discount to wholesalers and retailers for performing channel functions. 44. A _____ is a price reduction that shifts the storage function forward to the purchaser and enables manufacturers to maintain steady production year-round. A. functional discount B. base allowance C. promotional allowance D. quantity discount E. seasonal discount Answer: E Rationale: A seasonal discount is a price reduction for buying merchandise out of season. 45. Apple’s “Back to School” program offered students who purchased an iMac computer and an iPod Touch MP3 player a $250 refund. The $250 check was essentially a: A. rebate. B. reciprocal allowance. C. cash discount. D. functional discount. E. trade promotion. Answer: A Rationale: Rebates are cash refunds. 46. Hunter’s Alley is a chain of stores targeted to people who are proud of their National Rifle Association memberships. It has agreed to set up a special display of Swartklip ammunition near its rifle and shotgun aisles, and also to run an advertisement in newspapers in communities where its stores are located. Swartklip has agreed to supply the display material free and to pay for half the cost of the advertisement. This is an example of a: A. bundled pricing tactic. B. functional discount. C. promotional allowance. D. quantity discount. E. direct allowance. Answer: C Rationale: A promotional allowance may be used to offer free goods or displays to a retailer in return for promotion of a manufacturer’s products, or it may pay for some or all of the advertising costs. 47. _____ are cash refunds given for the purchase of a product during a specific period. A. Rebates B. Loss leaders C. Reciprocal allowances D. Demand discounts E. Promotional allowances Answer: A Rationale: This is the definition of a rebate. 48. _____ occurs when a firm is customer driven and seeks to understand the attributes customers want in the goods and services they buy and the value of those attributes to customers. Thus, the price of the product is set at a level that seems to the customer to be a good price compared with the prices of other options. A. Value-based pricing B. Noncumulative pricing C. CRM pricing D. Market concept pricing E. Price bundling Answer: A Rationale: Instead of figuring prices based on costs or competitors’ prices, value-based pricing starts with the customer, considers the competition, and then determines the appropriate price. 49. With value-based pricing: A. the firm is sales driven. B. the firm is both customer driven and competitor driven. C. increased profitability for wholesalers will increase the number of services they are willing to perform. D. consumers are more concerned about price than quality. E. additional long-term costs to manufacturers will increase. Answer: B Rationale: The basic assumption is that the firm is customer driven, seeking to understand its customers. Because it is unlikely to be operating as a monopoly, it must also pay attention to what its competitors are doing. 50. One pharmaceutical manufacturer did not price a new antiulcer drug by adding up the costs of developing and manufacturing the medication and tacking on the amount of profit it wanted to make. Instead, the company justified a higher price than it might otherwise have been able to get from medical insurers by using studies that showed the new drug could help patients avoid expensive surgery and save the insurance companies money. The pharmaceutical company used: A. value-based pricing. B. noncumulative pricing. C. CRM pricing. D. price bundling. E. market concept pricing. Answer: A Rationale: Value-based pricing occurs when a firm is customer driven and seeks to understand the attributes customers want in the goods and services they buy and the value of those attributes to customers. Thus, the price of the product is set at a level that seems to the customer to be a good price compared with the prices of other options. 51. Sometimes managers price their products too low, resulting in a loss of company profits. One reason this happens is that: A. managers attempt to buy market share through aggressive pricing, but the cuts are quickly met by competitors, which wipe out any gain in market share. B. consumers tend to equate lower prices with low-quality goods, and they are never able to regain that lost market share. C. price-skimming strategies only work in the short-term, and always eventually result in lower profits. D. most managers simply lack good business sense, especially in regard to finances. E. all of the above are reasons. Answer: A Rationale: Another reason is that managers have a natural tendency to want to make decisions that can be justified objectively, but companies often lack hard data to make good decisions. 52. A price tactic that requires the purchaser to absorb the freight costs from the shipping point is called _____. In this case, the farther buyers are from sellers, the more they pay, because transportation costs generally increase with the distance merchandise is shipped. A. basing-point pricing B. zone pricing C. uniform delivered pricing D. freight absorption pricing E. FOB origin pricing Answer: E Rationale: This is the definition of FOB origin pricing. 53. The term FOB is an acronym for: A. free on board. B. fee on buyer. C. first on board. D. freight on board. E. freight origin buyer. Answer: A Rationale: FOB means “free on board” and is called FOB origin pricing or FOB shipping point. It is a price tactic that requires the buyer to absorb the freight costs from the shipping point. 54. With _____, the seller pays the actual freight charges and bills every purchase with an identical, flat freight charge. A. uniform delivered pricing B. zone pricing C. FOB origin pricing D. freight absorption pricing E. basing-point pricing Answer: A Rationale: If the marketer wants total costs, including freight, to be equal for all purchasers of identical products, the firm will adopt uniform delivered pricing, or “postage stamp” pricing. 55. Uniform delivered pricing enables a firm to: A. charge each customer the actual cost of shipping its products. B. stir up price competition between buyers. C. offer every purchaser an identical, flat freight charge. D. discriminate in favor of buyers that are geographically closer to the seller. E. charge each customer its fair share of the cost of shipping. Answer: C Rationale: With uniform delivered pricing, all customers will pay the same price regardless of their location. 56. Uniform delivered pricing: A. creates no geographic price discrimination. B. is sometimes called “postage stamp” pricing. C. is prevalent in the steel, cement, corn oil, and lead industries. D. is common where freight costs are a large portion of total costs. E. is calculated from regional base points. Answer: B Rationale: With uniform delivered pricing, all customers pay the same amount for freight regardless of location. 57. L.L. Bean charges all customers the same flat freight rate. It uses: A. FOB origin pricing. B. zone pricing. C. freight absorption pricing. D. basing-point pricing. E. uniform delivered pricing. Answer: E Rationale: In uniform delivery pricing, all customers are charged the same flat freight rate. 58. All of the following are geographic pricing methods EXCEPT: A. latitude pricing. B. FOB origin pricing. C. zone pricing. D. freight absorption pricing. E. basing-point pricing. Answer: A Rationale: Another geographic pricing method is uniform delivered pricing. 59. Claxton Bakery recently began selling its fruitcakes online. If Claxton wants a simple pricing system that allows for different shipping charges depending on geographic segment or region, the company should use _____ pricing. A. two-part B. uniform delivered C. freight absorption D. flexible E. zone Answer: E Rationale: Zone pricing sets freight prices according to geographic areas. 60. An Alabama-based catalog retailer sells fireplace equipment such as screens and andirons. Its customers in New England are charged one shipping rate, and customers west of the Rocky Mountains are charged a different rate. Customers in the midwestern states are charged yet another rate. What kind of geographic pricing is the catalog retailer using? A. FOB origin pricing B. FOB factory C. Zone pricing D. Freight absorption pricing E. Uniform delivered pricing Answer: C Rationale: Zone pricing is a modification of uniform delivered pricing that divides the United States into segments or zones and a charges a flat rate to all customers in that zone. 61. If a company decides to divide its market area into segments or regions and charge a flat rate for freight to all customers in a given region, the company is using _____ pricing. A. zone B. uniform delivered C. freight absorption D. FOB origin E. basing-point Answer: A Rationale: Zone pricing divides the total market into segments or zones and charges a flat freight rate to all customers in a given zone. 62. Dancing Pigs Bar-B-Que Sauce is a product of the Bar-B-Q Shop located in Memphis, Tennessee. It’s also sold online for $88 a case, including shipping and handling. The Bar-B-Q shop covers the cost of shipping and uses _____ pricing policy. A. penetration B. skimming C. zone D. basing-point E. freight absorption Answer: E Rationale: In freight absorption pricing, the seller pays the actual freight charges and does not pass the charges along to the customer. 63. Trade-ins often go hand-in-hand with: A. price skimming. B. professional services pricing. C. flexible pricing. D. single-pricing. E. penetration pricing. Answer: C Rationale: Trade-ins and flexible pricing often go hand-in-hand. 64. If the seller pays all or part of the actual freight charges and does not pass them on to the buyer, the seller is using _____ pricing. A. freight absorption B. uniform delivered C. zone D. FOB origin E. basing-point Answer: A Rationale: This is the definition of freight absorption pricing, and the manager may use this tactic in intensely competitive areas or as a way to break into a new market. 65. If a manufacturer designates a shipping point from which to calculate all freight charges and charges customers the freight costs from that point (even if the goods were shipped from another location), the manufacturer is using _____ pricing. A. freight absorption B. uniform delivered C. zone D. FOB origin E. basing-point Answer: E Rationale: With a basing-point price, the seller designates a location as a basing point and charges all buyers the freight costs from that point. 66. A national manufacturer of car parts has six warehouses and has a pricing policy of charging freight from the closest warehouse to the customer, regardless of where parts are shipped from. For instance, if the customer is in Vancouver, British Columbia, the closest warehouse to the customer is in Seattle, Washington. If the ordered car part actually comes from the Alabama warehouse, the customer still pays freight from Seattle. The manufacturer uses _____ pricing. A. FOB origin B. uniform delivered C. zone D. basing-point E. freight absorption Answer: D Rationale: In basing-point pricing, customers pay freight from a set base point, regardless of the location from which the goods are shipped. 67. Which of the following is a price tactic that offers all goods and services at the same price (or perhaps two or three prices)? A. Primary pricing B. Uniform-price tactic C. Single-price tactic D. Constant-pricing E. EDLP Answer: C Rationale: Single-price selling removes price comparisons from the buyer’s decision-making process. 68. The 99-Center is a retail store where all of the merchandise is priced at 99 cents. This retailer uses: A. a single-price tactic. B. flexible pricing. C. price lining. D. price bundling. E. leader pricing. Answer: A Rationale: The single-price tactic offers all goods and services at the same price (or perhaps two or three prices). 69. Single-price selling: A. removes price comparisons from the buyer’s decision-making process. B. does not benefit the retailer. C. is most effective when used during an inflationary period. D. encourages clerical errors. E. is accurately described by none of these choices. Answer: A Rationale: A single-price tactic offers all goods and services at the same price (or perhaps two or three prices). 70. The Used Car Mall lets salespeople charge different customers different prices for essentially the same automobile depending on how good the customer is at negotiating price. It uses: A. two-part pricing. B. an illegal pricing policy. C. flexible pricing. D. bait and switch practices. E. price maintenance. Answer: C Rationale: Flexible pricing means selling essentially the same product to different customers for different prices. 71. The tactic that allows different customers to pay different prices for essentially the same merchandise bought in equal quantities is called _____. It is often found in the sale of shopping goods, specialty merchandise, and most industrial goods except supply items. A. zoning (or basing) pricing B. illegal price fixing C. price maintenance D. psychological (or odd–even) pricing E. flexible (or variable) pricing Answer: E Rationale: Car dealers, many appliance retailers, and manufacturers of industrial installations, accessories, and component parts commonly follow this practice. 72. All of the following are potential disadvantages of a flexible pricing policy EXCEPT: A. it causes inconsistent profit margins. B. it enables a seller to close a sale with a price-conscious customer. C. it causes ill will among customers if they discover that other customers are paying lower prices. D. it enables salespeople to automatically lower the price to make a sale. E. it can spark a price war with competitors. Answer: B Rationale: Flexible pricing may allow a salesperson to negotiate with a price-sensitive customer, which is an advantage. The other answer choices are disadvantages. 73. Suppose an advertising agency develops logos for its clients. It charges $10,000 per logo––whether the team that’s working on the logo takes 30 minutes or days to design the logo. Agency management explain that clients pay for the agency’s expertise and creativity, not the amount of time it literally takes to develop a logo. This pricing approach is known as: A. professional services pricing. B. potential (or base) pricing. C. price maintenance. D. psychological pricing. E. flexible (or variable) pricing. Answer: A Rationale: Professional services pricing is used by people with lengthy experience, training, and often certification by a licensing board. 74. Which of the following statements is NOT true with regard to trade-ins? A. Flexible pricing and trade-ins often go hand in hand. B. If a trade-in is involved, the consumer must negotiate two prices, one for the new product and one for the existing product. C. Research found that trade-in customers tend to care more about the trade-in value they receive than the price they pay for the new product. D. About 95 percent of all new car sales involve a trade-in. E. On average, customers who trade-in an automobile when purchasing a new one end up paying more than customers who simply buy a new car from a dealer. Answer: D Rationale: A little over one half (57 percent) of all new car sales involve a trade-in. 75. Lea Kirkham is a physician. She charges each patient the same price for a physical examination, whether the procedure takes 10 minutes or a full hour. Which pricing policy is Dr. Kirkham following? A. Professional services B. Potential (or base) C. Price maintenance D. Psychological E. Flexible (or variable) Answer: A Rationale: Professional services pricing is used by people with lengthy experience, training, and often certification by a licensing board. 76. Often a seller will establish a series of prices for a family of merchandise items. There may be several different models at specific price points but no prices in between. This policy is called: A. price lining. B. price bracketing. C. family pricing. D. variable pricing. E. price bundling. Answer: A Rationale: Price lining is the practice of offering a product line with several items at specific price points. 77. At the Greenville Florist, there are four different prices for funeral bouquets. The smallest bouquet sells for $30; there is also a $40 version and a $75 version. For those who want to express their grief through the purchase of a dramatic floral arrangement, the florist also offers a $150 version. The owner of the florist shop has chosen price lining because it will: A. enable the shop to carry a larger total inventory. B. maintain all of the product line at the same stage in the product life cycle. C. confuse customers and allow salespeople to sell more of the expensive models. D. reach several different target market segments. E. thwart competitors that are trying to sell similar products. Answer: D Rationale: Price lining allows a retailer to appeal to several different target markets. It is not an uncommon strategy, and competitors probably use it. It should not affect inventory overall and will not confuse customers. 78. Price lining presents certain drawbacks to sellers, especially if: A. costs are continually rising. B. competition suddenly increases. C. profit margins are lowered. D. demand is rising. E. costs are flat. Answer: A Rationale: Price lining can be risky for sellers if costs are continually rising. 79. Why is price lining a valuable tactic for marketing managers? A. Price lining results in a greater inventory carrying charge. B. It reduces confusion for its customers. C. A company that uses price lining has more price markdowns and greater markup. D. The price lining strategy allows the company to gain brand loyalty from its targeted segments. E. Price lining tends to confuse customers and requires them to listen closely to the salesperson’s pitch. Answer: B Rationale: It reduces confusion for both the salesperson and the consumer. 80. The owner of a neighborhood hardware store has decided to sell a set of three padlocks for $5. He hopes the below-cost price for the locks will attract current and new customers who will also buy regularly priced items. The owner is encouraging store patronage through: A. deceptive pricing. B. incentive pricing. C. pricing lining. D. cumulative pricing. E. leader pricing. Answer: E Rationale: Leader pricing involves selling a product near or even below cost to attract business. 81. Leader pricing is used to: A. attract customers to a store so they can be persuaded to buy a more expensive product instead. B. bundle products together for sale. C. attract customers to the store so they will buy other products in addition to the leader product. D. price products at odd-numbered amounts to stimulate demand. E. maintain a status quo pricing strategy. Answer: C Rationale: Leader pricing involves selling a product near or even below cost in the hope that shoppers will buy other items once they are in the store. 82. Every week, Keller’s Grocery runs a weekly ad in the newspaper touting its sale prices on a number of products. For example, this week the store is selling cherries for $1.50/pound and boneless chicken breasts for 99 cents/pound. Keller’s sells these products at a below-market price to lure customers into the store in hope that while they are in the store to buy chicken and cherries, they will also buy other grocery items that have a much higher markup. The store is using: A. price lowballing. B. price maintenance. C. price lining. D. leader pricing. E. functional pricing. Answer: D Rationale: Leader pricing involves selling a product near or even below cost in the hope that shoppers will buy other items once they are in the store. 83. _____ tries to get customers into the store with misleading advertising and then uses high-pressure selling to persuade the consumer to buy something else more expensive. A. Functional pricing B. Bait pricing C. Sales-oriented pricing D. Production-oriented pricing E. Decoy pricing Answer: B Rationale: The Federal Trade Commission considers bait pricing a deceptive act and has banned its use in interstate commerce. Most states also ban bait pricing, but sometimes enforcement is lax. 84. Cashtown Used Cars aired a radio spot announcing, “Today only, previously owned cars are only $200!” Meghan just wanted some kind of in-town transportation. When she went to Cashtown, the salesperson said, “We have only one $200 car left, and it’s not the kind of car I’d want my wife to drive. However, we do have some great deals on newer models.” Meghan went home with an $8,000 used car. Cashtown is probably practicing: A. decoy pricing. B. deal pricing. C. functional pricing. D. bait pricing. E. price pressuring. Answer: D Rationale: Bait pricing tries to get customers into the store with misleading advertising and then uses high-pressure selling to persuade the consumer to buy something else more expensive. 85. Which type of pricing means pricing at odd-numbered prices to connote bargains and pricing at even-numbered prices to imply quality? A. Bait pricing B. Price bundling C. 1–2 pricing D. Odd–even pricing E. Two-part pricing Answer: D Rationale: This describes odd–even pricing (or psychological pricing). 86. If a marketer decides to price goods at odd-numbered dollar amounts to denote bargains and at even-numbered amounts to denote quality, he or she is using: A. two-part pricing. B. price lining. C. price bracketing. D. decoy pricing. E. psychological pricing. Answer: E Rationale: Odd–even pricing is also called psychological pricing. 87. Leader pricing is also called: A. psychological pricing. B. follower pricing. C. frontrunner pricing. D. price bundling. E. loss-leader pricing. Answer: E Rationale: Leader pricing is also called loss-leader pricing. 88. Marketing two or more products in a single package for a special price is known as: A. price bundling. B. two-part pricing. C. psychological pricing. D. price lining. E. family pricing. Answer: A Rationale: This is the definition of price bundling. 89. AMC Theaters offers customers a package that includes two movie tickets, two small drinks, and one small popcorn all priced together at $29.99. this pricing technique is called: A. price lining. B. two-part pricing. C. horizontal pricing. D. price bundling. E. bait pricing. Answer: D Rationale: Marketing two or more products in a single package for a special price is called price bundling. 90. The Comcast Triple Play package includes cable television, Internet, and telephone service for a price significantly lower than the cost of the three services priced separately. This is an example of: A. multiple unit pricing. B. professional services pricing. C. price lining. D. price bundling. E. two-part pricing. Answer: D Rationale: Marketing two or more products in a single package for a special price is called price bundling. 91. In a catalog targeted to people who like to bake, customers can buy a single yeast bread mix designed specifically to be baked in bread machines for $3.95 each or 12 different mixes for $37.50. This is an example of: A. price bundling. B. CRM pricing. C. psychological pricing. D. penetration pricing. E. status quo pricing. Answer: A Rationale: The 12 items sold together are priced less expensively than if purchased separately. 92. Reducing the services that come with the basic product is called: A. Demarketing. B. Contraction. C. two-part pricing. D. retroactive pricing. E. Unbundling. Answer: E Rationale: Unbundling is done instead of raising the price. 93. Tickets to a combined amusement park and water slide were $49 for the day. Then the company gave customers the option to purchase tickets for either the amusement park or the water slide for $18. To help keep costs in line, the park management also began charging its customers a small parking fee. Initially, the cost of parking was figured into the $49 price. The amusement park is using: A. price lining. B. potential (or base) pricing. C. Unbundling. D. professional services pricing. E. price maintenance. Answer: C Rationale: Reducing the bundle of services that comes with the basic product is called unbundling. 94. Louisiana State University (LSU) football season ticket holders have to pay a fee (also known as a “donation”) to the LSU Foundation every January, which is not deemed to be part of the ticket price. They pay for their tickets later in the year for the next football season. The Foundation fee must be paid in order to retain the rights to purchase a season ticket. LSU is using: A. multiple unit pricing. B. professional services pricing. C. price lining. D. price bundling. E. two-part pricing. Answer: E Rationale: Two-part pricing involves two separate charges to consume a single good or service. 95. Consumers sometimes prefer two-part pricing because: A. prices are often perceived as quality indicators. B. consumers like to be in control of costs. C. consumers are uncertain about the number and types of activities they might use at places like an amusement park. D. consumers prefer a limited number of choices. E. prices have little or no psychological influence on most consumers. Answer: C Rationale: This is one of the reasons consumers sometimes prefer two-part pricing. 96. _____ are extra fees paid by consumers for violating the terms of purchase agreements. A. Decoy fees B. Misuse discounts C. Punitive fees D. Consumer penalties E. Financial judgments Answer: D Rationale: This defines consumer penalties. 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. 97. Consumers are required to pay consumer fees because businesses allegedly: A. will sell more if the consumer is unaware of the actual costs. B. suffer an irrevocable revenue loss. C. are required by the federal government to charge this fee. D. avoid additional transactional costs when purchase agreements are violated. E. incur greater fixed costs as a result of the purchase agreement violation. Answer: B Rationale: There is no such federal law that requires charging of a fee. Businesses allege they incur more transactional costs as a result of purchase agreements violations. Fixed costs do not change. 98. Costs that are shared in the manufacturing and marketing of several products in a product line are called: A. joint costs. B. integrated costs. C. fixed costs. D. variable costs. E. combined costs. Answer: A Rationale: This is the definition of joint costs, which are a unique problem in product pricing. 99. Post makes several varieties of cereals. In promoting this product line, Post offers a 50-cents-off coupon that can be used to purchase any of its cereals. Therefore, Post must consider _____ when pricing its cereals. A. joint costs B. differential costs C. bundling costs D. potential (or basing) costs E. factorial costs Answer: A Rationale: Joint costs are costs that are shared in the manufacturing and marketing of several products in a product line. 100. Alissa Dunn is the owner and operator of Dunn’s Best Jams, which she sells at craft festivals. She only makes and sells three types of jams––pecan pie jam, chocolate pie jam, and lemon tart jam. The 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 jam sold. In other words, these costs are: A. derived costs. B. elastic costs. C. joint costs. D. revenue impediments. E. synergistic costs. Answer: C Rationale: Joint costs are costs that are shared in the manufacturing and marketing of several products in a product line. 101. Nestlé Purina sells chicken feed and Wheat Chex, but the sale of one of these products has no known impact on demand for the other. In this case, the two products have a(n) _____ relationship. A. inverse B. neutral C. complementary D. substitute E. negative Answer: B Rationale: Demand for one of the products is unrelated to demand for the other. 102. Best Buy charges customers a 15 percent restocking fee on some returned items. A restocking fee is for putting a returned item back into inventory. This is an example of a: A. bait-and-switch. B. trade-in. C. consumer penalty. D. product absorption strategy. E. price bundle. Answer: C Rationale: Consumer penalties are extra fees paid by consumers for violating the terms of a purchase agreement. 103. If items are _____, an increase in the sale of one good causes an increase in the sale of the other (and vice versa). A. inverse B. neutral C. complementary D. substitute E. negative Answer: C Rationale: This defines a complementary relationship. 104. Kule, Inc. produces three different lines of car racks for transporting large, bulky items. Total company net annual profit = $40,000 Included in the cost of goods sold is $12,000 of annual rent (a fixed cost) that is distributed equally among the three product lines. As a consultant to Kule, will you recommend that it drop the luggage rack line? A. No, dropping the line will actually decrease overall net profits. B. Yes, dropping the line will increase company net profits. C. No, dropping the line will result in increased fixed costs. D. Yes, dropping the line will reduce joint costs. E. Yes, dropping the line will reduce cost of goods sold and increase revenues. Answer: B Rationale: Current net profit is $40,000. Dropping the luggage rack line will increase profit by $10,000 initially, but the fixed rent costs ($4,000) that are being covered by that line will have to be distributed to the other two lines. That means the cost of goods sold for each remaining line will increase by $2,000 (or $4,000 ÷ 2). Cost of goods sold for the Bicycle line will increase to 112,000, resulting in profit of $28,000; cost of goods sold for the Ski line will increase to 142,000, resulting in a profit of $18,000. Total profit will be $46,000, or $6,000 more than if the company kept the Luggage line. Therefore, Kule should drop the line. 105. When using _____, price is not set on the product until the item is either finished or delivered. A. price shading B. escalator pricing C. delayed-quotation pricing D. bid pricing E. two-part pricing Answer: C Rationale: This tactic is used for industrial installations and many accessory items. 106. Delayed-quotation pricing: A. requires the seller to place a later date on the product invoice to help accounts receivable in recording transactions. B. allows the final selling price to reflect cost increases incurred between the time the order is placed and the final delivery takes place, often over a period of years. C. prevents the competitor from submitting an earlier bid. D. requires a seller to submit a bid after the closing date. E. is also known as price-shading bidding. Answer: B Rationale: Delayed-quotation pricing delays the setting of the final price. 107. A(n) _____ allows for price increases based on the cost-of-living index or some other formula. A. consumer penalty B. price shade C. price allowance D. escalator price clause E. elasticity quotient Answer: D Rationale: Escalator pricing is similar to delayed-quotation pricing in that the final selling price reflects cost increases incurred between the time an order is placed and the time delivery is made, but increases based on a formula set at the beginning of the job. 108. Escalator pricing is: A. a demand-oriented pricing tactic. B. similar to delayed-quotation pricing. C. similar to price shading. D. a form of market penetration pricing. E. also called “postage stamp” pricing. Answer: B Rationale: Escalator pricing allows for price increases and delays the setting of the final price. 109. Business-to-business salespeople often use _____ to increase demand for one or more products in a 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 Answer: D Rationale: Price shading is the use of discounts by salespeople to increase demand for one or more products in a line. 110. 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 Answer: C Rationale: The marketing manager would need to use some demand-oriented tactic. Escalator pricing is a cost-oriented tactic. 111. All of the following are strategies to make the demand for a good or service more inelastic EXCEPT: A. reducing consumer awareness. B. cultivating selected demand. C. changing the package design. D. creating a unique offering. E. heightening buyer dependence. Answer: A Rationale: All of the other choices are strategies to make the demand for a good or service more inelastic and will create buyer dependency. 112. For sports marketers, an inelastic demand curve means that 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. Answer: A Rationale: There are several strategies to make demand more inelastic, and choice A is an illustration of the “create unique offerings” tactic. 113. 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 Answer: D Rationale: The other commonly used technique is value-based pricing. 114. 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 Answer: A Rationale: Value-based pricing indicates the consumers are getting value for their money. 115. Two effective pricing tactics that can be used to hold or build market share during a recession 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. Answer: D Rationale: Two effective pricing tactics to hold or build market share during a recession are value-based pricing and bundling. 116. 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. offering help in boosting productivity of suppliers. B. renegotiating contracts. C. setting annual across-the-board cost reduction targets for suppliers. D. improving economies of scale by cutting number of suppliers. E. all of the choices. Answer: E Rationale: Tough tactics like these help keep companies afloat during economic downturns. Art Supplies 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 Michaels, 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 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 Michaels 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. 117. Refer to Art Supplies. Which type of discount is being used to price the tacky glue? A. Noncumulative quantity discount B. Promotional allowance C. Seasonal discount D. Cash discount E. Cumulative quantity discount Answer: A Rationale: A noncumulative quantity discount is a reduction from list price that applies to a single order rather than to the total volume placed during a specific period. 118. 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 Answer: C Rationale: Seasonal discounts are pricing reductions for buying merchandise out of season. 119. 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 Answer: C Rationale: Price lining is the practice of offering a product line with several items at specific price points. 120. Refer to Art Supplies. Michaels was trying to get consumers into the store with the Funky Girls Gel Pens promotion in hope 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. Answer: E Rationale: Leader pricing is an attempt by the marketing manager to attract customers by selling a product near or even below cost in the hope that shoppers will buy other items once they are in the store. 121. 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 Answer: D Rationale: Price bundling is marketing two or more products in a single package for a special price. Apple iPhone Apple, Inc.’s iPhone first 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 eight 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 its then-exclusive U.S. carrier AT&T. On July 11, 2008, Apple, Inc. released the iPhone 3G, which it advertised as being 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 approach succeeded, and over a million iPhone 3Gs were sold during the introductory weekend. In 2011, the iPhone 4S—the fifth generation iPhone—led cellular phone sales with more than 25 million units sold. Several Android-based phones manufactured by Samsung were not far behind, however. 122. Refer to Apple iPhone. When Apple 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 Answer: E Rationale: Price skimming is a pricing policy whereby a firm charges a high introductory price, especially for a heavily promoted product. 123. 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 _____ approach. A. price bracketing B. penetration pricing C. price lining D. price-fixing E. price skimming Answer: B Rationale: Penetration pricing uses a relatively low price to build market share. 124. Refer to Apple iPhone. Samsung recently introduced the Galaxy S III cellular phone, apparently to compete directly with the iPhone 4S. If Samsung checked the price of the iPhone at the Apple Store and leading cellular carrier locations and then set the price of the Galaxy S III 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 Answer: C Rationale: Status quo pricing is basically meeting the price of competition. 125. Refer to Apple iPhone. Best Buy also carries the iPhone. If Best Buy, Apple, and leading cellular carriers meet to agree on a price for the iPhone, they are likely guilty of _____. A. price fixing B. retail price maintenance C. price discrimination D. penetration pricing E. price skimming Answer: A Rationale: Price fixing is an agreement between two or more firms on the price they will charge for a product. 126. Refer to Apple iPhone. Apple has several options available for competing with Samsung and its Galaxy S III phone. If Apple chooses to compete by pricing its 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 Answer: D Rationale: Predatory pricing means charging a very low price for a product with the intent of driving competitors out of business or out of a market 127. Refer to Apple iPhone. HSBC Group is the world’s largest banking group. When the iPhone 3G was released, HSBC considered 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. Answer: E Rationale: A quantity discount applies when customers buy in multiple units or spend above a specified dollar amount. 128. 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 voice mail, 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 Answer: A Rationale: Price bundling means marketing two or more products in a single package for a special price. 129. Refer to Apple iPhone. Consumers who agree to the two-year AT&T service contract are 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. Answer: B Rationale: Consumer penalties are extra fees paid by consumers for violating the terms of a purchase agreement. ESSAY 1. List in order the four steps used to set the right price for a product. Answer: 1. Establish pricing goals. 2. Estimate demand, costs, and profits. 3. Choose a price strategy to help determine a base price. 4. Fine-tune the base price with pricing tactics. 2. What activities occur once the marketing manager has established pricing goals? Why are these activities important? Answer: The marketing manager must first estimate quantity demand levels and elasticity of demand, which allows for an estimate of revenues at a variety of price levels. Next, corresponding costs should be determined for each price. Then the manager can estimate the amount of profit and market share that can be earned at each possible price. Alternative pricing policies can be examined in terms of revenues, costs, and profits. This information becomes the core of the price policy by determining which price can best meet the firm’s pricing goals. 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? Answer: PRICE SKIMMING. This method is sometimes called a “market-plus” approach to pricing because it denotes a high price relative to the prices of competing products. Often companies will use skimming and then lower prices over time. This strategy is successful when (1) the market is willing to buy the product even though it carries an above-average price, (2) when a product is well protected legally, (3) when it represents a technological breakthrough, and (4) when it has in some other way blocked the entry of competitors. As long as demand is greater than supply, skimming is an attainable strategy. PENETRATION PRICING. This method is at the opposite end of the spectrum from skimming. With this method, a firm charges a relatively low price, hoping to reach the mass market in the early stages of the product life cycle. The low price allows the product to penetrate a large portion of the market, resulting in large market share and lower production costs. This strategy is successful when (1) the market is price sensitive, (2) economies of mass production are feasible, and (3) the firm has substantial resources to sustain the short-run losses necessary to obtain penetration. STATUS QUO PRICING. With this method, price is set identical or close to that of the competition. This strategy may be used more often by small firms for survival or ease of use but ignores demand and cost. This strategy can be successful when (1) the firm is comparatively small and (2) the firm needs a safe route to long-term survival. 4. Name one advantage and one disadvantage associated with using each of the three basic pricing methods. Answer: PRICE SKIMMING advantages include (1) quick recovery of product development or educational costs, (2) pricing flexibility that allows subsequent lowering of price, and (3) the ability to market prestige products successfully. Disadvantages include encouragement of competitive entry into the market. PENETRATION PRICING advantages include (1) a tendency to discourage competitive entry, (2) large market share due to high volume sold, and (3) lower production costs resulting from economies of scale. Disadvantages include (1) lower profits per unit, (2) higher volume required to reach the break-even point, (3) slow recovery of development costs, and (4) inability to later raise prices. STATUS QUO POLICIES have the advantage of simplicity. Their disadvantage is that the strategy may ignore demand or cost or both. 5. Describe 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. Answer: VACUUM CLEANER. Skimming could be used because there are innovators and early adopters who would like to be “first” to own the product. It is likely that competition could also follow fairly quickly, further justifying a skimming policy. CHILD’S BLOCKS. Status quo pricing could be used because this type of toy is a mature product with many substitutes. Penetration pricing could be argued if one assumes the producer found manufacturing cost advantages. FAT SUBSTITUTE. Penetration pricing would quickly gain a large market share and is appropriate for a low-cost item. Skimming could be argued if one assumes greater demand than supply for the product. HOME COMPUTER. Penetration pricing is appropriate because of the large amount of competition in this particular market. PERFUME. Skimming would be appropriate because a lower introductory price might reduce the high-prestige perception of the product. 6. Some pricing decisions are subject to government regulation. Name and define three pricing practices that are illegal. Answer: UNFAIR TRADE PRACTICES occur when firms sell below costs. Many state unfair trade practice acts put a lower limit on wholesale and retail prices; wholesalers and retailers must take a minimum percentage markup. PRICE FIXING is an agreement between two or more firms on the price they will charge for a product or service. The Sherman Act and the Federal Trade Commission Act govern price fixing practices. PRICE DISCRIMINATION occurs when a firm sells 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. Price discrimination can also occur if the seller discriminates between buyers in terms of supplementary services provided, or if the buyers use their power to force sellers into discriminatory practices. The Robinson-Patman Act of 1936 prohibits these forms of price discrimination. PREDATORY PRICING is the practice of charging a very low price for a product with the intent of driving competitors out of business or out of the market. This practice is illegal under the Sherman Act and the Federal Trade Commission Act. 7. A base price may be lowered by 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 each type of discount you identify. Answer: QUANTITY DISCOUNTS are offered to buyers who purchase multiple units or above a specified dollar amount. The objectives of the quantity discount include selling large volumes (through noncumulative quantity discounts) and encouraging customer loyalty (through cumulative quantity discounts). CASH DISCOUNTS are price reductions offered to consumers, industrial users, or marketing intermediaries who pay promptly. One objective is to save the seller carrying charges and billing expenses. Another objective is to avoid bad debt. FUNCTIONAL (or TRADE) DISCOUNTS are compensation to wholesalers and retailers for performing channel functions. The objective is to compensate the channel member for services rendered or to encourage additional functions to be performed by the trade. SEASONAL DISCOUNTS are price reductions for buying merchandise out of season. The objectives of seasonal discounts include shifting the storage function forward to the purchaser and enabling a steady manufacturing schedule. 8. Distinguish between a cumulative and a noncumulative discount. Answer: A cumulative quantity discount is a deduction from list price that applies to the buyer’s total purchases made during a specific period; it is intended to encourage customer loyalty. In contrast, a noncumulative quantity discount is a deduction from list price that applies to a single order rather than to the total volume of orders placed during a certain period. It is intended to encourage orders in large quantities. 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. Answer: A promotional allowance is a payment to a dealer for promoting the manufacturer’s products. A promotional allowance is similar to a functional discount as a pricing tool but also serves as a promotional device. Like functional discounts (and other forms of discount), promotional allowances must be made available to all purchasers on essentially the same terms. Examples of promotional allowances include cooperative advertising (in which the manufacturer pays for a portion of retailer-based advertising) or display assistance (in which the manufacturer pays for a special display or provides free goods for the display). 10. What is value-based pricing? What is the basic assumption marketers must make about their markets before implementing a value-based pricing strategy? Answer: Value-based pricing, also called value pricing, is a pricing strategy that has grown out of the quality movement. Instead of figuring prices based on costs or competitors’ prices, it starts with the customer, considers the competition, and then determines the appropriate price. The basic assumption is that the firm is customer driven, seeking to understand the attributes customers want in the goods and services they buy and the value of that bundle of attributes to customers. 11. Discuss the two reasons why managers sometimes price their products too low, thereby reducing company profits. Answer: First, managers attempt to buy market share through aggressive pricing. Usually, these price cuts are quickly met by competitors. Thus, any gain in market share is short-lived, and overall industry profits end up falling. Second, managers have a natural tendency to make decisions that can be justified objectively. Managers, however, often lack the hard data needed to make an accurate assessment of the market and what pricing strategy should be used. Managers tend to make pricing decisions based on easily gathered, short-term focused information, such as costs, sales, market share, and competitors’ prices rather than on long-term profitability. 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. Answer: FOB ORIGIN PRICING. This price tactic requires the buyer to absorb the freight costs from the shipping point. A manager would choose to use FOB origin pricing if he or she is not concerned about total costs varying among the firms’ clients or if freight charges are not a significant pricing variable. UNIFORM DELIVERED PRICING. With this price tactic, the seller pays the actual freight charges and bills every purchaser an identical, flat freight charge. This equalizes the total cost of the product for all buyers, regardless of location. A manager would select this policy if the firm is trying to maintain a nationally advertised price or when transportation charges are a minor part of total costs. ZONE PRICING. This price tactic is a modification of uniform delivered pricing in which the geographic selling area is divided into segments or zones. A flat freight rate is charged to all customers in a given zone, but different rates will apply to each zone. A marketing manager would use this strategy to equalize total costs among buyers within large geographic areas. FREIGHT ABSORPTION PRICING. With this price tactic, the seller pays all or part of the actual freight charges and does not pass these charges along to the buyer. A manager would choose this tactic if competition is extremely intense or if the firm is trying to break into new market areas. BASING-POINT PRICING. This method requires the seller to designate a location as a basing point and charges all buyers the freight cost from that point (regardless of the point from which the goods are actually shipped). This tactic has waned in popularity due to several adverse court rulings. 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. Answer: Geographic pricing policies should be compatible with the total price structure of the firm, so assumptions about the company’s pricing objectives and other pricing policies will affect responses. Additionally, assumptions about competitors’ practices and customs in the industry are important. BUBBLE GUM. In this case, identical retail prices would be sought, so the bubble gum should be delivered at the same price throughout the country. This would result in a pricing policy of uniform delivered pricing or possibly freight absorption pricing if competition is extremely intense. ENGINES. Because engines are large and heavy, transportation costs are an important component of pricing. In this case, FOB origin pricing could be used to put the burden of transportation on the purchasers. This pricing policy could be assumed if there were few competitors in the jet engine business. Otherwise, basing-point pricing would be the most appropriate pricing policy, although this type of pricing is being used less frequently due to adverse court rulings. SPICE. Zone pricing would be appropriate in this case. Because the spices are sold in bulk, it should be assumed that transportation costs are not insignificant. Uniform delivered pricing is not appropriate because there is no heavy competition. FOB origin pricing could be used as well because other pricing aspects of the spice might outweigh the transportation costs. 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 wholly legal. For each tactic, give an example of a specific company, industry, or product that would use the tactic. Answer: SINGLE-PRICE TACTIC means all goods and services are offered at the same price (or perhaps two or three prices). Examples of retailers include One Price Clothing Stores, MATTER, Your $10 Store, and Fashions $9.99. FLEXIBLE PRICING OR VARIABLE PRICING means different customers pay different prices for essentially the same merchandise purchased in equal quantities. Car dealers and many appliance retailers commonly use this method. TRADE-INS and flexible pricing go hand-in-hand. Car dealers are especially associated with trade-ins, but they also occur for other products such as musical instruments, video games, sporting goods, jewelry, and some appliances. PROFESSIONAL SERVICES PRICING is used by people with lengthy experience, training, and often certification by a licensing board. This pricing refers to the charging of an hourly rate or a fee based on some problem solution or performance. Lawyers, physicians, and family counselors are some examples. PRICE LINING is the practice of offering a product line with several items at specific price points. Text examples include cell phone carriers and Apple’s iTunes. LEADER PRICING is a method used to attract customers to a store by offering a product near or even below cost in the hope that shoppers will buy other merchandise once they are in the store. Supermarkets, social coupon sites, and health clubs use leader pricing. ODD–EVEN PRICING OR PSYCHOLOGICAL PRICING uses a price ending in an odd number to connote a bargain and a price ending in an even number to connote quality. Discount stores tend to use odd pricing, and specialty boutiques commonly use even pricing. PRICE BUNDLING is marketing two or more products in a single package for a special price. Microsoft offers “suites” of software that bundle items such as spreadsheets, word processing, graphics, e-mail, and so forth. Others include the telecommunications industry and ski resorts. TWO-PART PRICING means establishing two separate charges to consume a single good or service. Examples would include health and tennis clubs that charge both a membership fee and a fee each time the facilities are used. PAY WHAT YOU WANT PRICING involves consumers deciding what they want to pay for a product or service. Restaurants and music acts have used this concept. 15. What are consumer penalties? What two reasons do businesses give for requiring consumers to pay them? Answer: Consumer penalties are extra fees paid by consumers for violating the terms of purchase agreements. Businesses impose consumer penalties for two reasons: They will allegedly (1) suffer an irreversible revenue loss and/or (2) incur significant additional transaction costs should customers be unwilling or unable to comply with the purchase agreement. 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. Answer: Product line pricing is setting prices for the entire line of products rather than for a single component of the line. In product line pricing, the marketing manager attempts to achieve maximum profits or other goals for the entire line. Before determining price, the manager must determine the type of relationship that exists among the various products in the line. Three types of relationships exist: complementary, substitute, and neutral. COMPLEMENTARY PRODUCTS. In this case, an increase in sales for one item in the line will increase demand for a complementary product in the line. Examples of complementary products include shampoo and conditioner or skis and ski poles. PRODUCT SUBSTITUTES. Items in a line may also act as substitutes for one another. If a buyer purchases one item in the line, he or she will be less likely to purchase a second, substitutable item in the line. Examples of substitutable items would be liquid and powder Tide laundry detergent or paste and liquid Turtle Wax car polish. NEUTRAL RELATIONSHIP. In this case, the demand for one product is not related to the demand for any other product. Examples include Nestlé Purina’s sale of chicken feed and Wheat Chex or Gillette’s sale of disposable razors and disposable writing pens. 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. 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? Answer: Hot Mamma Salsa should continue to produce and sell all three types of salsas. An investigation of overall figures shows that a $6,000 profit was earned on the three items in the line: The pear salsa should not be dropped just because it is currently showing a loss; the joint costs would have to be allocated to the remaining two lines: Equal allocation of joint costs may not be the right way to distribute the costs. Other allocation bases that may be used include weighting, market value, or quantity sold. Other allocation methods would change the figures for each type of salsa, but not overall figures. 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. Answer: Culling low-profit margin products from a product line may backfire because of (1) the high volume and thus high profitability of a low profit margin item; (2) a loss of economies of scale as certain products are eliminated, which lowers the margins on other items; or (3) a lowering of the price–quality image of the entire line. Instead of culling these products, two other cost-oriented tactics may be used: delayed-quotation pricing and escalator pricing. DELAYED-QUOTATION PRICING. With this tactic, price is not set on the product until the item is either finished or delivered. This is a popular tactic for builders of nuclear power plants, ships, and airports. ESCALATOR PRICING. With this tactic, the final selling price will reflect cost increases incurred between the time when the order is placed and delivery is made. This tactic is used for complex products of long duration, with new customers, or with inelastic demand products. 19. How do value-based pricing, unbundling, and bundling help marketers hold on to market share during a recession? Answer: VALUE-BASED PRICING stresses to customers that they are getting a good value for their money. Products that typically use prestige pricing can introduce products at a lower price, thereby earning lower profit margins, which are typically offset by increased sales volume. UNBUNDLING allows a marketer to start charging separately for some products that were sold together prior to the economic recession. By selling items separately, the markets have a lower base price, which often appeals to consumers. BUNDLING can stimulate demand. When features are added to a product, consumers may perceive the offering as having greater value, which appeals to some consumers. Test Bank for MKTG Charles W. Lamb, Jr. Hair, Joseph F., Carl McDaniel 9781285091860

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