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Marketing Management, 14e (Kotler/Keller) Chapter 14 Developing Pricing Strategies and Programs 1) When consumers examine products, they

often compare an observed price to an internal price they remember. This is known as a(n) ________ price. ) markup !) reference ") market#skimmin$ %) accumulated &) tar$et nswer' ! (a$e )ef' *+, -b.ective' 1 %ifficulty' &asy /) ________ price refers to what the consumers feel the product should cost. ) 0air !) Typical ") 1sual discounted %) 2ist &) 3aximum retail nswer' (a$e )ef' *+, -b.ective' 1 %ifficulty' &asy *) While shoppin$ at the mall, 4ane was asked by one of the sales representatives at the cosmetics counter to try out a new lipstick that her company was test marketin$. The company representative asks her how much she would be willin$ to pay for the lipstick. fter tryin$ it out, 4ane is of the opinion that 56 is .ust the ri$ht price for it. What type of a reference price is 4ane usin$7 ) usual discounted price !) fair price ") maximum retail price %) last price paid &) historical competitor price nswer' ! (a$e )ef' *+, -b.ective' 1 "8!' nalytic skills %ifficulty' 3oderate

1 "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

=) The reservation price or the maximum that most consumers would pay for a $iven product is known as the ________ price. ) expected future !) usual discounted ") upper#bound %) typical &) historical competitor nswer' " (a$e )ef' *+, -b.ective' 1 %ifficulty' &asy 6) company decided to conduct a market survey for its new 3(* player which it had priced at 516:. <owever, in the survey, >6 percent of the participants said that the maximum they would pay for the 3(* player is 51::. This is an example of which of the followin$ possible consumer reference prices7 ) historical competitor price !) expected future price ") usual discounted price %) upper#bound price &) last price paid nswer' % (a$e )ef' *+, -b.ective' 1 "8!' nalytic skills %ifficulty' 3oderate ?) The minimum price that most consumers would pay for a $iven product is known as the ________ price. ) everyday low !) usual discounted ") fair %) typical &) lower#bound nswer' & (a$e )ef' *+, -b.ective' 1 %ifficulty' &asy

/ "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

,) company has developed the prototype of a mobile phone which it plans to launch in the next few months. The phone comes e@uipped with the most advanced technolo$ical features. s part of its test marketin$ efforts, it allows customers to examine and use the prototype and also $athers feedback re$ardin$ product features and price. The results of this test marketin$ effort show that customers are willin$ to pay at least 56::, considerin$ the phoneAs various features. s such, the company has found out about the customersA ________. ) last paid price !) expected future price ") lower#bound price %) upper#bound price &) typical price nswer' " (a$e )ef' *+, -b.ective' 1 "8!' nalytic skills %ifficulty' 3oderate +) 3any consumers are willin$ to pay 51:: for a perfume that contains 51: worth of scent because the perfume is from a well#known brand. What kind of a pricin$ is the company dependin$ on7 ) $oin$#rate pricin$ !) ima$e pricin$ ") market#skimmin$ pricin$ %) tar$et pricin$ &) markup pricin$ nswer' ! (a$e )ef' *++ -b.ective' 1 %ifficulty' &asy >) (ricin$ cues such as sale si$ns and prices that end in > are more influential ________. ) when customers have substantial knowled$e about prices !) when customers purchase the particular item re$ularly ") when product @uality is standardiBed %) when product desi$ns vary over time &) when prices do not vary from time to time nswer' % (a$e )ef' *++ -b.ective' 1 %ifficulty' 3oderate

* "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

1:) Which of the followin$ is the first step in settin$ a pricin$ policy7 ) selectin$ a pricin$ method !) selectin$ the pricin$ ob.ective ") determinin$ demand %) estimatin$ cost &) analyBin$ competitorsA costs, prices, and offers nswer' ! (a$e )ef' *+> -b.ective' / %ifficulty' &asy 11) fter determinin$ its pricin$ ob.ectives, what is the next lo$ical step a firm should take in settin$ its pricin$ policy7 ) ;t should analyBe its competitorsA costs, prices, and offers. !) ;t should select its pricin$ method. ") ;t should select its final price. %) ;t should determine the demand for its product. &) ;t should estimate the cost of its product. nswer' % (a$e )ef' *+> -b.ective' / %ifficulty' &asy 1/) firm that is pla$ued with overcapacity, intense competition, or chan$in$ wants would do better if it pursues ________ as its ma.or ob.ective. ) market skimmin$ !) product#@uality leadership ") survival %) profit maximiBation &) market penetration nswer' " (a$e )ef' *+> -b.ective' / %ifficulty' &asy 1*) fter estimatin$ the demand and costs associated with alternative prices, a company has chosen to price its product in such a way that it $ains the hi$hest rate of return on its investment. The company is lookin$ to ________. ) maximiBe its market share !) skim the market ") become a product#@uality leader %) survive in the market &) maximiBe its current profit nswer' & (a$e )ef' *+> -b.ective' / %ifficulty' &asy
= "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

1=) "ompanies who believe that a hi$her sales volume leads to lower unit costs and hi$her lon$# run profits are attemptin$ to ________. ) maximiBe their market share !) skim the market ") become a product#@uality leader %) merely survive in the market &) maximiBe their current profits nswer' (a$e )ef' *+> -b.ective' / %ifficulty' &asy 16) company that is lookin$ to maximiBe its market share would do well to follow ________ pricin$. ) markup !) market#penetration ") market#skimmin$ %) survival &) tar$et#return nswer' ! (a$e )ef' *+> -b.ective' / %ifficulty' &asy 1?) market#penetration pricin$ strate$y is most suitable when _______. ) a low price slows down market $rowth !) production and distribution costs fall with accumulated production experience ") a hi$h price dissuades potential competitors from enterin$ the market %) the market is characteriBed by inelastic demand &) a low price encoura$es actual competition nswer' ! (a$e )ef' *+> -b.ective' / %ifficulty' 3oderate 1,) When a company introduces a product at a very hi$h price and then $radually drops the price over time, it is pursuin$ a ________ strate$y. ) market#penetration pricin$ !) market#skimmin$ pricin$ ") value#pricin$ %) switchin$ cost &) loss#leader pricin$ nswer' ! (a$e )ef' *>: -b.ective' / %ifficulty' &asy
6 "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

1+) When pple introduced its i(hone, it was priced at 56>>. This allowed pple to earn the maximum amount of revenue from the various se$ments of the market. Two months after the introduction, the price has come down to 5*>>. What kind of a pricin$ did pple adopt7 ) loss#leader pricin$ !) market#penetration pricin$ ") market#skimmin$ pricin$ %) tar$et#return pricin$ &) value pricin$ nswer' " (a$e )ef' *>: -b.ective' / "8!' nalytic skills %ifficulty' 3oderate 1>) 3arket skimmin$ pricin$ makes sense under all the followin$ conditions, &C"&(T ________. ) if a sufficient number of buyers have a hi$h current demand !) if the unit costs of producin$ a small volume are hi$h enou$h to cancel the advanta$e of char$in$ what the traffic will bear ") if the hi$h initial price does not attract more competitors to the market %) if consumers are likely to delay buyin$ the product until its price drops &) if the hi$h price communicates the ima$e of a superior product nswer' % (a$e )ef' *>: -b.ective' / %ifficulty' &asy /:) "ompanies that aim to ________ strive to be affordable luxuries. ) survive in the market !) partially recover their costs ") maximiBe their market share %) pursue value pricin$ &) be product#@uality leaders nswer' & (a$e )ef' *>: -b.ective' / %ifficulty' 3oderate

? "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

/1) 8tarbucks, veda, and !3W have been able to position themselves within their cate$ories by combinin$ @uality, luxury, and premium prices with an intensely loyal customer base. These companies are employin$ a ________ strate$y. ) market#skimmin$ !) market#penetration ") survival %) market share maximiBation &) product#@uality leadership nswer' & (a$e )ef' *>: -b.ective' / %ifficulty' &asy //) The first step in estimatin$ demand is to ________. ) analyBe competitorsA cost !) select a pricin$ method ") understand what affects price sensitivity %) calculate fixed costs &) decipher the experience curve nswer' " (a$e )ef' *>: -b.ective' / %ifficulty' 3oderate /*) "onsumers are less price sensitive ________. ) to hi$h cost items !) when they fre@uently chan$e their buyin$ habits ") when there are more substitutes %) when there are more competitors &) when they do not readily notice hi$her prices nswer' & (a$e )ef' *>:#*>1 -b.ective' / %ifficulty' 3oderate /=) "onsumers are less price sensitive when ________. ) price is only a small part of the total cost spent on the product over its lifetime !) they perceive the hi$her prices to be un.ustified ") they chan$e their buyin$ habits re$ularly %) there are many substitutes and competitors in the market &) they are buyin$ hi$h#cost items nswer' (a$e )ef' *>1 -b.ective' / %ifficulty' 3oderate

, "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

/6) ;f demand hardly chan$es with a small chan$e in price, the demand is said to be ________. ) strained !) mar$inal ") inelastic %) flexible &) unit elastic nswer' " (a$e )ef' *>/ -b.ective' / %ifficulty' &asy /?) ;f demand chan$es considerably, with a small chan$e in price, the demand is said to be ________. ) unit elastic !) elastic ") inelastic %) mar$inal &) strained nswer' ! (a$e )ef' *>/ -b.ective' / %ifficulty' &asy /,) ;f consumers were lar$ely indifferent to a 5:.6 increase in the price of a $allon of milk, the price rise is said to fall within customersA ________. ) price indifference band !) experience curve ") armAs#len$th price %) learnin$ curve &) net price index nswer' (a$e )ef' *>/ -b.ective' / "8!' nalytic skills %ifficulty' 3oderate /+) Which of the followin$ is true re$ardin$ price elasticity7 ) The hi$her the elasticity, the lesser is the volume $rowth resultin$ from a 1 percent price reduction. !) Within the price indifference band, price chan$es have little or no effect on demand. ") ;f demand is elastic, sellers will consider increasin$ the price. %) (rice elasticity does not depend on ma$nitude and direction of the contemplated price chan$e. &) When demand is inelastic, sellers should lower prices in order to increase total revenue. nswer' ! (a$e )ef' *>/ -b.ective' / %ifficulty' 3oderate
+ "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

/>) "osts that do not vary with production levels or sales revenue are known as ________. ) overhead costs !) variable costs ") avera$e costs %) opportunity costs &) total costs nswer' (a$e )ef' *>* -b.ective' / %ifficulty' &asy *:) company must make payments each month for rent, heat, interest, and salaries. These are ________. ) total costs !) fixed costs ") variable costs %) opportunity costs &) tar$et costs nswer' ! (a$e )ef' *>* -b.ective' / %ifficulty' &asy *1) "osts that differ directly with the level of production are known as ________. ) fixed costs !) overhead costs ") opportunity costs %) tar$et costs &) variable costs nswer' & (a$e )ef' *>* -b.ective' / %ifficulty' &asy */) ________ consist of the sum of the fixed and variable costs for any $iven level of production. ) Total costs !) vera$e costs ") -pportunity costs %) 2earnin$ costs &) Tar$et costs nswer' (a$e )ef' *>* -b.ective' / %ifficulty' &asy

> "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

**) ________ is the cost per unit at that level of production. ) Tar$et cost !) vera$e cost ") 3ar$inal cost %) -pportunity cost &) 0ixed cost nswer' ! (a$e )ef' *>* -b.ective' / %ifficulty' &asy *=) The decline in the avera$e cost of production with accumulated production experience is called the ________. ) demand curve !) supply chain ") learnin$ curve %) value chain &) indifference curve nswer' " (a$e )ef' *>* -b.ective' / %ifficulty' &asy *6) &xperience#curve pricin$ ________. ) assumes competitors are weak followers !) allows products to pro.ect a hi$h @uality ima$e ") is applicable only to manufacturin$ costs %) focuses on reducin$ fixed costs &) is $enerally risk#free nswer' (a$e )ef' *>= -b.ective' / %ifficulty' 3oderate *?) %eductin$ the desired profit mar$in from the price at which a product will sell, $iven its appeal and competitorsA prices, is known as ________. ) overhead costin$ !) tar$et costin$ ") activity based costin$ %) benefit analysis &) estimate costin$ nswer' ! (a$e )ef' *>= -b.ective' / %ifficulty' &asy

1: "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

*,) "ompetitors are most likely to react to a price chan$e, when ________. ) the firm has a weak value proposition !) the firm en.oys a monopoly ") there are few competin$ firms %) the product is hetero$eneous &) buyers have limited information nswer' " (a$e )ef' *>6 -b.ective' / %ifficulty' 3oderate *+) Which of the followin$ is the most elementary pricin$ method7 ) value pricin$ !) $oin$#rate pricin$ ") markup pricin$ %) tar$et#return pricin$ &) perceived#value pricin$ nswer' " (a$e )ef' *>? -b.ective' / %ifficulty' &asy *>) %espite its weaknesses, markup pricin$ remains popular for which of the followin$ reasons7 ) 8ellers can determine demand much more easily than they can estimate costs. !) !y tyin$ the price to cost, the pricin$ task becomes more sophisticated. ") When all firms in the industry use markup pricin$, price competition flourishes. %) 8ellers take advanta$e of buyers when the latterAs demand becomes acute. &) 3any people feel that cost#plus pricin$ is fairer to both buyers and sellers. nswer' & (a$e )ef' *>?#*>, -b.ective' / %ifficulty' 3oderate =:) manufacturer has invested 5,6:,::: in a new product and wants to set a price to earn a 16 percent )-;. The cost per unit is 51+ and the company expects to sell 6:,::: units in the first year. "alculate the companyAs tar$et#return price for this product. ) 5/:./6 !) 51+./* ") 51+.1: %) 5/:.,: &) 5/6.6: nswer' (a$e )ef' *>, -b.ective' / "8!' nalytic skills %ifficulty' 3oderate
11 "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

=1) n umbrella manufacturin$ companyAs fixed costs are 5/,6,:::. The variable cost per unit is 56 and each umbrella is sold at 51:. <ow many units should the firm sell in order to break even7 ) 1+::: !) 66:: ") /,6:: %) 66::: &) 1+1> nswer' % (a$e )ef' *>, -b.ective' / "8!' nalytic skills %ifficulty' 3oderate =/) ________ pricin$ takes into account a host of inputs, such as the buyerAs ima$e of the product performance, the channel deliverables, the warranty @uality, customer support, and attributes such as the supplierAs reputation, trustworthiness, and esteem. ) (erceived#value !) Dalue ") Eoin$#rate %) uction#type &) 3arkup nswer' (a$e )ef' *>+ -b.ective' / %ifficulty' &asy =*) The key to perceived#value pricin$ is to ________. ) reen$ineer the companyAs operations !) deliver more uni@ue value than competitors ") adopt subtle marketin$ tactics compared to competitors %) deliver more value but at a lower cost &) invest heavily in advertisin$ in order to convey superior value nswer' ! (a$e )ef' *>> -b.ective' / %ifficulty' 3oderate

1/ "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

==) ________ pricin$ is a matter of reen$ineerin$ the companyAs operations to become a low# cost producer without sacrificin$ @uality. ) Dalue !) Eoin$#rate ") uction#type %) 3arkup &) (erceived#value nswer' (a$e )ef' =:: -b.ective' / %ifficulty' &asy =6) retailer who holds on to a(n) ________ policy char$es a constant low price with little or no price promotions and special sales. ) everyday low pricin$ !) hi$h#low pricin$ ") low cost %) $oin$#rate pricin$ &) auction#type pricin$ nswer' (a$e )ef' =:: -b.ective' / %ifficulty' &asy =?) 3attAs retail store offers all its products at 5/ lesser than its competitors throu$hout the year. The store never runs any promotional campai$ns or offers any additional special discounts. 3attAs retail store is followin$ a(n) ________. ) auction#type pricin$ policy !) tar$et#plus pricin$ policy ") everyday low pricin$ policy %) hi$h#low pricin$ policy &) $oin$#rate pricin$ policy nswer' " (a$e )ef' =:: -b.ective' / "8!' nalytic skills %ifficulty' 3oderate

1* "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

=,) &veryday low pricin$ is most suitable if ________. ) consumers are willin$ to perform activities such as clip coupons to avail of discounts !) consumers tend to associate price with @uality ") customers are insensitive to chan$es in price %) the cost of conductin$ fre@uent sales and promotions is hi$h &) consumers have sufficient time to find the best prices nswer' % (a$e )ef' =:1 -b.ective' / %ifficulty' 3oderate =+) ;n ________, the firm bases its price lar$ely on competitorAs prices. ) $oin$#rate pricin$ !) auction#type pricin$ ") markup pricin$ %) tar$et#return pricin$ &) perceived#value pricin$ nswer' (a$e )ef' =:1 -b.ective' / %ifficulty' &asy =>) Which of the followin$ auctions is characteriBed by one seller and many buyers7 ) Walrasian auctions !) ascendin$ bid auctions ") closed auctions %) sealed#bid auctions &) reverse auctions nswer' ! (a$e )ef' =:/ -b.ective' / %ifficulty' &asy 6:) ;n which of the followin$ auctions does the auctioneer first announce a hi$h price for a product and then slowly decreases the price until a bidder accepts7 ) a %utch auction with one buyer and many sellers !) an &n$lish auction with one seller and many buyers ") an ascendin$ bid auction %) a sealed#bid auction &) a %utch auction with one seller and many buyers nswer' & (a$e )ef' =:/ -b.ective' / %ifficulty' 3oderate

1= "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

61) ;n a(n) ________, the buyer announces somethin$ he or she wants to buy, and potential sellers compete to offer the lowest price. ) %utch auction with one buyer and many sellers !) &n$lish auction with one buyer and many sellers ") &n$lish auction with one seller and many buyers %) sealed#bid auction &) ascendin$ auction nswer' (a$e )ef' =:/ -b.ective' / %ifficulty' &asy 6/) ________ let would#be suppliers submit only one bidF they cannot know the other bids. ) %escendin$ bid auctions !) 8ealed#bid auctions ") &n$lish auctions %) %utch auctions &) )everse auctions nswer' ! (a$e )ef' =:/ -b.ective' / %ifficulty' &asy 6*) ;n which of the followin$ forms of countertrade do buyers and sellers directly exchan$e $oods, with no money and no third party is involved7 ) buyback arran$ements !) offsets ") barter %) sealed bids &) compensation deals nswer' " (a$e )ef' =:= -b.ective' * %ifficulty' &asy

16 "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

6=) 4apanese firm is ready to sell its recent technolo$ical innovation to the 1.8. $overnment. !ut it has asked for +: percent in cash and the rest in mica. The 4apanese firm is lookin$ to enter into a(n) ________ with the 1.8. $overnment. ) functional discount !) compensation deal ") buyback arran$ement %) offset a$reement &) barter deal nswer' ! (a$e )ef' =:= -b.ective' * "8!' nalytic skills %ifficulty' 3oderate 66) rmac 2td., is a sluice#box manufacturer based in "hina. sluice#box is used for $old prospectin$. rmac is interested in sellin$ a few of its machines to an merican minin$ company, but it wants >6 percent of the machinesA price in $old and the rest in ores recovered by usin$ the machines. This is an example of a ________. ) buyback arran$ement !) functional discount ") barter deal %) compensation deal &) sealed bid nswer' (a$e )ef' =:= -b.ective' * "8!' nalytic skills %ifficulty' 3oderate 6?) )-" &n$ineerin$, a "hinese shipbuildin$ company, a$rees to build a fleet of submarines for the 8ri 2ankan navy, for which it will be paid in the local 8ri 2ankan currency. s per the a$reement, )-" must also spend a substantial amount of the money it $enerates throu$h this deal within the country. ;n accordance with the contract, )-" buys 8ri 2ankan tea at a reduced rate. This is an example of which of the followin$ forms of countertrade7 ) descendin$ bid !) offset ") barter %) compensation deal &) buyback arran$ement nswer' ! (a$e )ef' =:= -b.ective' * "8!' nalytic skills %ifficulty' &asy

1? "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

6,) ________ are offered by a manufacturer to trade#channel members if they will perform certain functions, such as sellin$, storin$, and record keepin$. ) "onsumer promotions !) Guantity discounts ") 0unctional discounts %) 8easonal discounts &) Trade#in allowances nswer' " (a$e )ef' =:= -b.ective' * %ifficulty' &asy 6+) When hotels, motels, and airlines offer discounts in slow sellin$ periods, they are said to be offerin$ ________. ) trade discounts !) @uantity discounts ") functional discounts %) seasonal discounts &) trade#in allowances nswer' % (a$e )ef' =:= -b.ective' * %ifficulty' &asy 6>) (n) ________ is an extra payment desi$ned to $ain reseller participation in special pro$rams. ) seasonal discount !) allowance ") discount %) @uantity discount &) functional discount nswer' ! (a$e )ef' =:= -b.ective' * %ifficulty' &asy ?:) ________ are $ranted for turnin$ in old item when buyin$ a new one. ) (romotional allowances !) Guantity discounts ") 0unctional discounts %) 8easonal discounts &) Trade#in allowances nswer' & (a$e )ef' =:= -b.ective' * %ifficulty' &asy
1, "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

?1) ________ reward dealers for participatin$ in advertisin$ and sales support pro$rams. ) 0unctional discounts !) Trade discounts ") (romotional allowances %) )ebates &) Guantity discounts nswer' " (a$e )ef' =:= -b.ective' * %ifficulty' &asy ?/) When supermarkets and department stores drop the price on well#known brands to stimulate store traffic, they are said to be followin$ ________. ) value pricin$ !) loss#leader pricin$ ") special event pricin$ %) hi$h#low pricin$ &) everyday low pricin$ nswer' ! (a$e )ef' =:6 -b.ective' * %ifficulty' &asy ?*) When lan bou$ht his car, the bank $ave him /= months to repay his car loan. !ut when lan made a re@uest to increase the time frame to *? months, the bank $ranted the extension. The bank was willin$ to offer lan a ________. ) lon$er payment term !) warranty contract ") service contract %) special customer price &) special event price nswer' (a$e )ef' =:6 -b.ective' * "8!' nalytic skills %ifficulty' 3oderate

1+ "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

?=) ;n ________, the seller char$es a separate price to each customer dependin$ on the intensity of his or her demand. ) second#de$ree price discrimination !) third#de$ree price discrimination ") psycholo$ical discountin$ %) special#customer pricin$ &) first#de$ree price discrimination nswer' & (a$e )ef' =:? -b.ective' * %ifficulty' &asy ?6) ;n second#de$ree price discrimination, the seller char$es ________. ) less to buyers of lar$er volumes !) different prices dependin$ on the season, day, or hour ") a separate price to each customer dependin$ on the intensity of his or her demand %) different prices for different versions of the same product &) different prices for the same product dependin$ on the channel throu$h which it is sold nswer' (a$e )ef' =:? -b.ective' * %ifficulty' 3oderate ??) ;n ________, the seller char$es different amounts to different classes of buyers. ) perceived value pricin$ !) third#de$ree price discrimination ") first#de$ree price discrimination %) second#de$ree price discrimination &) psycholo$ical discountin$ nswer' ! (a$e )ef' =:? -b.ective' * %ifficulty' &asy ?,) When museums char$e a lower admission fee to students and senior citiBens, then this form of price discrimination is known as ________. ) location pricin$ !) channel pricin$ ") customer#se$ment pricin$ %) special#customer pricin$ &) loss#leader pricin$ nswer' " (a$e )ef' =:? -b.ective' * %ifficulty' &asy

1> "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

?+) 3adame TussaudAs wax museum is a popular tourist attraction in 2ondon. The museum char$es hi$her entry rates for tourists compared to locals. This form of price discrimination is known as ________. ) customer#se$ment pricin$ !) ima$e pricin$ ") location pricin$ %) special customer pricin$ &) special event pricin$ nswer' (a$e )ef' =:? -b.ective' * "8!' nalytic skills %ifficulty' 3oderate ?>) When "oca#"ola carries a different price dependin$ on whether the consumer purchases it in a fine restaurant, a fast#food restaurant, or a vendin$ machine, then this form of price discrimination is known as ________. ) product#form pricin$ !) loss#leader pricin$ ") special event pricin$ %) channel pricin$ &) location pricin$ nswer' % (a$e )ef' =:? -b.ective' * %ifficulty' &asy ,:) The price of tickets to the opera vary dependin$ on where the person would like to be seatedHin the $allery or in the stalls. This is an example of ________. ) channel pricin$ !) time pricin$ ") ima$e pricin$ %) product#form pricin$ &) location pricin$ nswer' & (a$e )ef' =:? -b.ective' * "8!' nalytic skills %ifficulty' 3oderate

/: "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

,1) When hotels drop their rates on the weekends, then this form of price discrimination is known as ________. ) channel pricin$ !) ima$e pricin$ ") product#form pricin$ %) time pricin$ &) location pricin$ nswer' % (a$e )ef' =:? -b.ective' * %ifficulty' &asy ,/) The airline and hospitality industries use ________, by which they offer discounted but limited early purchases, hi$her#priced late purchases, and the lowest rates on unsold inventory .ust before it expires. ) special#customer pricin$ !) yield pricin$ ") cash rebates %) location pricin$ &) customer#se$ment pricin$ nswer' ! (a$e )ef' =:? -b.ective' * %ifficulty' &asy ,*) ________ refers to sellin$ below cost with the intention of destroyin$ competition. ) !id ri$$in$ !) 2oss#leader pricin$ ") (redatory pricin$ %) (rice discrimination &) (rice penetration nswer' " (a$e )ef' =:, -b.ective' * %ifficulty' &asy

/1 "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

,=) 0or price discrimination to work ________. ) the market must be se$mentable and the se$ments must show similar intensities of demand !) members in the lower#price se$ment must be able to resell the product to the hi$her#price se$ment ") competitors must be able to undersell the firm in the hi$her#price se$ment %) the practice must not breed customer resentment and ill will &) the extra revenue derived from price discrimination must not exceed the cost of se$mentin$ and policin$ the market nswer' % (a$e )ef' =:, -b.ective' * %ifficulty' 3oderate ,6) low price buys market share but not market loyalty. The same customers will shift to any lower#priced product that may come alon$. This is called the ________. ) low#price trap !) relative#market#share trap ") shallow#pockets trap %) tar$et#market#share trap &) fra$ile#market#share trap nswer' & (a$e )ef' =:+ -b.ective' = %ifficulty' &asy ,?) When hi$her#priced competitors match the lower prices but have lon$er stayin$ power because of deeper cash reserves, it leads to a(n) ________. ) low#@uality trap !) fra$ile#market#share trap ") price war trap %) escalator trap &) shallow#pockets trap nswer' & (a$e )ef' =:+ -b.ective' = %ifficulty' &asy

// "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

,,) company does not set a final price until the product is finished or delivered. This is known as ________. ) delayed @uotation pricin$ !) an escalator clause ") special#event pricin$ %) time pricin$ &) the shallow#pockets trap nswer' (a$e )ef' =:+ -b.ective' = %ifficulty' &asy ,+) When a company re@uires the customers to pay todayAs price and all or part of any inflation increase that takes place before delivery, it is known as ________. ) special#customer pricin$ !) an escalator clause ") delayed @uotation pricin$ %) unbundlin$ &) time pricin$ nswer' ! (a$e )ef' =:+ -b.ective' 6 %ifficulty' &asy ,>) When a company maintains its price but removes or prices separately one or more elements that were part of the former offer, such as free delivery or installation, it is known as ________. ) escalatin$ !) differentiation ") unbundlin$ %) reverse discountin$ &) delayed @uotation pricin$ nswer' " (a$e )ef' =:+ -b.ective' 6 %ifficulty' &asy +:) ;n markets that are characteriBed by products that are hi$hly homo$eneous, how should a firm react to a competitorAs reduction in price7 ) shrink the amount of the product available !) substitute expensive materials or in$redients ") reduce product features %) reduce product services &) au$ment the product nswer' & (a$e )ef' =:> -b.ective' 6 %ifficulty' 3oderate
/* "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

+1) (rice is one of the two elements of the marketin$ mix that produces revenue. nswer' 0 28& (a$e )ef' *+* -b.ective' 1 %ifficulty' &asy +/) Traditionally, price was never a ma.or determinant of buyer choice. nswer' 0 28& (a$e )ef' *+= -b.ective' 1 %ifficulty' &asy +*) Today, consumers are price takers and accept prices at face value or as $iven. nswer' 0 28& (a$e )ef' *+? -b.ective' 1 %ifficulty' &asy +=) (urchase decisions are based on how consumers perceive prices and what they consider the current actual price to beHnot the marketerAs stated price. nswer' T)1& (a$e )ef' *+? -b.ective' 1 %ifficulty' &asy +6) "ustomers usually have a lower price threshold below which prices si$nal inferior or unacceptable @uality, as well as an upper price threshold above which prices are prohibitive and the product appears not worth the money. nswer' T)1& (a$e )ef' *+? -b.ective' 1 %ifficulty' &asy +?) lthou$h consumers may have fairly $ood knowled$e of the ran$e of prices involved, very few can accurately recall specific prices of products. nswer' T)1& (a$e )ef' *+, -b.ective' 1 %ifficulty' &asy +,) When examinin$ products, consumers compare an observed price to an internal reference price they remember or an external frame of reference. nswer' T)1& (a$e )ef' *+, -b.ective' 1 %ifficulty' &asy
/= "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

++) 3any consumers use price as an indicator of @uality and value. nswer' T)1& (a$e )ef' *++ -b.ective' 1 %ifficulty' &asy +>) "ompanies strive to maximiBe their current profits if they are pla$ued with overcapacity, intense competition, or chan$in$ consumer wants. nswer' 0 28& (a$e )ef' *+> -b.ective' / %ifficulty' &asy >:) ;n reality, it is very easy for firms to estimate their demand and cost functions. nswer' 0 28& (a$e )ef' *+> -b.ective' / %ifficulty' &asy >1) ;f firms wish to maximiBe their market share, they should opt for market#skimmin$ pricin$. nswer' 0 28& (a$e )ef' *+> -b.ective' / %ifficulty' &asy >/) firm is said to be followin$ a market#skimmin$ pricin$ strate$y, if it introduces a product into the market at a hi$h price and slowly drops the price over time. nswer' T)1& (a$e )ef' *>: -b.ective' / %ifficulty' &asy >*) ;n the case of presti$e $oods, the demand curve sometimes slopes upward. nswer' T)1& (a$e )ef' *>: -b.ective' / %ifficulty' &asy >=) "ompanies prefer customers who are less price sensitive. nswer' T)1& (a$e )ef' *>1 -b.ective' / %ifficulty' &asy

/6 "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

>6) (rice elasticity depends upon the ma$nitude and direction of the contemplated price chan$e. nswer' T)1& (a$e )ef' *>/ -b.ective' / %ifficulty' &asy >?) small chan$e in price of a product within the price indifference band causes a substantial chan$e in the demand of that product. nswer' 0 28& (a$e )ef' *>/ -b.ective' / %ifficulty' &asy >,) Total costs consist of the sum of the fixed and variable costs for any $iven level of production. nswer' T)1& (a$e )ef' *>* -b.ective' / %ifficulty' &asy >+) ;n tar$et#return pricin$, the firm adds a standard markup to the productAs cost. nswer' 0 28& (a$e )ef' *>, -b.ective' / %ifficulty' &asy >>) The key to effectively usin$ perceived#value pricin$ is to deliver value that is on par with your competitors. nswer' 0 28& (a$e )ef' *>> -b.ective' / %ifficulty' &asy 1::) Dalue pricin$ re@uires a company to reen$ineer its operations to become a low#cost producer. nswer' T)1& (a$e )ef' =:: -b.ective' / %ifficulty' &asy 1:1) ;n hi$h#low pricin$, retailers char$e low prices on an everyday basis with occasional price increases. nswer' 0 28& (a$e )ef' =:1 -b.ective' / %ifficulty' &asy
/? "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

1:/) The 1.8. $overnment often uses %utch auctions to procure supplies. nswer' 0 28& (a$e )ef' =:/ -b.ective' / %ifficulty' &asy 1:*) ;n a compensation deal, the seller sells a plant, e@uipment, or technolo$y to another country and a$rees to accept as partial payment products manufactured with the supplied e@uipment. nswer' 0 28& (a$e )ef' =:= -b.ective' * %ifficulty' &asy 1:=) -ffset is a form of countertrade where sellers receive full payment in cash and a$ree to spend a substantial amount of the money in the country where they are tradin$ within a stated time period. nswer' T)1& (a$e )ef' =:= -b.ective' * %ifficulty' &asy 1:6) @uantity discount is a price reduction $iven to those who pay their bills promptly. nswer' 0 28& (a$e )ef' =:= -b.ective' * %ifficulty' &asy 1:?) Trade#in allowances reward dealers for participatin$ in advertisin$ and sales support pro$rams. nswer' 0 28& (a$e )ef' =:= -b.ective' * %ifficulty' &asy 1:,) (sycholo$ical discountin$ involves settin$ an artificially hi$h price and then offerin$ the product at substantial savin$s. nswer' T)1& (a$e )ef' =:6 -b.ective' * %ifficulty' &asy 1:+) 2oss leader pricin$ dilutes a companyAs brand ima$e. nswer' T)1& (a$e )ef' =:6 -b.ective' * %ifficulty' &asy
/, "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

1:>) ;n first#de$ree price discrimination, the seller char$es less to buyers of lar$er volumes. nswer' 0 28& (a$e )ef' =:? -b.ective' * %ifficulty' &asy 11:) When firms char$e different prices to different customer $roups for the same product or service, it is a case of second#de$ree price discrimination. nswer' 0 28& (a$e )ef' =:? -b.ective' * %ifficulty' &asy 111) The airline industries implement yield pricin$ by offerin$ discounted but limited early purchases, hi$her#priced late purchases, and the lowest rates on unsold inventory .ust before it expires. nswer' T)1& (a$e )ef' =:? -b.ective' * %ifficulty' &asy 11/) (rice discrimination in all forms is ille$al in the 1nited 8tates. nswer' 0 28& (a$e )ef' =:, -b.ective' * %ifficulty' &asy 11*) (redatory pricin$, which refers to the concept of sellin$ below cost with the intention of destroyin$ competition, is lawful under certain conditions. nswer' 0 28& (a$e )ef' =:, -b.ective' * %ifficulty' &asy 11=) "ompanies sometimes initiate price cuts in an attempt to dominate the market throu$h lower costs. nswer' T)1& (a$e )ef' =:, -b.ective' = %ifficulty' &asy 116) "ost inflation provokes price increases. nswer' T)1& (a$e )ef' =:+ -b.ective' = %ifficulty' &asy
/+ "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

11?) ;n a price#war trap, hi$her#priced competitors match the firmAs lower prices but have lon$er stayin$ power because of deeper cash reserves. nswer' 0 28& (a$e )ef' =:+ -b.ective' = %ifficulty' &asy 11,) &scalator clauses are found in contracts for ma.or industrial pro.ects, such as aircraft construction and brid$e buildin$. nswer' T)1& (a$e )ef' =:+ -b.ective' = %ifficulty' &asy 11+) Eenerally, consumers prefer small price increases on a re$ular basis to sudden, sharp increases. nswer' T)1& (a$e )ef' =:> -b.ective' = %ifficulty' &asy 11>) 8hrinkin$ the amount of product instead of raisin$ the price is a $ood way to counteract consumer resistances to price increases. nswer' T)1& (a$e )ef' =:> -b.ective' = %ifficulty' &asy 1/:) company must consider the productAs sta$e in the life cycle and its importance in the companyAs portfolio before respondin$ to a competitorAs price cut. nswer' T)1& (a$e )ef' =:> -b.ective' 6 %ifficulty' &asy

/> "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

1/1) <ow does the ;nternet help sellers discriminate between buyers and vice#versa7 nswer' The ;nternet helps buyers to' I Eet instant price comparisons from thousands of vendors I Jame their price and have it met I Eet products free The ;nternet helps sellers to' I 3onitor customer behavior and tailor offers to individuals I Eive certain customer access to special prices The ;nternet helps both buyers and sellers to ne$otiate prices in online auctions and exchan$es or even in person. (a$e )ef' *+=#*+? -b.ective' 1 %ifficulty' 3oderate 1//) What are the different possible consumer reference prices7 nswer' lthou$h consumers have fairly $ood knowled$e of price ran$es, surprisin$ly few can accurately recall specific prices. When examinin$ prices, consumers often employ reference prices, comparin$ an observed price to an internal reference price they remember or an external frame of reference such as a posted Kre$ular retail price.K These reference prices include' I 0air price # what consumers feels the product should cost I Typical price I 2ast price paid I 1pper#bound price # reservation price or the maximum most consumers would pay I 2ower#bound price # lower threshold price or the minimum most consumers would pay I <istorical competitor price I &xpected future price I 1sual discounted price (a$e )ef' *+, -b.ective' 1 %ifficulty' 3oderate

*: "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

1/*) !riefly describe the different types of pricin$ ob.ectives. nswer' When a company is preparin$ to sets its price, first of all it has to select its pricin$ ob.ectives. The five ma.or ob.ectives available to a company are' survival, maximum current profit, maximum market share, maximum market skimmin$, and product#@uality leadership. I 8urvival # "ompanies pursue survival as their ma.or ob.ective if they are pla$ued with overcapacity, intense competition, or chan$in$ consumer wants. s lon$ as prices cover variable costs and some fixed costs, the company stays in business. I 3aximum current profit # "ompanies who try to maximiBe their current profit, estimate the demand and costs associated with alternative prices and choose the price that produces maximum current profit, cash flow, or rate of return on investment. This strate$y assumes the firm knows its demand and cost functions, but in reality, these are difficult to estimate. I 3aximum market share # "ompanies that want to maximiBe their market share believe that a hi$her sales volume will lead to lower unit costs and hi$her lon$#run profit. They set the lowest price, assumin$ the market is price sensitive. This is a market#penetration pricin$ strate$y. I 3aximum market skimmin$ # "ompanies unveilin$ a new technolo$y favor settin$ hi$h prices to maximiBe market skimmin$. "ompanies that use this, introduce their products at a hi$h price and slowly drop the price over time. I (roduct#@uality leadership # "ompanies that aim to be product @uality leaders strive to be affordable luxuries, i.e., they want their products and services to be characteriBed by hi$h levels of perceived @uality, taste, and status with a price .ust hi$h enou$h not to be out of the consumerAs reach. (a$e )ef' *+>#*>: -b.ective' / %ifficulty' 3oderate

*1 "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

1/=) What are the different price#settin$ methods7 !riefly describe each of them. nswer' The six ma.or price#settin$ methods are' markup pricin$, tar$et#return pricin$, perceived#value pricin$, value pricin$, $oin$#rate pricin$, and auction#type pricin$. I 3arkup pricin$ # This is the most elementary pricin$ method wherein a standard markup is added to the productAs cost. I Tar$et#return pricin$ # <ere, the firm determines the price that yields its tar$et rate of return on investment. I (erceived#value pricin$ # (erceived value is made up of a host of inputs, such as the buyerAs ima$e of the product performance, the channel deliverables, the warranty @uality, customer support, and softer attributes such as the supplierAs reputation, trustworthiness, and esteem. "ompanies must deliver the value promised by their value proposition, and the customer must perceive this value. I Dalue pricin$ # "ompanies win loyal customers by char$in$ a fairly low price for a hi$hly# @uality offerin$. Dalue price is .ust not a matter of lowerin$ the prices but also it is a matter of reen$ineerin$ the companyAs operations to become a low#cost producer without sacrificin$ @uality, to attract a lar$e number of value conscious customers. I Eoin$#rate pricin$ # <ere, the firm bases its price lar$ely on competitorsA prices. I uction#type pricin$ # There are three ma.or types of auctions and their separate pricin$ procedures' i. &n$lish auctions # These have one seller and many buyers. The hi$hest bidder $ets the item. ii. %utch auctions # This features one seller and many buyers, or one buyer and many sellers. ;n the first kind, an auctioneer announces a hi$h price for a product and then slowly decreases the price until a bidder accepts. ;n the other, the buyer announces somethin$ he wants to buy, and potential sellers compete to offer the lowest price. iii. 8ealed#bid auction # This lets would#be suppliers submit only one bid. The suppliers have no knowled$e about the other bids. (a$e )ef' *>?#=:/ -b.ective' / %ifficulty' 3oderate 1/6) What are the different forms of countertrade7 nswer' "ountertrade can take the followin$ forms' I !arter # The buyer and seller directly exchan$e $oods, with no money and no third party involved. I "ompensation deal # The seller receives some percenta$e of the payment in cash and the rest in products. I !uyback arran$ement # The seller sells a plant, e@uipment, or technolo$y to another country and a$rees to accept as partial payment products manufactured with the supplied e@uipment. I -ffset # The seller receives full payment in cash but a$rees to spend a substantial amount of the money in that country within a stated time period. (a$e )ef' =:= -b.ective' * %ifficulty' 3oderate

*/ "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

1/?) What are the different types of price discounts and allowances7 nswer' The different types of price discounts and allowances are' I %iscount # This is a price reduction $iven to buyers who pay their bills promptly. I Guantity discount # This is a price reduction offered to those who buy in lar$e volumes. I 0unctional discount # This is offered by a manufacturer to trade#channel members if they perform certain functions like sellin$, storin$, and record keepin$. I 8easonal discount # This is a price reduction $iven to those who buy merchandise or services out of season. I llowance # This is an extra payment desi$ned to $ain reseller participation in special pro$rams. These are of two types' i. Trade#in allowances # These are $ranted for turnin$ in an old item when buyin$ a new one. ii. (romotional allowances # These reward dealers for participatin$ in advertisin$ and sales support pro$rams. (a$e )ef' =:= -b.ective' * %ifficulty' 3oderate 1/,) What are the different types of promotional pricin$7 nswer' "ompanies can use any of the followin$ pricin$ techni@ues to stimulate early purchase' I 2oss#leader pricin$ # 8upermarkets and department stores often drop the price on well#known brands to stimulate additional store traffic. This pays if the revenue on the additional sales compensates for the lower mar$ins on the loss#leader items. I 8pecial event pricin$ # 8ellers can establish special prices in certain seasons to draw in more customers. I 8pecial customer pricin$ # 8ellers can offer special prices exclusively to certain customers. I "ash rebates # uto companies and other consumer#$oods companies offer cash rebates to encoura$e purchase of the manufacturersA products within a specified time period. )ebates can help clear inventories without cuttin$ the stated list price. I 2ow#interest financin$ # ;nstead of cuttin$ its price, the company can offer customers low# interest financin$. I 2on$er payment terms # 8ellers stretch loans over lon$er periods and thus lower the monthly payments. "onsumers often worry less about the interest rate of a loan, and more about whether they can afford the monthly payment. I Warranties and service contracts # "ompanies can promote sales by addin$ a free or low#cost warranty or service contract. I (sycholo$ical discountin$ # This strate$y sets an artificially hi$h price and then offers the product at substantial savin$s. (a$e )ef' =:6 -b.ective' * %ifficulty' 3oderate

** "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

1/+) What is third#de$ree price discrimination7 nswer' ;n third#de$ree price discrimination, the seller char$es different amounts to different classes of buyers, as in the followin$ cases' I "ustomer#se$ment pricin$ # %ifferent customer $roups pay different prices for the same product or service. 0or example, museums often char$e a lower admission fee to students and senior citiBens. I (roduct#form pricin$ # %ifferent versions of the product are priced differently, but not proportionately to their costs. I ;ma$e pricin$ # 8ome companies price the same product at two different levels based on ima$e differences. perfume manufacturer can put the perfume in one bottle, $ive it a name and ima$e, and price it at 51: an ounce. The same perfume in another bottle with a different name and ima$e and price can sell for 5*: an ounce. I "hannel pricin$ # "oca#"ola carries a different price dependin$ on whether the consumer purchases it in a fine restaurant, a fast#food restaurant, or a vendin$ machine. I 2ocation pricin$ # The same product is priced differently at different locations even thou$h the cost of offerin$ it at each location is the same. theater varies its seat prices accordin$ to audience preferences for different locations. I Time pricin$ # (rices are varied by season, day, or hour. (ublic utilities vary ener$y rates to commercial users by time of day and weekend versus weekday. (a$e )ef' =:? -b.ective' * %ifficulty' 3oderate

*= "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

1/>) <ow can companies initiate price cuts and what are the traps that companies can fall into because of this7 nswer' 8everal circumstances prompt a firm to cut its prices. -ne is excess plant capacity' The firm needs additional business and cannot $enerate it throu$h increased sales effort, product improvement, or other measures. "ompanies sometimes initiate price cuts in a drive to dominate the market throu$h lower costs. &ither the company starts with lower costs than its competitors, or it initiates price cuts in the hope of $ainin$ market share and lower costs. "uttin$ prices to keep customers or beat competitors often encoura$es customers to demand price concessions. -ther than this, a price#cuttin$ strate$y can also lead to the followin$ possible traps' I 2ow#@uality trap # "onsumers assume @uality is low. I 0ra$ile#market#share trap # low price buys market share but not market loyalty. The same customers will shift to any lower#priced firm that comes alon$. I 8hallow#pockets trap # <i$her#priced competitors match the lower prices but have lon$er stayin$ power because of deeper cash reserves. I (rice#war trap # "ompetitors respond by lowerin$ their prices even more, tri$$erin$ a price war. "ustomers often @uestion the motivation behind price chan$es. They may assume the item is about to be replaced by a new modelF the item is faulty and is not sellin$ wellF the firm is in financial troubleF the price will come down even furtherF or the @uality has been reduced. The firm must monitor these attributions carefully while initiatin$ a price cut. (a$e )ef' =:+ -b.ective' = %ifficulty' 3oderate 1*:) &xplain the concept of overdemand. nswer' -ne of the factors that prompts a firm to increase its prices is overdemand. When a company cannot supply all its customers, it can raise its prices, ration supplies, or both. ;t can increase its price in the followin$ ways' I %elayed @uotation pricin$ # The company does not set a final price until the product is finished or delivered. This pricin$ is prevalent in industries with lon$ production lead times, such as industrial construction and heavy e@uipment. I &scalator clauses # The company re@uires the customer to pay todayAs price and all or part of any inflation increase that takes place before delivery. &scalator clauses are found in contracts for ma.or industrial pro.ects, such as aircraft construction and brid$e buildin$. I 1nbundlin$ # The company maintains its price but removes or prices separately one or more elements that were part of the former offer, such as free delivery or installation. "ar companies sometimes add hi$her#end audio entertainment systems or E(8 navi$ation systems as extras to their vehicles. I )eduction of discounts # The company instructs its sales force not to offer its normal cash and @uantity discounts. (a$e )ef' =:+ -b.ective' = %ifficulty' 3oderate

*6 "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

1*1) When be $oes shoppin$, he comes across a T#shirt that is priced at 5*6. lthou$h he wants to buy it, .ud$in$ from the material used, he feels that the T#shirt should only cost 5/:. What reference price is be usin$ here7 nswer' 5/: is what be perceives to be the Kfair priceK for the product. (a$e )ef' *+, -b.ective' 1 "8!' nalytic skills %ifficulty' 3oderate 1*/) JD ;nc. has launched a touch sensitive handset in the ;ndian market and priced the same at ;J) >6::. lthou$h many people are checkin$ it out and showin$ interest about purchasin$ it, ma.ority of them are holdin$ themselves back because they feel that it is not worth ;J) >6::. They compare the handsetsA feature with that of its other competitors offerin$ the same features and come to a conclusion that it is worth ;J) +6:: and nothin$ more than that. What kind of a reference price are the consumers usin$7 nswer' The consumers are usin$ the upper#bound price. 1pper#bound price refers to the reservation price or the maximum that most consumers would pay. (a$e )ef' *+, -b.ective' 1 "8!' nalytic skills %ifficulty' 3oderate 1**) When "athy went shoppin$, she paid a lot to buy a .acket that had a well#known desi$nerAs ta$ attached to it. fter a few days, she came across a .acket which was undistin$uishable from the one she had bou$ht but was priced 6 times lesser than the earlier one. 8he didnAt $ive this a second thou$ht because she was convinced that the desi$ner label she had bou$ht was worth it. What can be deduced from this7 nswer' "athy was usin$ the price as an indicator of @uality. 8he was usin$ ima$e pricin$. This kind of pricin$ is especially effective with e$o#sensitive products such as perfumes, expensive cars, and desi$ner clothin$. (a$e )ef' *++ -b.ective' 1 "8!' nalytic skills %ifficulty' 3oderate 1*=) $athaAs ;nc. is about to introduce a new product in the market, but is not sure as to how it should price the product. The company is facin$ intense competition from 6 other companies. ;n the past, it has also failed to keep up with the chan$in$ consumer wants. ;n such a situation, what should be its main ob.ective7 nswer' The main ob.ective for $athaAs ;nc. should be survival. s lon$ as prices cover variable costs and some fixed costs, the company will stay in business. !ut, it is worthwhile to remember that survival is a short#run ob.ective. ;n the lon$ run, the company has to add value to its product or face extinction. (a$e )ef' *+> -b.ective' / "8!' nalytic skills %ifficulty' 3oderate
*? "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

1*6) !ellaAs ;nc. has estimated the demand and costs associated with alternative prices. ;t has finally chosen to price its new offerin$ in such a way that it will maximiBe the rate of return on investment. What can be deduced about the companyAs ob.ective7 nswer' ;t can be deduced that the companyAs main ob.ective is to maximiBe its maximum current profit. (a$e )ef' *+> -b.ective' / "8!' nalytic skills %ifficulty' 3oderate 1*?) When "arlAs company introduced its new product in the market, it introduced it at the lowest possible price assumin$ that the demand for the product is $oin$ to be hi$hly responsive to the price it is bein$ introduced at. ;t also believes that a hi$her sales volume will lead to lower unit costs and hi$her lon$#run profit. What can be said about the companyAs ob.ective7 nswer' The companyAs ob.ective is to maximiBe its market share. (a$e )ef' *+> -b.ective' / "8!' nalytic skills %ifficulty' 3oderate 1*,) When 8ony introduced the worldAs first hi$h#definition television to the 4apanese market in 1>>:, it was priced at 5=*,:::. This helped 8ony to scoop the maximum amount of revenue from the various se$ments of the market. The price dropped steadily throu$h the yearsLa /+#inch 8ony <%TD cost .ust over 5?,::: in 1>>*, but a =:#inch 8ony <%TD cost only 5?:: in /:1:. What pricin$ strate$y did 8ony use here7 nswer' 8ony used a market#skimmin$ pricin$ strate$y. This is a favorite for companies unveilin$ a new technolo$y. "ompanies usin$ this introduce their product at a hi$h price and slowly drop the price over time. (a$e )ef' *>: -b.ective' / %ifficulty' 3oderate 1*+) %aryl convinced his prospective client that "ar was the best for him. !ut, the client insisted that the car cost him a $ood 51:,::: more than "ar !, the one which he was thinkin$ of buyin$. %aryl told him that the amount he would have to spend on the fuel, insurance, repairs, and maintenance for "ar ! would be 6 times more than what he would have to spend on "ar . 0inally convinced, the client consented to buy "ar . What techni@ue did %aryl use to convince his customer7 nswer' %aryl convinced his customer that "ar offers him the lowest total cost of ownership. (a$e )ef' *>1 -b.ective' / "8!' nalytic skills %ifficulty' 3oderate

*, "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

1*>) company that pays its bills each month for its rent, heat, interest, and salaries re$ardless of its output is said to be incurrin$ what type of costs7 nswer' These are said to be a companyAs fixed costs. (a$e )ef' *>* -b.ective' / "8!' nalytic skills %ifficulty' 3oderate 1=:) &llieAs mana$er has asked her to come up with ways to reduce costs of their new product by utiliBin$ a process called Ktar$et costin$.K What should &llie do7 nswer' &llie will have to ask the marketin$ research department to establish the new productAs desired functions and the price at which the product will sell, $iven its appeal and competitorsA prices. %eductin$ the desired profit mar$in from this price leaves the tar$et cost that must be achieved. <er company will then have to examine each cost element like the desi$n, en$ineerin$, manufacturin$, and sales and brin$ down costs so that the final cost pro.ections are in the tar$et ran$e. (a$e )ef' *>= -b.ective' / "8!' nalytic skills %ifficulty' 3oderate 1=1) What should a company do if its competitorAs product contains some features that are not available in its product7 nswer' ;n such a situation, the company should subtract the value of those features from the price of its product. (a$e )ef' *>6 -b.ective' / %ifficulty' 3oderate 1=/) toaster manufacturer who has invested 51 million in the business wants to set a price to earn a /: percent return on investment, specifically 5/::,:::. What pricin$ method should it choose7 nswer' The toaster manufacture should $o for a tar$et#return pricin$. While usin$ this pricin$ method, companies determine the price that yield its tar$et rate of return on investment. (a$e )ef' *>, -b.ective' / %ifficulty' 3oderate 1=*) ;n oli$opolistic industries, all firms normally char$e the same price. What kind of a pricin$ method are they said to be followin$7 nswer' -li$opolistic industries follow $oin$#rate pricin$. 0irms followin$ this pricin$ method, base their prices lar$ely on competitorsA prices. (a$e )ef' =:1 -b.ective' / %ifficulty' 3oderate

*+ "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all

1==) -n sites such as e!ay and maBon.com, the seller puts up an item and bidders raise the offer price until the top price is reached. What kind of auctions are these7 nswer' e!ay and maBon.com are perfect examples of &n$lish auctions. 8uch auctions have one seller and many buyers and the hi$hest bidder $ets the item. (a$e )ef' =:/ -b.ective' / %ifficulty' 3oderate 1=6) !ritish aircraft manufacturer sold planes to !raBil for ,: percent cash and the rest in coffee. This is an example of what kind of a countertrade7 nswer' This is an example of a compensation deal. ;n such deals, the seller receives some percenta$e of the payment in cash and the rest in products. (a$e )ef' =:= -b.ective' * %ifficulty' 3oderate 1=?) 0redAs company has recently sold its resin#producin$ plant to a local concern in ;ndia. s part of the sales price, his company a$rees to accept as partial payment the production of the resin at an a$reed upon price for six years. This is an example of what type of countertrade7 nswer' This is an example of a buyback arran$ement. ;n such arran$ements, the seller sells a plant, e@uipment, or technolo$y to another country and a$rees to accept as partial payment products manufactured with the supplied e@uipment. (a$e )ef' =:= -b.ective' * "8!' nalytic skills %ifficulty' 3oderate 1=,) (epsi "o. sold its cola syrup to )ussia and a$reed to buy )ussian vodka at a certain rate for sale in the 1nited 8tates for the next 6 years. What kind of a countertrade did both the parties indul$e in7 nswer' !oth the parties indul$ed in an offset. ;n such countertrade, the seller receives full payment in cash but a$rees to spend a substantial amount of the money in that country within a stated time period. (a$e )ef' =:= -b.ective' * %ifficulty' 3oderate 1=+) When EinaAs company printed the ad for their (erfume in the newspapers, the caption read, KW 8 51::, J-W 5,6K. What kind of a promotional pricin$ did her company use7 nswer' EinaAs company used psycholo$ical discountin$. This strate$y sets an artificially hi$h price and then offers the product at substantial savin$s. (a$e )ef' =:6 -b.ective' * %ifficulty' 3oderate

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1=>) 3ovie matinees are priced lower than the evenin$ showsF television advertisin$ costs less when run after midni$ht. These are examples of what type of price discrimination7 nswer' These are examples of time pricin$ or price discrimination based on time. (a$e )ef' =:? -b.ective' * "8!' nalytic skills %ifficulty' 3oderate 16:) When the airline industries offer discounted but limited early purchases, hi$her#priced late purchases, and the lowest rates on unsold inventory .ust before it expires, what kind of a pricin$ techni@ue are they said to be usin$7 nswer' The airline industries are usin$ yield pricin$. (a$e )ef' =:? -b.ective' * %ifficulty' 3oderate

=: "opyri$ht 9 /:1/ (earson &ducation, ;nc. (ublishin$ as (rentice <all