Download CHAPTER 9 PRICING

CHAPTER 9
CRS Questions & Answers
PRICING: Understanding
and Capturing Customer
value
Restaurants, hotels, and beauty salons operate
in markets characterized by:
1.
2.
3.
4.
Monopolistic competition
Oligopolistic competition
Pure monopoly
Pure competition
Copyright 2007, Prentice-Hall Inc.
9-2
Restaurants, hotels, and beauty salons operate
in markets characterized by:
1.
2.
3.
4.
Monopolistic competition
Oligopolistic competition
Pure monopoly
Pure competition
In monopolistic competition, the market consists of many
buyers and sellers who differentiate offerings and thus sell
over a range of prices rather than at a single market price.
Copyright 2007, Prentice-Hall Inc.
9-3
Initially, you price your new motorcycle at
$30,000, but then drop the price to $27,000.
Consequently, demand for the new motorcycle
jumps by 40 percent, because demand is:
1.
2.
3.
4.
Highly inelastic
Highly unpredictable
Highly elastic
Highly variable
Copyright 2007, Prentice-Hall Inc.
9-4
Initially, you price your new motorcycle at
$30,000, but then drop the price to $27,000.
Consequently, demand for the new motorcycle
jumps by 40 percent, because demand is:
1.
2.
3.
4.
Highly inelastic
Highly unpredictable
Highly elastic
Highly variable
When the percentage change in price (10%) is
smaller than the corresponding percentage
change in demand (40%), demand is elastic.
Copyright 2007, Prentice-Hall Inc.
9-5
In ________, the goal is to inexpensively and
quickly capture market share by first
determining the lowest price that can be set
while maintaining profitability, and then
developing products that match those prices.
1.
2.
3.
4.
break-even pricing
competitive targeting
target costing
oligopolistic pricing
Copyright 2007, Prentice-Hall Inc.
9-6
In ________, the goal is to inexpensively and
quickly capture market share by first
determining the lowest price that can be set
while maintaining profitability, and then
developing products that match those prices.
1.
2.
3.
4.
break-even pricing
competitive targeting
target costing
oligopolistic pricing
Target costing starts with an ideal selling price based on
customer value considerations and then targets costs.
Copyright 2007, Prentice-Hall Inc.
9-7
A chain of budget drugstores will allow you to
offer cosmetics at slightly higher prices, as long
as you also offer frequent discounts and sales.
The chain will require you to use:
1.
2.
3.
4.
Everyday low pricing
Competition-based pricing
Sealed-bid pricing
High-low pricing
Copyright 2007, Prentice-Hall Inc.
9-8
A chain of budget drugstores will allow you to
offer cosmetics at slightly higher prices, as long
as you also offer frequent discounts and sales.
The chain will require you to use:
1.
2.
3.
4.
Everyday low pricing
Competition-based pricing
Sealed-bid pricing
High-low pricing
High-low pricing is one form of good-value
pricing. In recent years, high-low pricing has
given way to EDLP in many retail settings.
Copyright 2007, Prentice-Hall Inc.
9-9
A retailer decides to mark up DVDs at 25% of
the selling price charged to consumers. If she
buys DVDs from a wholesaler for $15, what
should be her selling price for DVDs?
1.
2.
3.
4.
$18.75
$17.50
$20.00
$22.50
Copyright 2007, Prentice-Hall Inc.
9-10
A retailer decides to mark up DVDs at 25% of
the selling price charged to consumers. If she
buys DVDs from a wholesaler for $15, what
should be her selling price for DVDs?
1.
2.
3.
4.
$18.75
$17.50
$20.00
$22.50
Simple algebra can help solve this problem:
A. X – (X * .25) = 15 B. 4X – (4X*.25) = 15*4
C. 4X – X = 60 D. 3X = 60
E. X = 20
Copyright 2007, Prentice-Hall Inc.
9-11
Market penetration pricing works best when all
EXCEPT which the following conditions are met?
1. Consumers are price sensitive.
2. Per unit production and distribution costs
fall as sales volume rises.
3. The low prices keep competitors at bay.
4. The product has a premium image.
Copyright 2007, Prentice-Hall Inc.
9-12
Market penetration pricing works best when all
EXCEPT which the following conditions are met?
1. Consumers are price sensitive.
2. Per unit production and distribution costs
fall as sales volume rises.
3. The low prices keep competitors at bay.
4. The product has a premium image.
As consumers often equate high prices with high
quality, market skimming would be the preferred
strategy when a product has a premium image.
Copyright 2007, Prentice-Hall Inc.
9-13
Kasel Industries buys pig ears which it roasts,
and sells as dog treats. The price that Kasel
pays a meat processor for the pig ears would
be considered an example of:
1.
2.
3.
4.
Product line pricing
By-product pricing
Captive-product pricing
Optional-product pricing
Copyright 2007, Prentice-Hall Inc.
9-14
Kasel Industries buys pig ears which it roasts,
and sells as dog treats. The price that Kasel
pays a meat processor for the pig ears would
be considered an example of:
1.
2.
3.
4.
Product line pricing
By-product pricing
Captive-product pricing
Optional-product pricing
Manufacturers using by-product pricing accept any price that
covers the cost of storing and delivering the by-products.
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9-15
Discounts offered to channel members for
services they provide are called:
1.
2.
3.
4.
Functional discounts
Quantity discounts
Cash discounts
Seasonal discounts
Copyright 2007, Prentice-Hall Inc.
9-16
Discounts offered to channel members for
services they provide are called:
1.
2.
3.
4.
Functional discounts
Quantity discounts
Cash discounts
Seasonal discounts
Wholesalers, distributors, and retailers earn functional
discounts as a reward for storing and selling the
product, and for their record keeping activities.
Copyright 2007, Prentice-Hall Inc.
9-17
A company can react to a competitor’s price
change in all the following ways EXCEPT:
1.
2.
3.
4.
Price fixing
Reducing its own prices
Raising the perceived quality of its products
Launching a fighting brand
Copyright 2007, Prentice-Hall Inc.
9-18
A company can react to a competitor’s price
change in all the following ways EXCEPT:
1.
2.
3.
4.
Price fixing
Reducing its own prices
Raising the perceived quality of its products
Launching a fighting brand
Price fixing – in which competitors conspire
together to set identical selling prices – is illegal.
Copyright 2007, Prentice-Hall Inc.
9-19
Through _________, a business sells its
products below cost in order to punish
competitors or put them out of business.
1.
2.
3.
4.
promotional pricing
predatory pricing
deceptive pricing
price confusion
Copyright 2007, Prentice-Hall Inc.
9-20
Through _________, a business sells its
products below cost in order to punish
competitors or put them out of business.
1.
2.
3.
4.
promotional pricing
predatory pricing
deceptive pricing
price confusion
Predatory pricing laws protect small sellers from larger
ones. However, selling below cost to unload excess
inventory is not considered to be predatory pricing.
Copyright 2007, Prentice-Hall Inc.
9-21