Chapter14

Chapter 14 Chapter 14

Developing Pricing Strategies and ProgramsDeveloping Pricing Strategies and Programs

QUESTION 1QUESTION 1

• Which of the following is the marketing priority on how do

consumers process and evaluate prices?

A. Reference Prices

B. Price-Quality Inferences

C. Price Endings

D. A B and C

E. None of Them

3

Answer

• Which of the following is the marketing priority on how do consumers

process and evaluate prices?

A. Reference Prices

B. Price-Quality Inferences

C. Price Endings

D. A B and C

E. None of Them

4

Analysis

• All types of reference like fair price typical price last price paid upper-bound price lower-bound price competitor prices expected future prices and usual discounted price

• When alternative information about true quality is available price becomes a less significant indicator of quality. When this information is not available ,price acts as a signal of quality

• Many sellers believe price should end in an odd numberl. Another explanation for the popularity of “9” ending is that the convey the notion of a discount or bargain.

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Question 2

• Please give the proper sequence in setting price initially for the products or services

1.Deterimne demand 2.select the price objective 3.analyzecompetitor price mix 4.select final price 5.select price method

6.estimate costsA 2 1 6 3 5 4B 1 2 6 3 54 C 1 2 3 6 5 4D 2 1 3 6 5 4E 1 2 3 6 4 5

6

Answer

• Please give the proper sequence in setting price initially for the products or services

1.Deterimne demand 2.select the price objective 3.analyzecompetitor price mix 4.select final price 5.select price method

6.estimate costsA 2 1 6 3 5 4B 1 2 6 3 54 C 1 2 3 6 5 4D 2 1 3 6 5 4E 1 2 3 6 4 5

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Analysis

• The company first decides where it wants to position its market offering. The clearer a firm’s objectives, the easier it is to set price.

• Each price will lead to a different level of demand and will therefore have a different impact on a company’s marketing objectives

• Demand sets a ceiling on the price the company can charge for its product. Costs the floor

• The firm should first consider the nearest competitor’s price

• Given the customers’ demand schedule,the cost function, and competitors’ prices,the company is now ready to select a price

• Pricing methods narrow the range from which the company must select its final price

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Question 3

• Which is not the market skimming makes sense under the following conditions:

A a sufficient number of buyers have a high current demandB the unit costs of producing a big volume are not so high

that they cancel the advantage of charging what the traffic will bear

C the high initial price does not attract more competitors to the market

D the high price communicates the image of a superior product

E none of them

9

answer

• Which is not the market skimming makes sense under the following conditions:

A a sufficient number of buyers have a high current demandB the unit costs of producing a big volume are not so high

that they cancel the advantage of charging what the traffic will bear

C the high initial price does not attract more competitors to the market

D the high price communicates the image of a superior product

E none of them

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Analysis

the unit costs of producing a small volume are not so high

that they cancel the advantage of charging what the traffic will bear

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Question 4

• Suppose a toaster manufacturer has the following costs and sales expectations:

variable cost per unit $10

fixed costs $300,000

expected unit sales 50,000

Now suppose the manufacturer wants to earn a 20% markup on sales. What is the makeup price should be given by the manufacturer?

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Answer

• Unit cost = variable cost+ fixed cost/unit sales

=$10+$300,000/50,000

=$16

Markup price=unit cost/(1-desired return on sales)

= $16/(1-0.2)

=$20

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Question 5

• Suppose the toaster manufacturer has invested $1 million in the business and wants to set a price to earn a 20% ROI, specifically $200,000. What is the target-return price and break-even point?

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Answer

• Target-return pricing =unit cost +desired return *invested capital/unit sales

=$16+(0.2*$1,000,000)/50,000

=$16+$4

=$20

Break-even volume =fixed cost/(price-variable cost)

=300,000/($20-$10)

=30,000

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Question 6

• Which of the following is correct?A Dutch auctions is the seller puts up an item and bidders

raise the offer price until the highest price is reachedB English auctions is one seller and many buyers, or one

buyer and many sellers. In the first kind, an auctioneer announces a high price for a product and then slowly decrease the price until an bidder accepts the price

C Sealed-bid auctions would-be suppliers can submit only one bid and cannot know the other bids.

D Dispose of excess inventories or used goods is not one major purpose of auctions.

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answer

• Which of the following is correct?A Dutch auctions is the seller puts up an item and bidders

raise the offer price until the highest price is reachedB English auctions is one seller and many buyers, or one

buyer and many sellers. In the first kind, an auctioneer announces a high price for a product and then slowly decrease the price until an bidder accepts the price

C Sealed-bid auctions would-be suppliers can submit only one bid and cannot know the other bids.

D Dispose of excess inventories or used goods is not one major purpose of auctions.

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Analysis

A English auctions is the seller puts up an item and bidders raise the offer price until the highest price is reached

B Dutch auctions is one seller and many buyers, or one buyer and many sellers. In the first kind, an auctioneer announces a high price for a product and then slowly decrease the price until an bidder accepts the price

C Sealed-bid auctions would-be suppliers can submit only one bid and cannot know the other bids.

D Dispose of excess inventories or used goods is one major purpose of auctions.

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Question 7

• Which of the following is not the price-adaptation strategies?

A geographical pricing

B price discounts and allowances

C promotional pricing

D differentiated pricing

E auction pricing

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Answer

• Which of the following is not the price-adaptation strategies?

A geographical pricing

B price discounts and allowances

C promotional pricing

D differentiated pricing

E auction pricing

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Analysis

• In geographical pricing, the company decides how to price its products to different customers in different locations and countries

• Discounting can be a useful tool if a company can gain concessions in return.

• Promotional-pricing strategies are often a zero-sum game

• Companies often adjust their basic price to accommodate differences in customers, products, locations, and so on.

• Auction pricings is a pricing method

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Question 8

• Which of the following is not true?

A excess the plant capacity might lead a firm to cut price.

B companies sometimes initiate price cuts in a drive to dominate the market through lower cost

C a major circumstance provoking price increases is a cost inflation

D one factor leading to price cuts is overdemand

E creating new economy brands is one of popular way to avoid increasing price

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Answer

• Which of the following is not true?

A excess the plant capacity might lead a firm to cut price.

B companies sometimes initiate price cuts in a drive to dominate the market through lower cost

C a major circumstance provoking price increases is a cost inflation

D one factor leading to price cuts is overdemand

E creating new economy brands is one of popular way to avoid increasing price

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Analysis

one factor leading to price increase is overdemand. When a company cannot supply all its customers, it can raise its prices, ration supplies to customers, or both.

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Question 9

• In nonhomogeneous product markets, a firm has more latitude. It needs to consider the following issues except:

A if the firm can search for ways to enhance its augmented product?

B why did the competitor change the price?C does the competitor plan to make the price change

temporary or permanentD what will happen to the company’s market shar and profits

if it does not respondE what are the competitors’ and other firms’ responses likely

to be to each possible reaction

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Answer

• In nonhomogeneous product markets, a firm has more latitude. It needs to consider the following issues except:

A if the firm can search for ways to enhance its augmented product?

B why did the competitor change the price?C does the competitor plan to make the price change

temporary or permanentD what will happen to the company’s market shar and profits

if it does not respondE what are the competitors’ and other firms’ responses likely

to be to each possible reaction

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Analysis

• In markets characterized by high product homogeneity, the firm can search for ways to enhance its augmented product

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Question 10

• Which of the following is a pricing objective

A survival

B maximum current profit

C Maximum market share

D maximum market skimming and product-quality leadship

E all of above

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Answer

• Which of the following is a pricing objective

A survival

B maximum current profit

C Maximum market share

D maximum market skimming and product-quality leadship

E all of above

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FINAL

• Whatever the specific objective, businesses that use price as a strategic tool will profit more than those simply let costs or the market determine their pricing