Pricing - Understanding and Capturing Customer Value 74-100 Answer Key

74) Busch Stadium in St. Louis charges different prices for seats in different areas of the ball park, even though each seat costs the same for the owners of the stadium. What is this form of pricing called? A) location-based pricing B) market-skimming pricing C) product-form pricing D) time-based pricing E) market-penetration pricing Answer: A 75) Movie theaters charge matinee pricing during the daytime, and resorts give weekend and seasonal discounts. This is illustrative of a ________ pricing strategy. A) product form B) market-penetration C) market-skimming D) time-based E) value-added Answer: D 76) Pricing a product based on consumers' reference prices is referred to as ________ pricing. A) geographical B) psychological C) allowance D) by-product E) captive-product Answer: B 77) Consumers rely less on price to judge the quality of a product when they ________. A) lack information about the product B) are unable to research the product C) have prior experience with the product D) are unable to judge the quality of the product E) rely on cues from sellers to differentiate a high or low price Answer: C 78) ________ prices are carried in buyers' minds and used when looking at a given product. A) Captive-product B) Reference C) Promotional D) Geographical E) Dynamic Answer: B 79) What type of pricing is being used when a company temporarily prices its products below the list price to create buying excitement and urgency? A) segmented pricing B) psychological pricing C) geographical pricing D) promotional pricing E) dynamic pricing Answer: D 80) When a manufacturer offers a ________, a customer buys a product from a manufacturer's dealer within a specified time period, and the manufacturer then sends the customer a check. A) cash rebate B) quantity discount C) promotional allowance D) flash sale E) functional discount Answer: A 81) Which of the following pricing strategies charges the same price plus freight to all customers, regardless of their location? A) basing-point pricing B) freight-absorption pricing C) FOB-origin pricing D) zone pricing E) uniform-delivered pricing Answer: E 82) Which of the following pricing strategies is the opposite of FOB-origin pricing? A) basing-point pricing B) dynamic pricing C) uniform-delivered pricing D) freight-absorption pricing E) zone pricing Answer: C 83) Wilkinson & Company sells plumbing supplies across the United States. Wilkinson uses Chicago as its central location for determining freight costs regardless of the city from which products are actually shipped. For example, a Dallas customer pays the freight cost from Chicago to Dallas even if the goods are shipped from Dallas. Wilkinson most likely uses ________ pricing. A) basing-point B) FOB-origin C) freight-absorption D) zone E) reference Answer: A 84) Computer Works is a computer accessories manufacturer based in Brazil. All customers in South America pay the same freight charge, $20, when they order products from the company. All customers in North America pay a freight charge of $50. The company's pricing strategy is referred to as ________ pricing. A) basing-point B) FOB-origin C) freight-absorption D) zone E) uniform-delivered Answer: D 85) The Vitamin Shoppe sells natural vitamins and supplements. Product prices are adjusted frequently to meet the needs of individual customers. For example, long-time customers receive discounts. This strategy is most likely an example of ________ pricing. A) zone B) competition-based C) dynamic D) basing-point E) penetration Answer: C 86) Overuse of promotional pricing can erode a brand's value in the eyes of customers. Answer: TRUE 87) Freight-absorption pricing is used for market skimming and holding on to monopolistic markets. Answer: FALSE 88) An important consideration when determining what price to charge in a specific country is the nature of the wholesaling and retailing system in that country. Answer: TRUE 89) What is segmented pricing? Briefly describe the different types of segmented pricing. Answer: In segmented pricing, the company sells a product or service at two or more prices, even though the difference in prices is not based on differences in costs. Segmented pricing takes several forms. Under customer-segment pricing, different customers pay different prices for the same product or service. Under product-form pricing, different versions of the product are priced differently but not according to differences in their costs. Using location-based pricing, a company charges different prices for different locations, even though the cost of offering each location is the same. Finally, using time-based pricing, a firm varies its price by the season, the month, the day, and even the hour. 90) Explain how companies that market their products internationally decide what prices to charge in different countries. Answer: Companies that market their products internationally must decide what prices to charge in different countries. In some cases, a company can set a uniform worldwide price. However, most companies adjust their prices to reflect local market conditions and cost considerations. A firm must consider economic conditions, competitive situations, laws and regulations, and development of the wholesale and retail system. Consumer perceptions and preferences also may vary from country to country, calling for different prices. The company may have different marketing objectives in various world markets. Costs play an important role in setting international prices. In some cases, price escalation may result from differences in selling strategies or market conditions. In most instances, however, it is simply a result of the higher costs of selling in another country — the additional costs of operations, product modifications, shipping and insurance, import tariffs and taxes, exchange-rate fluctuations, and physical distribution. 91) Which of the following would most likely trigger a price increase? A) cost inflation B) reduced demand C) cheaper alternatives D) reduced expenses E) overproduction Answer: A 92) The Sherman Act, Clayton Act, and Robinson-Patman Act are all federal laws that were initially adopted to curb the formation of ________. A) monopolies B) oligopolies C) competitive markets D) international markets E) limited partnerships Answer: A 93) ________ pricing refers to selling below cost with the intention of punishing a competitor or gaining higher long-run profits by putting competitors out of business. A) Oligopolistic B) Captive C) Dynamic D) Zone E) Predatory Answer: E 94) Penny Bank, a discount store, is highly competitive. When entering a new market, Penny Bank often cuts prices so deeply that it sells below costs, effectively pushing smaller retail stores with less purchasing power out of the market. In this case, Penny Bank is using ________. A) market skimming B) psychological pricing C) predatory pricing D) deceptive pricing E) cost-plus pricing Answer: C 95) ________ pricing occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers. A) Predatory B) Psychological C) Deceptive D) Cost-plus E) Allowance Answer: C 96) The Robinson-Patman Act seeks to prevent unfair price discrimination by ensuring that sellers offer the same price terms to customers at a given level of trade. Answer: TRUE 97) Federal legislation on price-fixing states that sellers must set prices after talking to customers and competitors. Answer: FALSE 98) Price discrimination is allowed if a seller can prove that its costs are different when selling to different retailers. Answer: TRUE 99) Identify a few situations in which price cuts or price increases might be necessary. Answer: Several situations may lead a firm to consider cutting its price. Price cuts may be necessary when there is excess capacity. Another is falling demand in the face of strong price competition or a weakened economy. In such cases, a firm may aggressively cut prices to boost sales and market share. A company may also cut prices in a drive to dominate the market through lower costs. A major factor in price increases is cost inflation. Rising costs squeeze profit margins and lead companies to pass cost increases along to customers. Another factor leading to price increases is over-demand. When a company cannot supply all that its customers need, it may raise its prices, ration products to customers, or both. 100) What is the difference between price-fixing and predatory pricing? How do governments discourage firms from engaging in such practices? Answer: Federal legislation on price-fixing states that sellers must set prices without talking to competitors. Otherwise, price collusion is suspected. Price-fixing is illegal per se — that is, the government does not accept any excuses for price-fixing. As such, companies found guilty of these practices can receive heavy fines. Recently, governments at the state and national levels have been aggressively enforcing price-fixing regulations in industries ranging from gasoline, insurance, and concrete to credit cards, CDs, computer chips, and e-books. Price-fixing is also prohibited in many international markets. Sellers are also prohibited from using predatory pricing — selling below cost with the intention of punishing a competitor or gaining higher long-run profits by putting competitors out of business. This protects small sellers from larger ones that might sell items below cost temporarily or in a specific locale to drive them out of business.