1. C HAPTER 9 PRICING: Understanding and Capturing Customer value CRS Questions & Answers

2. Copyright 2007, Prentice-Hall Inc.9-2 Restaurants, hotels, and beauty salons operate in markets characterized by: 1.Monopolistic competition 2.Oligopolistic competition 3.Pure monopoly 4.Pure competition

3. Copyright 2007, Prentice-Hall Inc.9-3 Restaurants, hotels, and beauty salons operate in markets characterized by: 1.Monopolistic competition 2.Oligopolistic competition 3.Pure monopoly 4.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.

4. 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.Highly inelastic 2.Highly unpredictable 3.Highly elastic 4.Highly variable

5. Copyright 2007, Prentice-Hall Inc.9-5 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.Highly inelastic 2.Highly unpredictable 3.Highly elastic 4.Highly variable When the percentage change in price (10%) is smaller than the corresponding percentage change in demand (40%), demand is elastic.

6. 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.break-even pricing 2.competitive targeting 3.target costing 4.oligopolistic pricing

7. Copyright 2007, Prentice-Hall Inc.9-7 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.break-even pricing 2.competitive targeting 3.target costing 4.oligopolistic pricing Target costing starts with an ideal selling price based on customer value considerations and then targets costs.

8. 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.Everyday low pricing 2.Competition-based pricing 3.Sealed-bid pricing 4.High-low pricing

9. Copyright 2007, Prentice-Hall Inc.9-9 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.Everyday low pricing 2.Competition-based pricing 3.Sealed-bid pricing 4.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.

10. 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.$18.75 2.$17.50 3.$20.00 4.$22.50

11. Copyright 2007, Prentice-Hall Inc.9-11 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.$18.75 2.$17.50 3.$20.00 4.$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

12. 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.

13. Copyright 2007, Prentice-Hall Inc.9-13 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.

14. 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.Product line pricing 2.By-product pricing 3.Captive-product pricing 4.Optional-product pricing

15. Copyright 2007, Prentice-Hall Inc.9-15 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.Product line pricing 2.By-product pricing 3.Captive-product pricing 4.Optional-product pricing Manufacturers using by-product pricing accept any price that covers the cost of storing and delivering the by-products.

16. Copyright 2007, Prentice-Hall Inc.9-16 Discounts offered to channel members for services they provide are called: 1.Functional discounts 2.Quantity discounts 3.Cash discounts 4.Seasonal discounts

17. Copyright 2007, Prentice-Hall Inc.9-17 Discounts offered to channel members for services they provide are called: 1.Functional discounts 2.Quantity discounts 3.Cash discounts 4.Seasonal discounts Wholesalers, distributors, and retailers earn functional discounts as a reward for storing and selling the product, and for their record keeping activities.

18. Copyright 2007, Prentice-Hall Inc.9-18 A company can react to a competitor’s price change in all the following ways EXCEPT: 1.Price fixing 2.Reducing its own prices 3.Raising the perceived quality of its products 4.Launching a fighting brand

19. Copyright 2007, Prentice-Hall Inc.9-19 A company can react to a competitor’s price change in all the following ways EXCEPT: 1.Price fixing 2.Reducing its own prices 3.Raising the perceived quality of its products 4.Launching a fighting brand Price fixing – in which competitors conspire together to set identical selling prices – is illegal.

20. 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.promotional pricing 2.predatory pricing 3.deceptive pricing 4.price confusion

21. Copyright 2007, Prentice-Hall Inc.9-21 Through _________, a business sells its products below cost in order to punish competitors or put them out of business. 1.promotional pricing 2.predatory pricing 3.deceptive pricing 4.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.