Pricing Strategies Quiz

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Questions and Answers

What is a key characteristic of segmented pricing?

Prices vary for different customer segments, not necessarily based on costs. (correct)

Prices vary based solely on differences in production costs.

Prices vary based on geographic location of the customer.

Prices are temporarily reduced to boost short-term sales.

Which of the following best describes 'allowances' as a price adjustment strategy?

Reducing prices in exchange for the customer showcasing the product. (correct)

Reducing prices based on the quantity of products purchased.

Reducing prices based on customer location.

Reducing prices for customers who pay early.

What is one of the requirements for effective segmented pricing?

The cost of segmenting must be lower than the extra revenue. (correct)

The segments must have similar degrees of demand.

Segments must be geographically identical.

The market must be homogenous in its purchasing habits.

If a company offers a discount to military personnel, which pricing strategy are they using?

Customer-Segment Pricing (C) Signup and view all the answers

Which of the following is NOT a type of segmented pricing?

Psychological pricing (B) Signup and view all the answers

A company temporarily reduces prices on a particular item to increase sales during the holidays, which strategy is being used?

Promotional pricing (A) Signup and view all the answers

Which price adjustment strategy involves varying prices based on the location of the customer?

Geographical pricing (D) Signup and view all the answers

What is the primary purpose of discount and allowance pricing strategies?

To reward desired customer behaviors such as volume purchases. (D) Signup and view all the answers

What is a primary condition for successfully implementing a market-skimming pricing strategy?

Product quality and image should support the high price (C) Signup and view all the answers

A company launches a new product with a low price to attract a large customer base. What pricing strategy best aligns with this approach?

Market-penetration pricing (C) Signup and view all the answers

What is the primary goal of market-penetration pricing?

To quickly gain a large market share (B) Signup and view all the answers

Which pricing strategy is most appropriate when a new product has a unique feature but is likely to face competition soon?

Market-skimming pricing followed by price reduction (C) Signup and view all the answers

Which condition is NOT typically required for effective implementation of market-skimming strategy?

A low price to attract a large market share (B) Signup and view all the answers

A company releases a gaming console at a high price and then slowly reduces the price over time as new models come out. This approach is an example of:

Market-skimming pricing. (D) Signup and view all the answers

Gillette's strategy of pricing their razor starter kits low while selling high-margin refill blades later exemplifies which pricing strategy?

Market-penetration pricing. (A) Signup and view all the answers

What is the primary focus of psychological pricing?

The use of price to influence customer perception of quality (A) Signup and view all the answers

When is it most appropriate to use a market-penetration strategy?

When the aim is to quickly build market share and volumes. (C) Signup and view all the answers

In the context of pricing, what are reference prices?

The prices that consumers typically expect to pay for a product (A) Signup and view all the answers

Which of the following is a key characteristic of promotional pricing?

Temporarily pricing products below their list price. (B) Signup and view all the answers

Which of the following is NOT an example of promotional pricing?

Charging higher prices for higher priced goods. (B) Signup and view all the answers

Which geographical pricing strategy involves the customer paying the freight from the factory to their destination?

FOB-origin pricing (D) Signup and view all the answers

A company charges the same price plus freight to all customers regardless of their location. This is best defined as which type of pricing?

Uniform-delivered pricing (A) Signup and view all the answers

Which geographical pricing strategy divides the market into two or more areas, with customers within each area paying the same price?

Zone pricing (D) Signup and view all the answers

In which geographic pricing strategy does the seller select a specific city that is used to calculate freight charges to their customers?

Basing-point pricing (B) Signup and view all the answers

What is a common consumer reaction to rapid price increases in gasoline?

Accusations of price gouging (C) Signup and view all the answers

What are potential reasons for a price cut by a company?

New models will be available soon (D) Signup and view all the answers

Which of the following is NOT an effective response to pricing changes by competitors?

Increasing product availability (C) Signup and view all the answers

What question is typically NOT asked when analysts assess a competitor's price change?

Did the competitor make a profit on their changes? (D) Signup and view all the answers

Why might consumers perceive a price increase as a sign of a 'hot' product?

It indicates scarcity or high demand (B) Signup and view all the answers

What strategy can a company use to maintain its prices while increasing perceived value?

Enhance marketing communications (C) Signup and view all the answers

What is a 'fighter brand' intended to accomplish?

Compete directly with lower-priced products of rivals (A) Signup and view all the answers

Which option reflects a scenario where analysts might respond to a competitor's price cut?

Considering the impact on overall market demand (D) Signup and view all the answers

What does price fixing legislation prohibit sellers from doing?

Setting prices in consultation with competitors (D) Signup and view all the answers

Which act prevents unfair price discrimination among customers at the same trade level?

Robinson-Patman Act (D) Signup and view all the answers

Under what condition is price discrimination allowed according to public policy?

When different retailer costs can be proven (D) Signup and view all the answers

What is resale price maintenance?

Mandating a specific retail price for a product (C) Signup and view all the answers

What constitutes deceptive pricing?

Stating prices that are misleading or unavailable (C) Signup and view all the answers

Which of the following practices may be considered predatory pricing?

Selling products at a loss to gain market share (D) Signup and view all the answers

What issue does responsible pharmaceutical pricing aim to address?

Ensuring fairness for consumers in drug pricing (B) Signup and view all the answers

What may result from allegations of deceptive pricing?

Legal action against the seller (D) Signup and view all the answers

What is one potential outcome of dynamic pricing done poorly?

Brand distrust (B) Signup and view all the answers

Which of these is NOT a reason for price increases?

Excess capacity (D) Signup and view all the answers

In the context of international pricing, what strategy did Apple employ with the iPhone 13 in China?

They offered the iPhone 13 at a lower price point, targeting a wider audience. (C) Signup and view all the answers

Which pricing strategy involves absorbing freight costs to gain business?

Freight-absorption pricing (A) Signup and view all the answers

What is a key advantage of dynamic pricing for consumers?

Access to instant price comparisons, potentially leading to better deals. (C) Signup and view all the answers

What is a potential challenge of implementing dynamic pricing?

Potential confusion and distrust among shoppers due to fluctuating prices (D) Signup and view all the answers

Which of these is NOT a key reason for initiating price cuts?

Increased demand (A) Signup and view all the answers

What is one way dynamic pricing utilizes technology?

Using sophisticated algorithms to adjust prices based on user interactions. (C) Signup and view all the answers

Study Notes

Pricing Strategies: Advanced Topics

This chapter explores advanced pricing strategies, including those for new products, managing a portfolio of prices, adjusting prices for various customer segments and situations, responding to price changes, and the impact of public policy.

Learning Objectives

11.1: Describes major strategies for pricing new products.
11.2: Explains how companies select a range of prices to maximize profits from their entire product portfolio.
11.3: Discusses how companies adapt prices based on diverse customer groups and specific circumstances.
11.4: Discusses initiating and responding to price changes.
11.5: Explains public policy concerns and laws influencing pricing decisions.

New Product Pricing Strategies

Market-skimming pricing: Sets high initial prices to extract revenue from different market segments.
- Product quality and image must support the high price.
- Consumers need to desire the product at the stated price.
Market-penetration pricing: Establishes a low initial price to capture a large market share.
- Gillette's Fusion ProGlide starter pack is an example.

Product Mix Pricing Strategies

Product line pricing: Sets prices considering the cost variations between different products in a line, customer value perceptions, and competitor prices.
Optional product pricing: Includes prices for accessory products alongside the main product.
Captive product pricing: Establishes prices for products used with the main product (e.g., printer ink).
By-product pricing: Sets prices for byproducts to enhance profitability of the main product. (E.g., chicken feet.)
Product bundle pricing: Combines multiple products into a single package deal to incentivize purchasing.

Price Adjustment Strategies

Discount and allowance pricing: Reduces prices for volume purchases, early payments, or promotions.
- Includes trade-in and promotional allowances.
Segmented pricing: Adjusts prices for different customer groups, product forms, locations, and time periods.
- Effectiveness hinges on market segmentation, varying demand levels, and avoiding exceeding extra revenue from segmentation costs.
- Examples include discounts for military or veteran customers.
Psychological pricing: Sets prices based on psychological factors rather than just economics.
- Reference prices are considered.
- Dunkin's Sip coffee experiment highlights the impact of price and context on brand perception.
Promotional pricing: Temporarily reduces prices to boost short-term sales.
- Techniques include special events, limited-time offers, cash rebates, and financing options.
Geographical pricing: Adjusts prices based on different locations.
- Types include FOB pricing (free on board), uniform pricing, zone pricing, basing-point pricing, and freight-absorption pricing.
Dynamic and personalized pricing: Continuously adjusts prices based on individual customer characteristics and circumstances.
- Online apps facilitate price comparisons.
International pricing: Adjusts prices across international markets.
- Companies adapt strategies to different countries depending on customer wealth levels and the specific market segment.

Price Changes

Initiating price changes: Price cuts are often driven by excess capacity or aiming for greater market share. Price increases may be due to cost inflation or scarcity. WaveStorm is an example.
Buyer reactions to price changes: Price increases might be perceived as "hot" products or greed by the company. Price cuts may be attributed to new model releases or quality/value issues.
Competitor reactions to price changes: Determining why competitors made adjustments. Identifying whether changes are permanent or temporary. Assessing competitive responses.
Responding to competitor price changes: Companies may either maintain their price or reduce their price.

Public Policy and Pricing

Pricing practices are subject to public policy.
- Price fixing concerns collusion.
- Predatory pricing prohibits selling below cost intending to diminish competitors. Amazon is a publicized example.
Pricing across different channels: Legislation, such as the Robinson-Patman Act, mandates ensuring equal pricing of products across market segments. Price discrimination is allowed if supported by cost variations or differences in product quality. Retail price maintenance is illegal.
Pharmaceutical Pricing issues: Consumers want fairness and value in their medication processes.

Discussion Questions

How should a company respond to a competitor's price changes?
Describe the major public policy issues influencing pricing.

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Description

Test your understanding of various pricing strategies with this quiz. Questions cover segmented pricing, discount allowances, market-skimming, and market-penetration strategies. Ideal for students and professionals looking to refresh their knowledge on pricing tactics in marketing.