Gina's Jewelry is an upscale store offering high quality jewelry.

Gina charges prices that are

considerably higher than those of her competitors. Despite this difference in price, Gina's sales
revenues are consistently the highest in the market. This is an example of:

Customary Pricing

Cost-Based Pricing

Penetration Pricing

Competition-Based Pricing
Correct!

Prestige Pricing
Lecture page 107 A) Customary pricing: a method of pricing based on tradition, a standardized
channel of distribution, or other competitive factors. This type of pricing is used in vending
machines or other products where there is a common standard price. B) There is not mention of
cost or markup in this question, so there is no evidence Gina is using cost-based pricing C) Gina
is charging prices considerably higher than her competition so she is not using penetration
pricing. Penetration prices starts with a low price and gradually brings it up. D) Competition-
based pricing one of the five basic pricing approaches. This answer is too general. E) Prestige
pricing involves setting a high price so that status-conscious consumers will be attracted to the
product and buy it. Gina charges are prices than her competitors but she has the highest sales
revenues in the market. Therefore, jewelry consumers must be drawn to the prestige of her
products.

Question 2
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Walker is taking his wife and two daughters to Yellowstone National Park for a family vacation.
He does some research trying to find the best price and comes across a company called Wild Out
West. Wild Out West offers a flat price for a trip to Yellowstone for a wilderness hike. Wild Out
West is using _____ pricing, a form of _____ pricing.
You Answered

Penetration; Competition-based

Penetration; cost-based
Correct Answer

Bundle; demand-based

Chain-markup; demand-based

Bundle; profit-based
Lecture page 107 A) Penetration pricing consist of starting with a low price and gradually
bringing it up. There is no mention of that in this example. Also, penetration pricing is a form of
demand-based pricing. B) Penetration is not a cost-based form of pricing. It is demand-based. C)
The question describes a flat price for a trip to Yellowstone (implying transportation) and a
wilderness hike. That comprises a bundle, which is a demand-based pricing approach. D) There
is no mention of a markup in this question. Also, there is no long marketing channel in this
example so it cannot be chain-markup pricing. E) This is a case of bundle pricing, but bundle
pricing is a form of demand-based pricing, not profit-based.

Question 3
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Abby is at International Mall shopping for a birthday gift for her roommate Colleen. A sweater
in the store window of Bebe catches her eye so she goes in for a better look. Abby knows it's
absolutely perfect for Colleen and has her mind made up to buy the sweater. She looks at the
price tag and sees that it costs $299. Abby winces and says, "Ouch!" She was expecting the price
to be around $75 at the highest. Abby just experienced _____.

price disconfirmation
Correct!

sticker shock

external reference pricing

everyday high pricing

internal reference pricing
Lecture page 109 A. Price disconfirmation is not an actual marketing term. B. Sticker shock
is the feeling of surprise experienced by consumers when they find unexpectedly high prices on
products they consider buying. In this quiz question, Abby is surprised by the amount she sees on
the price tag because it was so much more than what she expected. C. With external reference
price, sellers price items by comparing the prices to those found outside of this location.
External reference prices are usually set up with the format compare to $ . In this quiz
question, no external reference price is used. D. Everyday high pricing is not an actual
marketing term. E. Internal reference price is one where consumers evaluate a price by
comparing it with a memory-based relative standard. In this quiz question, although Abbys
internal reference price is different from the actual price, this concept alone does not explain
what she experienced.

Question 4
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Which of the following statements about a flexible-price policy is false?
Which of the following statements about a flexible-price policy is false?

This flexible-price policy may be used when selling a car.
Correct Answer

Flexible pricing is common in most U.S. supermarkets.
You Answered

When using a flexible-price policy, the seller may risk violating the Robinson-Patman Act.

Flexible pricing may result in race and gender discrimination.

A flexible-price policy may be used when selling a house.
Text page 366 Flexible-price policy, or dynamic pricing, involves setting different prices for
products and services depending on individual buyers and purchase situations. All of the above
are true regarding flexible pricing except that it is common in supermarkets. Supermarkets used
fixed (administered) pricing, also known as a one-price policy.

Question 5
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The Brazilian government wants to build a global satellite transmission system. The
manufacturer will receive $500,000 above actual development costs, whatever those costs may
be. Payment to the manufacturer of the satellite transmission system has been determined using:

bundle pricing.

standard markup pricing.

cost-plus-percentage-of-cost pricing.
Correct!

cost-plus-fixed-fee pricing.

experience curve pricing.
Text page 356 A) Bundle pricing by definition is marketing of two or more products for a single
package price. Bundle pricing assumes that consumers value the package more than the
individual items, and usually provides a lower total cost to buyers and lower marketing costs to
sellers. B) Standard markup entails adding a fixed percentage to the cost of all items in a specific
product class. C) Cost-plus-percentage-of-cost pricing involves adding a fixed percentage to the
total unit cost in order to arrive at the price. D) Cost-plus-fixed-fee pricing is where the producer
is reimbursed for all costs, whatever they may be, and is allowed a fixed amount of profit that is
independent of the final cost. Governments often employ this technique in order to persuade
firms to engage in risky research and development projects. E) Experience curve pricing is based
on the learning effect, which holds that the unit cost of many products and services declines by
10 percent to 30 percent each time a firms experience at producing and selling them doubles.

Question 6
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Leupold & Stevens, Inc., makes Leupold scopes for rifles and has introduced a new scope that
has the quality and performance for which Leupold & Stevens is famous at a price much lower
than it has ever sold a rifle scope before. The new scope offers several different magnifications
and is the only scope in the $200 range that is made in the United States. Which pricing strategy
is Leupold & Stevens using to appeal to a larger market?

price lining

odd-even pricing

demand-backward pricing

skimming pricing
Correct!

penetration pricing
Text page 353 A. Price lining is where a firm that is selling not just a single product but a line
of products may price them at a number of different specific pricing points. B. Odd-even
pricing involves setting prices a few dollars or cents under an even number. The presumption is
that consumers will relate the price of the item to the lower number, rather than the number it is
actually closest to. C. Demand-backward pricing is not an actual marketing term. D.
Skimming pricing is the practice of setting the highest initial price that customers really
desiring the product are willing to pay. E. Penetration pricing is the practice of setting a low
initial price on a new product to appeal immediately to the mass market. In this quiz question,
Leupold Stevens are using the low price for their new scope to appeal to as many potential
customers as possible.

Question 7
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Richard Anderson, an entrepreneur residing in Arizona, noticed that many of his friends and
neighbors complained of the intense heat during the summer months. In order to make the heat
more bearable, Anderson developed and marketed a simple cooling system that sprayed a fine
mist of water into the air. The system attached easily to patio roofs, backyard fences, and even
golf carts. Since introducing the product on the market, Anderson has discovered that relatively
large changes in the price of the system lead to relatively small changes in demand for his
product. The demand for Anderson's product is:

price insensitive.
Correct Answer

price inelastic.

price sensitive.

unitary elastic.
You Answered

price elastic.
Text page 340 The price elasticity of demand is defined as the percentage change in quantity
demanded divided by the percentage change in price. If the price elasticity of demand is less than
one then price is inelastic, which means the quantity demanded is not sensitive to changes in the
price. Since Anderson noticed that relatively large changes in the price lead to relatively small
changes in the quantity demanded we can infer that the demand is price inelastic. Price is elastic
when the elasticity is greater than one, implying that the quantity demanded is sensitive to
changes in the price. Price is unitary elastic where the elasticity is equal to one.

Question 8
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You can buy a General Electric dishwasher for $399, or you can buy a similar sized under-the-
counter Bosch brand dishwasher for $989. Since Bosch uses its pricing strategy to project a
certain product image, it is most likely using _____ pricing.
You can buy a General Electric dishwasher for $399, or you can buy a similar sized under-the-
counter Bosch brand dishwasher for $989. Since Bosch uses its pricing strategy to project a
certain product image, it is most likely using _____ pricing.

standard markup

bait and switch

penetration

target profit
Correct!

prestige
Text page 357-358 A) Standard markup entails adding a fixed percentage to the cost of all items
in a specific product class. B) Bait and switch is a deceptive practice whereby firms bait
customers by offering a low price on a particularly item, and then persuade them to purchase a
higher-priced item (switch) using a variety of tricks. C) Penetration pricing entails setting a low
introductory price on a new product to appeal immediately to the mass market. D) Target profit
pricing involves setting the price of the product in order to achieve a specified amount of profit.
E) Prestige pricing involves setting a high price so that quality or status conscious consumers
will be attracted to the product and buy it. This pricing strategy can be used to create value for a
product or project a certain image. Please note the demand curve on page 364 in your textbook.
Prestige pricing will be effective when this type of demand curve exists.

Question 9
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Through research, Alina knows that retailers can charge customers $300 for the jewel-encrusted
swimming goggles she manufactures. She also knows that the retail markup is 60%. The
distributors she uses to reach retail stores charge a markup of 33%. What price should Alina
charge her distributors?
Correct!

$80.40

$21.00

$211.50

$141.00

$125.60
Lecture page 107 In this question you are asked to find the manufacturers price, or the price that
Alina will charge her distributors. The chain markup formula for manufacturers price is MP =
RP x ((100 - %RMU) / 100) x ((100 - %DMU) / 100) Where, MP = Manufacturers price (the
price charged by the manufacturer to the distributor) RP = Retail price (the price charged by the
retailer to the consumer) %RMU = Retailers markup %DMU = Distributors markup
Substituting, MP = $300 x ((100 60) / 100) x ((100 33) / 100) MP = $300 x .4 x .67 MP =
$80.40

Question 10
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Teddy operates a storage facility in Gainesville. His total fixed costs are $7500 a month and are
incurred even if he does not rent out any storage units. The variable cost per unit is $15 a month.
The average monthly occupancy rate of storage units in Gainesville is 85%. Assuming Teddy
operates at the Gainesville average occupancy rate and has 500 storage units, what is his
breakeven price?

$35.29

$27.75
Correct Answer

$32.65

$30.40
You Answered

$30.00
Lecture page 103 A. $35.29 $32.65 B. $27.75 $32.65 C. Break-even Price = [TFC / #Units]
+ VC = $7,500 / (500x0.85) ] + $15 = ( $7,500 / 425 ) + $15 = $32.65 D. $30.40 $32.65 E.
$30.00 $32.65