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1) Companies set not a single price, but a pricing ________ that covers different items in its line
and changes over time as products move through their life cycles.
A) by-product
B) structure
C) loop
D) cycle
E) bundle
Answer: B
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Easy
2) Companies facing the challenge of setting prices for the first time can choose between two
broad strategies: market-penetration pricing and ________ pricing.
A) comparative
B) competitive
C) market-skimming
D) market-segmentation
E) cost-plus
Answer: C
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Easy
3) A market-skimming pricing strategy should NOT be used for a new product when ________.
A) the product's quality and image support its higher price
B) enough buyers want the products at that price
C) competitors are unable to enter the market
D) competitors can undercut prices easily
E) producing a smaller number of goods is feasible
Answer: D
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Easy
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4) When a company sets a high price for a new product with the intention of reducing the price in
the future, it is using the ________ pricing strategy.
A) market-skimming
B) cost-plus
C) market-segmentation
D) market-penetration
E) competitive
Answer: A
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Easy
5) Midnight Magic, a perfume manufacturing company, plans to release a new fragrance during
the holiday season at $99 per bottle. The company intends to bring the price down to $49 within
six months of its release to attract buyers who couldn't afford the initial price. Which of the
following pricing strategies is Midnight Magic using?
A) market-penetration pricing
B) market-skimming pricing
C) competitive pricing
D) cost-plus pricing
E) product-line pricing
Answer: B
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Moderate
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7) Companies that set a low price for a new product in order to attract a large number of buyers
and a large market share are using the ________ strategy.
A) market-skimming pricing
B) market-penetration pricing
C) cost-plus pricing
D) inclusive pricing
E) exclusive pricing
Answer: B
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Easy
8) A market-penetration pricing policy should LEAST likely be used for a new product when
________.
A) the market is highly price sensitive
B) production and distribution costs fall as sales volume increases
C) the product's quality and image support a high price
D) a high price helps keep out the competition
E) there are few or no competitors in the market
Answer: C
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Moderate
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10) In a bid to attract more customers in a market that has several competitors, Barrymore's
Bakery slashed the prices of all its products by 50 percent. Managers at the firm reasoned that
lower prices would draw in even more customers, making up for the reduction in price several
times over. Which of the following pricing strategies are they using?
A) market-skimming pricing
B) market-penetration pricing
C) captive-product pricing
D) cash discount pricing
E) by-product pricing
Answer: B
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Challenging
11) Whizz Corp. wishes to introduce a new hybrid car into mature markets in developed
countries with the goal of gaining mass-market share quickly. Which of the following pricing
strategies would help the firm meet its goal?
A) market-skimming pricing
B) market-penetration pricing
C) market-segmentation pricing
D) cost-plus pricing
E) captive-product pricing
Answer: B
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Challenging
12) Electrowhip, a company that manufacturers blenders and electric whisks, has decided to use
a market penetration pricing strategy. Which of the following, if true, proves their decision to be
a wise one?
A) Electrowhip's competitors utilize social media for marketing their products.
B) Electrowhip sells products whose image and quality support high prices.
C) Electrowhip operates in a market with many competitors.
D) Electrowhip does not operate in a price sensitive market.
E) Electrowhip's products are intended to appeal to the elite in society.
Answer: C
AACSB: Reflective thinking
Skill: Application
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Challenging
4
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Refer to the scenario below to answer the following question(s).
Champion, Inc. is a manufacturer of lunch boxes, school bags, and school stationery. Charles
Payton, the CEO of Champion, hopes to sell the products at a low price to penetrate the market
quickly.
13) Which of the following best supports a market-penetration strategy for Champion?
A) Production costs increase as sales volume increases.
B) It is very difficult for competitors to enter the market.
C) The cost of producing a smaller volume is negligible.
D) The quality of the products supports high initial prices.
E) The market for the products is highly price sensitive.
Answer: E
AACSB: Reflective thinking
Skill: Critical Thinking
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Challenging
14) Pricing strategies tend to change and evolve as the average product passes through its life
cycle.
Answer: TRUE
Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Easy
15) For market skimming to be successful, the costs of producing a smaller volume cannot be so
high that they cancel the advantage of charging more.
Answer: TRUE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Easy
16) When The Candy Store sets a low initial price in order to get its "foot in the door" and to
quickly attract a large number of buyers, the company is using market-skimming pricing.
Answer: FALSE
AACSB: Analytical thinking
Skill: Application
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Moderate
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17) Differentiate between market-skimming and market-penetration pricing strategies. Explain
the conditions within which they are effective.
Answer: Market-skimming is used to skim revenues layer by layer from the market by entering
the market with high initial prices. The product's quality and image must support its higher price,
and enough buyers must want the product at that price. The costs of producing a smaller volume
cannot be so high that they cancel the advantage of charging more. Competitors should not be
able to enter the market easily and undercut the high price. Market penetration is used to
penetrate the market quickly and deeply to attract a large number of buyers quickly and win a
large market share by setting a low price initially when it enters the market. The market must be
highly price sensitive so that a low price produces more market growth. Production and
distribution costs must fall as sales volume increases. Also, the low price must help keep out
competition and be maintained over time.
AACSB: Application of knowledge; Written and oral communication
Skill: Synthesis
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Challenging
18) For what types of products might marketers use market-skimming pricing?
Answer: Market-skimming pricing works when the product's quality and image support the
higher price. For example, companies selling high-tech electronics may use market-skimming
pricing successfully.
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Moderate
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20) Which of the following product mix pricing strategies involves setting prices across an entire
product range based on cost differences between the products, customer evaluations of different
features, and competitors' prices?
A) by-product pricing
B) product bundle pricing
C) optional product pricing
D) captive product pricing
E) product line pricing
Answer: E
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Easy
21) Tone Zone plans to introduce four mp3 player models over the next year. These models range
from basic players at $99 per unit, to more sophisticated players at $399 per unit. The more
features a model has, the more expensive it is. What pricing strategy is Tone Zone using for its
range of mp3 players?
A) product line pricing
B) product bundle pricing
C) captive product pricing
D) by-product pricing
E) optional product pricing
Answer: A
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Moderate
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23) Which of the following companies uses product line pricing?
A) Photo Genie, which sells inexpensive cameras that run only on their own expensive batteries
B) Mobile Point, which launched a range of cell phone models, each priced according to its
features
C) Penguin's Parlor, which offers customers a 20-percent discount on their birthdays and certain
holidays
D) Green Thumb, which gives away free watering cans with the purchase of certain potted plants
E) Panizza, whose combo meals are priced lower than the individual components sold together
Answer: B
AACSB: Analytical thinking
Skill: Application
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Challenging
24) Which of the following product mix pricing strategies involves pricing additional or
accessory products sold along with the main product?
A) inclusive product pricing
B) exclusive product pricing
C) by-product pricing
D) product bundle pricing
E) optional-product pricing
Answer: E
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Easy
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26) Which of the following product mix pricing strategies involves pricing products that can only
be used with the main product?
A) by-product pricing
B) product bundle pricing
C) captive product pricing
D) product line pricing
E) optional product pricing
Answer: C
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Easy
27) Multiprint, a printer manufacturing firm, sells ink cartridges for each of its specific models.
Only Multiprint cartridges are compatible with Multiprint printers, and no two models share the
same specifications. What type of pricing does Multiprint use?
A) product line pricing
B) captive product pricing
C) optional product pricing
D) by-product pricing
E) product bundle pricing
Answer: B
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Challenging
28) Which of the following product mix pricing strategies did Polaroid use when it set the
general price range of its cameras low and the markup on its film high?
A) product-segmented pricing
B) by-product pricing
C) customer-segmented pricing
D) captive product pricing
E) product bundling pricing
Answer: D
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Challenging
9
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29) In the case of services, captive product pricing is called ________ pricing.
A) by-product
B) optional product
C) two-part
D) bundle
E) segmented
Answer: C
Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Easy
31) When amusement parks charge customers for admission and later for food and beverages,
they are following a ________ pricing strategy.
A) by-product
B) product line
C) penetration
D) skimming
E) two-part
Answer: No Correct Answer Was Provided.
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Moderate
10
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32) Cellpoint uses two-part pricing for its long-distance call charges. Because this is a service,
the price is broken into a fixed fee plus a(n) ________ usage rate.
A) fixed
B) variable
C) standard
D) market
E) optional
Answer: B
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Moderate
33) Using ________ pricing, companies are able to turn their trash into cash, allowing them to
make the price of their main product more competitive.
A) product bundle
B) optional product
C) captive product
D) by-product
E) product line
Answer: D
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Easy
34) Which of the following product mix pricing strategies involves pricing multiple products to
be sold together?
A) product line pricing
B) product bundle pricing
C) optional product pricing
D) by-product pricing
E) captive product pricing
Answer: B
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Easy
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35) Which of the following is true of product bundle pricing?
A) It promotes the sale of products that consumers might not otherwise buy.
B) It is used to set prices across an entire product range based on customer evaluations.
C) It forces customers to buy product parts that are only compatible with the main product.
D) It results in companies making fewer—though more profitable—sales.
E) It involves pricing the main product low and setting high markups on the supplies.
Answer: A
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Moderate
12
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Refer to the scenario below to answer the following question(s).
Champion, Inc. is a manufacturer of lunch boxes, school bags, and school stationery. Charles
Payton, the CEO of Champion, hopes to sell the products at a low price to penetrate the market
quickly.
37) Noticing that themed envelopes aren't selling well, Charles Payton decides to offer customers
a special "letter writing" kit. He prices the kit—which comprises letter paper, matching
envelopes, and pens—at $5, even though the combined prices of the individual items is $8.
Which of the following pricing strategies is he using?
A) optional product pricing
B) product bundle pricing
C) by-product pricing
D) dynamic pricing
E) captive product pricing
Answer: B
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Challenging
38) Pricing across a product mix is difficult because various products have related demand and
costs, and products face different degrees of competition.
Answer: TRUE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Easy
39) In product line pricing, price steps should account for differences in customer perceptions of
the value of different features.
Answer: TRUE
Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Easy
40) Thinking Cap Corp. prices its various cap designs at different price levels, ranging from
$2.05 to $5.95. This is an example of optional product pricing.
Answer: FALSE
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Moderate
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41) In addition to its customary services, On the Spot, a moving company, also sells the boxes
and padding that are used when moving household furniture. This is an example of customer-
segmented pricing.
Answer: FALSE
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Moderate
42) When a manufacturer seeks a market for by-products and accepts a price that covers more
than the cost of storing and delivering those by-products, the manufacturer is able to reduce the
main product's price to make it more competitive.
Answer: TRUE
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Challenging
43) Some industries commonly use two-part pricing, breaking the price down into a fixed fee and
a fixed usage rate.
Answer: FALSE
Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Moderate
44) When using product bundle pricing, sellers combine several of their products and offer the
bundle at an increased price for increased profit.
Answer: FALSE
Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Moderate
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45) Sensenig Propeller manufactures replica antique wooden airplane propellers. In the process
of production, the company generates a great deal of scrap hardwood. How can using by-product
pricing benefit the company?
Answer: Using by-product pricing, Sensenig can seek a market for the hardwood and should
accept any price that covers more than the cost of storing and delivering the by-products. This
practice allows Sensenig to reduce the main product's price to make it more competitive.
Sensenig might even find that the by-products themselves are profitable.
AACSB: Application of knowledge; Written and oral communication
Skill: Application
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Challenging
47) What should the price steps of product line pricing take into account?
Answer: The price steps should take into account cost differences between products in the line.
More importantly, they should account for differences in customer perceptions of the value of
different features.
AACSB: Application of knowledge; Written and oral communication
Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Moderate
48) Give two examples of products for which marketers might use optional-product pricing.
Answer: Student answers will vary. Such products may include refrigerators with icemakers
and cars with options such as stereos, GPS, and cruise control.
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Challenging
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49) Give two examples of products for which captive product pricing might be used.
Answer: Student answers will vary. Examples of captive products are razor blade cartridges,
video games, printer cartridges, and e-books.
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Challenging
16
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53) Which of the following price adjustment strategies involves reducing prices to reward
customer responses such as volume purchases, paying early, or participating in sales-support
programs?
A) product bundle pricing
B) captive product pricing
C) product line pricing
D) dynamic pricing
E) discount and allowance pricing
Answer: E
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
54) A(n) ________ is a straight reduction in price on purchases during a stated period of time or
of larger quantities.
A) allowance
B) free sample
C) discount
D) tax credit
E) quota
Answer: C
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
55) Solar Tanning Salon prices tanning sessions at $25 per visit. It also offers seasonal passes for
$175 that allow the customer to visit the salon multiple times in a year. This is an example of
a(n) ________.
A) sample
B) promotional allowance
C) product bundle
D) discount
E) product line
Answer: D
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
17
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56) Which of the following price adjustment strategies offers a price reduction to buyers who pay
their bills promptly?
A) cash discount
B) season discount
C) quantity discount
D) trade discount
E) functional discount
Answer: A
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
57) Leicestershire Renovations has a history of problems with customers who do not pay their
bills on time. Leicestershire Renovations wants to improve its cash situation, reduce bad debts,
and reduce credit-collection costs. Which of the following forms of pricing would most likely
help the firm achieve its goal?
A) by-product pricing
B) zone pricing
C) cash discounts
D) product bundling
E) quantity discounts
Answer: C
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Challenging
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59) A seller offers a ________ to trade-channel members who perform certain functions, such as
selling, storing, and record keeping.
A) functional discount
B) storage allowance
C) cash discount
D) promotional allowance
E) quantity discount
Answer: A
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
60) The discount offered by Glamor Gifts to customers who bought Valentine-themed
merchandise the week following Valentine's Day is an example of a ________.
A) functional discount
B) seasonal discount
C) trade discount
D) cash discount
E) time-based discount
Answer: B
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Challenging
61) A(n) ________ refers to promotional money paid by manufacturers to retailers in return for
an agreement to feature the manufacturer's products in some way.
A) allowance
B) sample
C) discount
D) tax credit
E) tax exemption
Answer: A
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
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62) ________ allowances are price reductions given for turning in an old item when buying a
new one.
A) Promotional
B) Trade-in
C) Depreciation
D) Segmented
E) Functional
Answer: B
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
63) Trade-in allowances are most commonly used in the ________ industry.
A) real estate
B) automobile
C) dairy products
D) financial services
E) health care
Answer: B
AACSB: Reflective thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
64) Shoe Trends, a company that manufactures formal shoes for men and women, offers to give
its customers $10 for an old pair of shoes when they buy a new pair. In essence, they're reducing
the price of the new shoes by $10. What is this type of price adjustment called?
A) functional discount
B) captive product pricing
C) seasonal discount
D) trade-in allowance
E) by-product pricing
Answer: D
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
20
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65) ________ allowances are payments or price reductions that reward dealers for participating
in advertising and sales support programs.
A) Promotional
B) Trade-in
C) Segmented
D) Functional
E) Dynamic
Answer: A
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
66) In return for participating in Honda advertising and sales support programs, Honda
dealerships are rewarded with payments or price reductions, which are known as ________.
A) seasonal discounts
B) functional allowances
C) cash discounts
D) promotional allowances
E) trade-in allowances
Answer: D
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Moderate
67) By definition, ________ pricing is used when a firm sells a product or service at two or more
prices, even though the difference in price is not based on differences in cost.
A) segmented
B) variable
C) flexible
D) cost-plus
E) reference
Answer: A
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
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68) The New Age Gallery has three admission prices for students, adults, and seniors, even
though all three groups are entitled to the same services. This form of pricing is called ________
pricing.
A) psychological
B) product form
C) customer-segment
D) captive product
E) by-product
Answer: C
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Moderate
69) Under ________ pricing, different versions of the product are priced differently but not
according to differences in their costs.
A) product form
B) optional product
C) captive product
D) by-product
E) seasonal
Answer: A
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
70) Sparkling Valley, a luxury resort, prices cottages facing the lake higher than cottages that do
not, even though the cottages and services offered are identical in every other aspect. This form
of pricing is called ________ pricing.
A) location-based
B) time-based
C) by-product
D) seasonal
E) captive product
Answer: A
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Challenging
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71) When theaters vary seat prices due to audience preferences for seats in coveted rows, they
use ________ pricing.
A) customer-segment
B) location-based
C) time-based
D) product line
E) captive product
Answer: B
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Challenging
72) When a firm varies its price by the season, it is using ________ pricing.
A) product form
B) customer-segment
C) location-based
D) time-based
E) value-added
Answer: D
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
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74) Which of the following is a price adjustment strategy that considers how a customer's
perception of a product is influenced by its price?
A) captive product pricing
B) psychological pricing
C) by-product pricing
D) promotional pricing
E) international pricing
Answer: B
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Moderate
75) Consumers are less likely to use price to judge the quality of a product when they ________.
A) have never tried the product before
B) have little knowledge of the brand
C) have experience with the product
D) are shopping for luxury items
E) cannot physically examine the product
Answer: C
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Moderate
76) Which term refers to prices that buyers carry in their minds and check with when they look at
a given product?
A) product line prices
B) reference prices
C) location-based prices
D) product form prices
E) time-based prices
Answer: B
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
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77) ________ are formed by noting current prices, remembering past prices, or assessing the
buying situation.
A) Product line prices
B) Seasonal prices
C) Reference prices
D) Time-based prices
E) Product bundle prices
Answer: C
AACSB: Reflective thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
78) La Belle released a cut glass bottle of perfume at $299 per item, even though its major
competitor prices its signature scent at $99 per item. La Belle reasons that customers in search of
luxury goods will prefer its product because they are likelier to believe that high price indicates
superior quality. What price adjustment strategy is evident in its reasoning?
A) seasonal pricing
B) time-based pricing
C) captive product pricing
D) psychological pricing
E) location-based pricing
Answer: D
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Challenging
79) A supermarket places its store brand of blackberry jam priced at $5 per jar in the fruit
preserves aisle, alongside the jam jars of a better known brand—whose products are priced at $8
apiece. Store managers reason that customers are more likely to choose the store brand instead of
the better-known brand when they realize the price difference. What price adjustment strategy is
evident in the supermarket's reasoning?
A) by-product pricing
B) product bundle pricing
C) captive product pricing
D) psychological pricing
E) seasonal pricing
Answer: D
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Challenging
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80) What type of pricing is being used when a company temporarily prices its product below the
list price or even below cost to create buying excitement and urgency?
A) segmented pricing
B) international pricing
C) reference pricing
D) promotional pricing
E) basing-point pricing
Answer: D
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
81) Hearth & Home, a store which sells household products, has announced a one-week sale on
its new carpet line. This is an example of ________.
A) promotional pricing
B) seasonal pricing
C) by-product pricing
D) product bundle pricing
E) time-based pricing
Answer: A
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Challenging
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83) Low-interest financing and longer warranties are both examples of ________ pricing.
A) segmented
B) promotional
C) product bundling
D) captive product
E) product form
Answer: B
AACSB: Reflective thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
85) Which of the following involves adjusting prices to account for the physical location of
customers?
A) location-based pricing
B) geographical pricing
C) domestic pricing
D) interior pricing
E) captive pricing
Answer: B
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
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86) Which of the following is a geographical pricing strategy?
A) basing-point pricing
B) segmented pricing
C) dynamic pricing
D) Internet pricing
E) location-based pricing
Answer: A
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
87) Under which type of geographic pricing strategy does each customer take responsibility for
the freight charges for the product from the factory to its destination?
A) zone pricing
B) basing-point pricing
C) uniform-delivered pricing
D) dynamic pricing
E) FOB-origin pricing
Answer: E
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
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89) Which form of geographic pricing is a company using when it charges the same rate to ship a
product anywhere in the United States?
A) uniform-delivered pricing
B) psychological pricing
C) zone pricing
D) FOB-origin pricing
E) basing-point pricing
Answer: A
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
90) If Detroit DLX charges the same price for the delivery of its product to customers located in
the states near the Great Lakes, but a different price to customers elsewhere, the company is
using ________.
A) psychological pricing
B) promotional pricing
C) zone pricing
D) reference pricing
E) uniform-delivered pricing
Answer: C
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Challenging
91) Motorzone offers replacement parts for old Volkswagen Beetles. The company calculates
shipping charges based on shipping parts from Boston, even though some parts actually ship
from St. Louis. Motorzone most likely practices ________ pricing.
A) FOB-origin
B) basing-point
C) zone
D) uniform-delivered
E) freight-absorption
Answer: B
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Challenging
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92) ________ is a pricing strategy in which the company sets up two or more clearly identified
geographic regions within which all customers pay the same total price.
A) Freight-absorption pricing
B) Zone pricing
C) Uniform-delivered pricing
D) FOB-origin pricing
E) Basing-point pricing
Answer: B
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Moderate
93) In which of the following geographic pricing strategies would customers located close to the
company pay the same amount as customers in distant locations?
A) uniform-delivered pricing
B) zone pricing
C) FOB-origin pricing
D) location-based pricing
E) reference pricing
Answer: A
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Moderate
94) With which pricing strategy does the seller take responsibility for part or all of the actual
freight charges in order to acquire the desired business?
A) FOB origin pricing
B) freight-absorption pricing
C) basing-point pricing
D) location-based pricing
E) uniform-delivered pricing
Answer: B
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
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95) Freight-absorption pricing is used for ________.
A) penetrating international markets
B) generating customer buzz about new products
C) holding on to increasingly competitive markets
D) generating quick profits to offset input costs
E) maintaining quality service records
Answer: C
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Moderate
96) The Internet offers ________, where the price can easily be adjusted to meet changes in
demand.
A) captive pricing
B) dynamic pricing
C) basing-point pricing
D) price bundling
E) cost-plus pricing
Answer: B
AACSB: Information technology
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
97) Big Mike's Health Food Store sells nutritional energy foods. The price of the products sold
varies according to individual customer accounts and situations. For example, long-time
customers receive discounts. This strategy is an example of ________.
A) time-based pricing
B) seasonal pricing
C) dynamic pricing
D) promotional pricing
E) penetration pricing
Answer: C
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Challenging
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98) Consumers who have no past experience with a product are more likely to judge it by its
price.
Answer: TRUE
AACSB: Reflective thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
99) A seasonal discount is a price reduction to buyers who buy merchandise while the products
are in season.
Answer: FALSE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
100) Online flash sales are used to create buying urgency and make buyers feel lucky to have
gotten in on the deal.
Answer: TRUE
AACSB: Information technology
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
101) If used infrequently, price promotions create "deal-prone" customers who wait until brands
go on sale before buying them.
Answer: FALSE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
102) Constantly reduced prices can erode a brand's value in the eyes of customers.
Answer: TRUE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
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103) In segmented pricing, the difference in prices is based on differences in costs.
Answer: FALSE
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
104) For segmented pricing to be an effective strategy, prices should reflect real differences in
customers' perceived value.
Answer: TRUE
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
105) Sellers cannot influence or use consumers' reference prices when setting their product
prices.
Answer: FALSE
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Moderate
106) Customers located close to a firm are less likely to benefit from FOB-origin pricing than
customers located further away.
Answer: FALSE
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
107) The uniform-delivered pricing strategy means that goods sold are placed free on board a
carrier with the customer paying the freight from the factory to the destination.
Answer: FALSE
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Easy
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109) Why do businesses use cash discounts when they are in essence losing some money on the
sale?
Answer: Such discounts are customary in many industries in order to reward a customer who
pays bills promptly. The practice encourages customers to pay early, giving the firm quicker and
more reliable access to cash. A cash discount can also help to build customer loyalty to the firm.
AACSB: Application of knowledge; Written and oral communication
Skill: Concept
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Challenging
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112) List four types of discounts.
Answer: Four types of discounts are cash discount, quantity discount, functional or trade
discount, and seasonal discount.
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Moderate
115) Casual Comfort sells its catalog items using FOB-origin pricing. Who pays the freight
charges?
Answer: The customer pays for the freight.
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.3: Discuss how companies adjust their prices to take into account different
types of customers and situations.
Difficulty: Challenging
116) Which of the following factors would most likely lead to a company initiating a price cut?
A) over-demand
B) weakened economy
C) poor competition
D) cost inflation
E) weak price competition
Answer: B
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.4: Discuss the key issues related to initiating and responding to price changes.
Difficulty: Easy
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117) Which of the following would most likely lead to a company initiating a price increase?
A) weakened economy
B) possession of outdated merchandise
C) excess capacity
D) over-demand
E) possession of defective merchandise
Answer: D
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.4: Discuss the key issues related to initiating and responding to price changes.
Difficulty: Easy
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121) Competitors are most likely to react to a price change when ________.
A) a large number of competitors are involved
B) the product is uniform
C) the buyers are not well informed about product features
D) buyers are not well informed about price differences
E) the products are not uniform
Answer: B
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.4: Discuss the key issues related to initiating and responding to price changes.
Difficulty: Moderate
122) When a competitor cuts its price, a company should ________ if it believes it will not lose
much market share or would lose too much profit by cutting its own prices.
A) reduce its production costs
B) reduce its marketing costs
C) maintain its current prices and profit margin
D) increase its marketing budget to raise the perceived value of the product
E) increase its production costs to improve the quality of the product
Answer: C
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.4: Discuss the key issues related to initiating and responding to price changes.
Difficulty: Moderate
123) When faced with a competitor who has cut its product's price, which of the following is the
most cost-effective way for a company to maintain its own price but raise the perceived value of
its offer?
A) by improving the quality of the product
B) by introducing a higher-priced premium brand
C) by altering the company's marketing communications
D) by bundling the offer with add-ons
E) by distributing the product through less costly channels
Answer: C
AACSB: Application of knowledge
Skill: Concept
Objective: LO 11.4: Discuss the key issues related to initiating and responding to price changes.
Difficulty: Moderate
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124) In response to price cuts from competitors, a cereal company with several more expensive
and higher quality cereals introduced a lower-priced option to its product line. This is an example
of which of the following responses to a competitor's price cut?
A) raising the perceived value of a product
B) improving product quality
C) accepting a reduced market share
D) launching a "fighter brand"
E) using high-low pricing
Answer: D
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.4: Discuss the key issues related to initiating and responding to price changes.
Difficulty: Challenging
126) Launching a fighter brand is an effective way to deal with a situation in which the market
segment being lost is price sensitive and will not respond to arguments of higher quality.
Answer: TRUE
Skill: Concept
Objective: LO 11.4: Discuss the key issues related to initiating and responding to price changes.
Difficulty: Moderate
127) Discuss the conditions under which a company might consider using price cuts or price
increases.
Answer: Price cuts may be necessary when there is excess capacity. Another time to cut prices is
when market share is falling in the face of strong price competition. 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 its customers' needs, it can raise its prices, ration products to customers, or
both.
AACSB: Application of knowledge; Written and oral communication
Skill: Concept
Objective: LO 11.4: Discuss the key issues related to initiating and responding to price changes.
Difficulty: Challenging
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128) When are competitors most likely to react to price changes? How can a firm anticipate the
likely reactions of its competitors?
Answer: Competitors are most likely to react when the number of firms involved is small, when
the product is uniform, and when the buyers are well informed. If the firm faces one large
competitor, and if the competitor tends to react in a set way to price changes, that reaction can be
easily anticipated. But if the competitor treats each price change as a fresh challenge and reacts
according to its self-interest, the company will have to figure out just what makes up the
competitor's self-interest at the time.
AACSB: Application of knowledge; Written and oral communication
Skill: Application
Objective: LO 11.4: Discuss the key issues related to initiating and responding to price changes.
Difficulty: Challenging
131) The Sherman, Clayton, and Robinson-Patman Acts are all federal laws that were enacted to
curb the formation of ________.
A) monopolies
B) global partnerships
C) competitive markets
D) internal markets
E) intrastate partnerships
Answer: A
AACSB: Ethical understanding and reasoning
Skill: Concept
Objective: LO 11.5: Overview the social and legal issues that affect pricing decisions.
Difficulty: Easy
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132) When sellers set prices after talking to competitors and engaging in collusion, they are
involved in ________.
A) interstate commerce
B) comparative pricing
C) price fixing
D) skimming pricing
E) price bundling
Answer: C
AACSB: Ethical understanding and reasoning
Skill: Concept
Objective: LO 11.5: Overview the social and legal issues that affect pricing decisions.
Difficulty: Easy
133) A number of top fashion-modeling agencies would most likely be charged with ________
for jointly determining what commissions they charge for models.
A) prestige pricing
B) competitive pricing
C) price bundling
D) dynamic pricing
E) price fixing
Answer: E
AACSB: Ethical understanding and reasoning
Skill: Application
Objective: LO 11.5: Overview the social and legal issues that affect pricing decisions.
Difficulty: Challenging
134) Federal legislation on price fixing requires that sellers set their prices ________.
A) based on their fixed and variable costs
B) without communication from competitors
C) to achieve a specific profit margin
D) without the intention of cutting into competitors' profits
E) consistently throughout a region
Answer: B
AACSB: Ethical understanding and reasoning
Skill: Concept
Objective: LO 11.5: Overview the social and legal issues that affect pricing decisions.
Difficulty: Moderate
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135) If a large retailer sold numerous items below cost with the intention of punishing small
competitors and gaining higher long-run profits by putting those competitors out of business, the
retailer would be guilty of ________.
A) price collusion
B) price fixing
C) predatory pricing
D) competitive pricing
E) penetration pricing
Answer: C
AACSB: Ethical understanding and reasoning
Skill: Concept
Objective: LO 11.5: Overview the social and legal issues that affect pricing decisions.
Difficulty: Moderate
136) Savings for You, a discount retail chain, is highly competitive. When entering a new
market, Savings for You often cuts prices so deeply that it sells below costs, effectively pushing
smaller companies with less purchasing power out of the market. Savings for You is most likely
guilty of ________.
A) market skimming
B) price fixing
C) deceptive pricing
D) price collusion
E) predatory pricing
Answer: E
AACSB: Ethical understanding and reasoning
Skill: Application
Objective: LO 11.5: Overview the social and legal issues that affect pricing decisions.
Difficulty: Challenging
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138) The ________ seeks to prevent unfair price discrimination by ensuring that sellers offer the
same price terms to customers at a given price level.
A) FTC's "Guides against Deceptive Pricing"
B) Robinson-Patman Act
C) Sherman Act
D) Clayton Act
E) Automobile Information Disclosure Act
Answer: B
AACSB: Ethical understanding and reasoning
Skill: Concept
Objective: LO 11.5: Overview the social and legal issues that affect pricing decisions.
Difficulty: Moderate
140) Price discrimination may be used to match competition as long as the strategy is temporary,
localized, and ________.
A) defensive
B) offensive
C) publicized
D) private
E) uniform across channels
Answer: A
AACSB: Ethical understanding and reasoning
Skill: Concept
Objective: LO 11.5: Overview the social and legal issues that affect pricing decisions.
Difficulty: Easy
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141) Mark's Markers, a manufacturer of white board markers, has required its dealers to charge a
specified retail price for its markers. Mark's is most likely guilty of ________.
A) captive pricing
B) retail price maintenance
C) price discrimination
D) competitive pricing
E) unfair price skimming
Answer: B
AACSB: Ethical understanding and reasoning
Skill: Concept
Objective: LO 11.5: Overview the social and legal issues that affect pricing decisions.
Difficulty: Moderate
142) ________ occurs when a seller states price savings that are not actually available to
consumers.
A) Comparative pricing
B) Scanner fraud
C) Deceptive pricing
D) Market skimming
E) Price collusion
Answer: C
AACSB: Ethical understanding and reasoning
Skill: Concept
Objective: LO 11.5: Overview the social and legal issues that affect pricing decisions.
Difficulty: Easy
143) Failure to enter the current price into a retailer's system may result in charges of ________.
A) predatory pricing
B) scanner fraud
C) retail maintenance pricing
D) discriminatory pricing
E) price fixing
Answer: B
AACSB: Ethical understanding and reasoning
Skill: Concept
Objective: LO 11.5: Overview the social and legal issues that affect pricing decisions.
Difficulty: Easy
144) Price discrimination is permissible if the seller manufactures different qualities of the same
product for different retailers and can prove that the price difference is proportional.
Answer: TRUE
AACSB: Ethical understanding and reasoning
Skill: Concept
Objective: LO 11.5: Overview the social and legal issues that affect pricing decisions.
Difficulty: Easy
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145) The widespread use of scanner-based computer checkouts has eradicated complaints of
retailers overcharging their customers.
Answer: FALSE
AACSB: Ethical understanding and reasoning
Skill: Concept
Objective: LO 11.5: Overview the social and legal issues that affect pricing decisions.
Difficulty: Easy
147) Compare the practices of price fixing and predatory pricing. Explain why each is prohibited
by law.
Answer: Many federal, state, and local laws govern the rules of fair play in pricing. Two major
areas of concern are price fixing and predatory pricing. Companies that engage in price fixing
collude to set a common price for their comparable products; price fixing undermines the core
element of price competition in our free-market economy. On the other hand, predatory pricing
takes price competition too far. Predatory pricing occurs when a company sells a product below
cost with the intention of punishing a competitor or by putting a competitor out of business.
AACSB: Ethical understanding and reasoning
Skill: Synthesis
Objective: LO 11.5: Overview the social and legal issues that affect pricing decisions.
Difficulty: Challenging
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149) Why is identifying predatory pricing difficult?
Answer: Selling below cost to unload excess inventory is not considered predatory; selling
below cost to drive out competitors is illegal. Thus, a given action may or may not be predatory
depending on intent, and intent can be very difficult to determine or prove.
AACSB: Ethical understanding and reasoning
Skill: Concept
Objective: LO 11.5: Overview the social and legal issues that affect pricing decisions.
Difficulty: Challenging
45
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