Chapter 11

Question 1

What is Market-Skimming Pricing?

Answer 1

Setting a high price for a new product to maximize revenues from segments willing to pay high prices. Conditions: product quality/image supports the price; demand exists.

Question 2

What is Market-Penetration Pricing?

Answer 2

Setting a low price for a new product to attract a large market share.

Question 3

What is Product Line Pricing?

Answer 3

Pricing steps between products in a line based on cost, features, and competitors’ prices.

Question 4

What is Optional-Product Pricing?

Answer 4

Pricing optional or accessory products along with the main product.

Question 5

What is Captive-Product Pricing?

Answer 5

Pricing products used with a main product, e.g., razor blades. Entry prices are low; profit comes from ongoing purchases.

Question 6

What is By-Product Pricing?

Answer 6

Setting prices for by-products to offset disposal costs and make the main product more competitive.

Question 7

What is Product Bundle Pricing?

Answer 7

Offering several products combined at a reduced price.

Question 8

What is Discount and Allowance Pricing?

Answer 8

Price reductions during a period or for bulk purchases. Allowances are promotional funds to retailers for featuring products.

Question 9

What is Segmented Pricing?

Answer 9

Different prices for different customer segments, product forms, locations, or times. Conditions: segmentation must be legal and cost-effective.

Question 10

What is Psychological Pricing?

Answer 10

Pricing based on customer psychology, using price to convey quality or value. Reference prices are the mental benchmarks customers use.

Question 11

What is Promotional Pricing?

Answer 11

Temporary price reductions to boost short-term sales (e.g., flash sales, rebates, low-interest financing).

Question 12

What is Geographical Pricing?

Answer 12

Adjusting prices for customers in different locations (e.g., FOB-origin, zone, or freight-absorbed pricing).

Question 13

What is Dynamic and Online Pricing?

Answer 13

Continuously adjusting prices based on customer needs and situations. Includes surge pricing and online price comparisons.

Question 14

What is International Pricing?

Answer 14

Adjusting prices for international markets, considering cost variations, price escalation, and market conditions.

Question 15

What are Price Cuts?

Answer 15

Done to clear excess capacity or increase market share. May signal quality issues or lack of demand to buyers.

Question 16

What are Price Increases?

Answer 16

Triggered by cost inflation, demand increases, or limited supply. May signal high demand or company greed to buyers.

Question 17

What are Competitor Reactions?

Answer 17

Evaluating competitor price changes: reasons, permanence, and market share impact.

Question 18

What is Responding to Price Changes?

Answer 18

Firms can launch low-price “fighter brands” or analyze competitive intentions to respond strategically.

Question 19

What is Price Fixing?

Answer 19

Illegal collusion among competitors to set prices, violating antitrust laws.

Question 20

What is Predatory Pricing?

Answer 20

Selling below cost to harm competitors is illegal unless clearing inventory.

Question 21

What is Retail Price Maintenance?

Answer 21

Manufacturers cannot force dealers to sell at specific prices.

Question 22

What is Deceptive Pricing?

Answer 22

Misleading consumers about price savings or availability is prohibited.

Question 23

What is the Sherman Act?

Answer 23

Prevents monopolies and trade restrictions.

Question 24

What is the Clayton Act?

Answer 24

Prohibits anti-competitive practices like price discrimination and exclusive deals.

Question 25

What is the Robinson-Patman Act?

Answer 25

Ensures fair pricing across customers at the same trade level unless cost differences are provable.

Question 26

Webrooming

Answer 26

when consumers first check out merchandise online, then buy it in a store

Question 27

Showrooming

Answer 27

when customers visit a physical store to view and try products in person, compare prices online and then purchase the items online at a lower price.