Chapter 11. Pricing Strategies

Question 1

What are the New Product pricing strategies?

Answer 1

1. Market Skimming
2. Market Penetration Pricing

Question 2

Market Skimming

Answer 2

Setting a high price for a new product to maximize profit layer by layer from the segments willing to pay the higher price. Fewer but more profitable sales.

Question 3

Market Penetration Pricing

Answer 3

Setting a low price for a new product to attract a large number of buyers and a large market share.

Question 4

What are the Product Mix pricing strategies?

Answer 4

1. Product-Line pricing
2. Optional-Product pricing
3. Captive-Product pricing
4. By-Product pricing
5. Product Bundle pricing

Question 5

Product-Line pricing

Answer 5

Setting prices across an entire product line based on cost differences between the products, customer evaluations of different features, and competitors’ prices.

Question 6

Optional-Product pricing

Answer 6

The pricing of optional or accessory products along with the main product.

Question 7

Captive-Product pricing

Answer 7

Setting a price for products that must be used along with a main product (ex. Blades for a razor).

Question 8

By-Product pricing

Answer 8

Setting a price for by-products to help offset the costs of disposing of them. Helps make the main product’s price more competitive (ex. Cheese makers and leftover brine).

Question 9

Product Bundle Pricing

Answer 9

Combining several products and offering the bundle at a reduced price.

Question 10

What are the Price Adjustment strategies?

Answer 10

1. Discount
2. Segmented Pricing
3. Psychological Pricing
4. Promotional Pricing
5. Geographical Pricing
6. Dynamic Pricing
7. International Pricing

Question 11

Discount

Answer 11

a straight reduction in prices during a stated period of time or of larger quantities.

Question 12

What are Allowances in relation to Discount strategies?

Answer 12

promotional money paid by manufacturers to retailer for an agreement to feature the manufacturer’s product.

Question 13

Segmented Pricing

Answer 13

Selling a product or service at different prices where the difference in price is not based on difference in costs (ex. customer-segmented)

Question 14

Psychological Pricing

Answer 14

Pricing that considers the psychology of prices. The price is used to signal something about the product (ex. Pricing in the 9’s)

Question 15

Describe Reference Prices in relation to Psychological Pricing

Answer 15

Prices that buyers carry in their mind and refer to when they look at a given product (ex. Gas)

Question 16

Promotional Pricing

Answer 16

Temporarily reducing prices to spur short-run sales.

Question 17

Geographical Pricing

Answer 17

Adjusting prices to account for geographic location of customers.

Question 18

Dynamic Pricing

Answer 18

Continually adjusting prices to meet the characteristics and needs of individual consumers (ex. Kohls electronic price tags)

Question 19

International Pricing

Answer 19

Adjusting prices for international prices.

Question 20

How could a company respond to price changes initiated by a competitor?

Answer 20

1. Sit tight
2. Reduce its own price
3. Raise perceived quality
4. Improve quality and raise price
5. Launch a fighter brand

Question 21

What are the competition-orientated approaches to Pricing?

Answer 21

1. Customary pricing
2. Pricing at-, below-, or above-market
3. Loss-leader pricing

Question 22

What are legal and ethical concerns in Pricing?

Answer 22

1. Price Fixing (Horizontal & Vertical)
2. Predatory Pricing (Low pricing to put competitors out of business)
3. Deceptive Pricing (ex. Bait and Switch)

Question 23

Company should cut prices ONLY if

Answer 23

1. Cost or technology advantage
2. Primary demand for product class will increase
3. Price is confined to specific products or services