Chapter 21 - Setting the Right Price

Question 1

Price strategy

Answer 1

a basic, long-term pricing framework that establishes the initial price for a product and the intended direction for price movements over the product life cycle

Question 2

Price skimming

Answer 2

a pricing policy whereby a firm charges a high introductory price, often coupled with heavy promotion

Question 3

Penetration pricing

Answer 3

a pricing policy whereby a firm charges a relatively low price for a product when it is first rolled out as a way to reach the mass market

Question 4

Status quo pricing

Answer 4

charging a price identical to or very close to the competition’s price

Question 5

Unfair trade practice acts

Answer 5

laws that prohibit wholesalers and retailers from selling below cost

Question 6

Price fixing

Answer 6

an agreement between two or more firms on the price they will charge for a product

Question 7

Predatory pricing

Answer 7

the practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market

Question 8

Base price

Answer 8

the general price level at which the company expects to sell the good or service

Question 9

Quantity discount

Answer 9

a price reduction offered to buyers buying in multiple units or above a specified dollar amount

Question 10

Cumulative quantity discount

Answer 10

a deduction from list price that applies to the buyer’s total purchases made during a specific period

Question 11

Noncumulative quantity discount

Answer 11

a deduction from list price that applies to a single order rather than to the total volume of orders placed during a certain period

Question 12

Cash discount

Answer 12

a price reduction offered to a consumer, an industrial user, or a marketing intermediary in return for prompt payment of a bill

Question 13

Functional discount (trade discount)

Answer 13

a discount to wholesalers and retailers for performing channel functions

Question 14

Seasonal discount

Answer 14

a price reduction for buying merchandise out of season

Question 15

Promotional allowance (trade allowance)

Answer 15

a payment to a dealer for promoting the manufacturer’s products

Question 16

Rebate

Answer 16

a cash refund given for the purchase of a product during a specific period

Question 17

Value-based pricing

Answer 17

setting the price at a level that seems to the customer to be a good price compared to the prices of other options

Question 18

FOB origin pricing

Answer 18

a price tactic that requires the buyer to absorb the freight costs from the shipping point (“free on board”)

Question 19

Uniform delivered pricing

Answer 19

a price tactic in which the seller pays the actual freight charges and bills every purchaser an identical, flat freight charge

Question 20

Zone pricing

Answer 20

a modification of uniform delivered pricing that divides the United States (or the total market) into segments or zones and charges a flat freight rate to all customers in a given zone

Question 21

Freight absorption pricing

Answer 21

a price tactic in which the seller pays all or part of the actual freight charges and does not pass them on to the buyer

Question 22

Basing-point pricing

Answer 22

a price tactic that charges freight from a given (basing) point, regardless of the city from which the goods are shipped

Question 23

Single-price tactic

Answer 23

a price tactic that offers all goods and services at the same price (or perhaps two or three prices)

Question 24

Flexible pricing (variable pricing)

Answer 24

a price tactic in which different customers pay different prices for essentially the same merchandise bought in equal quantities

Question 25

Price lining

Answer 25

the practice of offering a product line with several items at specific price points

Question 26

Leader pricing (loss-leader pricing)

Answer 26

a price tactic in which a product is sold near or even below cost in the hope that shoppers will buy other items once they are in the store

Question 27

Bait pricing

Answer 27

a price tactic that tries to get consumers into a store through false or misleading price advertising and then uses high-pressure selling to persuade consumers to buy more expensive merchandise

Question 28

Odd-even pricing (psychological pricing)

Answer 28

a price tactic that uses odd-numbered prices to connote bargains and even-numbered prices to imply quality

Question 29

Price bundling

Answer 29

marketing two or more products in a single package for a special price

Question 30

Unbundling

Answer 30

reducing the bundle of services that comes with the basic product

Question 31

Two-part pricing

Answer 31

a price tactic that charges two separate amounts to consume a single good or service

Question 32

Consumer penalty

Answer 32

an extra fee paid by the consumer for violating the terms of the purchase agreement

Question 33

Product line pricing

Answer 33

setting prices for an entire line of products

Question 34

Joint cost

Answer 34

a cost that is shared in the manufacturing and marketing of several products in a product line

Question 35

Delayed-quotation pricing

Answer 35

a price tactic used for industrial installations and many accessory items in which a firm price is not set until the item is either finished or delivered

Question 36

Escalator pricing

Answer 36

a price tactic in which the final selling price reflects cost increases incurred between the time the order is placed and the time delivery is made

Question 37

Price shading

Answer 37

the use of discounts by salespeople to increase demand for one or more products in a line