CHAPTER 14: DEVELOPING PRICING STRATEGIES AND PROGRAMS <br />10 Questions from Chapter 14<br />Antonieta Manalang<br />Ate...
1. The following are pricing mistakes except<br /><ul><li>Determining costs and taking traditional industry margins
Revising price to capitalize on market changes
Setting price independently of the rest of the marketing mix
Standardizing price by product item, market segment, distribution channels, and purchase occasion
Setting various price objectives</li></ul>2<br />
Steps in Setting Price<br />Select the price objective<br />(The clearer a firm’s objective, the easier it is to set price...
1. The following are pricing mistakes except<br /><ul><li>Determining costs and taking traditional industry margins
Revising price to capitalize on market changes
Setting price independently of the rest of the marketing mix
Standardizing price by product item, market segment, distribution channels, and purchase occasion
Setting various price objectives</li></ul>4<br />
2. ______ is a type of consumer pricing psychology wherein consumers tend to process prices in a “left-to-right” manner ra...
Price ending
Reference Price
Lower Bound Price
Price-quality inference</li></ul>5<br />
Consumer pricing psychology  how consumers arrive at their perceptions of price, the marketers must think of:<br />Refere...
2. ______ is a type of consumer pricing psychology wherein consumers tend to process prices in a “left-to-right” manner ra...
Price ending
Reference Price
Lower Bound Price
Price-quality inference</li></ul>7<br />
3. Which of the following statement is FALSE in considering a pricing objective?<br /><ul><li>Survival: Prices are lowered...
Maximum current profit: price is set to maximize current profit, cash flow, or ROI
Maximum Market Skimming: Prices start low and increased overtime
Maximum sales growth : low price is set assuming that marketing is price sensitive
Marketing penetration pricing: Goal is high sales volume</li></ul>8<br />
5 Major Pricing Objectives<br />Survival: if a firm sets prices covering variable cost and some fixed cost to face overcap...
3. Which of the following statement is FALSE in considering a pricing objective?<br /><ul><li>Survival: Prices are lowered...
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Chapter 14: Developing Pricing Strategies and Programs

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Revised 10 questions for chapter 14

  1. 1. CHAPTER 14: DEVELOPING PRICING STRATEGIES AND PROGRAMS <br />10 Questions from Chapter 14<br />Antonieta Manalang<br />Ateneo Graduate School of Business<br />
  2. 2. 1. The following are pricing mistakes except<br /><ul><li>Determining costs and taking traditional industry margins
  3. 3. Revising price to capitalize on market changes
  4. 4. Setting price independently of the rest of the marketing mix
  5. 5. Standardizing price by product item, market segment, distribution channels, and purchase occasion
  6. 6. Setting various price objectives</li></ul>2<br />
  7. 7. Steps in Setting Price<br />Select the price objective<br />(The clearer a firm’s objective, the easier it is to set price)<br />Determine demand<br />(Setting of different prices by product item, market segment, <br />distribution channels, and purchase occasion)<br />Estimate costs<br />(Companies must consider the product costs and <br />utilize different pricing methods)<br />Analyze competitor price mix<br />(The company must take into account its competitors’ costs, prices, <br />and possible price reactions)<br />Select pricing method<br />(The 3 considerations for pricing are the 3 C’s: <br />Cost of Product, Customers and Competitors<br />Select final price<br />(Other factors to consider in pricing are: impact of marketing activities, <br />company pricing policies, gain and risk sharing pricing,<br /> and the impact of price on other parties<br />
  8. 8. 1. The following are pricing mistakes except<br /><ul><li>Determining costs and taking traditional industry margins
  9. 9. Revising price to capitalize on market changes
  10. 10. Setting price independently of the rest of the marketing mix
  11. 11. Standardizing price by product item, market segment, distribution channels, and purchase occasion
  12. 12. Setting various price objectives</li></ul>4<br />
  13. 13. 2. ______ is a type of consumer pricing psychology wherein consumers tend to process prices in a “left-to-right” manner rather than by rounding, e.g. stereo amplifier priced at 299 instead $300 as a price in the $200 range rather than $300 range <br /><ul><li>Price Cue
  14. 14. Price ending
  15. 15. Reference Price
  16. 16. Lower Bound Price
  17. 17. Price-quality inference</li></ul>5<br />
  18. 18. Consumer pricing psychology  how consumers arrive at their perceptions of price, the marketers must think of:<br />Reference price: consumers get pricing information from internal reference price (used as habitual decision making) or external reference price (used as limited decision making and extended decision making) <br />Price-quality inferences: many consumers use price as an indicator of quality. Image pricing is effective with ego-sensitive products. E.g perfumes, designer clothes<br />Price cues: consumers tend to process prices in a “left to right” manner rather than by rounding e.g. stereo amplifier priced at 299 instead $300 as a price in the $200 range rather than $300 range <br />Price endings: Prices that end with 0 and 5 are easier for consumers to remember<br />6<br />
  19. 19. 2. ______ is a type of consumer pricing psychology wherein consumers tend to process prices in a “left-to-right” manner rather than by rounding, e.g. stereo amplifier priced at 299 instead $300 as a price in the $200 range rather than $300 range <br /><ul><li>Price Cue
  20. 20. Price ending
  21. 21. Reference Price
  22. 22. Lower Bound Price
  23. 23. Price-quality inference</li></ul>7<br />
  24. 24. 3. Which of the following statement is FALSE in considering a pricing objective?<br /><ul><li>Survival: Prices are lowered to ensure inventory turnover but price must cover variable costs & fixed costs.
  25. 25. Maximum current profit: price is set to maximize current profit, cash flow, or ROI
  26. 26. Maximum Market Skimming: Prices start low and increased overtime
  27. 27. Maximum sales growth : low price is set assuming that marketing is price sensitive
  28. 28. Marketing penetration pricing: Goal is high sales volume</li></ul>8<br />
  29. 29. 5 Major Pricing Objectives<br />Survival: if a firm sets prices covering variable cost and some fixed cost to face overcapacity, intense competition or changing consumer wants. <br />Maximum current profit: if a firm has knowledge of its demand and cost function, price is set to maximize current profit, cash flow, or ROI<br />Maximum market skimming: if a firm unveiling a new technology favor setting “higher price” as to communicate superior product but sales drop in the next future making the price low e.g. initially higher price for TV flat with billingual system<br />Maximum market share (marketing penetration pricing) if a firm believes a higher sales volume will lead to lower unit cost and higher long run profit. They set “the lowest price” assuming the market is price sensitive. Goal is high sales volume<br />Product-Quality Leadership: company brands strive to be “affordable luxuries”—products or services are characterized by high levels of perceived quality, taste, and status with a price just high enough not to be out of consumer’s reach<br />9<br />
  30. 30. 3. Which of the following statement is FALSE in considering a pricing objective?<br /><ul><li>Survival: Prices are lowered to ensure inventory turnover but price must cover variable costs & fixed costs.
  31. 31. Maximum current profit: price is set to maximize current profit, cash flow, or ROI
  32. 32. Maximum Market Skimming: Prices start low and increased overtime
  33. 33. Maximum sales growth : low price is set assuming that marketing is price sensitive
  34. 34. Marketing penetration pricing: Goal is high sales volume</li></ul>10<br />
  35. 35. 4. A behavior wherein a consumer prefers to buy an Armani shirt at $275 over a GAP shirt which costs $14.90 is an example of:<br />11<br /><ul><li>Reference Price
  36. 36. Price-quality inferences
  37. 37. Price Cues
  38. 38. Price endings</li></li></ul><li>Consumer pricing psychology  how consumers arrive at their perceptions of price, the marketers must think of:<br />Reference price: consumers get pricing information from internal reference price (used as habitual decision making) or external reference price (used as limited decision making and extended decision making) <br />Price-quality inferences: many consumers use price as an indicator of quality. Image pricing is effective with ego-sensitive products. E.g perfumes, designer clothes<br />Price cues: consumers tend to process prices in a “left to right” manner rather than by rounding e.g. stereo amplifier priced at 299 instead $300 as a price in the $200 range rather than $300 range <br />Price endings: Prices that end with 0 and 5 are easier for consumers to remember<br />12<br />
  39. 39. 4. A behavior wherein a consumer prefers to buy an Armani shirt at $275 over a GAP shirt which costs $14.90 is an example of:<br />13<br /><ul><li>Reference Price
  40. 40. Price-quality inferences
  41. 41. Price Cues
  42. 42. Price endings</li></li></ul><li>5. Which of the following statement is TRUE on factors to price sensitivity?<br /><ul><li>Customers are more price sensitive to low-cost items or items they buy infrequently
  43. 43. Buyers are less price sensitive when there are few are no substitutes
  44. 44. Customers readily notice the price increases
  45. 45. Customers easily changed their buying habits
  46. 46. Customers think that higher prices for the items they buy infrequently are not justified</li></ul>14<br />
  47. 47. Determining Demand- the demand curve shows the market’s probable purchase quantity at alternative prices.Price sensitivity- reactions of individuals who have different price sensitivitiesThey are less price sensitive when:<br /><ul><li>Prices increase to low-cost items or items they buy infrequently
  48. 48. When there are few are no substitutes or competitors
  49. 49. They do not notice the price increases
  50. 50. They are slow to changed their buying habits
  51. 51. The higher prices are justified</li></ul>15<br />
  52. 52. 5. Which of the following statement is TRUE on factors to price sensitivity?<br /><ul><li>Customers are more price sensitive to low-cost items or items they buy infrequently
  53. 53. Buyers are less price sensitive when there are few are no substitutes
  54. 54. Customers readily notice the price increases
  55. 55. Customers easily changed their buying habits
  56. 56. Customers think that higher prices for the items they buy infrequently are not justified</li></ul>16<br />
  57. 57. 6. A company’s way of increasing the price by maintaining its price but removes or prices separately one or more elements that were part of the former offer, such as free delivery or installation<br /><ul><li>Discount Reduction
  58. 58. Unbundling
  59. 59. Escalator clauses
  60. 60. Delayed quotation pricing
  61. 61. Anticipatory pricing</li></ul>17<br />
  62. 62. Initiating Price Increases<br /><ul><li>Discount Reduction: the company instructs its sales force not to offer its normal cash and quantity discounts
  63. 63. Unbundling: the company maintains its price but removes or prices separately one or more elements that were part of the former offer
  64. 64. Escalator clauses: the company requires the customer to pay today’s price and all or part of any inflation increase that takes place before delivery
  65. 65. Delayed quotation pricing: the company does not set a final price until the product is finished or delivered
  66. 66. Anticipatory pricing- companies raise their prices by more than the cost increase, in anticipation of further inflation or government price controls</li></ul>18<br />
  67. 67. 6. A company’s way of increasing the price by maintaining its price but removes or prices separately one or more elements that were part of the former offer, such as free delivery or installation<br /><ul><li>Discount Reduction
  68. 68. Unbundling
  69. 69. Escalator clauses
  70. 70. Delayed quotation pricing
  71. 71. Anticipatory pricing</li></ul>19<br />
  72. 72. 7. The following are price-adaptation strategies except<br /><ul><li>Geographical pricing
  73. 73. Price discounts and allowances
  74. 74. Promotional Pricing
  75. 75. Delayed quotation pricing
  76. 76. Differentiated Pricing</li></ul>20<br />
  77. 77. Price-adaptation strategies are:<br /><ul><li>Geographical pricing: the company decides how to price its products to different customers in different locations and countries
  78. 78. Price discounts and allowances: most companies will adjust their list price and give discounts and allowances for early payment, volume purchases, and off-season buying
  79. 79. Promotional Pricing: companies can use several pricing techniques to stimulate early purchases or attract customers attention such as loss leader pricing, special event pricing, longer payment terms
  80. 80. Differentiated Pricing: companies often adjust their basic price in customer segment pricing (adult vs child), product form pricing (1 for $10, 2 for $15), location pricing and time pricing </li></ul>21<br />
  81. 81. 7. The following are price-adaptation strategies except<br /><ul><li>Geographical pricing
  82. 82. Price discounts and allowances
  83. 83. Promotional Pricing
  84. 84. Delayed quotation pricing
  85. 85. Differentiated Pricing</li></ul>22<br />
  86. 86. Approaches companies do to avoid price increase shock among consumers are:<br /><ul><li>Substituting less-expensive materials or ingredients
  87. 87. Reducing the number of sizes and models offered
  88. 88. Shrinking the amount of product
  89. 89. Creating new economy brands
  90. 90. Reducing or removing product features</li></ul>23<br />
  91. 91. 8. Companies do the following approaches to avoid price increase shock among consumers except<br /><ul><li>Substituting less-expensive materials or ingredients
  92. 92. Increasing the number of sizes and models offered
  93. 93. Shrinking the amount of product
  94. 94. Creating new economy brands
  95. 95. Reducing or removing product features</li></ul>24<br />
  96. 96. 9. A pricing method wherein customers are charged of low price for a high-quality offering<br /><ul><li>Perceived-value pricing
  97. 97. Target-return Pricing
  98. 98. Markup Pricing
  99. 99. Going Rate Pricing
  100. 100. Value Pricing</li></ul>25<br />
  101. 101. Pricing Methods<br /><ul><li>Perceived-value pricing: price is based on customer’s perceived value. Perceived value is made up of several elements such as the buyer’s image of product performance, the channel deliverables, the warranty quality, customer suppport, etc.
  102. 102. Target-return Pricing: the firm determines the price that would yield its target rate of return on investment (ROI)
  103. 103. Markup Pricing: adding a standard markup to the product’s cost
  104. 104. Going Rate Pricing: price is based on competitor’s prices, charging the same, more, or less than major competitor(s)
  105. 105. Value Pricing: charging low price for a high quality offering</li></ul>26<br />
  106. 106. 9. A pricing method wherein customers are charged of low price for a high-quality offering<br /><ul><li>Perceived-value pricing
  107. 107. Target-return Pricing
  108. 108. Markup Pricing
  109. 109. Going Rate Pricing
  110. 110. Value Pricing</li></ul>27<br />
  111. 111. 10. Which of the following statement is FALSE on the impact of other marketing activities?<br /><ul><li>Consumers are willing to pay higher prices for known products than for unknown products
  112. 112. Brands with average relative quality but high relative advertising budgets cant charge higher prices
  113. 113. Price is a major factor when customer buys a product
  114. 114. Customer support is important for buyers
  115. 115. Brands with low quality and low advertising charged the lowest prices</li></ul>28<br />
  116. 116. Selecting the final price: the 6th step in price settingThe final price must take into account the brand’s quality and advertising relative to the competition<br />The following are consumer’s behavior to brand based on the study of Farris and Reibstein:<br /><ul><li>Consumers are willing to pay higher prices for known products than for unknown products
  117. 117. Brands with average relative quality but high relative advertising budgets can charge higher prices
  118. 118. Price is NOT a major factor when customer buys a product. Only 19% cared about the price
  119. 119. Customer support is important for buyers
  120. 120. Brands with low quality and low advertising charged the lowest prices</li></ul>29<br />
  121. 121. 10. Which of the following statement is FALSE on the impact of other marketing activities?<br /><ul><li>Consumers are willing to pay higher prices for known products than for unknown products
  122. 122. Brands with average relative quality but high relative advertising budgets cant charge higher prices
  123. 123. Price is a major factor when customer buys a product
  124. 124. Customer support is important for buyers
  125. 125. Brands with low quality and low advertising charged the lowest prices</li></ul>30<br />

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