20 terms

(8) Pricing Strategy

Why are firms so obsessed with the pricing element of the marketing mix?
Because the firm's pricing has a direct bearing on its ability to increase revenue
What is the basic difference between the seller's and the buyer's perspectives on pricing?
Sellers tend to inflate prices; buyers tend to see prices as being lower.
From the buyer's perspective, two key issues determine pricing strategy for most firms: perceived value and:
Price sensitivity
Which of the following IS NOT a situation when buyers will have increased power over sellers in a market?
When product demand is high
Which of the following statements is TRUE with respect to the relationship between price and revenue?
Price cuts must be offset by an increase in sales volume to keep the same level of revenue
Rather than cutting prices to generate sales, most firms would be better off adjusting their marketing strategy to:
build value into the product and justify the current price or even a price increase
Although break-even analysis and cost-plus pricing are important tools in setting prices based on the firm's cost structure, they should never be the driving force behind pricing strategy. Why?
because different firms have different cost structures
Because service capacity is perishable and service demand is highly time dependent, service firms employ yield management strategies in an effort to:
balance price and revenue considerations with their need to fill unused capacity
Price elasticity is defined as:
customers' responsiveness or sensitivity to changes in price.
Despite the rising costs of medical care in the United States, customers continue to increase their purchases of medical goods and services, particularly in elective procedures. It seems that no matter how much prices increase, customer demand for medical services stays the same or increases. This situations describes an example of:
Inelastic demand
Which of the following IS NOT a situation that can cause customers to be less sensitive to price increases?
when the total expenditure is high
The inherent goal of product differentiation is to make the demand curve for a product more inelastic. This happens because increased differentiation:
reduces the number of perceived substitutes for a product
The goal of _____ is to maximize sales, gain widespread market acceptance, and capture a large market share quickly by setting a relatively low initial price.
penetration pricing
The Fairmont Hotel is widely known for its exceptional quality and impeccable customer service. Not surprisingly, the Fairmont sets prices at the top end of all competing hotels. Which pricing strategy is the Fairmont using?
Prestige pricing
Firms such as IKEA and The Home Depot are known for their use of _____ because they set reasonably low prices but still offer high-quality products and adequate customer services.
Value-based pricing
The Club is a local hair salon and day spa that caters to an upper-middle class clientele. Although price competition in the local area has been increasing, the owners of The Club have decided to focus their marketing efforts on quality, service, and value, and to resist the temptation to compete on price. In pursuing this non-price strategy, managers of The Club are ascribing to which of the following assumptions?
It is difficult for competitors to copy The Club's differentiating characteristics
Retailers use _____ extensively. This occurs when the retailer compares sale prices to regular prices, such as when Best Buy promotes a DVD player as "Regularly $99, Now $49."
Reference pricing
Which of the following pricing practices is widely used in business markets but not in consumer markets?
Geographic pricing
In a price negotiation, the number that each side will use to distinguish between a successful and an unsuccessful negotiation is called the:
Aspiration price
While following a competitor's lead in pricing is acceptable, there can be no signaling of prices to a competitor. This illegal practice, called _____, occurs when two or more competitors collaborate in setting prices.
Price fixing