BUAD 332 Exam 3 with Accurate
Solutions
Narrowly, what is a price? - ANS-Narrowly, price is the amount of money charged for a
product or service
Broadly, what is a price? - ANS-Broadly, price is the sum of all values that consumers
exchange for the benefits of having or using the product or service
Price is not just money, think of price as - ANS-sacrifice
Example of price - ANS-$88 boots from amazon versus exact same pair at Dillards for
$88 as well.
The price here is wait-time, trying them on, or convenience.
The "lower price" depends on customer value
Internal factors affecting price decisions - ANS-Marketing objectives
Marketing mix strategies
Costs
Organizational considerations
External factors affecting price decisions - ANS-Nature of the market and demand
Competition
Other environmental factors (economy, government, re-sellers, social concerns)
In general, factors affection price decisions represent - ANS-either a limitation or "wiggle
room"
Marketing objectives affecting pricing decisions - ANS-1. Survival
2. Current Profit Maximization
3. Market Share Leadership
4. Product Quality Leadership
Survival - ANS-Low prices hoping to increase demand
Current Profit Maximization - ANS-Choose the price that produces the maximum current
profit
Market Share Leadership - ANS-Low as possible prices to become the market share
leader
,Product Quality Leadership - ANS-High prices to cover higher performance quality and
R&D
Product Quality Leadership Example - ANS-Pharmaceuticals
Fixed costs (overhead) - ANS-Costs that don't vary with sales or production levels
Total costs - ANS-Sum of the fixed and variable costs for any given level of production
Costs determine the... - ANS-Floor
Customers determined the... - ANS-Ceiling
External factors affecting Pricing decisions - ANS-- Markets and Demand
- Competitors' costs, prices, and offers
- Other external factors: Economic conditions, reseller reactions, government actions
and social concerns
Market and demand factors affecting pricing decisions - ANS-- Pure Competition
- Monopolistic competition
- Oligopolisitic competition
- Pure Monopoly
Pure Competition - ANS-Many buyers and sellers who have little effect on the price
EX: Farming
Monopolistic Competition - ANS-Many buyers and sellers who trade over a range of
prices
EX: Jeans
Oligopolistic Competition - ANS-Few sellers who are sensitive to each other's
pricing/marketing strategies
EX: Airlines
Pure Monopoly - ANS-Single seller
EX: KUB
Downward sloping demand curve indicates that - ANS-As price gets lower, quantity
demanded gets higher.
MBA program example that contradicts a downward sloping demand curve - ANS-UTK
was charging $25,000 15 years ago but then decided that they could raise the price to
$45,000.
The applications increased because...
, If its hard to judge quality, price is usually a signal of quality therefore a higher price
indicates better quality
Inelastic demand - ANS-Demand hardly changes with a small change in price
Elastic demand - ANS-Demand changes greatly with a small change in price
Marketers want to reduce price elasticity so that... - ANS-- Brands will not be perceived
as easily substitutable
- Customers' wont always seek the lowest price
- Price cuts won't be the accepted way to increase demand
Brands will be perceived as unique and will create a "monopoly" in the customers'
minds
and
Enhanced band equity will allow a premium price to be charged - ANS-by reducing price
elasticity
Market Skimming Pricing Strategy - ANS-Setting a high price for a new product to
"skim" maximum revenues from the target market
- Results in fewer, but more profitable sales
Market Skimming must be used under these conditions... - ANS-- Product's quality and
image must support its higher price
- costs cant be sod high that the cancel the advantage of charging more
- Competitors shouldn't be able to enter the market easily and undercut the high price
Market Penetration Pricing Strategy - ANS-Setting a low price for a new product in order
to "penetrate" the market quickly and deeply
-Attract a large number of buyers and win a larger market share
Market penetration must be used under these conditions - ANS-- market must be highly
price-sensitive so a low price produces more market growth
- Production/distribution costs must fall as sales volume increases
- must keep out competition and maintain its low price position or benefits may only be
temporary
Optional-Product Pricing Strategy - ANS-Pricing optional or accessory products sold
with the main product.
EX: added memory on a computer
Captive Product Pricing Strategy - ANS-Pricing products that must be used with the
main product
Discount and Allowance Pricing - ANS-Adjusting base price to reward customers for
certain responses
Solutions
Narrowly, what is a price? - ANS-Narrowly, price is the amount of money charged for a
product or service
Broadly, what is a price? - ANS-Broadly, price is the sum of all values that consumers
exchange for the benefits of having or using the product or service
Price is not just money, think of price as - ANS-sacrifice
Example of price - ANS-$88 boots from amazon versus exact same pair at Dillards for
$88 as well.
The price here is wait-time, trying them on, or convenience.
The "lower price" depends on customer value
Internal factors affecting price decisions - ANS-Marketing objectives
Marketing mix strategies
Costs
Organizational considerations
External factors affecting price decisions - ANS-Nature of the market and demand
Competition
Other environmental factors (economy, government, re-sellers, social concerns)
In general, factors affection price decisions represent - ANS-either a limitation or "wiggle
room"
Marketing objectives affecting pricing decisions - ANS-1. Survival
2. Current Profit Maximization
3. Market Share Leadership
4. Product Quality Leadership
Survival - ANS-Low prices hoping to increase demand
Current Profit Maximization - ANS-Choose the price that produces the maximum current
profit
Market Share Leadership - ANS-Low as possible prices to become the market share
leader
,Product Quality Leadership - ANS-High prices to cover higher performance quality and
R&D
Product Quality Leadership Example - ANS-Pharmaceuticals
Fixed costs (overhead) - ANS-Costs that don't vary with sales or production levels
Total costs - ANS-Sum of the fixed and variable costs for any given level of production
Costs determine the... - ANS-Floor
Customers determined the... - ANS-Ceiling
External factors affecting Pricing decisions - ANS-- Markets and Demand
- Competitors' costs, prices, and offers
- Other external factors: Economic conditions, reseller reactions, government actions
and social concerns
Market and demand factors affecting pricing decisions - ANS-- Pure Competition
- Monopolistic competition
- Oligopolisitic competition
- Pure Monopoly
Pure Competition - ANS-Many buyers and sellers who have little effect on the price
EX: Farming
Monopolistic Competition - ANS-Many buyers and sellers who trade over a range of
prices
EX: Jeans
Oligopolistic Competition - ANS-Few sellers who are sensitive to each other's
pricing/marketing strategies
EX: Airlines
Pure Monopoly - ANS-Single seller
EX: KUB
Downward sloping demand curve indicates that - ANS-As price gets lower, quantity
demanded gets higher.
MBA program example that contradicts a downward sloping demand curve - ANS-UTK
was charging $25,000 15 years ago but then decided that they could raise the price to
$45,000.
The applications increased because...
, If its hard to judge quality, price is usually a signal of quality therefore a higher price
indicates better quality
Inelastic demand - ANS-Demand hardly changes with a small change in price
Elastic demand - ANS-Demand changes greatly with a small change in price
Marketers want to reduce price elasticity so that... - ANS-- Brands will not be perceived
as easily substitutable
- Customers' wont always seek the lowest price
- Price cuts won't be the accepted way to increase demand
Brands will be perceived as unique and will create a "monopoly" in the customers'
minds
and
Enhanced band equity will allow a premium price to be charged - ANS-by reducing price
elasticity
Market Skimming Pricing Strategy - ANS-Setting a high price for a new product to
"skim" maximum revenues from the target market
- Results in fewer, but more profitable sales
Market Skimming must be used under these conditions... - ANS-- Product's quality and
image must support its higher price
- costs cant be sod high that the cancel the advantage of charging more
- Competitors shouldn't be able to enter the market easily and undercut the high price
Market Penetration Pricing Strategy - ANS-Setting a low price for a new product in order
to "penetrate" the market quickly and deeply
-Attract a large number of buyers and win a larger market share
Market penetration must be used under these conditions - ANS-- market must be highly
price-sensitive so a low price produces more market growth
- Production/distribution costs must fall as sales volume increases
- must keep out competition and maintain its low price position or benefits may only be
temporary
Optional-Product Pricing Strategy - ANS-Pricing optional or accessory products sold
with the main product.
EX: added memory on a computer
Captive Product Pricing Strategy - ANS-Pricing products that must be used with the
main product
Discount and Allowance Pricing - ANS-Adjusting base price to reward customers for
certain responses
