BUAD 332 Exam 3 Questions With Complete Solutions, Graded A+

Narrowly, what is a price? - Answer-Narrowly, price is the amount of money charged for a product or service Broadly, what is a price? - Answer-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 - Answer-sacrifice Example of price - Answer-$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 - Answer-Marketing objectives Marketing mix strategies Costs Organizational considerations External factors affecting price decisions - Answer-Nature of the market and demand Competition Other environmental factors (economy, government, re-sellers, social concerns) In general, factors affection price decisions represent - Answer-either a limitation or "wiggle room" Marketing objectives affecting pricing decisions - Answer-1. Survival 2. Current Profit Maximization 3. Market Share Leadership 4. Product Quality LeadershipSurvival - Answer-Low prices hoping to increase demand Current Profit Maximization - Answer-Choose the price that produces the maximum current profit Market Share Leadership - Answer-Low as possible prices to become the market share leader Product Quality Leadership - Answer-High prices to cover higher performance quality and R&D Product Quality Leadership Example - Answer-Pharmaceuticals Fixed costs (overhead) - Answer-Costs that don't vary with sales or production levels Total costs - Answer-Sum of the fixed and variable costs for any given level of production Costs determine the... - Answer-Floor Customers determined the... - Answer-Ceiling External factors affecting Pricing decisions - Answer-- 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 - Answer-- Pure Competition - Monopolistic competition - Oligopolisitic competition - Pure Monopoly Pure Competition - Answer-Many buyers and sellers who have little effect on the priceEX: Farming Monopolistic Competition - Answer-Many buyers and sellers who trade over a range of prices EX: Jeans Oligopolistic Competition - Answer-Few sellers who are sensitive to each other's pricing/marketing strategies EX: Airlines Pure Monopoly - Answer-Single seller EX: KUB Downward sloping demand curve indicates that - Answer-As price gets lower, quantity demanded gets higher. MBA program example that contradicts a downward sloping demand curve - Answer-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 - Answer-Demand hardly changes with a small change in price Elastic demand - Answer-Demand changes greatly with a small change in price Marketers want to reduce price elasticity so that... - Answer-- 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 demandBrands 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 - Answer-by reducing price elasticity Market Skimming Pricing Strategy - Answer-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... - Answer-- 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