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Exam 13: Pricing Products and Services

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Question 111

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Explain the two forms of price elasticity of demand.

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Question 112

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What are the four common approaches used by managers to help them find an approximate price level?

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Question 113

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What are the two general methods for quoting prices related to transportation costs? Explain how each is used.

Suppose a shop owner sets a target ROI of 10 percent, which is twice that achieved the previous year. She considers raising the average price of a framed picture to $54 or $58-up from last year's average of $50. In order to still achieve her target, she might:

Ships Ahoy is a small company that makes model sailboat kits priced at $120 each. (There is no quantity discount.) The costs of the materials that go into each kit are $45. It costs $5 in labour to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising in sailing and hobby magazines, and $3,500 for the monthly salary of its owner. If Ships Ahoy sells 150 kits in a given month, its monthly profit will be:

Four types of price discounts are:

Toro decided to augment its traditional hardware outlet distribution by also selling through big discounters such as Walmart and Zellers and set prices for the discounters substantially below those for its traditional hardware outlets. Many unhappy hardware stores subsequently abandoned Toro products in favour of other manufacturers. This is an example of a firm failing to consider effects when setting its final list or quoted price.

At a price of $3 each, SHAPE magazine sells 1.25 million copies of its magazine targeted to young women seeking a healthier lifestyle. If the price per issue is increased to $3.25 each, only 1 million copies will be sold. Fixed costs are $1 million and unit variable costs are $0.50 per magazine. For the information provided here, what is SHAPE magazine's total revenue obtained at the lower price?

At a price of $3 each, SHAPE magazine sells 1.25 million copies of its magazine targeted to young women seeking a healthier lifestyle. If the price is increased to $3.25 each, only 1 million copies will be sold. Fixed costs are $1 million and unit variable costs are $0.50 per magazine. For the information provided here, what is SHAPE magazine's total revenue obtained at the higher price?

There are over 100 companies that manufacture natural and artificial flavourings used to enhance the taste of food before it is sold to consumers. Many of these manufacturers are regional operations. Many differentiate themselves from the competition by specializing in one or two types of foods for which they provide flavourings. Some use their distribution strategies as a means of differentiating themselves from their competition. This industry is most likely an example of:

A new soft drink company sells their cola product at $0.25 a bottle in vending machines, rather than the traditional $1.50 per bottle of the same size. This is an example of:

Everyday low pricing (EDLP) is the practice of replacing_________with lower manufacturer list prices.

Which of the following is NOT a competition-based pricing method?

Marketing executives must translate estimates of customer demand into estimates of:

A new-car dealer can offer a substantial reduction in the list price of a new Ford pickup truck by offering you a _________of $3,000 for your 1988 Camaro.

To encourage buyers to stock inventory earlier than their normal demand would require, manufacturers often use:

When you buy a Wilson Sting tennis racket from a discount store, you are offered the product at a single price. You can buy it or not, but there is no variation in price under the seller's:

What is a loss-leader and why is it used by retailers?

Uniform delivered pricing means:

In the early 1980s, typical round trip coach fares from the East Coast to London were over $500. Then Freddie Laker introduced a competing service into Newark at $350. Major airlines matched his price-and continued to do so until they drove Laker out of business. Then prices shot back up to over $500. A lawsuit filed under the Sherman Act resulted in the judgment that the major airlines had explicitly tried to destroy a competitor. Laker's experience is an example of: