Quiz Questions:

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Q17-1

Match each of the terms in the left column with the appropriate definition in the right column:

Briefly describe how each of the following could apply to a new product in the market introduction stage of its product life cycle:

1. Skimming price policy
2. Penetration pricing policy
3. Introductory price dealing

Define each of the following terms:

1. "Value pricing"
2. "Basic list prices"
3. "Everyday low pricing"
4. "Sale price"

Briefly describe the reasons why sellers provide the following types of discounts to buyers:

1. Quantity discounts
2. Seasonal discounts
3. Cash discounts
4. Trade (functional) discounts

How do couponing and rebates differ from discounts and allowances?

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Answers:

A17-1

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A17-2

1. A skimming price policy tries to sell the top (skim the cream) of a market – the top of the demand curve – at a high price before aiming at more price-sensitive customers. A skimming policy is more attractive if demand is quite inelastic – at least at the upper price ranges. Skimming may maximize profits in the market introduction stage for an innovation, especially if there is little competition.

(pp. 463 and 464 of text and see Exhibit 17-5, p. 464)

2. A penetration pricing policy tries to sell the whole market at one low price. Such an approach may be wise when the elite market – those willing to pay a high price – is small. This is the case when the entire demand curve is fairly elastic. A penetration policy is even more attractive when selling larger quantities results in lower costs because of economies of scale. Penetration pricing may be wise if the firm expects strong competition very soon after introduction. It discourages competitors from entering the market.

(p. 464 of text and see Exhibit 17-5, p. 464)

3. Marketers often use introductory price dealing – temporary price cuts – to speed new products into a market. However, these temporary price cuts shouldn’t be confused with low penetration prices. The plan here is to raise prices as soon as the introductory offer is over.

(p. 465 of text)

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A17-3

1. "Value pricing" means setting a fair price level for a marketing mix that really gives the target market superior customer value.

   (p. 473 of text)

2. "Basic list prices" are the prices final customers or users are normally asked to pay for products.

   (pp. 467 and 468 of text)

3. "Everyday low pricing" means setting a low list price rather than relying on frequent discounts or allowance from a high list price.

   (p. 470 of text)

4. "Sale price" means a temporary discount from the list price.

(p. 470 of text)

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A17-4

1. To encourage customers to buy in larger amounts, to get more of a buyer’s business, to shift some of the storing function to the buyer, to reduce shipping and selling costs, or all of these reasons.

(p. 468 of text)

2. To encourage buyers to buy earlier than present demand requires, if used by producers, to shift the storing function farther along in the channel, or to even out sales over the year.

(pp. 468 and 469 of text)

3. To encourage buyers to pay their bills quickly.

(p. 469 of text)

4. To compensate channel members for the job they are going to do. For example, a manufacturer might allow retailers a 30 percent trade discount from the suggested retail list price to cover the cost of the retailing function and their profit.

(p. 469 of text)

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A17-5

Couponing and rebates are directed exclusively to the final consumer. Couponing gives final consumers discounts off list price, and rebates are refunds paid directly to consumers after a purchase.

(p. 471 of text)

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