Question

1. Sjcam used a penetration pricing strategy to introduce its Legend action camera to compete with the latest GoPro offering. Which of the following conditions would argue for using a penetration pricing strategy when introducing this new camera?

a. A large potential market exists, even at a high price.

b. Technological problems still exist for competitors, prohibiting their entry into the market for at least six months.

c. Increasing volume substantially reduces production costs.

d. Consumers perceive a price-quality relationship.

e. The product is relatively price insensitive (price inelastic).

2. Apple offers its iPhone XS for $999, under the presumption that consumers see the smartphone as priced at “something over $900” rather than “about $1,000.” This is an application of what pricing strategy?

a. prestige pricing

b. below-market pricing

c. odd-even pricing

d. target pricing

e. customary pricing

3. Which of the following would be an example of a variable cost for a hotel like the Marriott Marquis Hotel, which caters to an upscale clientele?

a. the average daily rate paid by women in targeted demographics staying at the hotel

b. cleaning supplies and housekeeping wages

c. the salary of the hotel manager

d. the rent for a parking garage used by employees

e. the price charged for renting a ballroom in the hotel

4. Uber and Lyft customers often complain about the practice of “surge” or “prime-time” pricing used by these companies during periods of peak demand. This is an example of a __________ pricing policy.

a. promotional

b. competitive

c. discount

d. dynamic

e. customer

Answer 1

1. Sjcam used a penetration pricing strategy to introduce its Legend action camera to compete with the latest GoPro offering. The correct answer is option (c). Penetration pricing strategy is introduced for this new camera as Increasing volume substantially reduces production costs. This will help in keeping the price of the product low i.e. penetration pricing.

2. Apple offers its iPhone XS for $999, under the presumption that consumers see the smartphone as priced at “something over $900” rather than “about $1,000.” The pricing strategy applied is option (a). The pricing strategy is prestige pricing. The term prestige pricing means that the price is set high so that the people are encouraged to buy. Lower prices will inhibit the sales of iPhone. The consumers associate iPhone with a high price for the product which is synonymous with better quality.

3. Variable cost for a hotel like the Marriott Marquis Hotel, which caters to an upscale clientele is option (e) i.e. the price charged for renting a ballroom in the hotel. The price of the rent of the ballroom is paid only when a ballroom is needed. Hence it is a variable cost.

4. Uber and Lyft customers often complain about the practice of “surge” or “prime-time” pricing used by these companies during periods of peak demand. This is an example of a dynamic pricing policy. The correct answer is option (d). Dynamic pricing policy sets flexible prices for the products and services in accordance with the demand.