Instructions Evaluation
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Part I: (15 Marks)
1. Pricing is one of the most important strategic areas retailers use to gain
…………………………………………………..
a) Market Share
b) Market Advantage
c) Market Leadership
d) Market Segmentation
a) EDLP
b) Philip Kotler
c) IKEA
d) Caterpillar
3. In Target-Return Pricing, the firm determines the price that yields its target rate of
return on .………………………...
a) Capital
b) Revenue
c) Cost
d) Investment
a) Value pricing
b) Target- Return Pricing
c) Mark- up Pricing
d) Perceived Value
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5. Setting a high price for a new product to skim revenues from the segments is known as
……………………………..
a) Market-Skimming Pricing
b) Market-Penetration Pricing
c) Product Mix Pricings
d) Captive Product Pricing
a) Market-Skimming Pricing
b) Market-Penetration Pricing
c) Product Mix Pricings
d) Captive Product Pricing
a) By-Product Pricing
b) Product Bundle Pricing
c) Captive Product Pricing
d) Product Line Pricing
a) Free Gift
b) Offer
c) MRP
d) Trade Discount
9. A reminder when the amount of discount is subtracted from the list price
is ……………………….
a) List Price
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b) Rate of Discount
c) Rebate
d) Net Price
10. A mountain bike listed for $975 is sold for $819.What rate of discount was allowed?
a) 15%
b) 16%
c) 17%
d) 18%
B. Put True (T) near the correct sentences and (F) near wrong sentences:
(5*1=5Marks)
No Sentences T/F
1 EDLP means Everyday Low Pricing.
TRUE
2 Swedish retailer IKEA used skimming pricing to boost its success in the
Chinese Market. FALSE
3 Companies that make products that must be used along with a main product
are not using Captive Product Pricing. FALSE
4 Total Costs consist of the sum of the fixed costs and variable costs for any
given level of production. TRUE
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PART II (20 MARKS)
1. Which are the factors that help organizations to frame their pricing objectives? (5
Marks)
ANSWER:
1. Costs (In order to make a profit, a business should ensure that its products are
priced above their total average cost.
2. Competitors (Companies should consider carefully about their competitors before
they fix the price for their products)
3. Customers ( Customers’ expectation should be considered before pricing)
4. Business Objectives ( Maximize profits, To achieve Target return on investment, To
achieve target sales, To achieve market share, To match the competition).
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Setting a low price for a new product to attract a large number of buyers and a large
market share.
= 160 – 32
= 128 OMR
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Part III: (15 Marks)
ANSWER:
Although the maximization of profits can have negative connotations for the public, in
economic theory, one function of profit is to attract new entrants to the market and the
additional suppliers keep prices at a reasonable level.
Many business measure their success in terms of overall revenues. This is often a proxy
for market share. Pricing strategies with this objective in mind usually focus on setting
price that maximizes the volumes sold.
Prices are set at a level that reflects the average industry price, with small adjustments
made for unique features of the company’s specific products.
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2. What are the steps to be followed while setting a pricing policy of a firm? Explain.
(7.5 Marks)
ANSWER:
The company first decides where it wants to position its market offering.
Each price will lead to a different level of demand and have a different impact on a
company’s marketing objectives.
Demand sets a ceiling on the price the company can charge for its product. Costs set the
floor.
Within the range of possible prices determined by market demand and company costs,
the firm must take competitor’s costs, prices, and possible price reactions into account.
Given the customers’ demand schedule, the cost function, and competitors’ prices, the
company is now ready to select a price.
Pricing methods narrow the range from which the company must select its final price.
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3. What do you know about “Price-Adjustment Strategies”? Explain their different
pricing. (7.5 Marks)
ANSWER:
Companies usually adjust their basic prices to account for various customer
differences and changing situations.
1. Discount & Allowance pricing: Reducing prices to reward customer responses
such as paying early or promoting the product.
2. Segmented Pricing: Adjusting prices to allow for differences in customers
products or locations.
3. Psychological Pricing: Adjusting prices for psychological effect.
4. Promotional Pricing: Temporarily reducing prices to increase short run sales.
5. Geographical Pricing: Adjusting Prices to account for the geographical location
of customers.
6. Dynamic Pricing: Adjusting prices continually to meet the characteristics and
needs of individual customers and situations.
7. International pricing: Adjusting prices for international markets.