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SEASONAL DISCOUNTS are price reductions for buying merchandise out of season. The
objectives of seasonal discounts include shifting the storage function forward to the purchaser and
enabling a steady manufacturing schedule.
KEY: CB&E Model Pricing OBJ: 20-3 TOP: AACSB MSC: BLOOMS Synthesis 8. Distinguish between a cumulative and a noncumulative discount.
A CUMULATIVE QUANTITY DISCOUNT is a deduction from list price that applies to the
buyer’s total purchases made during a specific period and is intended to encourage customer
loyalty. A NONCUMULATIVE QUANTITY DISCOUNT is a deduction from list price that
applies to a single order and is intended to encourage orders in large quantities.
KEY: CB&E Model Pricing OBJ: 20-3 TOP: AACSB MSC: BLOOMS Synthesis 9. What is a promotional allowance? What is the difference between a promotional allowance and a
functional discount? Give two specific examples of promotional allowances.
A promotional allowance is a payment to a dealer for promoting the manufacturer’s products. A
promotional allowance is similar to a functional discount as a pricing tool but also serves as a
promotional device. Like functional discounts (and other forms of discount), promotional
allowances must be made available to all purchasers on essentially the same terms. Examples of
promotional allowances include cooperative advertising (in which the manufacturer pays for a
portion of retailer-based advertising) or display assistance (in which the manufacturer pays for a
special display or provides free goods for the display).
KEY: CB&E Model Pricing OBJ: 20-3 TOP: AACSB MSC: BLOOMS Synthesis 10. What is value-based pricing? What is the basic assumption marketers must make about their
markets before implementing a value-based pricing strategy?
Value-based pricing, also called value pricing, is a pricing strategy that has grown out of the
quality movement. Instead of figuring prices based on costs or competitors’ prices, it starts with
the customer, considers the competition, and then determines the appropriate price. The basic
assumption is that the firm is customer driven, seeking to understand the attributes customers want in the goods and services they buy and the value of that bundle of attributes to customers.
KEY: CB&E Model Pricing OBJ: 20-3 TOP: AACSB MSC: BLOOMS Synthesis 11. Discuss the two reasons why managers sometimes price their products too low, thereby reducing
First, managers attempt to buy market share through aggressive pricing. Usually, these price cuts
are quickly met by competitors. Thus, any gain in market share is short-lived, and overall industry
profits end up falling. Second, managers have a natural tendency to make decisions that can be
justified objectively. Managers, however, often lack the hard data needed to make an accu...
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- Fall '13