Unformatted text preview: UBSTITUTE. Penetration pricing would quickly gain a large market share and is
appropriate for a low-cost item. Skimming could be argued if one assumes greater demand than
supply for the product.
HOME COMPUTER. Penetration pricing is appropriate because of the large amount of
competition in this particular market.
PERFUME. Skimming would be appropriate because a lower introductory price might reduce the
high-prestige perception of the product.
KEY: CB&E Model Pricing OBJ: 20-1 TOP: AACSB MSC: BLOOMS Synthesis 6. Some pricing decisions are subject to government regulation. Name and define three pricing
practices that are illegal.
UNFAIR TRADE PRACTICES occur when firms sell below costs. Many state unfair trade
practice acts put a lower limit on wholesale and retail prices; wholesalers and retailers must take a
minimum percentage markup.
PRICE FIXING is an agreement between two or more firms on the price they will charge for a
product or service. The Sherman Act and the Federal Trade Commission Act govern price fixing
PRICE DISCRIMINATION occurs when a firm sells to two or more different buyers, within a
reasonably short time, commodities (not services) of like grade and quality at different prices
where the result would be to substantially lessen competition. Price discrimination can also occur
if the seller discriminates between buyers in terms of supplementary services provided, or if the
buyers use their power to force sellers into discriminatory practices. The Robinson-Patman Act of
1936 prohibits these forms of price discrimination.
PREDATORY PRICING is the practice of charging a very low price for a product with the intent
of driving competitors out of business or out of the market. This practice is illegal under the
Sherman Act and the Federal Trade Commission Act.
KEY: CB&E Model Pricing OBJ: 20-2 TOP: AACSB MSC: BLOOMS Synthesis 7. A base price may be lowered through the use of a discount. Discounts take a variety of forms and
have several different objectives. Name and define three types of discounts (do not include
allowances or rebates). State the main objective of each type of discount you identify.
QUANTITY DISCOUNTS are offered to buyers who purchase multiple units or above a
specified dollar amount. The objectives of the quantity discount include selling large volumes
(through noncumulative quantity discounts) and encouraging customer loyalty (through cumulative quantity discounts).
CASH DISCOUNTS are price reductions offered to consumers, industrial users, or marketing
intermediaries who pay promptly. One objective is to save the seller carrying charges and billing
expenses. Another objective is to avoid bad debt.
FUNCTIONAL (or TRADE) DISCOUNTS are compensation to wholesalers and retailers for
performing channel functions. The objective is to compensate the channel member for services
rendered or to encourage additional functions to be performed by...
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This document was uploaded on 09/29/2013.
- Fall '13