FINAL EXAM-KEY

Shinas Vocational College

TIME 2 HOURS Academic Year 2017-2018

Title of the Course Retail Pricing Strategies Course Code: BBSSM2103

Instructions Evaluation

Q. No. Marks Score Remarks

a) Use black/blue ink or ballpoint pen. Writing with
pencil is not allowed. 1 15
b) Answer all questions in the space provided.
c) Mobile phones must be switched off before 2 20
entering the examination hall.
3 15
d) Please make sure to take away your belongings
while leaving the examination hall. Re-entry into
the hall is prohibited during the exam and Total 50
allowed only when the exam is finished.

Marked by : ……………………………… Checked by :……………………………...

Signature : ……………………………….. Signature :………………………………..

Date :……………………………………… Date :……………………………………...

1
Part I: (15 Marks)

A. Choose the right alternative for each question. (10*1 = 10 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

2. “Price is the marketing-mix element that produces revenue; the others

produce costs”- This concept is given by ………………………………

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

4. Caterpillar uses………………………….to set prices on its construction equipment.

a) Value pricing
b) Target- Return Pricing
c) Mark- up Pricing
d) Perceived Value

2
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

6. Setting a low price for a new product to attract a large number of

buyers and a large market share is called as ……………………

a) Market-Skimming Pricing
b) Market-Penetration Pricing
c) Product Mix Pricings
d) Captive Product Pricing

7. Turning trash into cash is related with…………………………………

a) By-Product Pricing
b) Product Bundle Pricing
c) Captive Product Pricing
d) Product Line Pricing

8. A reduction of a list price or MSRP is stated as …………….

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

3
 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

5 The Supply Chain cannot be considered as the channels or stages that a

product passes through as it is converted from a raw material to a finished
FALSE
product.

4
PART II (20 MARKS)

Answer any four (4) of the following questions (4*5=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).

2. Brief “Markup Pricing” and write its Formula. (5 Marks)

ANSWER:
The most elementary pricing method is to add a standard markup to the product’s cost.
Constuction companies submit job bits by estimating the total project cost and adding a
standard markup for profit. Lawyers and accountants typically price by adding a
standard markup on their time and costs.
Unit Cost
Formula: Markup Price = ---------------------------------
(1-Deisred Return on Sales)

3. Write a note on “New-Product Pricing Strategies”. (5 Marks)

ANSWER:
1. Market-Skimming Pricing :
Setting a high price for a new product to skim maximum revenues layer by layer from
the segments willing to pay the high price. The company makes fewer but more
profitable sales.
2. Market – Penetration Pricing:

5
 Setting a low price for a new product to attract a large number of buyers and a large
market share.

4. Brief “Competitive Pricing”. (5 Marks)

ANSWER:
Price is a very important decision criterion that customers use to compare alternatives.
It also contributes to the company’s position. In general, a business can price itself to
match its competition.
Pricing to meet competition:
Many organizations attempt to establish prices that, on an average, are the same as
those set by their more important competitors.
Pricing Above Competitors:
Pricing above the competitors can be rewarding to organizations, provided that the
objectives of the policy are clearly understood and that the marketing mix is used to
develop a strategy to enable management to implement the policy successfully.
Pricing Below Competitors:
While some firms are positioned to price above competition, others wish to carve out a
market niche by pricing below competitors.

5. An item listed at 160 OMR is subject to a trade discount of 20%. Compute;

1. The Amount of Discount and
2. The Net Price (5 Marks)
ANSWER:
1. The Amount of Discount: Rate of Discount X List Price
Rate of Discount = 20 /100 = 0.20
= 0.20 X 160
The Amount of Discount = 32 OMR
2. The Net Price = List Price – Trade Discount

= 160 – 32
= 128 OMR

6
Part III: (15 Marks)

Answer any Two (2) of the following questions. (2*7.5=15 Marks)

1. What are the “Pricing Objectives”? Explain. (7.5 Marks)

ANSWER:

Objective 1: To Maximize Profits

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.

Objective 2: To Meet a Specific Target Return on Investment

Assuming a standard volume operation target pricing is concerned with determining

the necessary mark-up per unit sold, to achieve the overall target profit goal.

Objective 3: To Achieve a Target Sales 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.

Objective 4: To maintain Enhance Market Share

The achievement of desired share of the market is generally linked to increased

profitability.

Objective 5: To Meet or Prevent Competition

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.

7
2. What are the steps to be followed while setting a pricing policy of a firm? Explain.
(7.5 Marks)

ANSWER:

Step 1: Selecting the pricing objective

The company first decides where it wants to position its market offering.

Five major objectives are, 1. Survival, 2. Maximum current profits, 3. Maximum

market share, 4. Maximum market skimming and 5. Product – quality leadership

Step 2: Determining Demand

Each price will lead to a different level of demand and have a different impact on a
company’s marketing objectives.

Step 3: Estimating Costs

Demand sets a ceiling on the price the company can charge for its product. Costs set the
floor.

Step 4: Analysing competitor’s costs, prices and offers

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.

Step 5: Selecting a pricing method

Given the customers’ demand schedule, the cost function, and competitors’ prices, the
company is now ready to select a price.

Step 6: Selecting final price

Pricing methods narrow the range from which the company must select its final price.

8
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.