MGT301- Quiz 1 Solution and Discussion

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5. In which of the following pricing the seller selects a given city as a “basing point” and charges all customers the freight cost from that city to the customer location, regardless of the city from which the goods are actually shipped? MGT301

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6. Lawyers, accountants, and other professionals typically price by adding a standard markup for profit that reflects which one of the following concepts?

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7. Once a product prototype is developed, it is ready to enter into which of the following stage of new product development? MGT301

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8. Quantity discounts are a legal form of price discrimination. A quantity discount is a price reduction to buyers who purchase _____. MGT301

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9. Setting low prices to encourage initial product trial and to generate sales growth reflects which one of the following pricing method? MGT301

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10. The economic sacrifice made by a buyer to a seller for products or services refers to which one of the following price? MGT301

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11. What might be the effect of a successful price increase on profits?

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12. When a company cannot supply all its customers’ needs; what would be an effect on price? MGT301

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13. When Kodak sets the price range of its cameras as low priced and its related film as high priced, it is practicing which one of the following pricing decision? MGT301

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14. Which of the following statements about government regulation of pricing is true? MGT301

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15. Which type of cost-oriented pricing is most closely related to markup pricing? MGT301

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said in MGT301- Quiz 1 Solution and Discussion:

A company which is dealing in shirts utilizes a push strategy to sell the shirt line. Its basic promotional tool is discount. These discounts offered to middlemen are referred to as which one of the following discounts? MGT301

In the context of MGT301 (Principles of Marketing), these discounts offered to middlemen (wholesalers and retailers) as part of a push strategy are known as Trade Discounts (also commonly called Functional Discounts).

Why “Trade Discount”?

In a Push Strategy, the manufacturer “pushes” the product through the distribution channel by providing incentives to the middlemen to carry the brand and promote it to the final customers.

• Trade (Functional) Discount: This is a reduction from the list price offered by a manufacturer to channel members for performing functions such as selling, storing, and record-keeping.
• The Goal: It makes the shirt line more profitable for the retailer to stock compared to a competitor’s brand, encouraging them to give your shirts better shelf space.

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Other Common Discounts in MGT301

To ensure you have the right answer for your exam or assignment, here is how a Trade Discount differs from other types:

Discount Type	Purpose
Quantity Discount	A price reduction to buyers who buy large volumes.
Cash Discount	A price reduction to buyers who pay their bills promptly (e.g., “2/10, net 30”).
Seasonal Discount	A price reduction to buyers who buy merchandise out of season (e.g., buying winter coats in summer).
Promotional Allowance	Payments or price reductions to reward dealers for participating in advertising and sales support programs.

Key takeaway for your scenario: Because the company is targeting middlemen specifically to motivate them within a push strategy, the most accurate term is a Trade/Functional Discount.

Would you like me to explain the difference between a Push Strategy and a Pull Strategy in more detail?

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said in MGT301- Quiz 1 Solution and Discussion:

15. Which type of cost-oriented pricing is most closely related to markup pricing? MGT301

In the context of MGT301, the type of cost-oriented pricing most closely related to markup pricing is Cost-Plus Pricing.

While the terms are often used interchangeably in general business, they have a specific relationship in marketing theory:

The Relationship

Cost-Plus Pricing is the broader method of adding a standard percentage of profit to the total cost of a product. Markup Pricing is the specific application of this method, most commonly used by intermediaries (wholesalers and retailers) who buy a product and add a specific “markup” to its cost to determine the selling price.

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Key Differences in MGT301 Terms

To help you distinguish them for an exam, here is how they are usually categorized:

• Markup Pricing: Adding a standard dollar amount or percentage to the cost of the item to reach the selling price. (Example: A retailer buys a shirt for $10 and adds a 50% markup to sell it for $15).
• Cost-Plus Pricing: Adding a predetermined profit margin to the unit costs of production. This is more common in manufacturing or construction where total costs are calculated first, then a profit “plus” is added.

Other Related Pricing Methods in MGT301:

• Target-Profit Pricing (Break-Even Pricing): Setting a price to break even on the costs of making and marketing a product, or setting a price to make a specific target return.
• Experience Curve Pricing: Pricing low based on the expectation that production costs will fall as the company gains experience and efficiency.

Would you like me to show you the formula for calculating a “Markup on Selling Price” vs. a “Markup on Cost”?

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said in MGT301- Quiz 1 Solution and Discussion:

14. Which of the following statements about government regulation of pricing is true? MGT301

In MGT301, the most important concept regarding government regulation of pricing is that laws are designed to prevent unfair competition and protect consumers from deceptive practices.

The most commonly “True” statement in this context is:

Government regulations are intended to ensure that pricing is competitive and that companies do not engage in practices like price-fixing or predatory pricing.

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Key Legal Concepts in Pricing Regulation

If you are looking at a multiple-choice list, the correct answer will likely touch on one of these four pillars of regulation:

Regulation Term	Definition
Price-Fixing	Illegal. When competitors collaborate to set a specific price rather than letting the market decide.
Predatory Pricing	Illegal. Selling below cost with the intent of punishing a competitor or gaining higher long-term profits by putting them out of business.
Price Discrimination	Regulated. Selling the same product to different retailers at different prices (forbidden by the Robinson-Patman Act unless justified by cost differences).
Deceptive Pricing	Illegal. Misleading consumers with “bait-and-switch” tactics or fake “sale” prices that were never the original price.

Why it Matters

The government generally follows a Laissez-faire approach (letting the market set prices) unless those prices are achieved through collusion or monopolies. In many regions, the government also regulates the prices of public utilities (like electricity or water) because they are considered “natural monopolies.”

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Common “False” Statements to Watch Out For:

• “The government sets the prices for all consumer goods.” (False—only in specific regulated industries).
• “Price discrimination is always legal as long as the customer is happy.” (False—it is often illegal between businesses/distributors).

Would you like me to explain the “Robinson-Patman Act” specifically, as it is a frequent topic in MGT301 pricing chapters?

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said in MGT301- Quiz 1 Solution and Discussion:

13. When Kodak sets the price range of its cameras as low priced and its related film as high priced, it is practicing which one of the following pricing decision? MGT301

In MGT301, this specific strategy is known as Captive-Product Pricing.

This occurs when a company develops two products that must be used together. The “main” product is sold at a low price (sometimes even at a loss) to attract customers, while the “captive” product (the consumable or replacement part) is priced high to generate the actual profit.

How it Works

Kodak’s goal is to get the camera into as many hands as possible. Once you own the camera, you are “captured” by the brand because you must buy their specific film to make the camera useful.

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Other “Product Mix” Pricing Strategies

To help you distinguish this from other options you might see in an exam, here is how it compares to similar strategies:

Strategy	Definition	Example
Captive-Product	Pricing the accessory/consumable high and the main unit low.	Kodak cameras (low) and Film (high); Razors (low) and Blades (high).
Product Line Pricing	Setting price steps between various products in a line based on features.	Different prices for an iPhone 15, 15 Pro, and 15 Pro Max.
Optional-Product	Pricing optional or accessory products sold along with the main product.	Buying a car (main) and adding a GPS or leather seats (optional).
By-Product Pricing	Setting a price for by-products to make the main product’s price more competitive.	A sawmill selling wood chips/sawdust to a paper mill.
Product Bundle Pricing	Combining several products and offering the bundle at a reduced price.	A “Value Meal” at McDonald’s (Burger, Fries, and Drink).

Key Distinction

The difference between Optional and Captive pricing is a matter of necessity:

• If you can use the product without the extra item, it is Optional-Product Pricing.
• If the product is useless without the extra item, it is Captive-Product Pricing.

Would you like to see how companies calculate the “Lifetime Value” of a customer to justify selling the main product at such a low price?

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said in MGT301- Quiz 1 Solution and Discussion:

12. When a company cannot supply all its customers’ needs; what would be an effect on price? MGT301

In MGT301, when demand exceeds supply (a situation known as a shortage), the primary effect on price is that it increases.

This is a fundamental principle of the Law of Supply and Demand. When a company cannot meet all its customers’ needs, the product becomes “scarce,” and the company can raise prices to maximize profit or to “clear the market” by filtering out customers who are unwilling to pay the higher rate.

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The Economic Mechanics

• Upward Pressure: Because more people want the product than there are products available, customers may even bid against each other, allowing the seller to hike the price.
• Reduced Promotion: The company often stops offering discounts or sales because they don’t need to “incentivize” buyers—the buyers are already there.
• Inventory Rations: Sometimes, instead of a price hike, a company might “ration” the product, but in a free market, the price is the most common variable that changes.

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Strategy: “Demarketing”

In some cases, if the company intentionally wants to reduce demand because they cannot supply the needs, they engage in Demarketing.

• Permanent Demarketing: Discouraging all customers (e.g., discouraging smoking).
• Temporary Demarketing: Reducing demand from a specific group of customers or for a limited time until supply catches up. Raising the price is the most effective tool for temporary demarketing.

Summary of Effects

Scenario	Effect on Price
Supply > Demand (Surplus)	Price Decreases (to clear stock)
Demand > Supply (Shortage)	Price Increases (due to scarcity)
Supply = Demand (Equilibrium)	Price Remains Stable

Would you like me to explain how “Price Elasticity” affects how much a company can actually raise the price during a shortage?