Maria and Kiana are shopping for ball gowns for a charity ball to be held at The Peninsula Hotel in Beverly Hills, California, a five-star, $825 per night hotel. Maria suggests that they look for dresses at Sax Fifth Avenue, Nieman Marcus, or Versace so they will blend with the wealthy people at the hotel. She also asserts that clothing purchased at these stores will be of higher quality and value than clothing purchased at Macy's, J.C. Penney's, or Ross even though they could find dresses by some of the same designers at those stores. Kiana asserts that dresses bought at Macy's, J.C. Penney's, or Ross by the same designers are the same as those from the high-end stores and will cost far less. Kiana tells Maria that paying more for a dress by the same designer does not make it a better
dress. When buyers equate the status, quality, and value of a luxury item with its cost, what part of the pricing strategy is involved with setting prices of these luxury items?
A. Price competition
B. Product differentiation
C. Pricing perceptions
D. Price communication
Answer: C
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The Lincoln Company sold a $1,000 par value, noncallable bond several years ago that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $925 and the company's tax rate is 25%. What is the component cost of debt for use in the WACC calculation?
A. 5.35% B. 5.58% C. 5.81% D. 6.04% E. 6.28%
Channel capacity is determined by the
A. most efficient component of the communication process. B. least efficient component of the communication process. C. source. D. receiver. E. meanings of the message.
The following quotes are from Mihir Bhattacharya, "Convertible Securities and Their Valuation," Chapter 51 in Frank J. Fabozzi (ed.), The Handbook of Fixed Income Securities: Sixth Edition (New York: McGraw-Hill, 2001)
(Bhattacharya states: "Increased debt market volatility has driven home the point of duration risk inherent in any security with a fixed income component, including convertibles. The increased volatility of the spreads (over Treasury or other interest rate benchmarks) has heightened investor sensitivity to the reliability of the fixed income floor or bond value of the convertible." What message is the author is trying to convey to investors?
Mullee Corporation produces a single product and has the following cost structure: Number of units produced each year 7,000Variable costs per unit: Direct materials$51Direct labor$12Variable manufacturing overhead$2Variable selling and administrative expense$5Fixed costs per year: Fixed manufacturing overhead$441,000Fixed selling and administrative expense$112,000 The absorption costing unit product cost is:
A. $128 per unit B. $149 per unit C. $65 per unit D. $63 per unit