CPM Promotional Pricing & Discount Management 2 — Questions and Answers
Question 1: A promotional allowance is best described as:
- A reduction in price for paying early
- Compensation given to a reseller for promoting a product locally (Correct answer)
- A discount tied to reaching a purchase volume threshold
- A rebate issued at the end of the fiscal year
Correct answer: Compensation given to a reseller for promoting a product locally
Promotional allowances are payments or price reductions provided to channel members in exchange for featuring, displaying, or advertising the supplier's product.
Question 2: Which of the following best describes 'price discrimination' in a legal and strategic pricing context?
- Charging different customers different prices based on their cost-to-serve or value received (Correct answer)
- Reducing prices only for certain geographic markets
- Setting artificially low prices to eliminate competitors
- Offering a discount to all customers simultaneously
Correct answer: Charging different customers different prices based on their cost-to-serve or value received
Legal price discrimination involves charging different prices based on legitimate differences in cost-to-serve, competitive conditions, or value delivered to different customer segments.
Question 3: A 'slotting allowance' is typically associated with:
- Online advertising placements
- Retail shelf space fees paid by manufacturers to retailers (Correct answer)
- Volume discounts offered to wholesalers
- Licensing fees for technology integration
Correct answer: Retail shelf space fees paid by manufacturers to retailers
Slotting allowances are fees manufacturers pay to retailers for shelf space, placement, or inclusion in store assortments.
Question 4: A 'buy-one-get-one' (BOGO) promotion primarily impacts which pricing metric most directly?
- List price
- Effective price per unit (Correct answer)
- Invoice price
- Transfer price
Correct answer: Effective price per unit
A BOGO promotion halves the effective price per unit while keeping the list price unchanged, making the per-unit revenue impact the most direct pricing metric affected.
Question 5: Which of the following is a key risk of frequent promotional price reductions?
- Increased brand equity
- Customer price anchoring to the promotional price (Correct answer)
- Improved channel relationships
- Higher contribution margins
Correct answer: Customer price anchoring to the promotional price
Repeated promotions can anchor customers' reference prices at the discounted level, making it difficult to sustain full prices and eroding perceived value.
Question 6: An 'everyday low price' (EDLP) strategy differs from a 'high-low' pricing strategy primarily because EDLP:
- Always charges the highest price in the market
- Eliminates promotional price swings in favor of consistently low stable prices (Correct answer)
- Requires more frequent price adjustments based on demand
- Relies exclusively on manufacturer rebates
Correct answer: Eliminates promotional price swings in favor of consistently low stable prices
EDLP maintains a stable, consistently low price without periodic promotional highs and lows, reducing price volatility and promotional costs.
Question 7: When evaluating a promotional pricing event, the 'incremental volume' measure refers to:
- Total sales during the promotional period
- Sales volume above the baseline that would have occurred without the promotion (Correct answer)
- The discount percentage applied during the event
- Volume transferred from other SKUs within the same brand
Correct answer: Sales volume above the baseline that would have occurred without the promotion
Incremental volume isolates the additional sales generated by the promotion beyond the baseline, distinguishing true lift from sales that would have occurred anyway.
CPM Promotional Pricing & Discount Management 2
A promotional allowance is best described as: