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Taco Bell: Pricing for Value

Offering quality food at a great price is nothing new to Taco Bell. Founded in 1962, Taco Bell pioneered value-based pricing with its three-tiered menu, offering food choices for 59, 79, and 99 cents. Taco Bell's director of marketing discusses how value plays a key role in the firm's pricing strategies.

Of the four Ps—product, price, place and promotion—price is the most challenging to manage, partly because it is often the least understood. Historically, managers have treated price as an afterthought to their marketing strategies, matching competitors' prices or, worse yet, by adding up their costs and tacking on a desired profit to set the sales price. Prices were rarely changed except in response to radical shifts in market conditions. Even today, pricing decisions are often relegated to standard rules of thumb that fail to reflect our current understanding of the role of price in the marketing mix.

Click the ►
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According to the typical demand curve, lower prices will result in _____
Blank
being sold.

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Skip to question

Taco Bell: Pricing for Value

Offering quality food at a great price is nothing new to Taco Bell. Founded in 1962, Taco Bell pioneered value-based pricing with its three-tiered menu, offering food choices for 59, 79, and 99 cents. Taco Bell's director of marketing discusses how value plays a key role in the firm's pricing strategies.

Of the four Ps—product, price, place and promotion—price is the most challenging to manage, partly because it is often the least understood. Historically, managers have treated price as an afterthought to their marketing strategies, matching competitors' prices or, worse yet, by adding up their costs and tacking on a desired profit to set the sales price. Prices were rarely changed except in response to radical shifts in market conditions. Even today, pricing decisions are often relegated to standard rules of thumb that fail to reflect our current understanding of the role of price in the marketing mix.

Click the ►
play
 button to watch the video. Then, answer the questions that follow.

According to the typical demand curve, lower prices will result in _____
Blank
 being sold.

BlackTom AI · Accepted Answer

To tackle this question, I’ll walk through what a typical demand curve implies about price and quantity demanded.
Option 1: 'smaller quantities' — This would suggest that as price falls, buyers purchase less. That contradicts the fundamental law of demand, which states that lower prices generally increase the quantity demanded, so this option is inconsistent with standard economic theory.
Option 2: 'larger quantities' — This aligns with the law of demand: when price decreases, the quantity demanded typically rises because the product becomes more affordable, enabling more consumers to buy or existing buyers to buy more. This is the most plausible outcome on a typical downward-sloping demand curve.
Option 3: 'a smaller variety of items' — Price changes do not inherently reduce the variety of items offered or purchased; quantity and assortment are separate dimensions. Lower prices influence how much is bought, not necessarily how many different items are chosen, so this option misattributes the effect.
Option 4: 'a greater variety of items' — Similar to option 3, expanding or reducing the variety of items is typically a strategic decision by the seller, not a direct consequence of lower prices along the demand curve. While promotions might affect mix, the standard demand relationship focuses on quantity, not the breadth of product options.
Option 5: 'similar quantities' — A negligible or no change in quantity with a price change contradicts the core idea of the demand curve, which posits an inverse relationship between price and quantity demanded, at least over a range where the curve slopes downward. This option ignores the expected behavioral response to price changes.
Overall, the reasoning anchored in the typical downward-sloping demand curve indicates that reducing price tends to increase the amount that buyers are willing and able to purchase, supporting the notion of higher quantity demanded when prices fall. The remaining options misinterpret the primary price–quantity relationship or confuse quantity with product variety or strategic pricing decisions.

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