Deck 13: Pricing Concepts for Establishing Value

Question 1

A gray market employs irregular but not necessarily illegal methods of distributing products.

Answer 1

True

Question 2

If a firm is engaged in monopolistic competition,it should seek a way to differentiate itself.

Answer 2

True

Question 3

At the break-even point,profits are maximized.

Answer 3

False

Question 4

If Brandon buys hats for his store for $5 each and sells them for $15 each,he is using a keystoning pricing strategy.

Question 5

Because consumers are generally more sensitive to price increases than to price decreases,it is easier to lose current customers with a price increase than it is to gain new customers with a price decrease.

Question 6

In U.S.markets,there are many substitute products for Fruit Loops cereal,suggesting the price elasticity of demand for Fruit Loops is elastic.

Question 7

The full price of a product or service includes all of the following EXCEPT:

A)taxes.
B)shipping.
C)travel costs.
D)the price of alternative products and services.
E)value of the consumer's time.

Question 8

In addition to the product-specific and firm-specific factors that affect pricing,there are two broader factors - the Internet and sociocultural factors.

Question 9

A demand curve shows the relationship between income and demand.

Question 10

Price is the only part of the marketing mix that does not generate costs.

Question 11

Price is the cash expenditure plus taxes that consumers have to pay for a good or service.

Question 12

The Internet has decreased consumers' price sensitivity.

Question 13

Earl was known for driving 30 miles to save a dollar on the price for his favorite beverage.Earl perceived price as ________________,while most consumers recognize price as the ______________ made to acquire a good or service.

A)money paid; overall sacrifice
B)variable cost; fixed cost
C)fixed cost; variable payment
D)overall sacrifice; monetary payment
E)break-even amount; price elasticity

Question 14

In general,prices should not be based on costs because consumers make their purchase decisions based on perceived value,not the cost of production.

Question 15

Rarely is the lowest-price product offering the dominant brand in a given market.

Question 16

Price is the _______________________ a consumer is willing to make to acquire a specific product or service.

A)amount of money
B)overall sacrifice
C)fixed cost
D)target return
E)variable cost

Question 17

Brands that have developed loyal customers have a higher price elasticity of demand.

Question 18

Economic trends that affect pricing decisions include increases in disposable income and status consciousness,a trend for customers to shop cheap,global economic conditions,and local economic conditions.

Question 19

Diana owns a boutique specializing in ball gowns.Sales are stable and Diana feels it is time she had a 20% increase in her salary.If Diana takes this increase in compensation,it will decrease the breakeven quantity of gowns she needs to sell on a monthly basis.

Question 20

The key to successful pricing is to match the product with the consumer's perception of value.

Question 21

Chet knows the pro shops selling his golf photography will "keystone" his products.He also knows sales will decline significantly if the retail price is greater than $200.The maximum wholesale price Chet can charge is:

A)$200.
B)$100.
C)$50.
D)$10.
E)It cannot be determined from this information.

Question 22

A _________________ strategy involves accurately measuring all the factors needed to predict sales and profits at various price levels,so that the price level that produces the highest return can be chosen.

A)sales orientation
B)target profit
C)target return
D)status quo
E)maximizing profits

Question 23

Dean runs a woodworking business specializing in kitchen cabinets.He knows there are other firms with top-of-the-line machinery that make better quality cabinets,but he does well and has a constant flow of business.Dean obviously has:

A)figured out how to produce cheap products.
B)priced his products well.
C)reduced his variable costs by investing in fixed costs.
D)avoided monopolistic competition,and is instead in a market with pure competition.
E)learned how to use status quo pricing.

Question 24

Margaret has been invited to a fancy dinner party and wants to bring a good bottle of wine as a gift for the host.Since she does not know much about wine,she will likely use the price of the wines as:

A)an indicator of quality.
B)a reflection of status quo pricing.
C)an indicator of the variety.
D)a measure of scarcity.
E)a measure of the income effect.

Question 25

Consumers judge the benefits the product delivers against the ______________ necessary to obtain it.

A)monetary cost
B)profit
C)variable cost
D)total return
E)sacrifice

Question 26

Price is often the most challenging of the four Ps to manage,partly because it is often ___________________________ in developing marketing strategies.

A)the least important aspect
B)treated as an afterthought
C)calculated by senior consultants
D)difficult to calculate markups
E)the subject of cross-shopping differentiation

Question 27

Marketers can deliver high value through high or low prices,depending on:

A)profit contribution per unit.
B)the bundle of benefits the product or service delivers.
C)monopolistic competition.
D)target return pricing that is greater than variable cost per unit.
E)the income effect.

Question 28

Unlike product,promotion,or place,price is the only part of the marketing mix:

A)that offers the opportunity for an oligopoly.
B)that is subject to gray market manipulation.
C)that leads to competition.
D)that generates revenue.
E)all of these.

Question 29

If firms price their products too low,it may:

A)result in lower costs.
B)create a premium pricing effect.
C)increase contribution per unit.
D)result in inelastic demand.
E)signal poor quality.

Question 30

Gerald has a number of customers for his lawn care service who never question his bill but expect their lawns to be perfect.These customers do not want low prices,they want:

A)a sales orientation.
B)fixed costs.
C)cross-price discounts.
D)a target return.
E)high value.

Question 31

What could go wrong if a firm's pricing strategy were NOT aligned with company objectives?

A)The message and media in a promotional campaign could be inconsistent with the pricing strategy.
B)Company growth objectives might not be supported.
C)The channels selected might not be appropriate for the pricing levels established.
D)Customers might be confused and select a competitor's product.
E)All of these

Question 32

Naomi tells her sales representatives the goal is to generate at least a 20 percent return on investment for all of the industrial building supplies they sell.Naomi is using a _______________ pricing strategy.

A)sales orientation
B)target profit
C)target return
D)status quo
E)competitive parity

Question 33

Which of the following is NOT one of the Five Cs of pricing?

A)Customers.
B)Channel members.
C)Cost.
D)Collaboration.
E)Company objectives.

Question 34

Brian knows his firm's pricing strategy needs to be consistent with the company's overall objectives.As marketing manager,Brian will base his pricing strategy on whether the company's objective is to:

A)increase profits.
B)increase sales.
C)decrease competition.
D)build customer satisfaction.
E)any of these.

Question 35

Tess is the marketing manager for a fast food restaurant chain.She uses a target return pricing strategy because her firm's primary objective is to:

A)increase profits.
B)increase sales.
C)decrease competition.
D)build customer satisfaction.
E)all of these.

Question 36

Historically,prices were:

A)the center of attention in almost all marketing strategies.
B)analyzed and changed constantly.
C)calculated to minimize contribution per unit.
D)allowed to vary seasonally as cross-shopping tendencies fluctuated.
E)rarely changed except in response to radical shifts in market conditions.

Question 37

Bernard's firm has set corporate direction to become one of the leaders in each of its significant market segments.It was Bernard's job to examine the pricing to determine how to maximize market share,even at the expense of profits in the short run.What kind of company objective would guide Bernard's effort?

A)Industry-oriented
B)Sales-oriented
C)Competitor-oriented
D)Innovation-oriented
E)Customer-oriented

Question 38

Using "keystoning" as a pricing strategy:

A)creates undue complexity for retailers.
B)avoids having to participate in pure competition.
C)ignores consumers' sensitivity to changes in prices.
D)allows marketers to estimate the substitution effect.
E)maximizes the difference between total cost and total variable cost.

Question 39

Gary is the marketing manager for an automobile dealership.His boss tells him the firm's primary goal is to increase their local market share from 15 to 30 percent.Gary's pricing strategy will focus on:

A)increasing profits.
B)increasing sales.
C)decreasing competition.
D)building customer satisfaction.
E)all of these.

Question 40

Patricia and D'Wayne were working on pricing their line of handcrafted office furniture.D'Wayne said,"I think we've got all the main components that affect us and our products,but let's go over the list once again.We've got the stores that will carry our products,our firm's objectives,how customers will respond,and the costs." Which of the following is missing from Patricia and D'Wayne's list of the components?

A)The message and media for the advertising campaign.
B)The competition's pricing strategies.
C)The designs for products that haven't yet been manufactured.
D)The number of new employees they'll need if the products take off.
E)Whether or not their suppliers use sustainable raw materials.

Question 41

A "no haggle" pricing policy is a type of _______________ pricing strategy.

A)maximizing profits
B)sales orientation
C)target return
D)status quo
E)customer-oriented

Question 42

A demand curve shows the relationship between ___________________ in a period of time.

A)income and demand
B)demand and cost
C)price and elasticity
D)profit and price
E)price and demand

Question 43

A change in ______________ would probably cause a change in the demand curve for a product.

A)advertising expenditures
B)the economy
C)competitors' prices
D)the price of related goods
E)all of these

Question 44

A customer orientation toward pricing explicitly invokes the concept of:

A)knowing the dimensions of the target market.
B)positioning.
C)the income effect.
D)value.
E)None of these.

Question 45

Ryan gave the manager of his convenience store a set of binoculars so she could see the gasoline prices charged by the other convenience store at that intersection.Ryan told the manager to always match the gasoline prices of the other store.Ryan is using a _____________________ pricing strategy.

A)maximizing profits
B)target profit
C)target return
D)status quo
E)sales

Question 46

Sharon knew that her established customers liked her product much better than the competitors.She was planning to expand into new markets,and she was considering pricing.She was leaning toward charging a higher price than competitors to help demonstrate that hers was a high-quality product.Sharon was considering:

A)a top of market strategy.
B)the value of quality.
C)advantageous pricing.
D)premium pricing.
E)differential pricing.

Question 47

According to a typical demand curve,the higher the price:

A)the greater the income effect.
B)the lower the quantity consumers will buy.
C)the lower the output of producers.
D)the greater the production costs.
E)the lower the cross-price elasticity.

Question 48

A demand curve is built assuming that:

A)income is derived from demand.
B)price remains the same,and fixed costs change.
C)everything but price and demand remains the same.
D)a change in quantity demanded causes a change in price.
E)the firm does not advertise.

Question 49

Traditional demand curve economic theory is used by marketers to understand _______________ in the five Cs of pricing.

A)competitors
B)channel members
C)cost
D)customers
E)company objectives

Question 50

When Ursula decides how to price new products in her gift store,she measures the value of her product offerings against those of the other stores in her area.Ursula uses a __________________ pricing strategy.

A)maximizing profits
B)target profit
C)target return
D)competitor-oriented
E)sales oriented

Question 51

Customers purchase prestige products or services for the status of owning the products,not just for the functionality.These products may not follow a typical demand curve if:

A)people don't know the price.
B)raising the price makes more people want to own one.
C)similar products become less expensive.
D)the marketer can demonstrate that functionality is more important than prestige.
E)value is removed from the equation.

Question 52

A strategy of setting prices based on how customers develop their perceptions of value can often be the most effective pricing strategy,especially if the strategy:

A)leads the marketer to being the low-cost seller.
B)is supported by consistent advertising and distribution strategies.
C)challenges consumers to discard their perceptions of value.
D)is consistent with a competitive target return strategy.
E)all of these.

Question 53

When firms set prices similar to those of competitors,they are following a strategy of:

A)me-too pricing.
B)copycat pricing.
C)competitive parity.
D)market-broadening pricing.
E)industry-standard pricing.

Question 54

Health clubs often use a low,introductory offer price to get people to join their club.These low prices represent a ______________ pricing strategy.

A)maximizing profits
B)target profit
C)target return
D)status quo
E)sales orientation

Question 55

Many years ago Honda's Accord and Ford's Taurus were the top two selling cars in the United States.As the year was coming to an end,Ford cut the price of the Taurus,hoping to outsell the Accord and allow Ford to claim that "Taurus is the best-selling car in America." Ford was using a ___________________ pricing strategy.

A)maximizing profits
B)target profit
C)sales orientation
D)status quo
E)target return

Question 56

Customers must see value in a product or service before they are willing to exchange time or money to obtain it,but not all customers see the same value in a product.To analyze how many units will be sold at any given price point,marketers draw on:

A)a demand curve.
B)the law of averages.
C)multiple regression analyses.
D)target return strategies.
E)a sales orientation.

Question 57

There is an old saying,"If you have to ask the price of a yacht,you cannot afford it." Products like yachts are most likely to be associated with:

A)cross-shopping.
B)competitive parity pricing.
C)target return value.
D)prestige pricing.
E)break-even point pricing.

Question 58

Julia wants her firm's gourmet snacks to be the leading brand in the U.S.market.When adopting a pricing strategy designed to gain market share,she should remember that:

A)rarely is the lowest-price offering the dominant brand in a market.
B)prestige products need to be competitively priced.
C)companies can gain market share by offering low-quality products at a high price.
D)total value equals total cost minus variable costs leading to price escalation.
E)price wars are the way to become the dominant brand.

Question 59

Julia's is an upscale women's clothing store.Prices are based on customers' beliefs about the value of the clothing.The store focuses on a limited target market and provides excellent customer service.Julia's is using a ________________ pricing strategy.

A)customer-oriented
B)target profit
C)target return
D)status quo
E)maximizing profits

Question 60

In many high-end resort markets,Westin hotels compete directly with Crown Plaza hotels.Each firm weighs the comparative advantages and disadvantages of their offerings to determine whether to price above,equal to,or below the other hotel.In these markets,the hotels are using a _______________ pricing strategy.

A)maximizing profits
B)target profit
C)target return
D)competitive parity
E)sales oriented

Question 61

Price elasticity of demand is the:

A)percentage change in quantity demanded divided by the percentage change in price.
B)percentage change in price divided by percentage change in quantity demanded.
C)change in price divided by change in quantity demanded.
D)change in quantity demanded divided by the change in price.
E)change in quantity demanded multiplied by the change in price.

Question 62

Assume the demand for electricity,a necessity with few substitutes,is -0.2.If the electric company raised its rates by 10 percent,we would expect:

A)a 10 percent decrease in quantity demanded.
B)a 2 percent increase in quantity demanded.
C)a 10 percent increase in quantity demanded.
D)a 2 percent decrease in quantity demanded.
E)a 5 percent decrease in quantity demanded.

Question 63

Brad always buys and uses Nike brand golf balls.If he finds a Titlelist or Callaway ball in the rough,he gives it away.Brand loyal golfers like Brad allow Nike to charge a higher price and not lose many sales.By building a strong brand,Nike has effectively:

A)increased the income effect for its products.
B)increased the cross-price elasticity for its products.
C)reduced the competitive parity point for its products.
D)shifted the golf ball market from a monopoly to pure competition.
E)reduced the price elasticity of demand for its products.

Question 64

The more substitutes that exist in a market:

A)the lower the price elasticity for each product.
B)the greater the income elasticity for each product.
C)the easier it will be to utilize a target profit pricing strategy.
D)the more sensitive consumers will be to changes in the price of a particular product.
E)the more likely the market will be characterized as an oligopoly.

Question 65

_________________ measures consumers' sensitivity to price changes.

A)Cross-price elasticity of demand
B)Price elasticity of demand
C)Income elasticity of demand
D)Competitive profit elasticity of demand
E)Inelastic demand price parity

Question 66

The food and beverage manager at an upscale country club once offered a two-for-one happy hour price for all alcoholic beverages,only to see a very little response to the special.For these consumers,demand for alcoholic beverages is:

A)cross-price elastic.
B)derived demand elastic.
C)price elastic.
D)price inelastic.
E)status quo elastic.

Question 67

Sales of national brands of orange juice tend to increase when the economy is doing well,while sales of generic orange juice increase when the economy is not doing well.Among industry members this is called the "orange juice indicator." This is an example of how ____________ impacts demand for products.

A)the substitution effect
B)the price inelasticity coefficient
C)the income effect
D)the target return effect
E)cross-price elasticity

Question 68

Ferrari and Lamborghini are manufacturers of very expensive automobiles.Their limited edition cars often sell for $300,000 or more.For most consumers,these are prestige products,and demand is likely to be:

A)cross-price elastic.
B)price inelastic.
C)price elastic.
D)status quo elastic.
E)derived demand inelastic.

Question 69

Marketer of products and services associated with the wedding industry know that customers often do not care what the price is.They just want the wedding to be perfect.For these customers demand,is likely to be:

A)cross-price elastic.
B)derived demand elastic.
C)price elastic.
D)status quo elastic.
E)price inelastic.

Question 70

The observation that consumers are generally more sensitive to price increases than to price decreases suggests that:

A)most consumers cannot remember what price they paid the last time they bought a particular product.
B)it is easier to lose customers with a price increase than to gain customers with a price decrease.
C)most consumers would rather skip buying a product than pay a higher price.
D)most consumers are emotionally attached to their favorite products and are unlikely to change,even if the price changes.
E)firms gain more customers with price decreases than they lose with price increases.

Question 71

Barry customizes Harley-Davidson motorcycles.No two cycles are alike.He notices that very few customers even ask the price of his motorcycles before they decide to purchase them.Demand for his motorcycles is probably:

A)price sensitive.
B)price elastic.
C)price inelastic.
D)income elastic.
E)cross-price elastic.

Question 72

Rodi owns Hallman's auto repair service.He has observed over the years that customers keep their high-mileage cars longer when the economy is doing poorly,creating demand for his maintenance and repair service.Rodi has observed the impact of ______________ on demand for his service.

A)breakeven points
B)the price inelasticity ratio
C)the income effect
D)target profit pricing
E)cross-price elasticity

Question 73

If a 1 percent decrease in price results in more than a 1 percent increase in quantity demand,demand is:

A)cross-price elastic.
B)price inelastic.
C)price elastic.
D)status quo elasticity.
E)derived demand inelastic.

Question 74

Marketers spend millions of dollars annually trying to create or reinforce brand loyalty.Brand loyalty changes the demand curve for the firm's products by:

A)reducing the price elasticity of demand.
B)making demand more oligopolistic and less monopolistic.
C)increasing the income effect.
D)reducing fixed costs and increasing the gray marketing effect.
E)shifting the market from a monopoly to pure competition.

Question 75

A study found that,among addicted smokers,a 10 percent increase in the price of cigarettes resulted in a 2 percent decrease in quantity demanded.For these consumers,cigarettes have a(n)________________ price elasticity demand.

A)elastic
B)inelastic
C)cross-price
D)income effect
E)substitution effect

Question 76

For which of the following is demand likely to be most sensitive to price increases?

A)Prescription drugs.
B)College tuition for last-semester seniors.
C)Electricity.
D)Hospital care.
E)A specific brand of soft drink.

Question 77

If a 1 percent decrease in price results in less than a 1 percent increase in the quantity demanded,demand is:

A)cross-price elastic.
B)price inelastic.
C)price elastic.
D)status quo elasticity.
E)derived demand inelastic.

Question 78

Which of the following is the most logical example of complementary products?

A)Hot dogs and hamburgers.
B)VCRs and DVD players.
C)Hot dogs and hot dog buns.
D)Honda cars and Toyota cars.
E)A brick-and-mortar university and an online university.

Question 79

For which of the following is demand likely to be least sensitive to price increases?

A)Spring break vacations.
B)A specific brand of cereal.
C)Prescription drugs.
D)Theater tickets.
E)Restaurant meals.

Question 80

Near the end of the summer season,Sergio still has a large inventory of bathing suits.He needs to sell them rather than holding them over till next season,because colors and styles often change.He plans to offer them at 30 percent off the retail price.Sergio hopes that demand for bathing suits at the end of the season is:

A)cross-price elastic.
B)price inelastic.
C)price elastic.
D)status quo elastic.
E)derived demand inelastic.