Deck 16: Pricing Concepts and Strategies

Question 1

Many credit cards offer so-called "teaser" rates-low introductory rates that rise after a few months.What type of pricing strategy is the use of introductory rates an example of?

A) penetration pricing
B) skimming pricing
C) everyday low pricing
D) competitive pricing

Answer 1

A

Question 2

What should Proctor & Gamble do if they were to introduce a value-priced brand of laundry detergent?

A) emphasize the low price compared to all other products currently available in the marketplace
B) put less product in the customary package to offset the low-profit margin
C) demonstrate the prestige the consumer gets along with this product
D) focus on how the lower-priced brand offers comparable quality to higher-priced products

Answer 2

D

Question 3

What pricing objective might seek sales maximization or achievement of a stated market share?

A) profitability
B) volume
C) meeting competition
D) prestige

Answer 3

B

Question 4

A company has demonstrated that their price discounts and promotional allowances do not restrict competition.What is the term for the pricing-related practice defended?

A) bid rigging
B) predatory pricing
C) price discrimination
D) price fixing

Question 5

At present, what are both long-distance telephone services and wireless carriers tending to adhere to?

A) a competitive pricing objective
B) a prestige pricing policy
C) a breakeven pricing approach
D) a psychological pricing model

Question 6

What objectives are short-run or long-run profitability goals, usually stated as percentages of sales or investment?

A) profit maximization
B) volume
C) target-return
D) prestige

Question 7

Which of the following BEST describes customary prices?

A) prices offered at the wholesale level as an incentive to buyers to purchase a specific product
B) retail prices that consumers expect to pay as the result of social habit or tradition
C) prices that are adjusted to the different geographic areas in which the products are sold
D) prices designed to constrain the amounts sold to a level desired by government

Question 8

In what type of market structure would a producer have the LEAST amount of flexibility in setting prices?

A) pure competition
B) monopolistic competition
C) oligopoly
D) monopoly

Question 9

Which of the following is one of the major benefits derived from target-return objectives?

A) They eliminate competition.
B) They generate excess profit.
C) They encourage increased investments by stockholders.
D) The serve as a means of evaluating performance.

Question 10

What is the organizational goal of a high School when it sponsors a $100-per-person auction to raise funds for the operation of the school?

A) maximize profits
B) recover costs
C) suppress the market
D) provide market incentives

Question 11

Which of the following is an inappropriate pricing objective for a not-for-profit organization?

A) providing market incentives
B) profit maximization
C) cost recovery
D) industry domination

Question 12

What is the purpose of the Competition Act?

A) It assists foreign businesses that want to enter the Canadian marketplace.
B) It prevents businesses from earning excess profits; that is, more than the average for an industry.
C) It tries to balance the interests of businesses and consumers.
D) It focuses on the protection of Canada's natural resources.

Question 13

What is it called when sellers get together and collude to set prices with respect to one or more requests for competitive proposals?

A) price fixing
B) bid rigging
C) price discrimination
D) misleading price representation

Question 14

What do prestige pricing objectives emphasize?

A) quality and exclusivity
B) revenue maximization
C) cost minimization
D) sales maximization

Question 15

What did the Profit Impact of Market Strategies Project (PIMS) reveal were the two most important factors influencing profitability?

A) sales cost and market demand
B) product quality and market share
C) profit margin and market share
D) profit maximization and competition

Question 16

In comparing the top four brands in a market segment, what did the Profit Impact of Market Strategies Project (PIMS) research data reveal was the average, after-tax return on investment percentage that the leading brand generates?

A) less than 10 percent
B) 15 to 25 percent
C) 30 to 50 percent
D) more than 65 percent

Question 17

Which of the following has monopolistic competition as a typical condition?

A) wholesaling
B) manufacturing
C) retailing
D) service businesses

Question 18

What is a market structure called with large numbers of buyers and sellers of differentiated products?

A) supply and demand
B) pure competition
C) oligopoly
D) monopolistic competition

Question 19

What does the exchange value of a product define?

A) its worth
B) its price
C) its value
D) its funds

Question 20

What is usually the pricing strategy used in selling expensive and luxurious automobiles?

A) meeting competitors' prices
B) return on investment
C) prestige
D) revenue maximization

Question 21

Which of the following statements BEST describes full-cost pricing?

A) It allocates only those fixed costs that can be directly attributed to production.
B) It explicitly considers demand and competition.
C) It uses all relevant variable costs in setting the product's price.
D) It relates overhead expenses to expected revenue.

Question 22

What is demand or supply said to be when the calculated elasticity of demand or supply is greater than 1.0?

A) elastic
B) stagnant
C) marginal
D) inelastic

Question 23

What costs are used in incremental-cost pricing?

A) all relevant variable costs in setting a product's price
B) costs based on price theory and profit maximization
C) only those costs that are directly attributable to a specific output
D) all fixed costs that are not attributable to total variable cost (TVC)

Question 24

What market structure BEST describes the Canadian airline industry?

A) pure competition
B) monopolistic competition
C) monopoly
D) oligopoly

Question 25

What would demand in the short run tend to be if the price of basic food products were to increase significantly?

A) inelastic
B) elastic
C) plastic
D) unstable

Question 26

A company has fixed costs of $35 000 and has average variable costs of $7 per item.This company sells 10 000 units and just breaks even.What is the unit selling price for the product?

A) $7.35
B) $10.00
C) $10.50
D) $16.00

Question 27

What would be used to calculate the number of units of product that must be sold at a certain price in order to recover fixed costs?

A) breakeven analysis
B) cost-plus pricing
C) macroeconomic price theory
D) marginal analysis

Question 28

Which of the following presents a major obstacle to using traditional price theory?

A) estimating markups
B) computing costs
C) predicting revenues
D) estimating demand curves

Question 29

The Acme Flashlight Company breaks even at 20 000 flashlights at $6 each, with the average variable cost per flashlight of $4.What is the amount of its fixed costs?

A) $20 000
B) $40 000
C) $60 000
D) $80 000

Question 30

In the analysis of economic cost and revenue curves, which of the following BEST describes variable costs?

A) They remain stable at any production level within a certain range.
B) They can be calculated by dividing the total of fixed costs by the number of units produced.
C) They change with the level of production.
D) They represent the change in total cost that results from producing one more unit of production.

Question 31

The above table depicts the marginal revenue and marginal cost at various levels of output.At what level of output is profit maximized?

A) 100 units
B) 150 units
C) 200 units
D) 250 units

Question 32

What do you need to know to calculate the breakeven point for a product?

A) the total number of units that have been sold
B) the current demand for the product and the potential supply in units
C) the total cost, marginal cost, and average variable cost of each unit
D) the revenues and expenses attributable to each unit

Question 33

What must demand curves be estimated based on?

A) marketing research
B) past practices in the industry
C) profit maximization
D) effective accounting procedures

Question 34

What does the demand side of the pricing equation focus on?

A) revenue curves
B) cost curves
C) marginal curves
D) absolute values

Question 35

What is the price elasticity of demand for eggs if a 10 percent increase in the price of eggs results in a 5 percent decrease in the quantity of eggs demanded?

A)0.1
B)0.5
C)1.0
D)1.5

Question 36

Which of the following methods uses a base-cost figure per unit and adds a markup to cover unassigned costs and to provide a profit?

A) marginal analysis pricing
B) breakeven pricing
C) modified breakeven pricing
D) cost-plus pricing

Question 37

What is a major factor influencing the elasticity of demand for a product?

A) the decrease in price of the product
B) the drop in demand for the product's substitutes or complements
C) the availability of substitutes
D) the increase in supply of the product

Question 38

Which of the following statements MOST accurately describes breakeven analysis?

A) The breakeven analysis model assumes per-unit costs vary at different levels of operation.
B) The breakeven analysis model assumes that costs can be divided into fixed and variable costs.
C) The breakeven analysis attempts to use only costs directly associated with specific outputs in price setting.
D) The breakeven analysis can be used to determine the sales level needed to cover costs but not to achieve specific profit levels.

Question 39

What are the two common cost-oriented pricing methods?

A) marginal cost and marginal revenue pricing
B) full-cost and incremental-cost pricing
C) markup and markdown pricing
D) profitability and volume pricing

Question 40

When is demand said to be inelastic?

A) when the demand curve and the supply curve do not cross
B) when the total cost and total revenue are equal at all levels of demand
C) when the calculated elasticity of demand is greater than 1
D) when the calculated elasticity of demand is less than 1

Question 41

What is it called when a manufacturer offers an intermediary a percentage discount off the list price of products it handles in exchange for performing certain wholesaling activities?

A) cash rebate
B) list price
C) cumulative discount
D) trade discount

Question 42

What is the skimming pricing strategy sometimes referred to as?

A) market-plus pricing
B) competitive pricing
C) penetration pricing
D) functional pricing

Question 43

A product is priced to sell for $12 with average variable costs of $8.The company expects to earn a profit of $400 000 with its total fixed costs of $120 000.What is the minimum number of units that must be sold in order to reach this target return?

A) 80 000
B) 120 000
C) 130 000
D) 400 000

Question 44

In order to recover research and development costs rapidly and earn initial high profits, Sony set a high price for its plasma TVs.What is the pricing strategy Sony used?

A) market-share
B) skimming
C) penetration
D) competitive

Question 45

What should customers submit to the creditor if they want to take the discount on an invoice for $300 dated April 1 with terms of 3/10 net 30?

A) $285 by April 15
B) $291 by April 10
C) $297 by April 30
D) $300 by April 12

Question 46

What type of demand for a product would penetration pricing work BEST for?

A) elastic
B) highly elastic
C) inelastic
D) highly inelastic

Question 47

Which of the following is NOT a characteristic of everyday low pricing?

A) Seasonal changes in prices are based on current demand.
B) It is purely cost-based prices that vary as the manufacturer's costs vary.
C) It relies on short-term price-cutting tactics such as cents-off coupons, rebates, and special sales.
D) The prices are reviewed and are set daily, weekly, or monthly in reaction to competitors' actions.

Question 48

What type of discount is given off the list price for prompt payment of the invoice?

A) cash
B) trade
C) quantity
D) functional

Question 49

How would the terms be stated if a business was offering a cash discount of 5 percent if consumers pay the invoice within 30 days with the full face amount of the invoice due 30 days after that?

A) 5/30, net 60
B) 5/60, net 90
C) 5/15, net 45
D) 10/30, net 60

Question 50

A retailer is considering expanding to a second location.Which of the following might the retailer use in a breakeven analysis to examine the sales level needed to achieve expansion?

A) a marginal analysis
B) a breakeven point
C) a demand curve
D) a target return

Question 51

What is a theatre practising when they lower prices in the afternoon to offset low demand and raise prices in the evening when demand rises?

A) modified breakeven analysis
B) yield management
C) exploitation of the local theatre-goers
D) marginal pricing

Question 52

What is the pricing strategy that offers prices that are consistently lower than those of competitors?

A) penetration
B) skimming
C) everyday low
D) competitive

Question 53

What is penetration pricing sometimes referred to as?

A) market-plus pricing
B) market-minus pricing
C) cost-plus pricing
D) prestige pricing

Question 54

What type of price is normally quoted to potential buyers before any discounts or allowances are allowed?

A) the unit price
B) the list price
C) the cash price
D) the trade price

Question 55

Which of the following is NOT an advantage of skimming pricing?

A) It allows a manufacturer to quickly recover its research and development costs.
B) It allows marketers to control demand at certain points in the introductory stages of a product`s life cycle.
C) Potential competitors see innovative firms reaping large financial returns and decide to enter the market.
D) It is a useful tool for setting a market entry price when there is little or no competition.

Question 56

What type of discount is given off the list price for large-volume purchases?

A) cash
B) trade
C) quantity
D) functional

Question 57

When General Motors introduced the Saturn, it priced the SL sports sedan at $2000 less than the Toyota Corolla DLX and $1500 less than comparable Nissan and Honda automobiles.What pricing strategy is this an example of?

A) skimming
B) loss-leader
C) competitive
D) penetration

Question 58

A five-pound bag of roasted peanuts sells for $8, and the average variable costs are $4 per bag.What is the breakeven point in bags if the total fixed costs for the roasted peanuts are $80 000?

A) 20 000
B) 40 000
C) 80 000
D) 120 000

Question 59

What makes up a product's market price?

A) It is the same as the product's list price.
B) It is the list price less any allowances and discounts that may be involved in the purchase.
C) It is the list price less any discounts and allowances plus geographic considerations.
D) It is the price that consumers pay using a credit card.

Question 60

Which of the following pricing strategies tries to remove price as a strategic weapon?

A) penetration pricing
B) everyday low pricing
C) skimming pricing
D) competitive pricing

Question 61

What cost is an important geographic consideration in setting and quoting prices?

A) the cost of transportation
B) the cost of quality
C) the cost of flexibility
D) the cost of buyer involvement

Question 62

A firm that manufactures TVs sells them at prices of $750, $1000, and $1250.The manufacturer will return $75, $100, or $125 by mail to those who purchase its brand of TV.What is this reduction in price an example of?

A) a promotion allowance
B) a trade-in
C) a rebate
D) a quantity discount

Question 63

Based on marketing objectives, what is the general guideline called that is intended for use in specific pricing decisions?

A) a product line
B) a pricing policy
C) a structure of prices
D) strategic pricing

Question 64

In a recent special offer, any customer who brought in a toaster oven, working or not, was given a $50 credit toward the purchase of a new Amana microwave oven.What is this an example of?

A) psychological pricing
B) a trade-in
C) a cash discount
D) a promotional allowance

Question 65

What is the practice of marketing merchandise at a limited number of prices called?

A) product-line pricing
B) odd pricing
C) one-price pricing
D) limited pricing

Question 66

What determines whether a quantity discount is cumulative or noncumulative?

A) the frequency of purchase
B) if it is used in conjunction with trade-ins
C) the payment to channel members for performing a marketing function
D) the timing of the payment

Question 67

What does pricing a product "Free of Board plant" or "Free on Board origin" mean?

A) the buyer pays all shipping charges from the manufacturer's dock.
B) the same total price is quoted to all customers, including transportation
C) dividing the market into different regions with a different price being charged in each
D) list price at the factory plus freight charges

Question 68

What type of pricing is "Buy three shock absorbers and get the fourth free," as advertised by an auto repair shop, an example of?

A) promotional
B) variable
C) one-policy
D) product-line

Question 69

Which of the following is an example of odd pricing?

A) a buy-two-get-one-free promotion
B) selling a microwave for $129.99 instead of $130
C) subtracting trade-ins from the list price
D) rebates that lower total price

Question 70

What is a one-time reduction in list price, typically offered at time of sale, referred to as?

A) an allowance
B) a rebate
C) a noncumulative discount
D) a cumulative discount

Question 71

How does unit pricing state its price?

A) displayed in even dollar units, such as $5 or $8
B) the opposite of odd pricing
C) the same as uniform-delivered pricing
D) in terms of quantities of measure

Question 72

What type of price will a manufacturer be quoting when it quotes the same price for goods (including freight charges) to a buyer in Toronto, another in Calgary, and a third in Vancouver?

A) basing-point
B) destination
C) zone
D) uniform-delivered

Question 73

What is a pricing policy that features variable pricing said to have?

A) price fluctuations
B) price flexibility
C) price variability
D) discount prices

Question 74

What is the pricing policy that assumes that some prices are more appealing than others?

A) psychological pricing
B) unit pricing
C) list pricing
D) prestige pricing

Question 75

What type of pricing is used at a men's clothing store that sells suits at four price levels ($295, $455, $525, $650)?

A) unit
B) promotional
C) product-line
D) psychological

Question 76

What type of pricing is being used when the price of Cheerios cereal is displayed as 14.7 cents per gram?

A) odd
B) commodity
C) unit
D) penetration

Question 77

What is an attempt to integrate promotional strategies within the marketing channel called?

A) quantity discount
B) rebate
C) trade-in
D) promotional allowance

Question 78

A retailer wants to increase the number of customers shopping in her store.Which of the following has the greatest potential for success?

A) unit pricing
B) price flexibility
C) prestige pricing
D) promotional pricing

Question 79

What type of pricing is the exact opposite of FOB origin pricing?

A) zone pricing
B) freight absorption
C) uniform-delivered pricing
D) the basing-point system

Question 80

Which of the following is an example of a rebate?

A) $10 off a $100 purchase for buying in quantity
B) $3 off a $100 purchase for paying the bill within 10 days
C) $25 off a $100 purchase because of a trade-in at the time of transaction
D) $5 returned by mail after a $100 purchase for making the purchase