Deck 14: Pricing Concepts for Capturing Value

Question 1

American Airlines just reduced its fares for summer flights by $100. Delta Airlines changes its pricing structure and reduces its flights by $100 as well. Delta is employing status quo pricing.

Answer 1

True

Question 2

At the break-even point, companies finally recognize a profit.

Answer 2

False

Question 3

An example of an objective set by a sales-oriented company is to institute a company-wide policy that all products must provide for at least an 18 percent profit margin to reach a particular profit goal for the firm.

Answer 3

False

Question 4

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 5

Marketers should view pricing decisions as an opportunity to create value.

Question 6

The demand curve for prestige products generally slopes downward due to higher prices.

Question 7

In U.S. markets, there are many substitute products for Head & Shoulders dandruff shampoo, suggesting the price elasticity of demand for Head & Shoulders is high.

Question 8

Pricing strategies should be aligned with a firm's overall goals and objectives.

Question 9

Patrice owns a boutique specializing in formal dresses. Sales are stable and Patrice feels it is time she had a 10 percent increase in her salary. If Patrice takes this increase in compensation, it will decrease the break-even quantity of dresses she needs to sell on a monthly basis.

Question 10

When the price of milk goes up, demand does not fall significantly, because people still need to buy milk. However, if the price of T-bone steaks rises beyond a certain point, people will buy fewer of them because they can turn to the many substitutes for this cut of meat. This demonstrates price elasticity of demand.

Question 11

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

Question 12

When a firm uses premium pricing, it sets lower prices for everyday items such as toothpaste that consumers purchase frequently.

Question 13

Monopolistic competition occurs when there are many firms competing for customers in a given market but their products are differentiated.

Question 14

When a retail store rarely sells deeply discounted or sale products, it is known as "everyday low pricing."

Question 15

Dynamic pricing is in place when retailers charge the same price for goods regardless of the selling season.

Question 16

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

Question 17

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

Question 18

A demand curve shows the relationship between income and demand.

Question 19

When a firm has a particular profit goal as its overriding concern, it will use target return pricing to meet the profit objective.

Question 20

Costs related to supply and costs related to demand are the two primary cost categories.

Question 21

Sellers using an EDLP pricing strategy often communicate their strategy through the creative use of a reference price.

Question 22

Rob is the marketing manager for a home goods store. His boss tells him the firm's primary goal is to increase its local market share from 10 to 20 percent. His firm is using a ________ orientation.

A)profit
B)sales
C)competitive
D)customer satisfaction
E)product development

Question 23

Consumers generally believe that ________ is one of the most important factors in their purchase decisions.

A)promotion
B)place
C)policy
D)perception
E)price

Question 24

Blaire tells her sales representatives the goal is to generate at least a 15 percent return on investment for all the computer desks they sell. Blaire is using a ________ pricing strategy.

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

Question 25

Many years ago, Honda's Accord and Ford's Taurus were the two top-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 26

Which of the five Cs of pricing demonstrates the different goals each company embraces?

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

Question 27

Jenna wants her firm's gourmet teas 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 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)that is determined by the consumer.

Question 29

Ana is the marketing manager for a shoe store 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)broaden the product line.

Question 30

A high\low pricing strategy relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases.

Question 31

When Delta increases its average fares, American Airlines and United often follow with similar increases. This is an example of

A)competitor orientation.
B)customer orientation.
C)status quo pricing.
D)adding value.
E)economy of scale.

Question 32

Midway Appliance Group has set very low prices for its products in an attempt to drive its competitor, Home Supply Corp., out of business. This is known as monopolistic pricing.

Question 33

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

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

Question 34

In developing marketing strategies, why is price often the most challenging of the four Ps to manage?

A)most managers feel it is the least important element of the marketing mix
B)it is the least understood element of the marketing mix
C)it has to be based on the promotion budget for the product
D)it is difficult to calculate markups for products
E)managers don't understand the relationship between benefits and costs

Question 35

A new yoga studio might use a low introductory offer price to get people to join their new studio or to entice them away from their current studio. These low prices represent a ________ pricing strategy.

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

Question 36

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

A)industry-oriented
B)sales-oriented
C)competitor-oriented
D)innovation-oriented
E)customer-oriented

Question 37

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 38

Fizzy Drinks Inc. decided to generate new sales by being the lowest price competitor in the soft drink market so as to attract customers away from higher-priced producers. What company objective does this reflect?

A)sales-oriented
B)profit-oriented
C)customer-oriented
D)production-oriented
E)competitor-oriented

Question 39

Lindsay believes that her customers prefer to wait until the price of a product has gone down before buying it and are not worried about being the first to have a new product or innovation. It would benefit Lindsay to use the price skimming strategy.

Question 40

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 41

Matthew told the manager of his gas station to always adjust prices to match those charged by the other convenience store across the street. Matthew is using a ________ pricing strategy.

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

Question 42

Isabella knows that her customers always shop for top-of-the-line leather purses and price is not a consideration. She decides to price her line of purses and wallets above those of her closest competition in order to capture those customers who only look for the best. What type of strategy is Isabella using?

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

Question 43

The price elasticity of demand for a specific brand of deodorant is 1. The market for this product is considered

A)inelastic.
B)elastic.
C)saturated.
D)dynamic.
E)a prestige market.

Question 44

Christine owns a bakery where she sells donuts. Two blocks down there is another bakery that sells donuts for $1 less than Christine. Christine decides to lower her price and match the other bakery. What type of pricing orientation is Christine implementing?

A)internal pricing
B)profit-oriented pricing
C)competitor-oriented pricing
D)customer-oriented pricing
E)sales-oriented pricing

Question 45

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)consumers
E)company objectives

Question 46

When firms set prices similar to those of major 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 47

Bryce would love to own a Lamborghini someday but he knows if he has to ask how much they cost, he probably can't afford it today. Products like Lamborghini automobiles 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 48

Buying response to a teeth whitening product is considered to be elastic. This would suggest dropping the price would result in:

A)increased sales of the product
B)decreased sales of the product
C)static sales of the product
D)delayed sales of the product
E)the purchase of related tooth care products

Question 49

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

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

Question 50

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 51

When it comes to measuring consumers' price sensitivity, products are viewed as either

A)elastic or inelastic.
B)fixed or variable.
C)complementary or substitutable.
D)necessary or optional.
E)dynamic or rigid.

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 be 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)is measured against the competition.

Question 53

Sabrina's is an upscale running gear store. Prices are based on customers' beliefs about the value of the gear. The store focuses on a limited target market and provides excellent customer service. Sabrina's is using a ________ pricing strategy.

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

Question 54

French luxury goods manufacturer and retailer Hermès is known for making expensive leather goods. But paying $300,168 for a handbag at auction, which is over the standard retail price of $280,000, is extraordinary, and not for the casual shopper. The handbag is considered a

A)product in demand.
B)inelastic product.
C)elastic product.
D)custom product.
E)prestige product.

Question 55

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)economies of scale.
E)a sales orientation.

Question 56

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 57

A demand curve shows the relationship between ________ during a specific period of time.

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

Question 58

A demand curve is built on the assumption 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)fixed costs change with quantity demanded.
E)the firm does not advertise.

Question 59

In many high-end resort markets, Westin hotels compete directly with Crown Plaza hotels. When it comes to pricing, Westin tends to charge its guests similar rates to what the Crown Plaza hotels charge. Westin is using a ________ pricing strategy.

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

Question 60

A "no haggle" pricing policy that makes a transaction easier for the buyer is a type of ________ pricing strategy.

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

Question 61

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 62

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 63

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 64

Wilson's Heating and Air Conditioning Company specializes in electric heat pumps. The owner should keep track of the price of natural gas, knowing that

A)natural gas creates more environmental greenhouse effects than coal.
B)an increase in the price of natural gas will increase demand for his electrical heating systems.
C)gas heating systems and electrical heating systems are complementary goods.
D)when the price of natural gas goes up, the quantity demanded also rises.
E)the demand for natural gas is price elastic.

Question 65

Raymond owns Pederson's computer repair service. He has observed over the years that customers keep their older-model computers longer when the economy is doing poorly, creating demand for his maintenance and repair service. Raymond has observed the impact of ________ on demand for his service.

A)break-even points
B)the price inelasticity ratio
C)the income effect
D)the target return effect
E)cross-price elasticity

Question 66

Kendra always buys and uses Wilson brand tennis balls. If she finds a Penn or Dunlop ball on the court, she gives it away. Brand-loyal tennis players like Kendra allow Wilson to charge a higher price and not lose many sales. By building a strong brand, Wilson has effectively

A)increased the income effect for its products.
B)increased the cross-price elasticity for its products.
C)focused on 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 67

Gail operates on a tight budget. She buys store or generic brands to save money. Recently, Gail was given a substantial pay raise. Now, she has altered her shopping patterns and regularly buys more expensive, name-brand goods. This is an example of

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

Question 68

Phillip is a luxury RV dealer in the midwestern United States. For years he has had difficulty selling these RVs locally because there were few places for customers to store the RVs off-season. RVs and spaces to store them are an example of

A)substitute products.
B)purely competitive products.
C)status quo pricing products.
D)complementary products.
E)competitive parity products.

Question 69

There are many options available to consumers when it comes to toothpaste. So, if Procter & Gamble significantly increases the price of Crest toothpaste, consumers are more apt to buy alternate toothpaste instead. This illustrates which concept?

A)the income effect
B)the substitution effect
C)the break-even point
D)the target return effect
E)cross-price elasticity

Question 70

If the price for a product increases, the demand for the complementary product will

A)decrease.
B)increase.
C)stay the same.
D)become more elastic.
E)become more inelastic.

Question 71

________ products are products whose demands are positively related and as such, they rise or fall together.

A)Substitute
B)Premium
C)Elastic
D)Inelastic
E)Complementary

Question 72

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 elastic.
E)derived demand inelastic.

Question 73

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

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

Question 74

Geoff customizes Trek trail bikes. No two bikes are alike. He notices that very few customers even ask the price of his trail bikes before they decide to purchase them. Demand for his trail bikes is probably

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

Question 75

Sonja's Sub Shop is located in a business district that has few customers on the weekend. To attract customers on Saturday and Sundays, it reduces its prices on these two days. This is an example of

A)dynamic pricing.
B)the substitution effect.
C)the income effect.
D)the target return effect.
E)cross-price elasticity.

Question 76

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 77

Cross-price elasticity is the

A)percentage change in quantity of a product demanded divided by the percentage change in its price.
B)percentage change in quantity demanded of Product A compared to the percentage change in price of Product B.
C)change in price of Product A divided by change in quantity demanded for Product B.
D)change in quantity of a product demanded divided by the change in its price.
E)change in quantity of a product demanded divided by the change in its elasticity.

Question 78

What is the most logical example of complementary products?

A)hot dogs and hamburgers
B)VCRs and DVD players
C)salad and salad dressing
D)Honda cars and Toyota cars
E)a university and a corporation

Question 79

Sales of more expensive organic produce tend to increase when the economy is doing well, while sales of lower-priced store brand produce increase when the economy is not doing well. This is an example of how ________ impacts demand for products.

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

Question 80

What situation is occurring if a 1 percent decrease in price results in more than a 1 percent increase in quantity demand?

A)Demand is cross-price elastic.
B)Demand is price inelastic.
C)Demand is price elastic.
D)Demand maintains the status quo.
E)Demand results in the income effect.