Deck 14: Pricing Concepts for Establishing Value

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

A demand curve shows the relationship between income and demand.

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 high.

Question 7

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

Question 8

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

Question 9

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.

Question 10

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 11

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 refers to price elasticity of demand.

Question 12

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

Question 13

At the break-even point, profits are maximized.

Question 14

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

Question 15

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

Question 16

Dynamic pricing is also referred to as individualized pricing.

Question 17

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.

Question 18

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

Question 19

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

Question 20

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

Question 21

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 22

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 23

Earl was known for driving 30 miles just to save a dollar on the price of his favorite beverage. Earl 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 24

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

Question 25

All of the following are included in the full price of a product or service except

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

Question 26

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 27

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

Question 28

All of the following are included in the five Cs of pricing except

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

Question 29

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 30

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 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 Bernard's effort?

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

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.

Question 32

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

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

Question 33

Firm A has set very low prices for its products in an attempt to drive its competitor, Firm B, out of business. This is known as monopolistic pricing.

Question 34

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) broaden the product line.

Question 35

Gary is the marketing manager for an automobile dealership. His boss tells him the firm's primary goal is to increase its local market share from 15 to 30 percent. His firm is using a ________ orientation.

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

Question 36

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

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

Question 37

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

Question 38

When CarMax promises a "no-haggle" pricing structure, it exhibits ________ because it provides additional value to potential used car buyers by making the process simple and easy.

A) a customer orientation
B) a status-quo pricing structure
C) competitive parity
D) a competitor orientation
E) consumer parity

Question 39

For market penetration pricing to work, the product or service must be perceived as breaking new ground in some way.

Question 40

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 41

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 42

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 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

The price elasticity of demand for a teeth-whitening kit is −1. The market for this product is considered

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

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

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 47

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 48

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 49

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) is measured against the competition.

Question 50

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 51

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 52

A firm uses customer orientation when it sets its pricing strategy based on how it can add value to its products or services. 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 53

Sharon knew that her established customers liked her product much better than her competitor's. 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 54

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 55

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 56

A customer orientation toward pricing implicitly invokes the concept of

A) knowing the dimensions of the target market.
B) positioning.
C) the income effect.
D) value.
E) profit.

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

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 59

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 60

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 61

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 62

The Coffee Express company is located in a business district with 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 63

Natalie operates on a pretty tight budget. She is a price-conscious shopper and usually buys store or generic brands to save money. Recently, however, Natalie was given a pretty substantial raise. As such, she has altered her shopping patterns and now 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 64

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 65

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.

Question 66

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 67

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 68

Brad always buys and uses Nike brand golf balls. If he finds a Titleist 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) 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 69

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 70

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 71

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 72

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) 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 73

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 74

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 75

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. 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 76

There are many options available to consumers when it comes to breakfast cereals. So, if Kellogg's significantly increases the price of Rice Krispies, consumers are more apt to buy alternate cereals 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 77

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

Question 78

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 79

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 80

________ 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