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.

Accepted Answer

Delta Airlines is employing status quo pricing by matching the price reduction of a competitor (American Airlines) to maintain its position in the market and avoid price wars.

Question 2

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

Accepted Answer

At the break-even point, companies do not make a profit. They have only covered all their costs and reached a point of no loss and no gain. Profit is recognized only after the break-even point has been surpassed.

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.

Accepted Answer

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.

Accepted Answer

This phenomenon is known as "pricing power asymmetry" and has been extensively studied in consumer behavior research. Consumers typically have a stronger negative reaction to price increases, even if the increase is small, than they do to price decreases. This means that businesses need to carefully consider the potential impact on customer loyalty when deciding whether to raise prices.

Question 5

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

Accepted Answer

Pricing decisions are not just about setting a price; they are also about creating value for customers. Marketers can use pricing strategies such as discounts, bundling, and value-based pricing to create perceived value for customers and differentiate themselves from competitors. By considering the customer's willingness to pay and the value they place on the product or service, marketers can set pricing that maximizes profits while also providing value to the customer.

Question 6

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

Accepted Answer

The demand curve for prestige products often slopes upwards at certain ranges because higher prices can increase the perceived value and desirability of these products, leading to increased demand.

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.

Accepted Answer

The availability of substitute products indicates that consumers have options and are more likely to switch to a different brand if the price of Head & Shoulders increases, making the demand for Head & Shoulders relatively elastic.

Question 8

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

Accepted Answer

Pricing strategies should be designed to support a company's overall goals and objectives, whether that's maximizing profits, increasing market share, or achieving product differentiation. Pricing decisions influence a firm's positioning in the market and impact customer purchase behavior, which is why it's important to align pricing strategies with a company's larger strategic vision.

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.

Accepted Answer

Increasing Patrice's salary will have no effect on the break-even quantity of dresses she needs to sell. The break-even quantity is only affected by factors such as fixed costs, variable costs, and selling price.

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.

Accepted Answer

This statement accurately describes price elasticity of demand. When a good has many substitutes, consumers are more likely to switch to an alternative if the price becomes too high, making demand more elastic.

Question 11

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

Accepted Answer

Price generates revenue rather than incurring costs, unlike product development, distribution (place), and promotion, which all involve costs.

Question 12

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

Accepted Answer

When a firm uses premium pricing, it sets higher prices for its products with the assumption that this will create a perception of higher quality, exclusivity, or luxury. This pricing strategy is typically used for products that are not purchased as frequently and may have a lower demand elasticity.

Question 13

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

Accepted Answer

Monopolistic competition is characterized by a large number of firms in a market, selling products that are similar but not identical. This differentiation may be based on factors such as quality, features, design, branding, or customer service. This variety of choices gives consumers some degree of control over price and product selection, while firms retain some market power through their unique offerings.

Question 14

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

Accepted Answer

Everyday low pricing refers to a pricing strategy where products are consistently priced low without relying on sales or promotions to attract customers.

Question 15

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

Accepted Answer

Dynamic pricing is the opposite of this statement - it is when retailers adjust their prices based on various factors such as demand, competition, and inventory levels.

Question 16

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

Accepted Answer

Monopolistic competition is characterized by a large number of firms that sell differentiated products. Therefore, to stand out from the competition, a firm needs to differentiate its product or service from others in the market. This can be done through marketing, branding, and product differentiation strategies.

Question 17

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

Accepted Answer

The answer of Price is the cash expenditure plus taxes...

Question 18

A demand curve shows the relationship between income and demand.

Accepted Answer

A demand curve shows the relationship between the price of a good or service and the quantity demanded, not 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.

Accepted Answer

The answer of When a firm has a particular profit...

Question 20

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

Accepted Answer

The two primary cost categories are costs related to production (supply) and costs related to sales (demand).

Quiz 14: Pricing Concepts for Capturing Value