Marketing Study Set 20

A profit maximization strategy is used during the growth and maturity stages of the product life cycle.

Cost-plus pricing is not a very effective strategy for maximizing profits.

Prices are generally more elastic in the early stages of the product life cycle and increasingly inelastic in the later stages of the product life cycle.

Unbundling provides value for customers who are focused on a specific price point rather than the complete product offering.

Break-even analysis is an accurate measure of price sensitivity.

Customers are more price sensitive the higher the product's price is relative to the customers' price expectation.

Underpricing is a pricing strategy whereby companies charge an amount just below cost in order to generate sales in the introductory stage of a product's life cycle.

Price elasticity of demand is a measure of price sensitivity.

Once a firm has established its break-even point for a product, it has a starting point for estimating how much revenue it must generate to earn a profit.

Rent on an office building would be considered a fixed cost, while sales commissions would be considered a variable cost.

While shopping, Lucie sees a pair of jeans on sale for $29.99. She is excited because she has purchased this particular brand of jeans several times in the past for $40.00. In this instance, $40.00 is Lucie's fixed cost.

Dynamic pricing is a pricing strategy that involves pricing a product higher than competitors to signal that it is of higher quality.

Shrinkflation is when manufacturers "shrink" or reduce the price of their products during times of inflation.

Volume maximization is the same thing as penetration pricing.

An escalator clause ensures that the customer does not incur financial hardship as a result of increases to the cost of a product.

Loss-leader pricing involves selling a product at a price that causes the firm a financial loss.

A recreational watersports dealer reduced the price of its new jet skis by $1,000 in hopes of generating more sales. However, the lower price only resulted in a few more sales of the jet skis. This represents an elastic demand situation.

An odd pricing tactic prices items in odd dollar amounts, such as $4.95, instead of in even amounts, like $4.88.

The change in total revenue that results from selling one additional product unit is referred to as price sensitivity.

Promotion is one of the most important strategic decisions a firm faces because it reflects the value the product delivers to consumers as well as the value it captures for the firm.