Deck 19: Pricing Concepts

Question 1

Define price and discuss the role of price in the evaluation of product alternatives.

Answer 1

Answers will vary.Price means one thing to the consumer and something else to the seller.To the consumer,it is the cost of something.To the seller,price is revenue-the primary source of profits.In the broadest sense,price allocates resources in a free-market economy.It is also what is given up in an exchange to acquire a good or service.Marketing managers are frequently challenged by the task of price setting,but they know that meeting the challenge of setting the right price can have a significant impact on the firm's bottom line.Organizations that successfully manage prices do so by creating a pricing infrastructure within the company.This means defining pricing goals,searching for ways to create greater customer value,assigning authority and responsibility for pricing decisions,and creating tools and systems to continually improve pricing decisions.The importance of creating the right pricing strategy cannot be overstated.Price plays two roles in the evaluation of product alternatives: as a measure of sacrifice and as an information cue.To some degree,these are two opposing effects.From the perspective of the sacrifice effect of price,the sacrifice is usually money in the United States,but it can be other things,tool.The price may be time lost while waiting to acquire the good or service,or the lost dignity for individuals who lose their jobs and must rely on charity.The information effect of price is illustrated when consumers do not always choose the lowest-priced product in a category (such as shoes,cars,or wine),even when the products are otherwise similar.One explanation of this behavior,based upon research,is that we infer quality information from price.That is,higher quality equals higher price.The information effect of price may also extend to favorable price perceptions by others because higher prices can convey the prominence and status of the purchaser to other people.

Question 2

Consumers determine value of the product on the basis of

A) perceived satisfaction.
B) the opportunity cost to buy the product.
C) discounts availed.
D) what other people buy.

Answer 2

A

Question 3

Diffusion Research Company specializes in conducting market research for various firms.When it receives a new research proposal,its management first estimates the cost of conducting the research and delivering the final research report.The management then attempts to reduce the costs through efficient operations.In this scenario,Diffusion Research Company has a _____ pricing objective.

A) cash maximization
B) status quo
C) sales-oriented
D) profit-oriented

Answer 3

D

Question 4

A company's product sales as a percentage of total sales for that industry are known as __________.

A) market share
B) revenue
C) return on investment
D) profit

Question 5

To increase the popularity of its new range of smartphones,GizmoPro Inc.offered several free accessories to customers who bought their smartphones.However,the offer turned out to be unsustainable and the company had to offer discounts on the accessories instead.GizmoPro's decision is aimed at _____.

A) market share pricing
B) profit maximization
C) demand orientation
D) sales maximization

Question 6

Fresnas Designs Inc.is a company known for its quality interior decorations,customized service,and affordable prices.Given the high demand for its service,Fresnas' management could price its products higher,but it prefers to price its products such that it will earn a reasonable revenue.Fresnas bases its pricing policy on _____.

A) sales maximization
B) earning satisfactory profits
C) creating retained earnings
D) status quo pricing

Question 7

Which of the following refers to a pricing objective that maintains existing prices or meets the competition's prices?

A) Sales maximization
B) Status quo pricing
C) Satisfactory pricing
D) Pricing based on perceived satisfaction

Question 8

A reasonable level of profits consistent with the level of risk an organization faces is called ____________.

A) satisfactory profit
B) return on investment
C) highest level of profit
D) marginal revenue

Question 9

Riya saw a box of collector's edition comic books at Fournotts,a retail corporation.Each comic was priced at $28.50.A friend of hers who bought five books was required to pay only $19.99 per book.Riya bought just one book and received no discount.Fournotts' revenue from Riya's and her friend's combined purchases was _____.

A) $158.51
B) $19.99
C) $28.50
D) $128.45

Question 10

Consumers are more likely to perceive the value of a product to be less than its price tag says if the product's

A) price is set too high in their minds.
B) manufacturer gains very little profit from the product.
C) demand is inelastic.
D) demand and supply attain the state of price equilibrium.

Question 11

At a local supermarket,Linda saw a box of plant fertilizer that retails at $25 but was marked down to $20.99.Given this information,$20.99 is the _____.

A) dividend
B) price
C) margin
D) profit

Question 12

Betty's Bakery sells cupcakes to coffee shops and restaurants.The company strives to increase its market share in terms of the revenue generated.This illustrates the _____ pricing objective.

A) status quo
B) profit-oriented
C) bait
D) sales-oriented

Question 13

Return on investment (ROI)for a firm is

A) the margin of profit earned by the firm inclusive of the taxes payable by the firm.
B) the firm's total assets multiplied by net profits after taxes.
C) a measure of the firm's effectiveness in generating profits with the available assets.
D) lower than the previous year if the firm has performed better in the market.

Question 14

For convenience,pricing objectives can be divided into three categories:

A) refundable,competitive,and attainable.
B) perceived,actual,and situational.
C) differentiated,niche,and undifferentiated.
D) profit oriented,sales oriented,and status quo.

Question 15

Profit-oriented pricing objectives include _____.

A) target return on investment
B) target market share
C) meeting competitors' prices
D) status quo pricing

Question 16

Among the following,that which is given up in an exchange to acquire a good or service is known as ______.

A) price
B) cost
C) margin
D) profit

Question 17

The assertion,"price is that which is given up to get a good or service" indicates which of the following effects of price?

A) The sacrifice effect of price
B) The information effect of price
C) The perceived satisfaction effect of price
D) The quality effect of price

Question 18

For convenience,pricing objectives can be divided into three categories: profit oriented,sales oriented,and ______.

A) marketing oriented
B) status quo
C) inventory oriented
D) tax oriented

Question 19

Which of the following defines revenue?

A) The price charged to customers multiplied by the number of units sold
B) Net profit after taxes divided by total assets
C) Profit minus expenses
D) Something that is given up in an exchange to acquire a good or service

Question 20

Which of the following refers to net profit after taxes divided by total assets?

A) Return on investment (ROI)
B) Revenue
C) Profit
D) Price

Question 21

The managers at Click-to-Door,an e-commerce website,closely monitor its rival online retailers to analyze how consumers respond to changes in the prices of certain products.They use the results of this analysis to constantly change the prices on their website to maximize sales and profits.In this case,which of the following pricing strategies does Click-to-Door follow?

A) Comparative pricing
B) Dynamic pricing
C) Capacitive pricing
D) Dependent pricing

Question 22

Define elasticity of demand and discuss the factors that affect elasticity.

Question 23

At a price of $2,000 per unit,the demand for Rancho 60 mountain bikes from Cloyd's Inc.is 300 units,which is the number of bikes they manufacture every year.If the marketing managers at Cloyd's Inc.decide to sell each bike at a price lower than $2,000 per unit,_____.

A) a shortage of bikes will be created
B) the number of bikes produced will increase drastically
C) an inelastic demand for the bikes will be created
D) the demand for and the supply of the bikes will attain equilibrium

Question 24

As output is increased or decreased,the ______ costs remains unchanged.

A) marginal
B) dependent
C) fixed
D) opportunity

Question 25

Explain the significance of market share as a sales-oriented pricing objective.

Question 26

Which of the following statements best defines dynamic pricing?

A) It is the practice of marking up prices by 100 percent,or doubling the cost.
B) It is a basic,long-term pricing framework that establishes the initial price for a product.
C) It is the ability to change prices very quickly.
D) It is the practice of charging a very low price for a product with the intent of driving competitors out of business.

Question 27

Which of the following defines demand?

A) The quantity of a product offered to the market by a supplier at various prices for a specified period
B) The quantity of a product sold in the market at various prices for a specified period
C) A company's product sales as a percentage of total sales for that industry
D) A part of profit percentage that is given up in exchange for acquiring a good or service

Question 28

A situation in which an increase or a decrease in price will not significantly affect demand for the product is called __________ demand.

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

Question 29

Inelastic demand is a situation in which

A) an increase or a decrease in price does not significantly affect the demand for a product.
B) prices are adjusted over time to maximize a company's revenues.
C) demand is created for new products by aggressive brand awareness campaigns.
D) a pricing objective maintains existing prices or meets the competition's prices.

Question 30

The quantity of a product that will be offered to the market by a supplier at various prices for a specified period determines the product's ______.

A) demand
B) supply
C) market share
D) product share

Question 31

A situation in which consumer response is sensitive to changes in price exhibits ______ demand.

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

Question 32

Dynamic pricing has better equipped brick-and-mortar stores to compete with their online alternatives.

Question 33

Costs that change with the level of output are called _____ costs.

A) fixed
B) variable
C) independent
D) indirect

Question 34

The newly opened Stone Restaurant was unable to attract a lot of customers.Because the restaurant's owner had to pay back the loan that he had taken to start the restaurant,he decided to offer a 20 percent discount on the entire menu on weekends.In this scenario,the owner's pricing objective is to maximize _____.

A) market share
B) profit
C) asset
D) sales

Question 35

When there are many substitutes available in the market for a particular product,consumers

A) have a hard time switching from one product to another,making demand more elastic.
B) have a hard time switching from one product to another,making demand more inelastic.
C) can easily switch from one product to another,making demand more elastic.
D) can easily switch from one product to another,making demand more inelastic.

Question 36

Unlike a firm that strives for market share,a firm with the objective of maximizing sales

A) possesses adequate funds and faces an optimistic future.
B) ignores profits,competition,and the marketing environment as long as sales are rising.
C) benefits from maximization of cash if it is adopted as a long-run objective.
D) seeks to maintain existing prices or to meet the competition's prices.

Question 37

The ability to change prices very quickly,often in real time is known as ___________.

A) dynamic pricing
B) status quo pricing
C) satisfactory pricing
D) pricing based on perceived satisfaction

Question 38

Identify a statement that is true of status quo pricing.

A) It leads to optimal pricing of a product.
B) It requires serious planning and is difficult to implement.
C) It focuses on the demand for and the costs of a product.
D) It can lead to a pricing disaster.

Question 39

In which of the following cases is the elasticity of demand expected to be high?

A) Substitutes are available.
B) A product price is significantly low relative to purchasing power.
C) Products are not durable.
D) The product has only one use.

Question 40

Which of the following happens if demand is elastic?

A) As price goes up,consumer demand changes.
B) The competition between organizations reduces.
C) Products will not have any substitutes.
D) The purchasing power of the consumer decreases.

Question 41

In which stage of the product life cycle does price decrease as competition increases and inefficient,high-cost firms are eliminated?

A) Growth stage
B) Maturity stage
C) Introductory stage
D) Decline stage

Question 42

Unlike break-even pricing,markup pricing uses complicated concepts of cost.

Question 43

Which of the following is a limitation of break-even analysis?

A) It does not give an estimate of how much profit can be earned once the break-even point is obtained.
B) It does not give weight to the cost of labor that is incurred during production.
C) Sometimes it cannot predict the effect of changes in sales price.
D) Sometimes it is hard to know whether a cost is fixed or variable.

Question 44

Which of the following helps determine what sales volume must be reached before total revenue equals total costs?

A) SWOT analysis
B) Breakeven analysis
C) Status quo pricing
D) Dynamic pricing

Question 45

Adequate distribution for a new product can often be attained by

A) offering a larger-than-usual profit margin to distributors.
B) having different model or serial numbers for products.
C) allowing customers to get involved in showrooming.
D) increasing the prices of the products.

Question 46

Which of the following is a characteristic of niche-oriented type of shopping bot?

A) It searches a wide range of product categories.
B) The sites it accesses operate using a Yellow Pages type of model.
C) Consumers can find the list of all retailers.
D) It searches for prices for only one type of product.

Question 47

Which of the following statements is true of simple break-even analysis?

A) It does not consider the selling price of a product.
B) It does not give weightage to the cost of labor.
C) It is applicable only when the demand for a product is elastic.
D) It ignores the demand for a product.

Question 48

Unlike niche-oriented shopping bots,broad-based shopping bots

A) give pricing power to the retailers.
B) search for prices for only one type of product.
C) are programs that search websites which are based on a Yellow Pages type of model.
D) search sites like SeatGeek and Kayak.

Question 49

Which statement is true of the relationship of price to quality?

A) When a purchase decision involves uncertainty,consumers tend to attribute higher quality to low-priced products.
B) Consumers perception that a higher price indicates higher quality seems to vary from one product to another.
C) In the absence of other information,people typically assume that if prices are higher,that rarely indicates higher quality.
D) Price promotions of higher priced,higher quality brands tend to attract more business than do similar promotions of lower priced and lower quality brands.

Question 50

Generally speaking,which of the following marks a product's entry into the growth stage of its life cycle?

A) Prices generally begin to destabilize.
B) Prices generally begin to stabilize.
C) Prices decrease rapidly as competition increases.
D) Prices decrease moderately as competition decreases.

Question 51

Which of the following refers to the practice of marking up prices by 100 percent,or doubling the cost?

A) Keystoning
B) Markup pricing
C) Breakeven pricing
D) Price matching

Question 52

During off-season,the Rues Hotel offers a 25 percent discount on its rooms to attract guests.The Rues Hotel is demonstrating the ______.

A) power of yield management systems
B) advantage of markup pricing
C) relationship between price and quality
D) use of price as a promotional tool

Question 53

Which of the following best defines markup pricing?

A) The cost of buying the product from the producer,plus amounts for profit and for expenses not otherwise accounted for
B) The practice of marking up prices by 100 percent,or doubling the cost
C) A method of determining what sales volume must be reached before total revenue equals total costs
D) The ability to change prices very quickly,often in real time

Question 54

When a purchase decision involves uncertainty,which of the following statements best describes the price-quality relationship?

A) Consumers perceive lower-priced goods to be more long-lasting than higher-priced goods.
B) Consumers believe that higher-priced goods are manufactured with materials or ingredients of better quality.
C) Consumers lack information about the quality of lower-priced goods due to poor advertising.
D) Consumer demand for higher priced goods remains unchanged even if product quality declines.

Question 55

Which statement best describes the value of shopping bots to consumers?

A) The broad-based bots search for prices for one type of product.
B) Shopping bots create opportunities for prestige pricing.
C) They theoretically give pricing power to a consumer.
D) Niche-oriented bots search a wide range of product categories.

Question 56

Which of the following is the final stage in the product life cycle?

A) Maturity stage
B) Decline stage
C) Growth stage
D) Introductory stage

Question 57

Name the method of determining what sales volume must be reached before total revenue equals total costs.

A) Break-even analysis
B) Markup pricing
C) Opportunity analysis
D) Fixed-cost pricing

Question 58

A software program that searches the Web for the best price for a particular item that you wish to purchase is called ______________.

A) a shopping bot
B) the extranet
C) a wireless setup
D) an internet auction

Question 59

Which of the following is true of Internet auctions?

A) Business-to-business auctions are likely to fade away in the future.
B) The seller in a reverse auction sells his products or services to the highest bidder.
C) The eBay site is the most popular auction site,with more than 100 million buyers and sellers.
D) Consumers do not trust Internet auctions and how they work.

Question 60

Which of the following refers to a private electronic network that links a company with its suppliers and customers?

A) Intranet
B) Internet
C) Extranet
D) Intercom

Question 61

An effective distribution network can overcome minor flaws in the marketing mix.

Question 62

Explain what is meant by shopping bots,identify several different types of these bots,and discuss how they help consumers make purchase decisions.

Question 63

As the product enters the maturity stage,prices generally begin to stabilize.

Question 64

According to garment makers,the demands of big volume customers,such as department stores,are nearly wiping out profits for all suppliers except the very largest.

Question 65

Briefly explain how distribution strategy acts as a determinant of price.

Question 66

The Internet,Extranets (private electronic networks),and wireless setups are enabling buyers to quickly and easily compare products and prices,putting them in a better bargaining position.

Question 67

Prices always steadily decline for a product in the decline stage of the product life cycle.

Question 68

Product life cycles can only be measured in years.

Question 69

In the absence of other information,people typically assume that prices are higher because the products contain better materials,because they are made more carefully,or,in the case of professional services,because the provider has more expertise.

Question 70

As products enter the growth stage of the product life cycle,prices generally begin to stabilize.

Question 71

Extranets enable buyers to quickly and easily compare products and prices,putting them in a better bargaining position.

Question 72

The marketing manager of Raven Golf Club finds that the club can increase its market share if it slashes membership prices during the first quarter of the year.However,it would mean that the club will not achieve its target return on investment.This conflict illustrates

A) the need to eliminate low-profit products.
B) a lack of competition in the marketplace.
C) how pricing operates in an ideal marketplace.
D) the need for trade-offs in pricing objectives.

Question 73

www.ebay.com is the most popular extranet in the United States.

Question 74

Which of the following is true of establishing pricing goals?

A) Pricing objectives are either profit oriented or sales oriented if they are to serve company objectives.
B) Reaching the desired market share must not entail sacrificing short-term profits because every dollar counts.
C) A profit maximization objective may require a bigger initial investment than the firm can commit to or wants to commit to.
D) Pricing objectives rarely have trade-offs and thus managers must set them ambitiously to capture the market.

Question 75

Discuss the relationship between the price and quality of a product and how price affects a purchase decision.

Question 76

Discuss the role of price in promotion strategies for products.

Question 77

Shopping bots allow sellers to collect detailed data about customers' buying habits,preferences,and even spending limits.

Question 78

During the maturity stage of a product life cycle,distribution channels become a significant cost factor.

Question 79

Which of the following is the first step in the four-step process of setting the right price of a product?

A) Estimate demand,costs,and profits.
B) Establish pricing goals.
C) Choose a price strategy to help determine a base price.
D) Fine-tune the base price with pricing tactics.

Question 80

Price promotion alone always creates a low price image.