Deck 16: Pricing Concepts

Question 1

Profit is equal to the price charged to customers multiplied by the number of units sold.

Answer 1

False
This is revenue.Profit is revenue minus expenses.

Question 2

Yield management systems can only be used by service industries.

Answer 2

False
As the popularity of yield management systems increases,their use is spreading to manufacturing (in terms of production capacity).

Question 3

If the formula for elasticity results in a measure of elasticity (E)greater than 1,demand is said to be inelastic.

Answer 3

False
If E is greater than 1,demand is elastic.

Question 4

Markup pricing,adding an amount to cost to cover expenses and profit,is one of the most common pricing methods used by intermediaries to establish a selling price.

Question 5

Sales-oriented pricing objectives are either based on market share or dollar or unit sales.

Question 6

Costs that do not change as output is increased or decreased are called stable costs.

Question 7

If the formula for elasticity results in a measure of elasticity (E)equal to 1,the increase in sales exactly offsets the decrease in price so that total revenue remains the same.

Question 8

Today's firms must develop specific,measurable,and attainable pricing objectives if they hope to survive in highly competitive markets.

Question 9

Price is defined as the perceived value of a good or service that is exchanged for a certain dollar amount.

Question 10

Profit maximization is the price at which supply and demand are equal,and there is no inclination for prices to rise or fall.

Question 11

When pricing goals are mainly sales oriented,cost considerations usually dominate.

Question 12

Firms that price their products solely on the basis of costs are adhering to the marketing concept.

Question 13

When many substitute products are available,demand is inelastic.

Question 14

Variable costs vary with changes in the level of output,whereas marginal costs do not vary as output changes.

Question 15

Target return on investment (ROI)is the most common profit objective used by firms.

Question 16

Maximization of cash should be a long-term objective.

Question 17

A marketer using a profit maximization strategy will charge the highest prices the market will bear.

Question 18

Status quo pricing objectives suggest that the firm should try to keep its price consistent regardless of what competition does with its prices.

Question 19

Yield management systems (YMS)were first used by Internet service providers.

Question 20

If demand for milk is inelastic,consumers will not change their purchasing habits greatly when the price of milk changes.

Question 21

The manufacturers that remain in the market toward the end of the maturity stage typically offer similar prices.

Question 22

Research has shown that products that are perceived to be of high quality tend to benefit less from price promotions than products perceived to be of lower quality.

Question 23

Once he compiles information on pricing objectives,market demand,quantity supplied,and the price elasticity of demand,the owner/operator of a home cleaning service will be ready to determine the optimal price for a new service offering.

Question 24

Price fixing is only illegal in some instances.

Question 25

Prices may actually rise for a product in the decline stage of the product life cycle.

Question 26

One disadvantage of using a penetration pricing policy is that the high unit profit margins will attract potential competitors into production of similar products.

Question 27

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

Question 28

Break-even analysis determines what sales volume must be reached for a product before the company's total revenue equals total costs.

Question 29

Penetration pricing is sometimes referred to as a "market-plus" approach to pricing.

Question 30

The manufacturer of Trek Natural sports drink would like to introduce a Trek Natural brand energy drink in the already crowded energy drink category.This company would have a great amount of freedom in choosing a price for its new energy drink.

Question 31

It makes the most sense to use price skimming as a pricing policy when supply is greater than demand.

Question 32

High purchase prices may create feelings of pleasure and excitement in consumers.

Question 33

There are two limousine services that drive customers from communities in North Georgia to the Atlanta airport.Whenever one reduces its fare,its competitor reduces its fares by the same amount.This is an example of status quo pricing.

Question 34

All pricing objectives have trade-offs that managers must weigh.

Question 35

When a retailer offers a price-matching guarantee,it is signaling to the target market that it is positioned as a low-price dealer.

Question 36

A firm has maximized its profits when its marginal revenue exceeds its marginal cost.

Question 37

Adequate distribution for a new product is often obtained by reducing the size of the profit margin for its resellers.

Question 38

Price should not be used as a promotional tool.

Question 39

The first step in setting the right price for a new product is to estimate demand,costs,and profits.

Question 40

Proctor & Gamble entered the electric toothbrush market with the Crest SpinBrush at a price considerably lower than lesser-known competitors.It used penetration to gain market share.

Question 41

Sherrie is seven years old and wants to open a lemonade stand in her neighborhood.She is having a tough time deciding whether to base her pricing objectives on market share,dollar sales,or unit sales.Regardless of which she chooses,her pricing objective can be categorized as:

A) status quo
B) profit oriented
C) need oriented
D) cost oriented
E) sales oriented

Question 42

Price discrimination can sometimes be justified.

Question 43

A winery that makes a huge profit on merlot wines may lower its price on pinot noir wines to cause damage to wineries that only produce pinot noir.This is an example of predatory pricing.

Question 44

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

A) refundable,competitive,and attainable
B) perceived,actual,and unique-situational
C) differentiated,niche,and undifferentiated
D) profit oriented,sales oriented,and status quo
E) monopolistic,fixed,and variable

Question 45

At Wal-Mart,Randi saw a bag of daffodil flower bulbs and a box of plant fertilizer.The items,which were sold together,retailed at $28.50,but were marked down to $19.99.The $19.99 is the:

A) revenue
B) price
C) profit
D) liquidity value
E) amortized value

Question 46

Price is best described as:

A) that which is given up in exchange to acquire a good or service
B) money exchanged for a good or service
C) the psychological results of purchasing
D) the cost in dollars for a good or service as set by the producer
E) the value of a barter good in an exchange

Question 47

At a price of $1,192,057,the Bugatti Veyron may be the most expensive street legal car currently on the market today.Obviously,Bugatti is NOT using a _____ pricing objective in setting the price for this car.

A) inelastic or supply-oriented
B) market share or sales maximization
C) profit maximization or target return on investment
D) status quo or satisfactory profits
E) demand-oriented or supply-oriented

Question 48

Pierre's Ice Cream Company produces ultra-rich ice cream,which it sells in the Cleveland,Ohio area.Last year,it managed to exceed its target ROI for the current fiscal year.The following results were found on its financial statements:

What was the actual return on investment (ROI)for Parrish Farms?

A) 6.67 percent
B) 10 percent
C) 22 percent
D) 28 percent
E) 100

Question 49

Money that is left over after paying for company activities is called:

A) return on investment
B) a contribution margin
C) profit
D) net worth
E) a current asset

Question 50

An organization is using _____ when it sets its prices so that total revenue is as large as possible relative to total costs.

A) profit maximization
B) market share pricing
C) demand-oriented pricing
D) sales maximization
E) status quo pricing

Question 51

Revenue:

A) equals quantity sold times profit margin
B) equals price minus costs
C) equals return on investment
D) is synonymous with profit
E) equals price of goods times quantity sold

Question 52

_____ pay for every activity of the company.

A) Revenues
B) Investments
C) Retained earnings
D) Profits
E) Prices

Question 53

Which of the following statements about price is true?

A) Price and revenue are synonyms.
B) Price always equals some monetary figure.
C) Price is not necessarily based on the satisfaction consumers receive from a product.
D) High prices result in high profits.
E) All of these statements about price are true.

Question 54

Thompson Pool is known for quality pool installations,excellent customer service,and reasonable prices.If you want to have a Thompson pool you will have to wait about six months due to demand for their product.While Thompson could probably price their product higher,given the demand,they don't.Instead,they set price so that they earn a reasonable level of profits.This company seems to base its pricing policy on:

A) profit maximization
B) earning satisfactory profits
C) creating retained earnings
D) making the most money as possible
E) decreasing consumer demand

Question 55

_____ is equal to net profit after taxes divided by total assets.

A) Return on investment
B) Economic order quantity
C) Target-on-sales
D) Retained earnings
E) Efficiency maximization

Question 56

When Insight Research Associates quotes a marketing research project management will first estimate the cost to conduct the research and produce and deliver the final client report.The next step in determining the price is to add 30% to that cost estimate.This becomes the price estimate given to the potential research client.This suggests that Insight Research Associates uses a(n)_____ pricing objective.

A) profit-oriented
B) market share maximization
C) status quo
D) sales maximization
E) supply-demand equalization

Question 57

Why are marketing managers finding it more difficult to set prices in today's environment?

A) Inflationary and recessionary periods have made customers less price-sensitive.
B) Fewer dealer and generic brands are available because the competition has been eliminated.
C) The high rate of new-product introductions has led to careful reevaluation by consumers.
D) Marketing managers are finding it difficult to compare prices between suppliers.
E) Buyers are less informed and are less price-sensitive.

Question 58

All of the following statements about price are true EXCEPT:

A) Price can relate to anything with perceived value,not just money.
B) Price is that which is given up in an exchange to acquire a product.
C) Price means the same thing to the consumer and the seller.
D) The price paid is based on the satisfaction consumers expect to receive from a product.
E) Customers are interested in obtaining a perceived reasonable price.

Question 59

When Apple Inc.originally introduced its iPhone it was priced at what many believed to be about as high as the market would allow.Within weeks Apple lowered the price of the iPhone.It appears that Apple Inc.entered the market with a _____ approach to pricing the iPhone.

A) market share pricing
B) profit maximization
C) demand-oriented
D) sales maximization
E) status quo pricing

Question 60

At Wal-Mart,Randi saw a bag of daffodil flower bulbs and a box of plant fertilizer.The items,which were sold together,retailed at $28.50,but were marked down to $19.99.The retailer sold one at the $28.50 price and five at the $19.99.The retailer's revenue is:

A) $8.51
B) $19.99
C) $28.50
D) $128.45
E) $171.00

Question 61

Dixie Furniture Company has recently moved to a new,larger location.At this new location,it has been unable to attract sufficient customers.Its owner does not have the cash to pay the current loan installment due on the building and inventory so he decided to reduce all merchandise prices by at least 50 percent for a weekend sale to earn enough to make his loan payment.His pricing objective can be classified as:

A) market share maximization
B) satisfactory profits
C) asset maximization
D) sales maximization
E) target ROI

Question 62

The manager of a souvenir shop in Florida graphed the demand per week for fresh orange juice.The graph indicates a demand schedule that slopes downward and to the right.This graph indicates that the quantity of juice demanded increases as:

A) cost increases
B) supply decreases
C) price increases
D) price decreases
E) supply increases

Question 63

When Delta Airlines raises or lowers its prices on its Atlanta to Chicago route other airlines tend to make the same changes in their pricing.This is an example of _____ pricing.

A) status quo
B) target return
C) market share
D) predatory
E) cost-plus

Question 64

Most demand curves slope:

A) horizontally
B) upward and to the right
C) downward and to the left
D) vertically
E) downward and to the right

Question 65

_____ is a company's product sales as a percentage of total sales for that industry.

A) Return on investment
B) Profit share
C) Revenue share
D) Market share
E) Contribution

Question 66

As a short-term pricing objective,_____ can be effectively used on a temporary basis to sell off excessive inventory.

A) profit maximization
B) profit-oriented pricing
C) status quo pricing
D) sales maximization
E) market share pricing

Question 67

The quantity of a product that will be sold at various prices for a specified period is called:

A) market share
B) demand
C) supply
D) value
E) revenue

Question 68

_____ is the quantity of a product that will be offered to the market at various prices for a specified period.

A) Distribution
B) Supply
C) Price
D) Equilibrium
E) Elasticity

Question 69

Khimaira Farms sells handcrafted cookie cutters.When graphed,the demand schedule for Khimaira Farms brand cookie cutters forms a straight line.If at $3 per cutter,500 cookie cutters are demanded,and at $4 per cutter,450 cookie cutters are ordered,how many will be ordered at a price of $6 per cutter?

A) 350
B) 450
C) 400
D) 333
E) 375

Question 70

If a company's pricing objective is to meet the competition or to maintain existing prices,it is using _____ pricing.

A) head-on
B) target return on investment
C) status quo
D) market share
E) demand-oriented

Question 71

Which of the following statements describes an advantage of status quo pricing?

A) Status quo pricing is derived from actual costs of manufacturing.
B) Status quo pricing maintains the organization's differential advantage.
C) Status quo pricing is active,not reactive.
D) Status quo pricing causes price wars.
E) Status quo pricing requires little planning.

Question 72

The price of the good or service is a key decision for a marketer because it most significantly and directly affects the product's:

A) distribution
B) costs
C) demand
D) promotion
E) quality

Question 73

Although many factors can influence price,the primary determinants are:

A) costs of manufacturing and distribution
B) the demand for the good and the cost to the seller
C) demand by the consumer and perceived quality
D) distribution and promotion strategies
E) stage of the product life cycle and costs to the consumer

Question 74

Personal Touch produces and markets beaded purses.When graphed,the demand schedule for its purses is a straight line.If one purse costs $20,5,000 beaded purses are sold.At $25,4,500 purses are sold.How many beaded purses will be sold if the price per purse is increased to $30?

A) 5,500
B) 4,250
C) 4,000
D) 3,750
E) 3,500

Question 75

A company using market share pricing has a _____ pricing objective.

A) profit-oriented
B) sales-oriented
C) demand-oriented
D) supply-oriented
E) status quo

Question 76

Bottles of Pure Hawaiian Air contain air that smells like the floral bouquet that greets tourists as they get off the plane in Hawaii.When a tourist shop began selling Pure Hawaiian Air,it charged $5 per bottle and could not keep up with the demand.It has since raised the price to $7.Now the shop is still selling all the bottles of Pure Hawaiian Air it carries,but the owner is not forced to reorder on a daily basis.The $7 price is probably a(n):

A) supply schedule
B) symmetrical price
C) price equilibrium
D) inventory equalizer
E) inelastic price

Question 77

The _____ is the quantity of a product that will be sold in the market at various prices for a specified time period,and _____ is the quantity of a product that will be offered to the market by suppliers at various prices for a specified period.

A) demand; equity
B) demand; supply
C) supply; demand
D) inventory; demand
E) inventory; supply

Question 78

At a price of $654,400 the SSC Ultimate Aero has been ranked as the third most expensive car in the world.The company is only planning to build twenty-five of the current model.If that matches the demand for the Ultimate Aero,then a state of _____has been achieved.

A) symmetry
B) marketing balance
C) unitary economics
D) commerce stability
E) price equilibrium

Question 79

When the price of a product is set at a level where demand and supply are the same,_____ has been achieved.

A) equilibrium
B) stability
C) leverage
D) symmetry
E) status quo

Question 80

At the end of the summer,Howard Nursery reduced the price on all of its plants,fertilizer,and potting soil by 50 percent in order to liquidate this inventory.What type of pricing strategy is being used in this example?

A) supply oriented
B) sales maximization
C) target return on investment
D) satisfactory profit
E) profit maximization