Deck 14: Pricing Concepts for Establishing Value

Question 1

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

Answer 1

True

Question 2

A demand curve shows the relationship between income and demand.

Answer 2

False

Question 3

A gray market employs irregular but not necessarily illegal methods of distributing products.

Answer 3

True

Question 4

At the break-even point, profits are maximized.

Question 5

The Robinson-Patman Act does NOT apply to end consumers, at which point many forms of price discrimination occur.

Question 6

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 7

Proving that a company has engaged in the deceptive bait and switch practice is easy.

Question 8

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

Question 9

Odd prices suggest low quality.

Question 10

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 11

Cheryl wants to quickly establish a dominant market share for her new line of ergonomic pens. To do this, she will likely use a market penetration pricing strategy.

Question 12

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

Question 13

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

Question 14

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

Question 15

When Sony released its PlayStation 3 game machines, it charged a high price, attracting the most avid game players. This was a market penetration pricing strategy.

Question 16

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

Question 17

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 18

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 19

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

Question 20

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

Question 21

Price is often the most challenging of the four Ps to manage, partly because it is often ______________ in developing marketing strategies.

A) the least important aspect
B) treated as an afterthought
C) calculated by senior consultants
D) difficult to calculate markups
E) the subject of cross-shopping differentiation

Question 22

Gerald has a number of customers for his lawn care service who never question his bill but expect their lawns to be perfect. These customers do not want low prices, they want

A) a sales orientation.
B) fixed costs.
C) cross-price discounts.
D) a target return.
E) high value.

Question 23

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 24

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 25

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 26

Which of the following is NOT one of the five Cs of pricing?

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

Question 27

The full price of a product or service includes all of the following EXCEPT

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

Question 28

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 29

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 30

Price is the _____________ a consumer is willing to make to acquire a specific product or service.

A) amount of money
B) overall sacrifice
C) fixed cost
D) target return
E) variable cost

Question 31

Earl was known for driving 30 miles to save a dollar on the price for his favorite beverage. Earl perceived price as ________________, while most consumers recognize price as the ______________ made to acquire a good or service.

A) money paid; overall sacrifice
B) variable cost; fixed cost
C) fixed cost; variable payment
D) overall sacrifice; monetary payment
E) break-even amount; price elasticity

Question 32

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 pricing 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 33

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 34

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 35

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 36

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 37

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 38

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 39

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 40

Many years ago Honda's Accord and Ford's Taurus were the top two 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 41

In many high-end resort markets, Westin hotels compete directly with Crown Plaza hotels. Each firm weighs the comparative advantages and disadvantages of its offerings to determine whether to price above, equal to, or below the other hotel. In these markets, the hotels are using a _______________ pricing strategy.

A) maximizing profits
B) target profit
C) target return
D) competitive parity
E) sales oriented

Question 42

A demand curve is built assuming 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) a change in quantity demanded causes a change in price.
E) the firm does not advertise.

Question 43

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 44

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 45

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 46

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 47

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 48

If a 1 percent decrease in price results in more than a 1 percent increase in quantity demand, demand is

A) cross-price elastic.
B) price inelastic.
C) price elastic.
D) status quo elasticity.
E) derived demand inelastic.

Question 49

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) a 2 percent increase in quantity demanded.
C) a 10 percent increase in quantity demanded.
D) a 2 percent decrease in quantity demanded.
E) a 5 percent decrease in quantity demanded.

Question 50

A demand curve shows the relationship between ___________________ in a period of time.

A) income and demand
B) demand and cost
C) price and elasticity
D) profit and price
E) price and demand

Question 51

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 52

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 53

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 54

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) customers
E) company objectives

Question 55

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 56

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 57

_________________ measures consumers' sensitivity to price changes.

A) Cross-price elasticity of demand
B) Price elasticity of demand
C) Income elasticity of demand
D) Competitive profit elasticity of demand
E) Inelastic demand price parity

Question 58

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 elasticity.
E) derived demand inelastic.

Question 59

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 60

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 61

David manages a Shoney's restaurant. He is considering staying open later in the evening. For David, the variable costs associated with staying open longer hours will include all of the following EXCEPT

A) ingredients used in preparing food.
B) hours worked by cooks.
C) rent on the restaurant building.
D) energy costs.
E) hours worked by the waiters and waitresses.

Question 62

Variable costs change with

A) changes in fixed costs.
B) changes in cross-price elasticity.
C) changes in target return pricing.
D) changes in the quantity being produced.
E) competitive parity.

Question 63

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 64

Labor, materials, and energy are typically __________ costs.

A) fixed
B) incidental
C) prestige
D) inelastic
E) variable

Question 65

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 ____________ affects demand for products.

A) the substitution effect
B) the price inelasticity coefficient
C) the income effect
D) the target return effect
E) cross-price elasticity

Question 66

Bill is a yacht broker in the southeastern United States. For years he has had difficulty selling large yachts locally because there were few places to dock these boats. Yachts and spaces to dock them are an example of

A) substitute products.
B) purely competitive products.
C) status quo pricing products.
D) complementary products.
E) competitive parity products.

Question 67

Managers of Wendy's fast food restaurants keep track of prices at competitors such as McDonald's, Burger King, and Arby's, knowing that a decrease in the prices at these other fast food restaurants will

A) increase the income effect for Wendy's products.
B) increase demand for Wendy's products.
C) decrease the income effect for Wendy's products.
D) increase the complementary effect for Wendy's products.
E) decrease demand for Wendy's products.

Question 68

If the price for a product increases, the demand for the complementary product will

A) decrease.
B) increase.
C) stay the same.
D) become more elastic.
E) become more inelastic.

Question 69

One problem in relying on price elasticity and demand curves when setting prices is that

A) the way a product or service is marketed can have a profound impact on price elasticity.
B) the underlying ideas of the demand curve and elasticity are less relevant in the modern economy.
C) only economists can properly analyze demand curves and set prices using this tool.
D) competitors can construct the same demand curves, so there is no advantage in using them.
E) marketing split from economics over the ideas of demand and elasticity.

Question 70

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 71

The break-even point is estimated by

A) multiplying revenue per unit times the quantity sold.
B) dividing fixed contribution per unit by variable costs.
C) multiplying fixed costs by contribution per unit.
D) dividing fixed costs by contribution per unit.
E) dividing variable costs by fixed costs.

Question 72

Which of the following is the most logical example of complementary products?

A) Hot dogs and hamburgers
B) VCRs and DVD players
C) Hot dogs and hot dog buns
D) Honda cars and Toyota cars
E) A university and a corporation

Question 73

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) breakeven points
B) the price inelasticity ratio
C) the income effect
D) target profit pricing
E) cross-price elasticity

Question 74

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 75

Raymond estimates that the fixed costs associated with opening a new bank branch are $500,000. He expects the branch to attract 1,000 new customer accounts in the first year, each of which will cost $50 per year to service. He also expects to generate $100,000 per year in revenue. For Raymond, the total cost of opening the new branch and remaining open for one year will be:

A) $500,000.
B) $550,000.
C) $650,000.
D) $450,000.
E) $605,000.

Question 76

Frank's Heating and Air Conditioning Company specializes in electric heat pumps. Frank keeps track of the price of natural gas, knowing that

A) natural gas creates more environmental greenhouse effects than coal.
B) an increase in the price of natural gas will increase demand for his electrical heating systems.
C) gas heating systems and electrical heating systems are complementary goods.
D) when the price of natural gas goes up, the quantity demanded also rises.
E) the demand for natural gas is price elastic.

Question 77

In general, prices should not be based on costs because

A) consumers are cost-conscious.
B) producers rarely know what their costs are.
C) consumers make their purchase decisions based on perceived value.
D) producers need to avoid creating a cost competitive parity debate.
E) customers are always right.

Question 78

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 79

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 80

At the break-even point,

A) costs are zero.
B) price is maximized.
C) profits are zero.
D) fixed costs are zero.
E) contribution per unit is zero.