Question 1

Bassetts,a large national supermarket chain,bases pricing decisions on market share and the percentage of a market controlled by a certain product.Bassetts bases its pricing decisions on

Accepted Answer

Bassetts bases its pricing decisions on volume objectives, as it focuses on market share and the percentage of a market controlled by a certain product, which are indicators of sales volume rather than profit margins, prestige, or breakeven points.

Question 2

Which of the following pricing objectives will have the most influence on a luxury watchmaker's pricing strategy?

Accepted Answer

Luxury watchmakers often prioritize prestige in their pricing strategy to maintain an image of exclusivity and high value, which justifies higher prices and appeals to their target market.

Question 3

Wear All,a T-shirt company,is conducting a breakeven analysis on unbleached cotton tops.Fixed costs are $100,000 and the per-unit contribution to fixed costs is $20.To break even,the company must sell _____ units.

Accepted Answer

To break even, Wear All must cover its fixed costs of $100,000. With a per-unit contribution of $20, the company needs to sell $100,000 / $20 = 5,000 units.

Question 4

Soltex Inc.,a home products manufacturer,is introducing a new paper coffee filter at a dramatically reduced cost.Soltex is entering a market already saturated with stiff competition.Which pricing strategy will enable Soltex to achieve market recognition?

Accepted Answer

Penetration pricing is the strategy where a product is introduced to the market at a low price in order to gain market share quickly. This approach is particularly effective in markets that are saturated with competition, as it can attract customers who are sensitive to price differences. By offering the new paper coffee filter at a dramatically reduced cost, Soltex Inc. aims to quickly attract attention and encourage consumers to try their product over competitors', thereby achieving market recognition.

Question 5

Assume a product costs $5.The variable cost per unit is currently $4,and the fixed cost is $25,000.If the company can alter its production method such that the variable costs fall to $3.50 and the fixed costs rise to $30,000,what will happen to the breakeven point?

Accepted Answer

The breakeven point is calculated as Fixed Costs / (Selling Price - Variable Costs). Initially, it is $25,000 / ($5 - $4) = 25,000 units. With the new costs, it becomes $30,000 / ($5 - $3.50) = 24,000 units. Thus, the breakeven point falls.

Question 6

Competitive pricing focuses on

Accepted Answer

Competitive pricing focuses on the marketing mix, which includes product, price, place, and promotion.

Question 7

The method of determining the minimum sales volume needed at a certain price level to cover all costs is

Accepted Answer

Breakeven analysis is used to determine the point at which revenue received equals the costs associated with receiving the revenue, thus indicating the minimum sales volume needed to cover all costs.

Question 8

Which of the following statements about price and quality is supported by research?

Accepted Answer

Research has shown that consumers often use price as an indicator of quality. When information about the actual quality of a product is not readily available or easily understood, consumers may rely on price, assuming that higher-priced items are of better quality. This does not necessarily mean that quality and price always go hand-in-hand, as other factors can influence pricing strategies and perceptions of value.

Question 9

Motel Plus,a motel chain,utilizes a pricing strategy of maintaining continuous minimum prices rather than relying on sales.This strategy is an example of _____ pricing.

Accepted Answer

Everyday low pricing is a strategy where a company chooses to keep its prices consistently low, rather than running sales or discounts. This approach is used to attract price-sensitive customers by offering them the assurance of low prices on a regular basis, which is the strategy Motel Plus is employing.

Question 10

A-1 Internation Company adds several features to one of its products and reduces the product's price.What is most likely to be the company's objective?

Accepted Answer

Adding features and reducing the price is a strategy often used to stay competitive in the market, especially when facing pressure from rival products.

Question 11

Nick is planning on setting up a small-scale guitar manufacturing company.Nick isn't well versed in economics,so he doesn't understand the concept of supply and demand very well.What pricing strategy must Nick adopt?

Accepted Answer

Cost-based pricing is the most straightforward strategy for Nick to adopt, especially since he is not well versed in economics. This strategy involves setting the price of his guitars based on the cost of production plus a markup for profit. It does not require an in-depth understanding of market demand or consumer psychology, making it suitable for someone new to business like Nick.

Question 12

In breakeven analysis,total cost is composed of

Accepted Answer

In breakeven analysis, total cost is composed of total variable costs and total fixed costs. This includes all expenses that a company incurs, regardless of its level of production or sales volume.

Question 13

Business costs that change with the level of production are called _____ costs.

Accepted Answer

Variable costs change with the level of production, increasing as production increases and decreasing as production decreases. Fixed costs, on the other hand, remain constant regardless of the level of production.

Question 14

Setting a price relatively high compared to similar goods and then gradually lowering it is a pricing strategy called _____ pricing.

Accepted Answer

Skimming pricing is the strategy where a high initial price is set for a product, and then it is gradually lowered over time. This approach is often used to recoup the development costs quickly and to target early adopters who are willing to pay a premium before adjusting the price to attract a broader market.

Question 15

Bariffs Inc.and Trell Inc.two major oil companies,are located directly across the street from one another.Bariffs lowers its price for regular unleaded oil by 5 cents,and Trell quickly follows suit.What pricing objective is Trell using?

Accepted Answer

Trell is using competitive pricing by adjusting its prices in response to Bariffs' price change to remain competitive and avoid losing customers to Bariffs.

Question 16

Black & White,a Jazz club,is conducting a breakeven analysis to determine how many tickets it must sell at $20 each to break even on the Jazz Fest,a program conducted by it.Fixed costs are $4,000,and the variable cost per person is $10.To break even,Black & White must sell _____ tickets.

Accepted Answer

To break even, the total revenue must equal the total costs. The break-even point in units can be calculated using the formula: Break-even point = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). Plugging in the given values: $4,000 / ($20 - $10) = $4,000 / $10 = 400 tickets.

Question 17

Meat & Buns,a burger restaurant,recently announced plans to drop the price of its double cheese burger from $1.99 to just 99 cents in order to match its competitor's pricing.This is an example of a

Accepted Answer

Dropping the price of a product to match or beat a competitor's pricing, especially in a significant manner, is a classic example of engaging in a price war. This strategy is often used to gain or protect market share by making one's product more attractive to consumers based on price.

Question 18

If you did a breakeven analysis for your firm,it would be possible for you to show to your management the point at which

Accepted Answer

A breakeven analysis shows the point at which total revenue equals total costs, meaning all of the company's costs are covered, but no profit is made. This helps in understanding the sales level needed to cover all expenses.

Question 19

In breakeven analysis,the costs that change with the level of production are considered _____ costs.

Accepted Answer

Variable costs change with the level of production, unlike fixed costs which remain constant regardless of production levels.

Question 20

Mountain City,a local bakery wanted to attract more customers,so it began offering a dozen bagels for $5 every Wednesday.The bakery is utilizing _____ pricing to increase its volume of sales.

Accepted Answer

The bakery is using discount pricing by offering a dozen bagels at a reduced price to attract more customers and increase sales volume.

Quiz 13: Promotion and Pricing Strategies