Question 1

Mini-Case
Gourmet Pets is an innovative competitor in the billion-dollar pet food industry. In fact, two of its products, Kitty Sirloin and McDog Tbone, each claim over a 30% share in their market segments. The company has done detailed research and discovered that, for a growing number of pet owners, the family pet serves as a "baby substitute." These owners tend to pamper their pets, and are very discriminating in what they purchase. With this in mind, the company has put a great deal of effort into developing a new dog food: Prime Cuts. The new product is packaged in a resealable, microwaveable container and can be purchased in a variety of flavors (including Western BBQ, Teriyaki, Australian Outback, and Hickory Smoked.) Gourmet Pets promotes the product as far superior to "average" dog foods, even though the quality of meat and nutrient content of the food is virtually identical to many other brands. The company faces no competition in this market segment so it plans to charge a high price for the product.
-Gourmet Pets hopes to use its special packaging and extensive advertising to create a perception in the minds of consumers that Prime Cuts is a superior product, even though the actual quality of meat used in the product is virtually no different from competing brands. The company is attempting to develop:

Accepted Answer

Gourmet Pets is attempting to create a perception of superiority through packaging and advertising, which is an example of product differentiation. Differential segmentation involves targeting distinct market segments with different products, cognitive dissonance refers to conflicting thoughts and beliefs after a purchase, and pioneer marketing involves introducing a new product or service to the market.

Question 2

Virtual Electronics is considering a strategy to charge a very high introductory price for their automobile video theater. After identifying that their rival firms did not carry this new product, they chose this pricing strategy to achieve maximum profits. Virtual Electronics has chosen a strategy.

Accepted Answer

The pricing strategy chosen by Virtual Electronics is skimming, where a high introductory price is set to maximize profits from early adopters of the product. This strategy is suitable when the product is innovative and has no close substitutes in the market, and the firm wants to earn high profits before competitors enter the market.

Question 3

Felicia wants to know how many units she must sell to cover all of her costs. She indicates to you that her selling price is $20 per unit, her fixed costs are $6,000, and the variable costs per unit are $15. What is her break-even point?

Accepted Answer

The answer of Felicia wants to know how many units...

Question 4

Jian has entered into a contract with the federal government to design a computer simulation model for training helicopter pilots. The contract calls for the final price to be set at a fixed percentage profit over and above her cost of production. This seems to represent a:

Accepted Answer

The fixed percentage profit over and above the cost of production indicates that Jian is using a cost-based pricing strategy, where her price is based on the cost of producing the simulation model.

Question 5

Helen is considering adding a rack of greeting cards to her product offerings at Litton Books Unlimited. Her fixed costs associated with adding the greeting cards would be $300. Variable costs per card are $1 each. The greeting cards will sell for $2 each. Helen's break-even point would occur at cards sold.

Accepted Answer

The answer of Helen is considering adding a rack of...

Question 6

Barker Brothers Pens utilizes a strategy of low priced pens to attract customers and discourage competition. This represents a strategy.

Accepted Answer

Barker Brothers Pens is utilizing a penetration strategy by offering low priced pens in order to attract customers and establish a presence in the market. This strategy aims to gain market share by offering prices lower than the competition, discouraging them from entering the market and attracting price-sensitive customers.

Question 7

Consumer goods and services are generally classified into four specific categories. What are the four categories, and how do they differ? Illustrate by giving examples of products that are often included in each category.

Accepted Answer

The answer of Consumer goods and services are generally classified...

Question 8

The cost of raw materials used to produce a good or service represent the firm's costs.

Accepted Answer

The cost of raw materials is a variable cost because it varies with the level of production. As the level of production increases, the cost of raw materials also increases. Fixed costs, on the other hand, remain the same regardless of the level of production. Mixed costs are a combination of both fixed and variable costs, and uncontrollable costs are those that cannot be influenced or controlled by the firm.

Question 9

What does a break-even point of 100 units mean to a firm?

Accepted Answer

If the firm sells 100 units, its total revenues will equal its total costs, indicating that the firm is neither making a profit nor incurring a loss. This is the definition of the break-even point, where the level of production/sales covers all the costs, including fixed and variable costs. Therefore, option D is the correct choice. Option A is incorrect because the break-even point only ensures that the firm covers all its costs, and there is no relation to profit maximization. Option B is incorrect because the break-even point represents the level of production/sales where total revenue equals total costs and is not a sum of fixed and variable costs. Option C is incorrect because the break-even point represents the level of production/sales where total revenue equals total cost and does not specifically state that variable costs cancel fixed costs.

Question 10

In the "Reaching beyond Our Borders" box in the chapter, Don Johnson, owner of gourmet chocolate company Choco-Logo, found out that in his market:

Accepted Answer

The article discusses how pricing goods like chocolate means constantly adjusting to the global price, indicating that the cost of chocolate is not non-negotiable and packaging/box size do not necessarily make a significant difference in sales. There is no mention of consumers not being able to differentiate between premium and lower-grade chocolate.

Question 11

The Internet allows customers to compare prices of many goods and services. This technology will likely:

Accepted Answer

With the ability for customers to easily compare prices, businesses will need to differentiate themselves in other ways besides just price. This will likely result in more focus on non-price aspects of their promotional message, such as features, quality, and customer service, in order to stand out from competitors.

Question 12

Phar-out Pharmacy will advertise a price of an over-the-counter drug at or below their cost. The intended goal of this loss leader strategy is to:

Accepted Answer

The purpose of a loss leader strategy is to bring in more customers to the store, thereby increasing the overall customer base. The hope is that these newly acquired customers will not only purchase the loss leader item but also other items that are sold at a higher profit margin, resulting in an increase in overall revenue.

Question 13

The strategy of first determining what the market is willing to pay, then subtracting a desired profit margin to determine a desired cost of production is called:

Accepted Answer

The strategy described is known as target costing, where the target cost of production is calculated by subtracting the desired profit margin from the market-determined price. Cost-based pricing (A) relies solely on the cost of production without taking into account the market demand or willingness to pay. Penetration pricing (C) involves setting a low initial price to gain market share, while skimming pricing (D) involves setting a high initial price and gradually lowering it over time. Neither of these strategies involves determining a desired cost of production based on the market price and desired profit margin.

Question 14

Many products are promoted by emphasizing their key benefits, rather than setting the price lower than that of competitive goods. This emphasis on the product's benefits illustrates a(n) strategy.

Accepted Answer

Non-price competition is a marketing strategy that focuses on emphasizing the unique benefits or features of a product rather than reducing its price to attract customers. By highlighting the benefits, the company can differentiate itself from competitors and create a perceived value that justifies a higher price. This approach can be particularly effective for products that have a strong brand reputation or offer superior quality.

Question 15

Mini-Case
Gourmet Pets is an innovative competitor in the billion-dollar pet food industry. In fact, two of its products, Kitty Sirloin and McDog Tbone, each claim over a 30% share in their market segments. The company has done detailed research and discovered that, for a growing number of pet owners, the family pet serves as a "baby substitute." These owners tend to pamper their pets, and are very discriminating in what they purchase. With this in mind, the company has put a great deal of effort into developing a new dog food: Prime Cuts. The new product is packaged in a resealable, microwaveable container and can be purchased in a variety of flavors (including Western BBQ, Teriyaki, Australian Outback, and Hickory Smoked.) Gourmet Pets promotes the product as far superior to "average" dog foods, even though the quality of meat and nutrient content of the food is virtually identical to many other brands. The company faces no competition in this market segment so it plans to charge a high price for the product.
-The company currently markets McDog T-bone, Lapdog Lunchtreats, Rover's Potroast, and Puppy Porterhouse in the dog food market. Prime Cuts will be an addition to the company's in the dog food market.

Accepted Answer

Product line refers to a group of related products offered by a company. Gourmet Pets currently offers several types of dog food, and Prime Cuts will be an addition to their existing product line.

Question 16

The formula for break-even analysis includes which of the following components?

Accepted Answer

The answer of The formula for break-even analysis includes which...

Question 17

Angie owns a small company that markets high quality office supplies to businesses. Angie faces stiff competition from some much larger firms like Office Depot. Which of the following competitive strategies would probably work best for Angie?

Accepted Answer

Since Angie's company is small and facing stiff competition from larger firms, it would be difficult for her to compete on price alone. Instead, focusing on non-price competition by offering better service and building good customer relationships can set Angie's company apart from the competition and create a loyal customer base. This can help her company stay competitive in the long run.

Question 18

The rent a firm pays each month for office space is an example of a(n):

Accepted Answer

Rent is a fixed cost because it remains constant regardless of the level of production or sales.

Question 19

American Building Products is the largest cement company in the Midwest. When the firm raised its prices by 8 percent, all of its competitors soon announced they too were raising their prices by 8 percent. It appears this industry is influenced by a strategy:

Accepted Answer

The situation described suggests that the industry is following a price leadership strategy, as all competitors followed the price increase of the largest company in the region. Price skimming involves charging a high price initially and gradually lowering it over time, while price discrimination refers to charging different prices to different groups of consumers. Market pricing involves setting prices based on the overall market conditions, but does not necessarily require following the pricing decisions of a particular industry leader.

Question 20

Which of the following is a potential problem with a high-low pricing strategy?

Accepted Answer

A high-low pricing strategy teaches customers to wait for sales, which can reduce profits since customers will only buy when prices are discounted. This can also lead to customers becoming less willing to buy at full price and waiting for sales, which can make it difficult for a company to generate consistent revenue.

Quiz 14: Developing and Pricing Goods and Services