Question 1

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

Accepted Answer

Profit maximization is a type of profit-oriented pricing objective and means setting prices so that total revenue is as large as possible relative to total costs.

Question 2

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

Accepted Answer

Profit-oriented objectives include profit maximization,satisfactory profits,and target return on investment.Sales-oriented pricing objectives are based either on market share or on dollar or unit sales.Status quo pricing seeks to maintain existing prices or to meet the competition's prices.

Question 3

Thompson Pool and Patio 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:

Accepted Answer

The objective of satisfactory profits is characterized by seeking a level of profits that is satisfactory to management and owner(s).

Question 4

At the end of the summer,the Bloomin' Garden Center 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?

Accepted Answer

Sales maximization ignores profit and competition for the purpose of raising cash.

Question 5

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

Accepted Answer

This is the definition of market share,and sales can be reported in dollars or in units of product.

Question 6

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.

Accepted Answer

Targeted ROI is one of the most common types of profit-oriented pricing objectives used.

Question 7

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

Accepted Answer

With constant new-product introductions,consumers have many alternative goods to choose from,and selecting the right price becomes a very complicated task for the marketing manager.

Question 8

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.

Accepted Answer

Profit maximization means setting prices so that total revenue is as large as possible relative to total costs.

Question 9

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

Accepted Answer

This is the definition of status quo pricing.

Question 10

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.

Accepted Answer

A lower price allows a company to maximize sales and build market share.

Question 11

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

Accepted Answer

This is the definition of return on investment (ROI).

Question 12

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:

Accepted Answer

The strategy described will maximize sales dollars,but will not maximize or improve any of the other objectives in the long term.

Question 13

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

Accepted Answer

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

Question 14

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

Accepted Answer

Sales maximization pricing is a short-term price reduction to increase sales.

Question 15

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

Accepted Answer

This is the definition of demand.

Question 16

When the local Shell station raises or lowers its prices on its gasoline,the Marathon station across the street makes the same changes in its pricing.This is an example of _____ pricing.

Accepted Answer

Status quo pricing is best described as meeting the competition.

Question 17

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

Accepted Answer

Status quo pricing requires little planning because it involves just copying the competitions' pricing policies.

Question 18

Britney is fifteen years old and wants to open her own business selling cupcakes to local coffee shops and restaurants.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:

Accepted Answer

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

Question 19

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 return on investment (ROI)for the current fiscal year.The following results were found on its financial statements:
$\begin{array}{lrll}
\text { Gross Revenues: } & \$ 250,000 & \text { Total Assets: } & \$ 500,000 \
\text { Gross Profits: } & \$ 100,000 & \text { Total Liabilities: } & \$ 200,000 \
\text { Net Profits after Tax: } & \$ 50,000 & \text { Owner's Equity: } & \$ 300,000
\end{array}$
What was the actual ROI for Pierre's Ice Cream Company?

Accepted Answer

The Return on Investment (ROI) is calculated as $ \frac{\text{Net Profits after Tax}}{\text{Total Assets}} \times 100 $. Using the given figures, $ \frac{\$50,000}{\$500,000} \times 100 = 10\% $.

Question 20

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

Accepted Answer

The price managers set for each product depends mostly on two factors: the demand for the good or service and the cost to the seller for that good or service.

Quiz 19: Pricing Concepts