Deck 11: Pricing

Question 1

A profit maximization strategy is used during the growth and maturity stages of the product life cycle.

Answer 1

False

Question 2

Cost-plus pricing is not a very effective strategy for maximizing profits.

Answer 2

True

Question 3

Prices are generally more elastic in the early stages of the product life cycle and increasingly inelastic in the later stages of the product life cycle.

Answer 3

True

Question 4

Unbundling provides value for customers who are focused on a specific price point rather than the complete product offering.

Question 5

Break-even analysis is an accurate measure of price sensitivity.

Question 6

Customers are more price sensitive the higher the product's price is relative to the customers' price expectation.

Question 7

Underpricing is a pricing strategy whereby companies charge an amount just below cost in order to generate sales in the introductory stage of a product's life cycle.

Question 8

Price elasticity of demand is a measure of price sensitivity.

Question 9

Once a firm has established its break-even point for a product, it has a starting point for estimating how much revenue it must generate to earn a profit.

Question 10

Rent on an office building would be considered a fixed cost, while sales commissions would be considered a variable cost.

Question 11

While shopping, Lucie sees a pair of jeans on sale for $29.99. She is excited because she has purchased this particular brand of jeans several times in the past for $40.00. In this instance, $40.00 is Lucie's fixed cost.

Question 12

Dynamic pricing is a pricing strategy that involves pricing a product higher than competitors to signal that it is of higher quality.

Question 13

Shrinkflation is when manufacturers "shrink" or reduce the price of their products during times of inflation.

Question 14

Volume maximization is the same thing as penetration pricing.

Question 15

An escalator clause ensures that the customer does not incur financial hardship as a result of increases to the cost of a product.

Question 16

Loss-leader pricing involves selling a product at a price that causes the firm a financial loss.

Question 17

A recreational watersports dealer reduced the price of its new jet skis by $1,000 in hopes of generating more sales. However, the lower price only resulted in a few more sales of the jet skis. This represents an elastic demand situation.

Question 18

An odd pricing tactic prices items in odd dollar amounts, such as $4.95, instead of in even amounts, like $4.88.

Question 19

The change in total revenue that results from selling one additional product unit is referred to as price sensitivity.

Question 20

Promotion is one of the most important strategic decisions a firm faces because it reflects the value the product delivers to consumers as well as the value it captures for the firm.

Question 21

Billy set up a lawn-mowing business in his neighborhood. He currently has 7 customers that want their lawns mowed each week for which he charges them $25.00 each. Billy spends $10.00 a week in gas and another $17.00 in yard waste bags and stickers. What is Billy's weekly profit?

A)$148.00
B)$158.00
C)$175.00
D)$88.00
E)$105.00

Question 22

The gray market form of buying and selling often occurs when the price of an item is significantly higher in one country than another.

Question 23

Billy set up a lawn-mowing business in his neighborhood. He currently has 7 customers that want their lawns mowed each week, for which he charges $25.00 each. Billy spends $10.00 a week in gas and another $17.00 in yard waste bags and stickers. What is Billy's weekly revenue?

A)$88.00
B)$148.00
C)$175.00
D)$105.00
E)$158.00

Question 24

Volume maximization is also referred to as

A)target pricing.
B)price skimming.
C)profit maximization.
D)penetration pricing.
E)survival pricing.

Question 25

Consumers will be more price sensitive when

A)the cost of not getting the expected benefits of a purchase is high.
B)some or all of the purchase price is paid by others.
C)the price they have to pay is more than they anticipated.
D)they perceive the price as a gain rather than a forgone loss.
E)a product's price is within the range that they perceive as fair or reasonable.

Question 26

The degree to which the price of a product affects consumers' purchasing behavior is referred to as

A)dynamic pricing.
B)price sensitivity.
C)marginal pricing.
D)price elasticity.
E)price relevance.

Question 27

A measure of price sensitivity that gives the percentage change in quantity demanded in response to a percentage change in price is known as

A)marginal revenue.
B)price elasticity of demand.
C)profit maximization.
D)break-even analysis.
E)price elasticity of supply.

Question 28

For the first quarter of the year, the price of the company's most popular e-reader was $129.00. The company sold 750,000 units at this price. For the second quarter, the company decided to reduce the price of the e-reader to $109.00. At this price point, the company sold 1.5 million units indicating that demand for the product is

A)stable.
B)elastic.
C)marginal.
D)inelastic.
E)unstable.

Question 29

When Superior Cellular released its first smartphone, it charged customers $999. Shortly thereafter, it reduced the price to $599 for the exact same device. Superior's decision to set a relatively high price for a period of time after the product launched and then decrease the price to a level that would be more sustainable over time reflects which pricing strategy?

A)target pricing
B)survival pricing
C)profit maximization
D)volume maximization
E)underpricing

Question 30

What is marginal revenue?

A)the total change in revenue that results from a small change in product price
B)a percentage change in price that results from a change in quantity demanded
C)the change in total revenue that results from producing one additional unit
D)the change in total revenue that results from selling one additional unit of a product
E)the total change in revenue that results from a large change in product price

Question 31

The 1936 law that requires sellers to charge everyone the same price for a product is the Robinson-Patman Act.

Question 32

One of the most important concepts in marketing is the price elasticity of demand, which is the

A)percentage change in quantity demanded in response to a percentage change in price.
B)point at which the costs of producing a product equal the revenue made from selling the product.
C)price that consumers consider reasonable and fair for a product.
D)percentage a product is marked up in response to consumer demand.
E)difference between the actual price and the highest price the customer would be willing to pay for the product.

Question 33

In June, the appliance store priced its French-door refrigerators at $1,199.00 and sold 50 units. In September they reduced the price to $1,099.00 and sold 53 units. Which statement is accurate regarding this situation?

A)Demand is elastic and total revenue fell from June to September.
B)Demand is inelastic and total revenue fell from June to September.
C)Demand is elastic and total revenue rose from June to September.
D)Demand is inelastic and total revenue rose from June to September.
E)Demand is neither elastic nor inelastic, but revenue rose from June to September.

Question 34

The Robinson-Patman Act is also called the Advertising Act.

A)worth.
B)renumeration.
C)price.
D)fee.
E)value.

Question 35

Compare the following statements and select the one that is accurate regarding a profit maximization strategy.

A)For a profit maximization strategy to work over the long term, the firm must have a significant cost or resource advantage over competitors.
B)Profit maximization should not be used as a permanent pricing objective, but is effective in allowing a firm to endure a difficult time.
C)A profit maximization strategy sets prices low to encourage a greater volume of purchases and lower the level of involvement for the consumer.
D)A profit maximization strategy is best used when a product is in the growth and maturity stage of the product life cycle.
E)Profit maximization assumes that customers value a product's differentiating attributes and are willing to pay a higher price to take advantage of those attributes.

Question 36

Tariffs may raise the price that foreign customers must pay for goods produced in the United States, negatively impacting a U.S. firm's ability to be price competitive in those markets.

Question 37

Because price discrimination could be considered an attempt to create a monopoly, it is illegal under U.S. law.

Question 38

The first step in the price-setting process is to

A)analyze the competitive price environment.
B)compare alternatives.
C)determine the costs.
D)define the pricing objectives.
E)evaluate demand.

Question 39

One of the most important strategic decisions a firm faces is ________ because it reflects the value the product delivers to consumers as well as the value it captures for the firm.

A)production management
B)profit management
C)advertising
D)promotion
E)pricing

Question 40

A local diner offers a lunch special during the week for $5.99. On Wednesdays, senior citizens can get the same lunch special for $4.99. This is a form of predatory pricing.

Question 41

One of the most commonly used pricing tactics, markup pricing, is also referred to as ________ pricing.

A)dynamic
B)standard
C)profit margin
D)profit-plus
E)cost-plus

Question 42

Armando is the owner of a full-service pet grooming business. For the month of October he paid $2,000 in rent, $700 in utilities, $2,950 in salaries, and $50 on advertising. A full service pet grooming costs $25.00. Unit variable costs per grooming are $5.00. How many full-service pet groomings does Armando need to sell to break-even each month?

A)166
B)200
C)250
D)287
E)191

Question 43

Which type of cost is a variable cost?

A)rent
B)insurance
C)delivery cost
D)advertising cost
E)salaries

Question 44

The best source of information for marketers regarding how high they can price a product before customers stop considering the product a good value comes from

A)sales forecasts.
B)the advertising staff.
C)salespeople.
D)historical pricing data.
E)customer service personnel.

Question 45

The price strategy of unbundling involves

A)adding a certain amount to the cost of each item in a product set.
B)placing two or more products together in a package and selling them at a single price.
C)separating out the individual goods that make up a product and pricing each one individually.
D)pricing products a few cents below the next dollar amount.
E)constantly updating prices to reflect changes in supply or demand.

Question 46

Which statement regarding pricing is true?

A)Marketers should keep prices low during the introductory stage of the product life cycle.
B)A price-skimming strategy is often used during the growth and maturity stages of the product life cycle.
C)Choosing a price is a one-time decision that is made for each individual product.
D)Pricing strategies should be reevaluated throughout the product life cycle.
E)Initiating price increases is one of the least challenging aspects of pricing.

Question 47

Charging someone less than they are willing to pay is a practice referred to as

A)price skimming.
B)underpricing.
C)minimal pricing.
D)dumping.
E)survival pricing.

Question 48

According to your text, one of the most common mistakes in modern pricing is

A)pricing items based on consumers' reference prices.
B)failing to correctly calculate the break-even point.
C)setting the price too high on an introductory product.
D)covering fixed costs while ignoring variable costs.
E)charging someone less than they are willing to pay.

Question 49

Variable costs are defined as costs that

A)vary depending on the advertising budget for the product.
B)vary depending on the type of material used in production.
C)change only during economic downturns.
D)vary depending on the number of units produced or sold.
E)remain constant even though the product offering varies.

Question 50

A section in a contract that ensures that providers of goods and services do not encounter unreasonable financial hardship as a result of uncontrollable increases in the costs of or decreases in the availability of something required to deliver products to customers is referred to as a(n)________ clause.

A)hardship
B)control
C)protective
D)materials
E)escalator

Question 51

What is calculated in a break-even analysis?

A)the percentage change in quantity demanded in response to a percentage change in price
B)how many units of product must be sold to cover fixed costs
C)the difference between marginal revenue and marginal cost
D)the sales volume needed to achieve a profit of zero
E)the point at which fixed costs and variable costs are equal

Question 52

In the price-setting process, the next step after demand has been evaluated is to

A)analyze the competitive price environment.
B)define the pricing objectives.
C)choose a price.
D)determine the costs.
E)evaluate the alternatives.

Question 53

Kaylee went to the specialty grocery store by her office after work. When looking at the offerings at the meat counter, she was surprised to see ribeye steaks selling for $12.49/lb. At her normal grocery store, she can get the same quality beef for $9.99/lb., a price Kaylee feels is reasonable. $9.99/lb. for ribeye steak is Kaylee's

A)reasonable price.
B)break-even point.
C)benchmark price.
D)reference price.
E)dynamic price.

Question 54

Which cost would be considered a fixed cost?

A)raw material
B)advertising
C)sales commissions
D)delivery costs
E)production supplies

Question 55

The three most common and effective strategies marketers can use for raising prices are unbundling, escalator clauses, and

A)dumping.
B)reference pricing.
C)prestige pricing.
D)odd pricing.
E)shrinkflation.

Question 56

Since consumers have the tendency to compare prices on almost everything they buy, marketers setting prices should attempt to capitalize on this tendency by determining the price consumers will consider fair and reasonable for a product. This is known as the

A)break-even point.
B)dynamic price.
C)reference price.
D)benchmark price.
E)reasonable price.

Question 57

Cabinet Renewal has a 3-step program for refinishing cabinets. Each step features a different product. Cabinet Renewal sells the products as a set containing one bottle of each of the 3-step products. If Cabinet Renewal decided to sell each product individually rather than as a set, it would be an example of which pricing strategy?

A)underpricing
B)minimal pricing
C)dynamic pricing
D)unbundling
E)dumping

Question 58

Which statement regarding break-even analysis is true?

A)Break-even analysis does not measure the cost of sales.
B)Break-even analysis does not measure price sensitivity.
C)Break-even analysis is an accurate measure of fixed costs.
D)Break-even analysis reflects how demand may be affected at different price levels.
E)Break-even analysis is an accurate measure of variable costs.

Question 59

As a pricing tactic, markup pricing is

A)a good measure of price sensitivity.
B)the most effective pricing tactic overall.
C)good at capturing the value consumers place on products.
D)not very effective at maximizing profits.
E)difficult to implement.

Question 60

Taste of the Tropics is a manufacturer of fruit juice products. It recently reduced the amount of its premium juice line from 64-ounce containers to 52-ounce containers but kept the price the same. This is an example of

A)unbundling.
B)shrinkflation.
C)dumping.
D)yield management.
E)survival pricing.

Question 61

Auto Brite is a manufacturer of car care products. It sells its deluxe care pack for $19.99. The package includes detergent, car wax, tire cleaner and a polishing cloth. This is an example of

A)yield management.
B)price skimming.
C)survival pricing.
D)price bundling.
E)underpricing.

Question 62

The sale of branded products through legal but unauthorized distribution channels is referred to as the

A)gray market.
B)blue market.
C)white market.
D)black market.
E)red market.

Question 63

Recent research indicates that approximately ________ of consumers search for and purchase a low-priced product using an in-store shopping app or online search engine.

A)5 percent
B)20 percent
C)40 percent
D)75 percent
E)90 percent

Question 64

For an airline, the price of economy-class seats on any given flight may fluctuate over time. For example, the airline may try to fill economy-class seats by lowering the price as the day of the flight draws closer, or try to fill business-class seats first by raising prices on economy tickets. This is an example of

A)price skimming.
B)odd pricing.
C)dynamic pricing.
D)market pricing.
E)seasonal discounts.

Question 65

A pricing strategy that involves constantly updating prices to reflect changes in supply, demand, or market conditions is called

A)flexible pricing.
B)dynamic pricing.
C)demand pricing.
D)market pricing.
E)penetration pricing.

Question 66

If a resort wanted to promote visitors to come during its off-peak times, it would most likely choose which pricing tactic?

A)seasonal discounts
B)prestige pricing
C)odd pricing
D)price bundling
E)price skimming

Question 67

Prices that end in ________ are often easier for customers to process and retrieve from memory.

A)0
B)5
C)7
D)9

Question 68

Mitch, a marketer for a major retailer, uses the Internet to aggressively review the prices of products sold by his competitors. Accordingly, he constantly updates his prices based on his findings and what changes he sees in consumer demand. What type of pricing strategy is Mitch most likely using?

A)market pricing
B)demand pricing
C)dynamic pricing
D)penetration pricing
E)flexible pricing

Question 69

A pricing tactic in which a firm prices products a few cents below the next dollar amount is called

A)even pricing.
B)deal pricing.
C)perceived pricing.
D)bargain pricing.
E)odd pricing.

Question 70

Yield management is a strategy for maximizing a firm's

A)supply.
B)revenue.
C)demand.
D)production.
E)operating costs.

Question 71

A strategy in which two or more products are packaged together and sold at a single price is called price

A)skimming.
B)packaging.
C)pushing.
D)grouping.
E)bundling.

Question 72

The illegal buying and selling of products outside of sanctioned channels is referred to as the

A)black market.
B)gray market.
C)red market.
D)white market.
E)blue market.

Question 73

Your text notes that technology has helped to shift the balance of power from companies to customers. Which statement exemplifies this concept?

A)The Internet allows companies to advertise on more than one platform.
B)Companies can use social networking sites to help them better target their audiences.
C)The Internet has made it possible for customers to comparison shop for products.
D)Data gathered at the point-of-sale can be used by companies to target customers for new products.
E)Automated production systems lead to more efficient and cost-effective manufacturing processes.

Question 74

Prestige pricing involves

A)pricing generic label goods at the same price as designer goods.
B)adding a certain amount to the cost of each item in a product set.
C)pricing a product higher than competitors to signal that it is of higher quality.
D)constantly updating prices to reflect changes in supply or demand.
E)separating out the individual goods that make up a product and pricing each one individually.

Question 75

Drendel's shoe store just received a shipment of women's dress boots. The manufacturer's suggested retail price for the boots is $150.00, but Drendel's decides to price the boots at $149.95. What pricing tactic is Drendel's most likely using?

A)prestige pricing
B)odd pricing
C)dynamic pricing
D)shrinkflation
E)yield pricing

Question 76

Which of the following is not true regarding global pricing?

A)Firms do not encounter any unique challenges when pricing products globally.
B)Historically, companies have set prices for products sold internationally higher than the same products sold domestically.
C)Technological advancements have made global pricing more transparent.
D)Pricing is a critical component of a successful global marketing strategy.
E)Economic conditions over the past decade have impacted global pricing for products.

Question 77

The amount a product sells for above the total cost of the product itself is called

A)marginal cost.
B)the break-even point.
C)profit margin.
D)the price elasticity of demand.
E)marginal revenue.

Question 78

What technological advancement created for mobile devices has unleashed a new era of pricing transparency for consumers?

A)wireless apps
B)text messaging
C)mobile banking
D)SIM cards
E)GPS systems

Question 79

If luxury brands such as Hermès clothing, Maserati automobiles, and Gucci purses wanted to promote an image of superior quality and exclusivity to customers, they would most likely use which pricing tactic?

A)luxury pricing
B)dynamic pricing
C)odd pricing
D)cost-plus pricing
E)prestige pricing

Question 80

The Sandy Beach resort, a family resort located in Florida, promotes the months of September and October as its vacation value months. During this time, it offers reduced rates on rooms. It does this, in part, because most families don't vacation during this time due to their children being in school. The pricing tactic The Sandy Beach Resort is using to encourage vacationing during these months is most likely

A)price bundling.
B)prestige pricing.
C)unbundling.
D)seasonal discounts.
E)odd pricing.