Deck 12: Pricing Concepts and Management

Question 1

Demand is best determined by a top management committee.

Answer 1

False

Question 2

Pricing objectives should be considered overall goals to aid the organization in its long-range plans.

Answer 2

True

Question 3

If demand is elastic, a change in price causes a parallel change in total revenue.

Answer 3

False

Question 4

The use of market share as a pricing objective oversimplifies the value of price in contributing to profits.

Question 5

The price of a hotel room is more important to a business traveler than to a tourist.

Question 6

The objective of profit maximization is rarely operational because its achievement is difficult to measure.

Question 7

The idea behind price skimming is to quickly recover the costs of research and development.

Question 8

Changes in buyers' attitudes, other components of the marketing mix, and uncontrollable environmental factors can influence demand.

Question 9

Price elasticity of demand measures the sensitivity of demand to changes in price.

Question 10

Pricing decisions can be based on determining whether the demand for a product is price elastic or price inelastic.

Question 11

A marketer uses only one pricing objective to avoid organizational confusion.

Question 12

One of the biggest challenges of a market share pricing objective is that it oversimplifies the contribution of price to profits.

Question 13

The six stages of setting prices should always be followed if prices are to be set correctly.

Question 14

The role played by attitudes toward price in the overall evaluation of the marketing mix is a minor concern in identifying the target market.

Question 15

Knowing the target market's evaluation of price allows the marketer to know how much emphasis to place on price and how to price a product relative to competition.

Question 16

Electricity is an example of a product that is price elastic.

Question 17

Due to the ease of comparison shopping through the Internet, many marketers are focusing on the value of their products in communications with customers.

Question 18

The importance of price depends on the type of product, the type of target market, and the purchase situation.

Question 19

For most products, the quantity demanded goes up as the price goes down.

Question 20

Demand depends only on the price of the product.

Question 21

Fixed costs vary with the number of units produced or sold.

Question 22

Cost-plus pricing is popular in periods of rapid inflation.

Question 23

Cost-based pricing strategies result in a percentage being added to the cost of the product.

Question 24

Cost-based pricing results in a high price when demand is high and a low price when demand is low.

Question 25

Some stores employ comparison shoppers to learn what prices their competitors are charging.

Question 26

The effectiveness of demand-based pricing often depends on a marketer's ability to determine all the costs associated with the product.

Question 27

High-end luxury products that will be priced high do not need to evaluate their competitor's prices.

Question 28

Marginal revenue is the change in total revenue that occurs when a firm sells an additional unit of product.

Question 29

The firm should produce the quantity at which marginal revenue and marginal cost are equal.

Question 30

Elastic demand is usually a result of the lack of substitute products.

Question 31

A firm that considers costs and revenue secondary to competitors' prices when setting its own prices is using a competition-based pricing strategy.

Question 32

Demand-based pricing strategies are easy to use.

Question 33

A marketer is usually in a better position to establish prices when it knows the prices charged for competing brands.

Question 34

Knowing the number of units necessary to break even is important in setting the price.

Question 35

A major reason why retailers use markup pricing is that it is convenient.

Question 36

Markup can be stated as a percentage of the cost or as a percentage of the selling price.

Question 37

The point at which marginal revenue equals marginal cost is the breakeven point.

Question 38

Comparison of various prices and various breakeven points will tell the marketer exactly what price to charge.

Question 39

Markup pricing is not used often by marketers because establishing a percentage markup greatly increases the complexity of the decision-making process.

Question 40

One pitfall of cost-plus pricing for the buyer is that the seller may increase costs to establish a larger profit base.

Question 41

A psychological price is designed to encourage purchases on the basis of rational response rather than on the basis of emotional reactions.

Question 42

When determining the markup, it is important to know whether it is based on cost or selling price.

Question 43

Two types of new-product pricing are price skimming and product-line pricing.

Question 44

Grocery stores use negotiated pricing strategies.

Question 45

Penetration pricing and price skimming of the market are two types of new-product pricing.

Question 46

Penetration pricing is one new-product pricing approach that provides the most flexible introductory price.

Question 47

Periodic discounting is often predictable so consumers wait to make purchases until they can benefit from the price reductions.

Question 48

Grocery stores that position their less expensive, private brands next to more expensive, well-known manufacturer brands on the shelf are using the concept of reference pricing.

Question 49

Price skimming is designed to yield maximum unit sales volume.

Question 50

An early-bird special offered by a restaurant during off-peak hours is an example of the secondary-market pricing strategy.

Question 51

The government frequently uses competition-based pricing in granting defense contracts.

Question 52

The use of price skimming discourages competitors from entering a market.

Question 53

A pricing strategy is a course of action designed to achieve pricing and marketing objectives.

Question 54

Captive pricing, premium pricing, and price lining are all strategies aimed at maximizing the profits of an entire product line rather than an individual product.

Question 55

Companies use dynamic pricing to balance out supply and demand.

Question 56

Differential pricing means different buyers pay different prices for the same quality and quantity of product.

Question 57

Competition-based pricing is important if competing products are almost homogeneous or if price is the key variable in the marketing strategy.

Question 58

A company wanting to maximize profits from its new product would use product-line pricing.

Question 59

Another name for bundle pricing is multiple-unit pricing.

Question 60

Random discounting means discounting various products on a systematic basis.

Question 61

Under Armour is establishing a ______ pricing objective to maintain or increase its product's sales in relation to total industry sales.

A)return on investment
B)survival
C)product quality
D)market share
E)status quo

Question 62

The local florist advertises a discount on arrangements during the month of April because the anniversary of the store's opening is in April. This is an example of special-event pricing.

Question 63

A market share objective

A)is not recommended when sales for the total industry are declining.
B)is not especially useful when sales for the total industry are increasing.
C)is not especially useful when sales for the total industry are flat.
D)is useful primarily in an industry where total sales are increasing.
E)can be used effectively whether total industry sales are rising or falling.

Question 64

Most pricing objectives based on ____ are achieved by trial and error because not all cost and revenue data are available when prices are set.

A)market share
B)cash flow
C)return on investment
D)survival
E)profit

Question 65

Which of the following pricing objectives sets prices to recover cash as quickly as possible?

A)Market share
B)Profit
C)Cash flow
D)Return on investment
E)Product quality

Question 66

The way marketers use pricing in the marketing mix will affect the final price.

Question 67

Transfer pricing involves the sale of a product to another unit within the same organization.

Question 68

Running a big sale in order to generate enough cash flow to pay creditors is typical in a situation in which a firm's primary pricing objective is

A)keeping the status quo.
B)profit.
C)survival.
D)market share.
E)recovery.

Question 69

The Cubicles is an office supplies company that has just adjusted its price levels so that it can increase its sales volume to match its expenses. The Cubicles is most likely employing a ____ objective.

A)market share
B)cash flow
C)return on investment
D)survival
E)profit

Question 70

Producers commonly provide discounts off list prices to intermediaries.

Question 71

Le Meridien, Inc. has an objective of achieving a 25% return from its overall sales. This is an example of a ____ pricing objective.

A)market share
B)cash flow
C)return on investment
D)profit
E)status quo

Question 72

F.O.B. factory denotes the price of the products at the factory. If the price is quoted as F.O.B. shipping, then shipping costs are paid by the seller.

Question 73

Maintaining or increasing market share

A)can be achieved even if industry sales are flat or decreasing.
B)is an infrequently used pricing objective in most industries.
C)depends on the overall growth of the total industry.
D)is a profit-related objective based on price.
E)is directly tied to leading an industry in product quality.

Question 74

A price-leader approach is a pricing approach most often used in supermarkets to attract consumers by giving them special low prices on a few items.

Question 75

Setting prices for business customers is very similar to setting prices for consumers.

Question 76

Marketers must take steps to make sure that the pricing objectives they set are consistent with the organization's ____ objectives and ____ objectives.

A)advertising; marketing
B)overall; marketing
C)marketing; promotional
D)overall; promotional
E)overall; revenue

Question 77

In some cases, prices are assigned to goods on the basis of nothing more than custom.

Question 78

A marketer is most likely to set prices according to a cash-flow objective when a

A)trial-and-error approach to the market is acceptable.
B)certain market share must be maintained.
C)quick return on investment is desired.
D)higher price is acceptable to the firm.
E)product is expected to have a long life cycle.

Question 79

When establishing prices, a marketer's first step is to

A)determine demand.
B)develop pricing objectives.
C)select a pricing policy.
D)evaluate competitors' prices.
E)determine a pricing method.

Question 80

Which of the following is a requirement for setting pricing objectives?

A)The objectives should be short-term oriented.
B)There should be only one pricing objective.
C)An evaluation of competitors' prices should be made.
D)The cost structure should be identified.
E)The objectives should be explicitly stated.