Deck 19: Pricing Concepts

Question 1

Shopping bots allow sellers to collect detailed data about customers' buying habits, preferences, and even spending limits.

Answer 1

False

Question 2

Prices always steadily decline for a product in the decline stage of the product life cycle.

Answer 2

False

Question 3

Extranets enable buyers to quickly and easily compare products and prices, putting them in a better bargaining position.

Answer 3

True

Question 4

Digital pricing has better equipped brick-and-mortar stores to compete with their online alternatives.

Question 5

For businesses, consumer penalties are part of doing business in a highly competitive marketplace.

Question 6

Because of its recent high growth in the national market, Mable Inc., an online cosmetics retailer, decides to divide its market in the United States into segments and charge a flat freight rate to all customers in a given segment. In this scenario, Mable Inc. plans to adopt freight absorption pricing.

Question 7

An effective distribution network can overcome minor flaws in the marketing mix.

Question 8

Psychological pricing is marketing two or more products in a single package for a special price.

Question 9

A rebate is a discount to wholesalers and retailers for performing channel functions.

Question 10

When a seller establishes a series of prices for a type of merchandise, a purchase agreement is violated.

Question 11

Predatory pricing is illegal under the Robinson-Patman Act of 1936.

Question 12

Yield management systems encourage airline companies to ignore the importance of demand and decide to price their products largely or solely on the basis of costs.

Question 13

www.ebay.com is the most popular extranet in the United States.

Question 14

According to garment makers, the demands of large customers are nearly wiping out profits for all but the very large suppliers.

Question 15

As products enter the growth stage of the product life cycle, prices generally begin to stabilize.

Question 16

Product life cycles can only be measured in years.

Question 17

Unlike a firm that launches a new item resembling several others already on the market, a firm that introduces a totally new product with no close substitutes will have no pricing freedom.

Question 18

Price promotion alone always creates a low price image.

Question 19

A firm can charge different prices to different customers if the prices represent manufacturing or quantity discount savings.

Question 20

To prove predatory pricing, the predator must show that it explicitly tried to ruin a competitor and that the predatory price was below its average variable cost.

Question 21

During the maturity stage of a product life cycle, distribution channels become a significant cost factor.

Question 22

Gwenta Corp., a soft drink manufacturing company, pays a certain amount quarterly to its distributors who display the soft drink's latest ad on their distribution trucks. This quarterly payment is referred to as a noncumulative quantity discount.

Question 23

The newly opened Stone Restaurant was unable to attract a lot of customers. Since the owner of the restaurant had to pay back the loan that he had taken to start the restaurant, he decided to offer a 20 percent discount on the entire menu on weekends. In this scenario, the owner's pricing objective is a(n) _____.

A)market share maximization objective
B)profit maximization objective
C)asset maximization objective
D)sales maximization objective

Question 24

Yield management systems are used:

A)to eliminate the problem of simultaneous production and consumption from services.
B)only in service industries.
C)to establish price equilibrium.
D)to make profitable use of the unused capacity of perishable goods.

Question 25

99-Center Inc. is a retail store where all the merchandise is priced 99 cents. This retailer uses a _____.

A)single-price tactic
B)flexible pricing tactic
C)price lining tactic
D)price bundling tactic

Question 26

At a local supermarket, Linda saw a box of plant fertilizer that was retailed at $25 but was marked down to $20.99. Given this information, $20.99 is the _____.

A)dividend
B)price
C)margin
D)profit

Question 27

Diffusion Research Company specializes in conducting market research for various firms. When it receives a new research proposal, its management first estimates the cost of conducting the research and delivering the final research report. The management attempts to then reduce the costs through efficient operations. In this scenario, Diffusion Research Company has a _____ objective.

A)profit-oriented pricing
B)cash maximization pricing
C)status quo pricing
D)sales-oriented pricing

Question 28

A _____ is a price reduction offered to buyers buying in multiple units or above a specified dollar amount.

A)trade discount
B)cash discount
C)seasonal discount
D)quantity discount

Question 29

Which of the following statements best defines dynamic pricing?

A)It is the practice of marking up prices by 100 percent, or doubling the cost.
B)It is a basic, long-term pricing framework that establishes the initial price for a product.
C)It is the ability to change prices very quickly.
D)It is the practice of charging a very low price for a product with the intent of driving competitors out of business.

Question 30

_____ is a price tactic that tries to get consumers into a store through false or misleading price advertising and then uses high-pressure selling to persuade consumers to buy more expensive merchandise.

A)Leader pricing
B)Price lining
C)Bait pricing
D)Price bundling

Question 31

To consumers, value is based upon:

A)the absolute monetary value of price.
B)perceived satisfaction.
C)ability to get a discount on a product.
D)the steadiness of price over a period of time.

Question 32

Which of the following is a limitation of break-even analysis?

A)It does not give an estimate of how much profit can be earned once the break-even point is obtained.
B)It does not give weightage to the cost of labor that is incurred during production.
C)Sometimes it cannot predict the effect of changes in sales price.
D)Sometimes it is hard to know whether a cost is fixed or variable.

Question 33

A cost that changes with the level of output is called a(n) _____.

A)liquid cost
B)variable cost
C)independent cost
D)indirect cost

Question 34

Unlike break-even pricing, markup pricing uses complicated concepts of cost.

Question 35

_____ does not change as output is increased or decreased.

A)Marginal cost
B)Dependent cost
C)Fixed cost
D)Opportunity cost

Question 36

Unlike a firm that strives for market share, a firm with the objective of maximizing sales:

A)possesses adequate funds and faces an optimistic future.
B)ignores profits, competition, and the marketing environment as long as sales are rising.
C)benefits from maximization of cash if it is adopted as a long-run objective.
D)seeks to maintain existing prices or to meet the competition's prices.

Question 37

Which of the following is an impact of the Internet on the shopping behavior of consumers?

A)The Internet auction business is likely to disappear in the future.
B)Consumer reviews on the Internet about various products tend to be equal in quality.
C)Business-to-business auctions are likely to be the dominant form of Internet auction in the future.
D)Extranets will provide the best price for a particular product.

Question 38

Which of the following statements is true of price-quality relationships?

A)Consumers perceive lower-priced goods to be more long lasting than higher-priced goods.
B)Consumers believe that higher priced goods are manufactured with better quality of ingredients.
C)Consumers lack information about the quality of lower priced goods due to poor advertising.
D)Consumer demands for higher priced goods remain unchanged even if their quality declines.

Question 39

Consumers are more likely to perceive the value of a product to be less than its cost if:

A)the product's price is set too high in their minds.
B)the product's manufacturer gains very little profit from the product.
C)the product has an inelastic demand.
D)the product's demand and supply attain the state of price equilibrium.

Question 40

Ava Lawnmowers Inc. is a company that manufactures and sells lawn mowers. Since it faces stiff competition in the market, it sells its products at different prices depending on the number of lawn mowers purchased by the consumers. In this scenario, the company indulges in _____.

A)penetration pricing
B)price skimming
C)price discrimination
D)predatory pricing

Question 41

At a price of $2,000 per unit, the demand for Rancho 60 mountain bikes from Cloyd's Inc. is 300 units, which is same as the number of bikes manufactured every year. If the marketing managers at Cloyd's Inc. decide to sell each bike at a price lower than $2,000 per unit, _____.

A)a shortage of bikes will be created
B)the number of bikes produced will increase drastically
C)an inelastic demand for the bikes will be created
D)the demand for and the supply of the bikes will attain equilibrium

Question 42

Inelastic demand is a situation in which:

A)an increase or a decrease in price does not significantly affect the demand for a product.
B)prices are adjusted over time to maximize a company's revenues.
C)demand is created for new products by aggressive brand awareness campaigns.
D)a pricing objective maintains existing prices or meets the competition's prices.

Question 43

_____ is a price tactic in which different customers pay different prices for essentially the same merchandise bought in equal quantities.

A)One-part pricing
B)Price lining
C)Flexible pricing
D)Price skimming

Question 44

When Lofonift Inc. introduced its flagship product, an MP3 player, it captured the market by offering its product at a very low price. This gradually forced many of its competitors out of business. Once its competitors were out of business, Lofonift Inc. raised the price. In this scenario, Lofonift Inc. most likely indulged in _____.

A)predatory pricing
B)price discrimination
C)status quo pricing
D)price fixing

Question 45

Which of the following statements is true of value-based pricing?

A)It is a modification of uniform delivered pricing.
B)It is sometimes called postage stamp pricing.
C)It has grown out of the quality movement.
D)It presents drawbacks if costs are continually rising.

Question 46

In _____, the seller pays all or part of the actual shipment charges and does not pass them on to the buyer.

A)FOB origin pricing
B)freight absorption pricing
C)uniform delivered pricing
D)basing-point pricing

Question 47

_____ is sometimes called a "market-plus" approach to pricing because it denotes a high price relative to the prices of competing products.

A)Price skimming
B)Price fixing
C)Status quo pricing
D)Bait-and-switch pricing

Question 48

Which of the following statements is true of price lines?

A)Buyers cannot be offered a wide variety of merchandise at each established price.
B)Price lines enable a seller to reach several market segments.
C)Firms have to carry a larger total inventory than it could without price lines.
D)Price lines are advantageous when costs rise continually.

Question 49

Profit-oriented pricing objectives include _____.

A)target return on investment
B)target market share
C)meeting competitors' prices
D)status quo pricing

Question 50

Betty, a teenager, starts a business selling cupcakes to coffee shops and restaurants. She strives to increase either the market share in terms of the revenue generated. This illustrates the _____ objective.

A)status quo pricing
B)profit-oriented pricing
C)bait pricing
D)sales-oriented pricing

Question 51

_____ refers to selling to two or more different buyers, within a reasonably short time, commodities (not services) of like grade and quality at different prices where the result would be to substantially lessen competition.

A)Price discrimination
B)Price fixing
C)Bait pricing
D)Penetration pricing

Question 52

Adequate distribution for a new product can often be attained by:

A)offering a larger-than-usual profit margin to distributors.
B)having different model or serial numbers for products.
C)allowing customers to get involved in showrooming.
D)increasing the prices of the products.

Question 53

Which of the following pricing strategies is subject to government regulation?

A)Penetration pricing
B)Status quo pricing
C)Price skimming
D)Price fixing

Question 54

_____ is a method of determining what sales volume must be reached before total revenue equals total costs.

A)Break-even analysis
B)Markup pricing
C)Opportunity analysis
D)Fixed-cost pricing

Question 55

To increase the popularity of its new range of smartphones, GizmoPro Inc., a mobile phone manufacturer, offered several accessories for free to customers who bought the smartphones. However, the management of GizmoPro Inc. soon found this an unsustainable practice. The company then decided to offer discounts on the accessories instead of giving them for free. These actions of the management of GizmoPro Inc. are aimed at _____.

A)market share pricing
B)profit maximization
C)demand orientation
D)sales maximization

Question 56

Which of the following statements is true of yield management systems?

A)They determine the availability of product substitutes in industries that are experiencing rapid change.
B)They use software that employs techniques such as discounting early purchases and limiting early sales at these discounted prices.
C)They predict necessary service levels required to achieve revenue goals.
D)They determine whether it is financially more feasible to buy a new product or to repair a broken one.

Question 57

Which of the following statements is true of shopping bots?

A)The broad-based type of shopping bot searches for prices for only one type of product.
B)They create opportunities for prestige pricing.
C)They theoretically give pricing power to a consumer.
D)The niche-oriented shopping bot searches a wide range of product categories.

Question 58

Which of the following statements is true of simple break-even analysis?

A)It does not consider the selling price of a product.
B)It does not give weightage to the cost of labor.
C)It is applicable only when the demand for a product is elastic.
D)It ignores the demand for a product.

Question 59

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

A)refundable, competitive, and attainable.
B)perceived, actual, and situational.
C)differentiated, niche, and undifferentiated.
D)profit oriented, sales oriented, and status quo.

Question 60

Which of the following statements is true of unfair trade practice acts?

A)They prohibit any firm from selling to two or more different buyers.
B)Unfair trade practice laws prevent oligopoly leaders from joining together and fixing prices at the highest rates that a market will allow.
C)They establish penalties for companies that engage in predatory pricing.
D)State enforcement of unfair trade practice laws has been lax partly because low prices benefit local consumers.

Question 61

A _____ is a price reduction offered to a consumer, an industrial user, or a marketing intermediary in return for prompt payment of a bill.

A)cash discount
B)quantity discount
C)functional discount
D)seasonal discount

Question 62

A price skimming strategy is most often used for a new product when:

A)competition in the market is abundant.
B)customers are unwilling to spend a large amount of money on the product.
C)the supply of the product is greater than its demand.
D)the product is perceived by the target market as having unique advantages.

Question 63

Riya saw a box of collector's edition comic books at Fournotts, a retail corporation. Each book was priced at $28.50, but a customer who bought five books was required to pay only $19.99 for each book. Riya bought one book and her friend bought five books. Fournotts' revenue from this purchase is _____.

A)$158.51
B)$19.99
C)$28.50
D)$128.45

Question 64

Which of the following happens if demand is elastic?

A)As price goes up, consumer demand changes.
B)The competition between organizations reduces.
C)Products will not have any substitutes.
D)The purchasing power of the consumer decreases.

Question 65

Which of the following is a similarity between price fixing and predatory pricing?

A)Both are illegal under the Federal Trade Commission Act.
B)Both are fine-tuning techniques that do not change the general price level.
C)Both typically discourage and block competition from entering a market.
D)Both may ignore demand or cost or both.

Question 66

_____ is a pricing policy whereby a firm charges a relatively low price for a product when it is first rolled out as a way to reach the mass market.

A)Penetration pricing
B)Price skimming
C)Price discrimination
D)Status quo pricing

Question 67

Identify a true statement about status quo pricing.

A)It leads to optimal pricing of a product.
B)It requires serious planning and is difficult to implement.
C)It gives great importance to the demand for and the costs of a product.
D)It can lead to a pricing disaster.

Question 68

When there are many substitutes available for a particular product, consumers:

A)judge the quality of the substitute product based on the supply of each substitute.
B)perceive individual products to have poor durability.
C)can easily switch from one product to another.
D)are sensitive to changes in the supply of substitute products that belong to new brands.

Question 69

Fresnas Designs Inc. is a company known for its quality interior decorations, customized service, and affordable prices. Given the high demand for its service, the management of Fresnas Designs Inc. could price its products higher, but it prefers to price its products such that it will earn a reasonable revenue. The management of Fresnas Designs Inc. bases its pricing policy on _____.

A)sales maximization
B)earning satisfactory profits
C)creating retained earnings
D)status quo pricing

Question 70

Which of the following statements is true of geographic pricing?

A)Freight absorption pricing is a tactic that requires a buyer to absorb the freight costs from the shipping point.
B)Uniform delivered pricing divides the United States into segments or zones and charges a flat freight rate to all customers in a given zone.
C)Postage stamp pricing is adopted when the marketing manager wants total costs to be equal for all purchasers of identical products.
D)With basing-point pricing, a seller designates a location as a basing point so that all buyers are not charged the freight cost from that point.

Question 71

The marketing manager of Raven Golf Club finds that the club can increase its market share and become the industry leader if it slashes membership prices by 50 percent during the first quarter of the year. However, the club cannot achieve its target return on investment if it slashes its membership prices during a quarter. This conflict illustrates:

A)the need to eliminate low-profit products.
B)a lack of competition in the marketplace.
C)how pricing operates in an ideal marketplace.
D)the need for trade-offs in pricing objectives.

Question 72

During the off-season, the Rues Hotel offers a 25 percent reduction on its rooms to attract guests. Given this information, which of the following is illustrated in this scenario?

A)The power of yield management systems
B)The advantage of markup pricing
C)The relationship between price and quality
D)The use of price as a promotional tool

Question 73

Univ Airlines and Mirago Airlines are competitors. They mutually agree to charge customers a certain price for airfreight. This leads to the several lawsuits being filed against them by other airlines. In this case, Univ Airlines and Mirago Airlines can be charged under _____.

A)the Clayton Act
B)the Sarbanes-Oxley Act
C)the Sherman Act
D)the Robinson-Patman Act

Question 74

Unlike niche-oriented shopping bots, broad-based shopping bots:

A)give pricing power to the retailers.
B)search for prices for only one type of product.
C)operate using a Yellow Pages type of model.
D)include sites like SeatGeek and Kayak.

Question 75

_____ is a price tactic that charges freight costs from a given point, regardless of the city from which the goods are shipped.

A)FOB origin pricing
B)Zone pricing
C)Uniform delivered pricing
D)Basing-point pricing

Question 76

Briefly explain how distribution strategy acts as a determinant of price.

Question 77

_____ is the quantity of a product that will be offered to the market by a supplier at various prices for a specified period.

A)Demand
B)Supply
C)Market share
D)Product share

Question 78

Firms that indulge in price fixing:

A)decide how much to charge for a product.
B)undercut the price quoted by a seller to a buyer.
C)charge different prices to different customers.
D)do not sell to two or more different buyers.

Question 79

Return on investment (ROI) for a firm:

A)is the margin of profit earned by the firm inclusive of the taxes payable by the firm.
B)is its total assets multiplied by net profits after taxes.
C)measures management's overall effectiveness in generating profits with the available assets.
D)will be lower than the previous year if the firm performs better in the market.

Question 80

The managers at Click-to-Door, an e-commerce website, closely monitor its rival online retailers to analyze how consumers respond to changes in the prices of certain products. They use the results of this analysis to constantly change the prices on their website to maximize sales and profits. In this case, which of the following pricing strategies does Click-to-Door follow?

A)Comparative pricing
B)Dynamic pricing
C)Capacitive pricing
D)Dependent pricing