Chapter 19 ~ Marketing

The increased availability of bargain - priced private and generic brands has put a downward pressure on overall prices. T/F

True

The minimum point on the ATC curve is the least cost point for a fixed capacity firm, although it is not necessarily the most profitable point? T/F

True

fixed cost

a cost that does not change as output is increased or decreased

variable cost

a cost that varies with changes in the level of output

What two roles in the evaluation of product alternatives does price play?

a measure of sacrifice and an information cue

break even analysis

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

profit maximization

a method of setting prices that occurs when marginal revenue equals marginal cost

status quo pricing

a pricing objective that maintains existing prices or meets the competition's prices

inelastic demand

a situation in which an increase or a decreases in price will not significantly affect demand for the product

elastic demand

a situation in which consumer demand is sensitive to changes in price

unitary elasticity

a situation in which total revenue remains the same when prices change

yield management systems

a technique for adjusting price that uses complex mathematical software to profitably fill unused capacity by discounting early purchases, limiting early sales at these discounted prices, and overbooking capacity

availability of substitutes, price relative to purchasing power, product durability, a product's other uses, and rate of inflation are factors that?

affect elasticity

consumers can easily switch from one product to another, making demand elastic is what factor?

availability of substitutes

total fixed costs / fixed cost contribution

break even quantity

A shopping bot is a program that search the Web for the best price for a particular item that you wish to purchase. What are the two types of shopping bots?

broad and niche

prestige pricing

changing a high price to help promote a high quality image

elasticity of demand

consumers' responsiveness or sensitivity to changes in price

Sometimes companies minimize or ignore the importance of demand and decide to price their product largely or solely on?

cost

further price decreases as the few remaining competitors try to salvage the last vestiges of demand

decline stage

Manufacturers can regain some control over price by using an exclusive distribution system, by franchising, or by avoiding doing business with price cutting discounters, or placing a selling price mark, but the best way is to?

develop brand loyalty

MC falls for a while and then turns upward because of?

diminishing returns

When MC is less than AVC or ATC, the incremental cost will continue to pull the averages ____. Conversely, when MC is greater than AVC or ATC, it pulls the averages ___, and ATC and AVC begin to rise

down; up

Which dimension of quality are focus on when price is a stong indicator of quality?

durability and prestige

if price goes down and revenue goes up, demand is? If price goes up and revenues does down, demand is?

elastic

Percentage change in quantity demanded / percentage change in price

elasticity

The price paid is based on the satisfaction consumers ____ to receive from a product and not necessarily the satisfaction they _____ receive

expect; actually

If price goes down and revenue goes down, demand is? If price goes up and revenue goes up, demand is?

inelastic

Ebay, Bidz, and Ubid are examples of?

internet auctions

Manufacturers find that their _____customers often make specific pricing demand that the suppliers must agree to. The want suppliers to guarantee their stores' profit margins, and insist on cash rebates.

large

MC interests both AVC and ATC at their ___ possible points

lowest

What are the sales oriented pricing objectives?

market shares and sales maximization

Price decreases as competition increases and inefficient, high cost firms are eliminated

maturity stage

return on investment

net profit after taxes divided by total assets

What is often use as a promotional tool to increase consumer interest?

price

if a price is so low that it is an inconsequential part of an individual's budget, demand will be inelastic?

price relative to purchasing power

extranet

private electronic network that links a company with its suppliers and customers

people are sensitive to the price increase, and demand is elastic?

product durability

the greater the number of different uses for a product, the more elastic demand tends to be?

product's other uses

What are the three profit oriented pricing objectives?

profit maximization ,satisfactory profits, and target return on investment

pricing objectives are divided into what three categories?

profit oriented, sales oriented, and status quo

The advantage of break even analysis?

provides a quick estimate of how much the firm must sell to break even and how much profit can be earned if a higher sales volume is obtained.

rising price levels (inflation) make consumers more price sensitive

rate of inflation

Percentage that puts a firm's profits into perspective by showing profit relative to investment? Equation = Net profits after taxes/ total assets

return on investment

profit

revenue minus expenses

A firm with the objective of maximizing sales ignores profits, competition, and the marketing environment as long as sales are rising. They aim to calculate the price that generates the greatest cash revenue or sell off excess inventory

sales maximization

Organizations strive for profits that are satisfactory to the stockholders and management or a level of profits consistent with the level of risk an organization faces

satisfactory profits

Which dimensions of quality are focus on when price is a low indicator of quality?

serviceability, performance, ease of use, durability, and versatility

A price below equilibrium results in a? Higher than equilibrium?

shortage; surplus

selling against the brand

stocking well known branded items at high prices in order to sell store brands at discounted prices

price

that which is given up in an exchange to acquire a good or service

marginal cost

the change in total costs associated with a one unit change in output

markup pricing

the cost of buying the product from the producer, plus amounts for profit and for expenses not otherwise accounted for

The price they set for each product depends mostly on two factors?

the demand and cost

marginal revenue

the extra revenue associated with selling an extra unit of output or the change in total revenue with a one unit change in output

keystoning

the practice of marking up prices by 100 percent, or doubling the cost

price equilibrium

the price at which demand and supply are equal

revenue

the price charged to customers multiplied by the number of units sold

supply

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

demand

the quantity of a product that will be sold in the market at various prices for a specified period

average total cost

total costs divided by quantity of output

average variable cost

total variable costs divided by quantity of output

Adequate distribution for a new product can often be attained by offering a larger than usual profit margin to distributors by?

trade allowance and stimulate demand

Competition varies during the product life cycle, of course, and so at times it may strongly affect pricing decisions? T/F

true

If price goes up or down and revenue stays the same, elasticity is?

unitary

AVC + AFC =

ATC

What is the relationship between price and quality?

Consumers tend to rely on a high price as a predictor of good quality

In attempting to maximize profits, managers can try to expand revenue by increasing customer satisfaction, or reducing costs by operating more efficiently?

Either one or both

Confronting a flood of new products, potential buyers do not evaluate the price of each one against the value of existing products. They just buy the neatest one. T/F

False (They carefully evaluate)

IF MR is just one penny greater than MC, it will still decrease total profits? T/F

False (it will increase)

Prices generally begin to stabilize for several reasons. First, competitors have entered the market, increasing the available supply. Second, the product has begun to appeal to a broader market, often lower income groups.

Growth stage

high purchase prices may create feeling of pleasure and excitement associated with consuming higher price products? Allocative or Hedonistic effect? Refers to the notion that consumers must allocate their budgets across alternative goods and services. The more you spend on one product, the less you have to spend on all others. Allocative or Hedonistic effect?

Hedonistic; Allocative

Management usually sets prices high to recover its development quickly. In addition, demand originates and thus is relatively inelastic.

Introductory stage

Limitation of break even analysis

It is hard to know whether a cost is fixed or variable?

setting prices so that total revenue is as large as possible relative to total cost. It does not always signify unreasonably high prices, however.

Profit maximization

Cost / (1 - Desired return on sales) =

Retail price

Price X Units =

Revenue

Many firms are trying to maintain or regain their market share by cutting prices? The internet has made comparison shopping harder The U.S was in a recession from late 2007 until 2009 and was still recovering very slowly in 2012 Which one is false?

Second

To survive in today's highly competitive market place, companies need pricing objectives that are?

Specific, attainable, and measurable

~ Leads to sub optimal pricing ~ ignores demand and costs ~ Have fewer price wars than those with direct price competition because there is an established price leader

Status quo pricing

When competitive pressures are high, a company must know when it can raise prices to maximize its revenues. T/F

True

When pricing goals are mainly sales oriented, demand considerations usually dominate. T/F

True

Many companies believe that maintaining or increasing market share is an indicator of the effectiveness of their marketing mix. To succeed with a low market share, companies need to compete in industries with slow growth and few product changes otherwise they must view in an industry that makes frequently bought items, such as consumer convenience goods. T/F

True (To damn long to be false)

market share

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