MARKETING CHAPTER 18

Dividing the total fixed cost by the related quantity equals the ______ fixed cost (per unit).

average

What two conditions would make a customer more price sensitive? (Check all that apply.)

When there are available substitutes When there is an opportunity to make price comparisons

Given the following data, compute the BEP in units:Price per unit = $3.00Variable cost per unit = $0.50Total fixed cost = $500,000

$200,000

If a firm's total fixed cost is $200,000 and its fixed cost contribution per unit is $10, its break-even in units is ______.

20,000

Special Ts buys T-shirts for $8. After adding a $4 markup, they sell the T-shirts for $12. If the company determines the markup based on the selling price, then the markup on these T-shirts is _____.

33.3%

______ are a way to determine what a group of potential customer would pay.

Auctions

What cost decreases steadily as quantity increases?

Average fixed cost

Which two of the following statements about switching costs are true? (Check all that apply.)

Customers tend to avoid switching costs. They can be relatively costly and dissuade business customers from switching.

How is the average cost (per unit) calculated?

Dividing total cost by related quantity

True or false: Large markups always mean large profits.

False

What is an advantage of price lining?

It is an uncomplicated pricing method for both buyers and sellers.

What is the function of a markup chain?

It sets the price structure in an entire distribution channel.

Amber feels that there is no substitute for the True Secular brand jeans she is about to buy. What level of price sensitivity might Amber be expected to have in this moment?

Low price sensitivity

What does product-bundle pricing encourage consumers to do? (Check all that apply.)

Purchase items that they may not have planned to buy Spend more money

What are two reasons companies would add a markup to the cost of products that they have purchased from wholesalers? (Check all that apply.)

To pay for the cost of operating the business To make a profit

Why do some companies use standard markup percent?

To simplify the pricing process

True or false: Changes in total cost depend on variations in total variable cost.

True

True or false: Even if a manager's estimate of a demand curve is not exact, there generally exists a profitable range surrounding the price that would maximize profit.

True

True or false: In general, consumers are less sensitive to price when they share the cost of an item with another person or a group of people.

True

The sum of total fixed cost and total variable cost is called ______.

total cost

Profit is calculated by determining the difference between ______.

total revenue and total cost

Setting prices that will capture some of what customers will save by substituting the firm's product for the one currently being used is called ______.

value in use pricing

The sum of the changing expenses that are closely related to output is called total ______.

variable cost

Conducting an auction tells a company ______.

what customers are willing to pay

In order to determine a demand estimate for a product, a manager will need to try to answer _______ questions, which will allow him or her to conceptualize future outcomes of a number of different scenarios regarding the quantity and price of a product.

what-if

To create a demand estimate, managers often try to determine __________ quantity will be sold __________ a particular price is selected.

what; if

Why do some companies use the same markup percent as each other?

Because their operating expenses are alike

______ evaluates whether the firm will be able to cover all of its costs with a particular price.

Break-even analysis

How does a manager determine the average cost per unit for a product?

By analyzing company documents from the previous year

How do the results of a marginal analysis help marketing managers determine the best price for a product?

By demonstrating how price affects costs, revenues, and profits

How is the average variable cost (per unit) determined?

By dividing the total variable cost by the related quantity

What are the two basic approaches to price setting?

Cost-oriented and demand-oriented

What are two characteristics of total variable cost? (Check all that apply.)

It increases as total quantity produced increases. It refers to the total costs that are closely connected to output.

Which of the following are characteristics of break-even analysis? (Check all that apply.)

It makes it appear as if any item can be sold at the assumed price, which may not be the case. It makes it appear as if profits will increase continuously. It is easy to use and is useful for analyzing costs.

Which of the following statements are accurate descriptions of average-cost pricing? (Check all that apply.)

It may yield very good profits, but only in lucky cases. It seems simple, but it often doesn't work very well.

True or false: Markups are related to selling price mostly for convenience.

True

Michael is a sales rep for a steel manufacturer. He is talking to a customer about the new pricing strategy his firm is using which will save his customer money when he substitutes the steel from Michael's company for the steel they currently use.What type of pricing does this represent?

Value in use pricing

William is an organizational buyer for Goodlife Tires. He purchases rubber for Goodlife. There are several suppliers that all offer basically the same grade of rubber. This situation will have what likely effect on William's price sensitivity?

William will be price sensitive.

The Federal Trade Commission considers bait pricing _____.

a deceptive act

The ______ is obtained by dividing total cost by the related quantity.

average cost (per unit)

Dividing the total variable cost by the related quantity equals the ______ cost (per unit).

average variable

Adding a reasonable markup to the average cost of a product is called ______.

average-cost pricing

Extremely aggressive or dishonest _________-pricing advertising can be considered a deceptive act.

bait

A retail store advertises a laptop with an AMD Dual-Core C-50 processor for $325. Once bargain hunters come to the store, salespeople point out the disadvantages of the low-priced laptop and try to convince them to trade up to a better, and more expensive, unit with an Intel Core i5-480M processor. This is an example of ______.

bait pricing

Setting some very low prices to attract customers, but trying to sell more expensive models or brands to the customer in the store is called _____.

bait pricing

Dividing the total fixed cost by the fixed cost contribution per unit equals ______ in units.

break-even point

Setting prices on several products as a group is called ______ product pricing.

complementary

When Xbox sets a relatively low price on its game units to stimulate more demand for its games, it is implementing ______.

complementary product pricing

Of the two basic approaches to setting prices, _____ is the most common.

cost-oriented

If a markup is too high, it can ______ demand for the product and have a negative impact on profit.

decrease

Setting an acceptable final consumer price and working backward to what a producer can charge is called ______ pricing.

demand-backward

A software manufacturing company set a suggested retail list price of $240.00 for its new data management software. From the suggested retail list price, the software company subtracted its usual chain of markups for wholesalers and retailers to obtain its own selling price of $102. This is an example of ______.

demand-backward pricing

One reason break-even analysis should be used cautiously is because most managers face ____ demand situations.

down-sloping

The sum of those costs that are fixed in total, regardless of how much is produced, is called the total ______.

fixed cost

The ______ contribution per unit is the assumed selling price per unit minus the variable cost per unit.

fixed-cost

Setting prices for a whole line of products is called ______.

full-line pricing

In order to use average-cost pricing, a marketing manager must make an estimate of _____.

future sales

While shopping for toothpaste at her local convenience store, Cassie was able to compare prices on all of the available products. This shows how access to substitutes ______ price sensitivity.

increases

One of the drawbacks of using average-cost pricing is that ______.

it fails to take into account the effect of "economies of scale" on pricing

In order to attract customers to visit a retail store, sellers may offer ______, or real bargain prices. Sellers hope that once customers are at the store they will purchase other items that are not priced so low.

leader pricing

Customers are ______ price sensitive when contemplating making a small expenditure of money.

less

Customers are __________ (less/more) price sensitive the greater the significance of the end benefit of the purchase.

less

If the end benefit of a purchase has great significance to the consumer, the consumer will probably be ______ price sensitive.

less

Judy and Amy are having lunch together and decide to split the bill equally. Amy ordered more expensive items than she normally would because she is ______ price sensitive when sharing the cost.

less

For shopping products, it is common for all prices and value to be ______.

logically related

A pricing tool that focuses on the changes in total revenue and total cost from selling one more unit to find the most profitable price and quantity is called ______.

marginal analysis

A dollar amount added to the cost of products to get the selling price is called a(n) _______.

markup

A(n) ______ is the percentage of the cost that is added to the cost to get the selling price.

markup

The sequence of markups firms use at different levels in a channel is referred to as a ______.

markup chain

A manager seeking profit __________ will select the highest spot on the total profit curve that has the longest vertical distance between the total revenue curve and total cost curve.

maximization

Aidan Haeger, marketing manager for Wilson Sporting Goods, wants to use marginal analysis to price new soccer balls. Unfortunately he does not know the exact shape of the firm's demand curve. Under these circumstances, marginal analysis ______.

may be useful anyway because a profitable region generally surrounds the best price

Royal Caribbean offers a New Year's Eve cruise for $1,800 per person. In its' advertising, the company focuses on four payments of $450 because customers are ______ price sensitive the greater the total expenditure.

more

Setting prices that end in certain number, such as $0.99 or $49, is called ______ pricing.

odd-even

Some retailers commonly use prices that end in certain numbers. These retailers think that their customers see prices with these numbers as considerably cheaper. This practice is called ______.

odd-even pricing

Deborah is considering finding a new cellphone service provider because her current provider is raising its prices. However, for Deborah the prospect of shopping around for a new provider that is cheaper and offers similar coverage sounds time-intensive and aggravating. Deborah ultimately decides to stay with her current provider because ______.

of the cost of switching providers

A basic problem with the average-cost approach is that it doesn't consider cost variations at different levels of ___________.

output

In the marketplace, markups are generally expressed as a(n) ______.

percentage

Setting a rather high price to suggest high quality or high status is called ______ pricing.

prestige

A company may use ______ to lure customers who will purchase an item that is quite expensive because they believe that it has superior quality and represents an elevated social status.

prestige pricing

At the store where Garrett works, all soft-drinks cost $1.50 and candy bars cost $1.00. This is an example of _____.

price lining

Setting one price for a set of products is called ______ pricing.

product-bundle

The difference between total revenue and total cost is called __________.

profit

A manager seeking ______ will select the highest spot on the total profit curve that has the longest vertical distance between the total revenue curve and total cost curve.

profit maximization

Setting prices that have special appeal to target customers is called ______ pricing. These prices just seem right to customers.

psychological

Cal believes that customers in his culinary supply shop find certain prices very appealing. He believes that customers do not really notice the difference in prices of products priced between $15.00 and $19.99. Therefore, Cal prices products at the top of this range. Cal's pricing approach is called ______.

psychological pricing

Eilysh, a student, is used to paying $1.50 for a 12-ounce bottle of water from various vending machines on campus, so she expects the new vending machine just installed outside her chemistry classroom to charge her the same amount for water. For Eilysh, the $1.50 price is a ______.

reference price

The price customers expect to pay for a product is called the ______.

reference price

Two examples of total fixed cost expenses include ______ costs. (Check all that apply.)

rent salary

If you multiply the ______ by the BEP in units, you get the BEP in dollars.

selling price

Retail stores that use leader pricing attempt to attract customers by _____.

setting prices very low for some products

Multiplying the selling price times the BEP in units equals ______.

the BEP expressed in dollars