BA360: Chapter 14
Timor rents rooms in his hotel for an average of $100 per night. The variable cost per rented room is $20. His fixed costs are $100,000 and his target profit is $20,000. For Timor, to earn his target profit, he will need to rent out ________ rooms.
1,500 rooms
What are the five C's of pricing?
1. Company Objectives 2. Customers 3. Costs 4. Competition 5. Channel Members
In one year, the Sunrise Hotel incurred $100,000 in fixed costs. Because the hotel booked 10,000 room nights, its total variable cost is $100,000 (10,000 room nights × $10 per room). Thus, its total cost is
200,000
Kyle estimates that the fixed costs associated with opening a new bank branch are $500,000. He expects the branch to attract 1,000 new customer accounts in the first year, each of which will cost $50 per year to service. He also expects to generate $100,000 per year in revenue. For Kyle, the total cost of opening the new branch and remaining open for one year will be
550,000
________ products are products whose demands are positively related and as such, they rise or fall together.
Complementary
Brands that have developed loyal customers have a higher price elasticity of demand.
False
The demand curve for prestige products generally slopes downward due to higher prices.
False
Costs related to supply and costs related to demand are the two primary cost categories.
False;; its variable and fixed
American Airlines just reduced its fares for summer flights by $100. Delta Airlines changes its pricing structure and reduces its flights by $100 as well. Delta is employing status-quo pricing.
True
Because consumers are generally more sensitive to price increases than to price decreases, it is easier to lose current customers with a price increase than it is to gain new customers with a price decrease.
True
In U.S. markets, there are many substitute products for Lucky Charms cereal, suggesting the price elasticity of demand for Fruit Loops is high.
True
The key to successful pricing is to match the product with the consumer's perception of value.
True
Assume the demand for electricity, a necessity with few substitutes, is −0.2. If the electric company raised its rates by 10 percent, we would expect
a 2 percent decrease in quantity demanded.
Star Heating and Air Conditioning Company specializes in electric heat pumps. Francis keeps track of the price of natural gas, knowing that
an increase in the price of natural gas will increase demand for his electrical heating systems.
Variable costs change with
changes in the quantity being produced.
Dana owns a bakery where she sells cupcakes. Two blocks down there is another bakery, Sweet's Bakery, that sells cupcakes for $1 less than Dana. Dana decides to lower her price and match Sweet's Bakery prices. What type of pricing strategy is Dana implementing?
competitor-oriented pricing
Imelda's is an upscale women's clothing store. Prices are based on customers' beliefs about the value of the clothing. The store focuses on a limited target market and provides excellent customer service. Imelda's is using a ________ pricing strategy.
customer-oriented
Traditional demand curve economic theory is used by marketers to understand ________ in the five Cs of pricing.
customersCorrect
Managers of Wendy's fast-food restaurants keep track of prices at competitors such as McDonald's, Burger King, and Arby's, knowing that a decrease in the prices at these other fast-food restaurants will
decrease demand for Wendy's products.
If the price for a product increases, the demand for the complementary product will
decrease.
Marketers spend millions of dollars annually trying to create or reinforce brand loyalty. Brand loyalty changes the demand curve for the firm's products by
decreasing the price elasticity of demand.
The break-even point is estimated by
dividing fixed costs by contribution per unit.
Break-even analysis is useful because it allows managers to
estimate the quantity they will need to sell at a given price to break even.
A demand curve is built on the assumption that
everything but price and demand remains the same.
When a firm has a particular profit goal as its overriding concern, it will use target return pricing to meet the profit objective.
false
Which of the following is the most logical example of complementary products?
hot dogs and hot dog buns
Ike manages a Shoney's restaurant. He is considering staying open later in the evening. For Ike, the variable costs associated with staying open longer hours will include
hours worked by cooks.
A strategy of setting prices based on how customers develop their perceptions of value can often be the most effective pricing strategy, especially if the strategy
is supported by consistent advertising and distribution strategies.
The observation that consumers are generally more sensitive to price increases than to price decreases suggests that
it is easier to lose customers with a price increase than to gain customers with a price decrease.
A ________ strategy involves accurately measuring all the factors needed to predict sales and profits at various price levels, so that the price level that produces the highest return can be chosen.
maximizing profits
Cross-price elasticity is the
percentage change in quantity demanded of Product A compared to the percentage change in price of Product B.
Rita knew that her established customers liked her product much better than her competitor's. She was planning to expand into new markets, and she was considering pricing. She was leaning toward charging a higher price than competitors to help demonstrate that hers was a high-quality product. Rita was considering
premium pricing.
There is an old saying "If you have to ask the price of a yacht, you cannot afford it." Products like yachts are most likely to be associated with
prestige pricing.
If a 1 percent decrease in price results in less than a 1 percent increase in the quantity demanded, demand is
price inelastic.
What price competitive level would be indicated when the price is usually set according to the laws of supply and demand?
pure competition
Historically, prices were
rarely changed except in response to radical shifts in market conditions.
Ozzie is the marketing manager for an automobile dealership. His boss tells him the firm's primary goal is to increase its local market share from 15 to 30 percent. His firm is using a ________ orientation.
sales
Firms using a ________ to set prices believe that increasing sales will help the firm more than will increasing profits.
sales orientation
Health clubs often use a low introductory offer price to get people to join their club. These low prices represent a ________ pricing strategy.
sales orientation
Many years ago Honda's Accord and Ford's Taurus were the two top-selling cars in the United States. As the year was coming to an end, Ford cut the price of the Taurus, hoping to outsell the Accord and allow Ford to claim that "Taurus is the best-selling car in America." Ford was using a ________ pricing strategy.
sales orientation
Abdul's firm has set corporate direction to become one of the leaders in each of its significant market segments. It was Abdul's job to examine the firm's pricing strategy to determine how to maximize market share, even at the expense of profits in the short run. What kind of company objective would guide Abdul's effort?
sales-oriented
Naomi tells her sales representatives the goal is to generate at least a 15 percent return on investment for all of the industrial building supplies they sell. Naomi is using a ________ pricing strategy.
target return
Wilhelm owns Do-It-Right Auto Repair Service. He has observed over the years that customers keep their high-mileage cars longer when the economy is doing poorly, creating demand for his maintenance and repair service. Wilhelm has observed the impact of ________ on demand for his service.
the income effect
Because there are many firms in monopolistic competition markets
the many competitors will focus on product differentiation.
The more substitutes that exist in a market,
the more sensitive consumers will be to changes in the price of a particular product.
There are many options available to consumers when it comes to breakfast cereals. So, if Kellogg's significantly increases the price of Rice Krispies, consumers are more apt to buy alternate cereals instead. This illustrates which concept?
the substitution effect
One problem in relying on price elasticity and demand curves when setting prices is
the way a product or service is marketed can have a profound impact on price elasticity.
________ is the cash expenditure plus taxes that consumers have to pay for a good or service.
Price
Which of the following is most likely to be characterized by pure competition in the United States?
Soybeans
Pricing strategies should be aligned with a firm's overall goals and objectives.
True
Rarely is the lowest-price product offering the dominant brand in a given market.
True
Customers must see value in a product or service before they are willing to exchange time or money to obtain it, but not all customers see the same value in a product. To analyze how many units will be sold at any given price point, marketers draw on
a demand curve.
For which of the following is demand likely to be most sensitive to price increases?
a specific brand of soft drink
Hayla is the marketing manager for a fast-food restaurant chain. She uses a target return pricing strategy because her firm's primary objective is to
increase profits.
Samar customizes Harley-Davidson motorcycles. No two cycles are alike. He notices that very few customers even ask the price of his motorcycles before they decide to purchase them. Demand for his motorcycles is probably
price inelastic.