Chapter 10 Marketing

Compare the following statements and select the one that is accurate regarding a profit maximization strategy.

Profit maximization assumes that customers value a product's differentiating attributes and are willing to pay a higher price to take advantage of those attributes.

fixed costs

costs that remain constant and do not very based on number of units produced or sold

variable costs

costs that vary depending on the number of units produced or sold

inelastic demand

demand for which a given percentage change in price results in a smaller percentage change in quantity demand

elastic demand

demand for which a given percentage change in price results in an even larger percentage change in quantity demanded

For the first quarter of the year, the price of the company's most popular e-reader was $129.00. The company sold 750,000 units at this price. For the second quarter, the company decided to reduce the price of the e-reader to $109.00. At this price point, the company sold 1.5 million units indicating that demand for the product is

elastic

Bowman's shoe store just received a shipment of dress boots. The manufacturer's suggested retail price for the boots is $150.00, but Bowman's decides to price the boots at $149.95. What pricing tactic is Bowman's most likely using?

odd pricing

break-even point

point in which the the costs of producing a product equal the revenue made from selling the products

predatory pricing

practice of first setting prices low with the intention of pushing competitors out of the market or keeping new competitors from entering the market, and then raising prices to normal levels

A new Home Depot opened up down the street from Hank's Hardware and has drastically reduced prices on many of the same products that Hank sells, forcing him to go out of business. After Hank closed his store, he noticed that Home Depot began raising its prices to more normal levels. This is an example of

predatory pricing

If luxury brands such as Versace clothing, Lexus automobiles, and Dom Perignon champagne wanted to promote an image of superior quality and exclusivity to customers, they would most likely use which pricing tactic?

prestige pricing

When Sony launched its new PS4 gaming system, the product was sold as a package that included the game console, game controllers, wireless headset, and one video game. This is an example of

price bundling

Located on a college campus, Ben's Burger Barn charges $4.99 for its burger basket. However, students receive a 10% discount off the price for showing their student ID. This is an example of

price discrimination

The three largest manufacturers of solenoid valves for plumbing applications conspired together so that all three firms would charge the same price for a 3-way valve. This is an example of

price fixing

seasonal discounts

price reductions given to customers purchasing goods or services out of season

survival pricing

pricing objective that involves lowering prices to the point at which revenue just covers costs, allowing the firm to endure during a difficult time

volume maximization

pricing objective that involves setting prices low to encourage a greater volume of purchases --pricing penetration

name-your-own-price (NYOP) auction

pricing tactic in which the consumer submits a bid at the price he or she is willing to pay for a product or service, and the auction site conducts a search to find matches with prices set by participating suppliers

price bundling

pricing tactic in which two or more products are packaged together and sold at a single price

dynamic pricing

pricing tactic that involves constantly updating prices to reflect changes in supply, demand, or market conditions

prestige pricing

pricing tactic that involves pricing a product higher than competitors to signal that it is or higher quality

loss-leader pricing

pricing tactic that involves selling a product at a price that causes the firm a financial loss

even pricing

pricing tactic that sets prices at even dollar amounts

break-even analysis

process of calculating the break-even point, which equals the sales volume needed to achieve a profit of zero

When Apple released its first iPhone in 2007, it charged customers $599. Shortly thereafter, it reduced the price to $399 for the exact same device. Apple's decision to set a relatively high price for a period of time after the product launched and then decrease the price to a level that would be more sustainable over time reflects which pricing strategy?

profit maximization

Justine went to the specialty grocery store by her office after work. When looking at the offerings at the meat counter, she was surprised to see ground beef selling for $4.49/lb. At her normal grocery store, she can get the same quality beef for $3.29/lb., a price Justine feels is reasonable. $3.29/lb. for ground beef is Justine's

reference prices

profits

revenue minus total costs

Sunny Pines campground, located in the Midwest, promotes the months of September and October as its value camping months. During this time, it offers reduced rates on camper rentals and campgrounds. It does this, in part, because the weather is not as favorable for camping at this time. The pricing tactic Sunny Pines is using to encourage camping during these months is most likely

seasonal discounts

unbundling

separating out the individual goods, services, or ideas that make up a product and pricing each one individually

price

amount of something--money, time, or effort--that buyer exchanges with a seller to obtain product

tariffs

taxes on imports and exports between countries

profit margin

the amount a product sells for above the total cost of he product itself

marginal cost

the change in total cost that results from producing one additional unit of product

price sensitivity

the degree to which the price of a product affects consumers' purchasing behavior

price discrimination

the practice of charging different customers different prices for the same product

reference prices

the prices that consumers consider reasonable and fair for a product

revenue

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

gray market

the sale of branded products through legal but unauthorized distibutor channels

price fixing

when two or more companies collude to set a product's price

In November, the appliance store priced its front-loading washing machines at $899.00 and sold 50 units. In December they reduced the price to $799.00 and sold 53 units. Which of the following statements is accurate regarding this situation?

Demand is inelastic and total revenue fell from November to December.

price elasticity of demand

a measure of price sensitivity that gives the percentage change in quantity demanded in response to a percentage change in price (holding constant all the other determinants of demand, such as income)

profit maximization

a pricing objective that involves setting a relatively high price for a period of time after the products launches

odd pricing

a pricing tactic in which a firm prices products a few cents below the next dollar statement

dumping

a protectionist strategy in which a company sells in which a company sells its exports to another country at a lower price than it sells the same product in its domestic market

escalator clause

a section in a contract that provides for price increases if certain, specified conditions occur

yield management

a strategy for maximizng revenue even when a firm has a fixed amount of something (goods, services r capacity)

marginal revenue

change in total revenue that results from selling one additional unit of product

underpricing

charging someone less than they are willing to pay

A retailer inflated the price of its leather jackets so that when it put the jackets on sale, it appeared to customers that they were getting a better deal than they really were. This is an example of what pricing strategy?

deceptive pricing

deceptive pricing

illegal practice that involves intentionally misleading customers with price promotions