Marketing Ch. 12

Hopper Industries determines that for its air compressors the following results are achieved at a price of $250: total costs = $250,000; variable costs per unit = $100; fixed costs = $175,000. Given these figures, Hopper would break even at ____ units.

1,167

If the product price is $100, average variable cost $40 per unit, and the total fixed costs are $120,000, what is the breakeven point?

2,000 units

A certain location of Hamish's restaurant has annual fixed costs of $200,000. If an average tab at the restaurant is $60 and the variable costs per tab is $20, how many groups of customers must Hamish's serve per year in order to break even?

5000

Which of the following statements is true about breakeven analysis?

At the breakeven point, the firm's sales revenue equals the sum of its fixed and variable costs.

Which of the following is not a discount provided to business customers?

Differentiated

Which of the following is an advantage of utilizing penetration pricing?

It helps the company build market share quickly.

What assumption does breakeven analysis make that limits its overall usefulness?

It relies on demand for a product being inelastic.

_____________ is pricing a product at a moderate level and positioning it next to a more expensive model or brand.

Reference pricing

At what point does a firm maximize profit?

The point at which marginal cost equals marginal revenue

Odd-number pricing is

a psychological pricing strategy.

The primary reason that retailers favor rigid markups is

convenience.

The federal government often uses ____ pricing when it grants defense contracts.

cost-plus

When determining markup as a percentage of cost, divide the markup amount by

cost.

Business product pricing strategies that address transportation and other delivery costs are known as

geographic pricing.

Consumers may view relatively expensive products to have great value if the products

have desirable features or characteristics.

For most products, a(n) ____ relationship exists between the price of a particular product and the quantity demanded.

inverse

A product under nonprice competition would most likely not succeed in the market if

it is easy to duplicate.

A product is a price leader when

it is sold at less than cost in the hope that sales of other products will increase.

If Tom's of Maine wants to maximize profit on its toothpaste, it should operate at the point where

marginal revenue equals marginal cost.

Aloft Hotels, Inc. has an objective of achieving a 25% return from its overall sales. This is an example of a ____ pricing objective.

profit

Price leaders, comparison discounting, and special-event pricing are applications of

promotional pricing.

When a cable television company uses bundling to combine phone, cable TV, and broadband internet access into a package with a single price, it is attempting to influence a consumer's perception of price to make a product's price more attractive and reduce "sticker shock." This is an example of using a ____ pricing strategy.

psychological

If Kate Spade offers to reduce the price of its women's handbags when retailers buy more than 100 pieces, the designer is offering a ____ discount.

quantity

If a business decides to reduce its prices once in a while on an unsystematic basis, it is using

random discounting.

Most pricing objectives based on ____ are achieved by trial and error because not all cost and revenue data are available when prices are set.

return on investment

When marginal cost is equal to marginal revenue, the firm should

stop producing additional units to maximize profits.

If a product has an inelastic demand and the manufacturer raises its price,

total revenue will increase.

Sofia, of Midwest Novelties, reduces the price of games sold to Vaziri's Entertainment by 10% to allow for expenses associated with Vaziri's promoting the games to consumers. This is an example of a ____ discount.

trade

If a company increased its price from $100 to $120 and the quantity demanded fell by 40%, the price elasticity of demand for this product is

−2.

The el Rey del Mar Golf Club found that with annual fixed costs of $60,000, its breakeven point is 2,000 members when the membership charge is $60 per person per year. What is the variable cost per person for el Rey del Mar Golf Club?

$30

Which of the following pricing objectives sets prices to recover money as quickly as possible?

Cash flow

Glenn is shopping for a new coat at Marshalls and finds a North Face down jacket that he really likes. He knows that the North Face brand is considered to be high quality and that it's usually very expensive. He's pleasantly surprised to see the price—the "suggested retail price" is $199 and Marshalls' price is $99. Glenn decides to purchase the coat even though it's a little more expensive than he originally thought he'd spend on the jacket. What type of pricing strategy is Marshalls using to price the North Face jacket and other merchandise?

Comparison discounting

The manager at HomeGoods puts a sign up next to a Samsung audio system that reads, "Only $299.99! $60 less than at Best Buy." This is an example of what type of pricing strategy?

Comparison discounting

For custom-made equipment or commercial construction projects, which pricing method is most likely to be used?

Cost-plus

Gil orders 16 dozen fishing lures from Good Day Fishing for $375. When he gets the invoice, he is furious that $25 in freight charges has been tacked onto his bill because he thought the price included freight costs. Gil should have been certain that the order terms were

F.O.B. destination.

If a retailer orders a quantity of merchandise to be delivered to his store in Albuquerque and is quoted a price that does not include freight charges, the retailer is paying a(n) ____ price.

F.O.B. origin

Which pricing objective de-emphasizes price and can lead to a climate of nonprice competition in an industry?

Status quo

Which of the following statements about price elasticity is false?

When price is raised on a product that has an inelastic demand, then total revenue will decrease.

Refer to Scenario 12.3. Glenwood's new pricing strategy is an example of ____ pricing.

bundle

Adidas is establishing a ______ pricing objective to maintain or increase its product's sales in relation to total industry sales.

market share

When Buick buys headlights from Delco (both of which are divisions of General Motors), ____ pricing occurs.

transfer

Suppose that the frozen foods division of Amy's purchases food trays and boxes from the packaging division. The form of pricing used to charge the frozen foods division is called

transfer pricing.

The Colby Candy Co is a small business located in the northeastern United States. The owner of Colby Candy is calculating the projected costs for the coming year. There is rent for the building; salaries for the retail employees; raw materials of sugar, chocolate, and other ingredients; wrappers for packaging of individual pieces of candy; boxes; and radio advertising. Colby Candy's ______ are most likely to be the raw materials of sugar, chocolate, and other ingredients, as well as the wrappers.

variable costs

Myrna's company just purchased $600 worth of supplies from Staples. The terms for payment are 2/10 net 30. If Myrna's firm pays in the next week, it will pay ___________. If Myrna's company waits three weeks to pay Office Depot, it will pay _____________.

$588; $600

Refer to Scenario 12.3. Glenwood is considering a markup pricing basis. Glenwood incurs a cost of $45 for each office visit. If Glenwood were to add a markup of 33.3% of the costs, its price would be

$60.

Maintaining a certain market share, meeting competitors' prices, maintaining a favorable image, and achieving price stability are all associated with a ____ pricing objective.

status quo

Organizations that opt to set ______ run the risk of de-emphasizing price as a competitive tool, potentially leading to a climate of nonprice competition, like that in which professionals such as accountants and attorneys often operate.

status quo objectives

Some grocery stores collect data on competitive prices

by using comparison shoppers.

When establishing prices, a marketer's first step is to

develop pricing objectives.

The fact that senior citizens are charged a lower price at movie theaters than younger adults is an example of ____ pricing.

differential

A measure of sensitivity of demand in relation to changes in price is

price elasticity of demand.

Frito-Lay introduced its Stax brand of potato chips to compete directly against Pringles. The intent was to gain market share quickly. During the first few months they were on the market, Stax retailed for $1.29 cents. What type of pricing strategy was Frito-Lay likely using?

Penetration pricing

A graph of the quantity of products marketers expect to sell at various prices if other factors remain constant is a

demand curve.

If a product is priced based on how many or how few people want it at a particular time and place, ____ pricing is being used.

demand-based

The belief that it is better to take a lower profit margin on a sale than no revenue at all is behind

demand-based pricing.

A retailer of Sure antiperspirant prices it at $2.00; it costs the retailer $1.40. What is the approximate markup as a percentage of selling price?

30%

JCPenney pays $16.50 for a six-ounce bottle of cologne and sells it for $25.95. Its markup as a percentage of cost is approximately ____ % for this product.

57

You are a brand manager for a large chain of grocery stores. You have been working overtime for the last two weeks to prepare for your pricing objectives meeting with the head of sales and marketing. You walk into the meeting with a high degree of confidence in the strategy that you have for setting the pricing objectives for your brand category for the upcoming year. You are speechless when the marketing head tells you that no changes in the pricing objectives will be made for your brand category. He says he believes it is most prudent to leave the existing pricing objectives as they are for the upcoming year. ​ Which of the following statements is the best explanation for the marketing head's decision to leave the existing pricing objectives in place with no change?

A status quo pricing objective can reduce a firm's risks by helping stabilize demand for its products.

Katerina operates the Happy Holidaze boutique, which focuses on indoor and outdoor holiday decorations. She has long adopted a pricing strategy of ending product prices with 0.95, believing that customers will think them a good deal. Most of the store's Christmas ornaments, for example, are priced at $4.95 or $9.95, though there are a few ornaments made of expensive materials that she prices at $25 or even $50. Which pricing strategy is Katerina employing for her store?

Odd-even pricing

You are the marketing manager for a multistate auto dealership in the southeast United States. It is that time of year when your company experiences a major model year change. You are putting the final touches on your pricing strategy to facilitate this change in your inventory of autos. ​ Which of the following pricing strategies will you use to facilitate this model year change?

Periodic discounting

In its advertisement, Timberland gives a close-up of one of its boots to show its fine craftsmanship. At the bottom of the advertisement is "Est. 1973," followed by the phrase "Best Then. Better Now." What type of pricing objective is Timberland using?

Product quality

Which type of pricing objective can reduce a firm's risk by helping to stabilize demand for its products?

Status quo

You are reading the quarterly financial report of one of your competitors. You expected to see their total sales revenue decline because they had a large price increase during the quarter. You were certain that the price increase would lead to an equivalently large decrease in their total sales revenue. To your surprise, their total sales revenue actually increased in the quarter. ​ Based on this information, which of the following explanations could explain why the competitor's total sales revenue increased?

The demand for the company's products is inelastic, so total sales revenue increases when prices are raised.

Which of the following is a requirement for setting pricing objectives?

The objectives should be explicitly stated.

____________ are reductions off the list price given by a producer to an intermediary for performing certain functions.

Trade discounts

You are the general manager of the machining products division of a diversified manufacturing company in Des Moines, Iowa. You primarily produce machining products for sale to wholesalers around the world. However, you periodically get requests from other divisions in your company to purchase your products. You treat these purchase requests the same as a purchase request from a non-affiliated entity. You sell your machining products to other internal divisions at a price that is equivalent to a market-based cost. ​ This is an example of which of the following types of business pricing?

Transfer pricing

Robin is a marketing consultant who specializes in small businesses. Her current client is very interested in estimating the costs for the coming year in order to find the breakeven point. Robin knows this is an important financial statistic because below the breakeven point, the firm is operating

at a loss

Mike is developing a business plan for a new type of bicycle shoe. He is interested in finding the point at which the costs of producing the shoe will equal the revenue earned from selling the product. Mike is interested in finding the

breakeven point.

Lisa and Nick recently purchased a 25-year-old home and are currently undergoing in a kitchen remodel, which includes replacing countertops, cabinets, and kitchen appliances. They are shopping for appliances and visited several retailers to compare prices and determine which brands best met their requirements. One retailer is offering the GE brand refrigerator, cook top, built-in oven, dishwasher, and warming drawer for $5,999, while another retailer has a set of LG appliances that includes a larger refrigerator, range/oven combination, dishwasher, and wine cooler for $5,450. Lisa and Nick are meeting with their kitchen designer to finalize their plans for the kitchen and think that either one of these packages will fit their requirements. The appliance retailers are utilizing a ______ pricing strategy.

bundle

A market share objective

can be used effectively whether total industry sales are rising or falling.

Showing a product's price along with its previous price, the price of a competing brand, or the price at another retail outlet is called

comparison discounting.

Suppose that Maui Jim is considering a new line of sunglasses that would be sold in major department stores. The new line would be positioned as a more distinctive brand than the typical sunglasses sold through department stores, and would be priced higher than other brands in the store, but a lower price line than the current Maui Jim lines that are sold through more specialty stores. In determining the price for this sunglasses line, Maui Jim wants to gather information about all brands sold in department stores and about customers' perceptions of those brands. Refer to Scenario 12.2. Maui Jim's plan of gathering information about the other brands sold in department stores, including their prices, would most likely be used in a ____ basis for pricing.

competition

Theatergoers in the Midwest were pleasantly surprised when they arrived at the cinema to see the latest release and learned that a price reduction had just gone into effect. The Wehrenberg Theater chain, which is the oldest theater company and operates in 15 Midwest locations, decided to drop matinee prices from $7.75 to $4.50 per person and reduce evening prices from $9.75 to $7.50 per person. The price decrease is a result of decreased traffic at the theater and the trend of consumers waiting to stream movies at home. The Starplex Cinemas operating in the same communities as Wehrenberg followed suit and reduced their prices to attract consumers as well. The two movie theater chains are utilizing the ______ pricing basis.

competition-based

When products in an industry are relatively homogeneous and price is a key purchase consideration,

competition-based pricing becomes more important.

LG management decided to use skimming as a pricing strategy for its newest line of high-definition television (HDTV) sets. It should be aware that this strategy does not

discourage competitors from entering the market.

Ted is excited because he has obtained the price list of his company's major competitor. His supervisor, Hank, is also optimistic. However, he has much more experience in the industry than Ted and cautions him that just because they have access to their competitor's price list

doesn't mean they reflect the actual prices at which competitive products are sold.

For most firms in the United States, demand curves are

downward sloping to the right.

The percentage change in quantity demanded caused by a percentage change in price is much greater for products with

elastic demand.

If Norwegian Cruise Lines increased the price of its seven-day cruise package by 10% and, as a result, experienced a 20% decline in customer bookings, Norwegian's demand would be

elastic.

Concession Supply sells hotdogs, buns, and nacho ingredients to several major league ballparks across the country. Currently, Concession Supply has the following pricing information for one case of hotdogs sold at Wrigley Field: Total fixed costs = $1,200, Selling price = $16, and Variable costs = $6. Refer to Scenario 12.1. If Concession Supply increased its price by 10% and experienced only a 2% decrease in the demand for hotdogs, the demand would be

inelastic.

Charlotte Russe, a women's clothing retailer, employs a commonly used cost-based pricing method called

markup pricing.

Products such as light bulbs, canned soft drinks, and ice cream sandwiches are usually priced using ______, which usually results in a ____.

multiple-unit pricing; lower per unit price

Sellers that emphasize distinctive product features to encourage brand preferences among customers, rather than price, are practicing

nonprice competition.

Average fixed cost declines as

output increases.

If Kashi wants to quickly gain a large market share quickly with its new line of reduced-fat snack crackers, it should use

penetration pricing.

The "White Sale" that many department stores have every year a few weeks after Christmas is an example of

periodic discounting

When marketers emphasize price as an issue and match or beat the prices of other companies, they are using

price competition.

Gloria works for the San Antonio Spurs organization and is responsible for managing ticket sales. She knows that ticket price and season ticket packages are related to consumers' interest in purchasing tickets and she tries to price individual tickets and packages at the level where ticket sales and profitability are maximized for the Spurs home games. Gloria typically tests the _______ of demand by creating special events or special sales where she adjusts the price of tickets so she can determine the best price that maximizes profitability for the organization.

price elasticity

To determine the breakeven point in units, divide the fixed costs by

price minus variable costs.

All of the following are forms of psychological pricing except

price skimming.

If Braun introduced a new electric razor that sonically removes hair and priced it first at $175 and then at $150 before reducing the price to $100, the firm's initial pricing strategy is known as

price skimming.

When Texas Instruments first introduced its line of graphing calculators, it set the price quite high; it has lowered the price as competitors have entered the market. The pricing strategy initially used by Texas Instruments is called

price skimming.

Sonya is a product manager for The Container Store, a retailer of storage containers, closet systems, and more. Sales have been declining in the past nine months and her management team is pressuring her to compete based on price discounts. However, Sonya is aware of the dangers associated with engaging in price competition. She knows that competitors can also change prices quickly and aggressively, which can result in a(n) ____ that will be harmful to both companies.

price war

Reference pricing is

pricing a product at a moderate level and positioning it next to a more expensive model or brand.

Advertisements for Suave shampoos emphasize that other shampoos may cost more but don't work any better than Suave. In this example, Suave is competing on the basis of

product price.

If an organization sets prices to recover research and development expenses and establish a premium quality image for its product, it would be using a ____ pricing objective.

product quality

If Umbro faces a standard demand curve that exists for most products, as it raises the price of its soccer balls, the

quantity demanded goes down.

Nancy recently opened a clothing boutique catering to women aged 20 to 60 who are seeking on-trend fashions at an economical price point. Nancy focuses on customer service and offers her customers personal styling advice, closet audits, and a generous return policy. She's developing quite a following and has found that social media is a great way to market her business and showcase new arrivals. Because she orders limited numbers of items in a size range, customers know they must call or stop by the shop if they see something posted on Instagram or Facebook that they'd like to buy. Nancy sells most of her clothing at full price and only offers a "sale" twice each year. Nancy was recently asked to speak with a marketing class about pricing and how to run a profitable business. She was reviewing some information to prepare for the class and wanted to emphasize to the students the importance of identifying fixed costs, variable costs, marginal costs, and marginal revenue as well as their relationship to profitability. Nancy planned to demonstrate that profits will be at their highest when

marginal costs equal marginal revenue.

The owner of Big Jim's Motorcycles is opening a new retail location. Which of the following is most likely to be a fixed cost for Big Jim's?

Building rent

Harriet is a sales representative for Benjamin Moore and her territory includes an approximately 120-mile radius of her "home" retail store. Her customers are painting contractors and subcontractors as well as facility managers of office complexes, apartment buildings, hospitals, and other businesses that might have commercial painting needs. Harriet uses her company vehicle and spends about five hours each day in her car visiting her customers and prospecting for new business. Because her territory is so large, Harriet puts about 200 miles on her car each day, which consumes a lot of gasoline. She tries to be economical when choosing gas stations, but it doesn't really matter how much the gas costs, she pays the price. In this case, demand for gasoline is

inelastic.