Marketing Management Chapter 14
Benefits of market penetration pricing strategy:
-Earn profits -Build sales -Establish market share -Discourage competitors
Irregular, though not necessarily illegal, methods of pricing are known as:
A gray market
One reason Taco Bell raised its prices was the result of an increase in _____.
Costs
________ is the percentage change in the quantity of Product A demanded compared with the percentage change in price in Product B.
Cross Price Elasticity
A(n) _________ orientation explicitly invokes the concept of value such as when a firm uses a "no-haggle" price structure to make the purchase process simpler and easier.
Customer
Taco Bell's predominant pricing strategy is _______.
Customer Oriented
In a pure competition market, to differentiate products, firms are advised to ___________.
Decommoditize products
Price is the one element in the marketing mix that:
Generates revenue
A(n) _______ strategy relies on limited-time offers and other promotions to encourage a temporary boost in sales.
High/low pricing
When Apple first introduced the iPhone, some consumers were willing to pay the $599 price tag. Apple was using a _________ strategy and eventually lowered the price over time.
Price Skimming
______ appeals to segments of consumers who are willing to pay the premium price to have the innovation first.
Price Skimming
When firms sell the same product to different resellers (wholesalers, distributors, or retailers) at different prices, it can be considered _______.
Price discrimination
The _________ measures how changes in a price affect the quantity of the product demanded.
Price elasticity
The percent change in the quantity of one product demanded compared with the percent change in price in another product is ___________-price elastiscity.
Cross
Some limitations to break-even analysis are:
-That it represents an average price to account for variances. -It cannot predict how many units will sell.
What takes place when two or more firms compete primarily by lowering their prices?
A price war
The point at which the number of units sold generates enough revenue to equal total costs is known as:
Break-even point
The point at which the number of units sold generates just enough revenue to equal the total costs is the _______.
Break-even point
Developing pricing strategies for new products is one of the most ___________ tasks a manager can undertake.
Challenging
Variable costs _____________ production volume.
Change with
One of the five C's include _______________.
Channel members
One of the 5 C's of pricing is ______________.
Competition
The _______ effect refers to the change in the quantity of a product demanded by consumers due to a change in their income.
Income
When a 50% decrease in price results in less than a 50 % increase in quantity sold, demand for the product or service is described as:
Inelastic
When relatively small changes in the price of a product do not generate large changes in the quantity demanded, it can be said that the market for the product is _______.
Inelastic
According to the typical demand curve, lower prices will result in _____ being sold.
Larger quantities
_______ lowers the price of an item below the store's cost.
Loss leader pricing
Price is defined as
One of the four P's
The price, minus the variable cost per unit, is known as:
The contribution per unit
If an authorized retailer sells products to an unauthorized retailer who then sells to consumers at prices far below what authorized dealers can charge:
The discount retailer might fail to provide sufficient service.
Setting the price for a new product is less difficult when other products like it are already being sold. This is true because:
The market will have established a general value for that sort of item.
Price is _________ of the four P's to manage.
The most challenging
Consumers' ability to replace other products with the focal brand is known as:
The substitution effect
How do managers use break-even analysis?
To find a production quantity where, for a given price, costs are equal to revenues.
Price times quantity is:
Total Revenue
The _________ is the sum of fixed costs and variable costs.
Total costs
True or False: Channel members (manufacturers, wholesalers, and retailers) can have different perspectives when it comes to strategies.
True
True or False: Price provides information about a product's quality
True
Primary labor and materials are better known as:
Variable costs
At the break-even point, profits on the sale of a product are:
Zero
Giving consumers larger quantities at a low price would help Taco Bell regain _____.
Competitive Advantage
Competitive parity and status quo pricing are examples of which type of pricing orientation?
Competitor orientation
Horizontal price fixing occurs when _______.
Competitors that produce and sell competing products work together to control prices
Products whose demands are positively related to one another are known as:
Complementary products
A ___________ price (also called the regular price or original price) is the benchmark price against which buyers compare the actual selling price of the product.
Reference
What is the contribution per unit for selling a new style of tennis shoes if fixed costs are $100,000, the variable costs are $10 per unit, the target return is 20 percent, and the price is $35 per unit?
35-10 = 25 Contribution = Price - Variable Cost (Per Unit)
_______ shows how many units of a product or service consumers will demand during a specific period of time at different prices.
A Demand Curve
Pure Competition
A large number of sellers offer standardized products or commodities that consumers perceive as substitutable, such as grains, gold meat, spices, or minerals. In such markets, price usually is set according to the laws of supply and demand.
When firms compete by lowering price at retail, they are engaged in:
A price war
The _________ tactic is a deceptive practice because the store lures customers in with a very low price on an item, only to aggressively pressure these customers into purchasing a higher-priced model by disparaging the low-priced item, comparing it unfavorably with the higher-priced model, or professing an inadequate supply of the lower-priced item.
Bait-and-switch
A useful technique that enables managers to examine the relationships among cost, price, revenue, and profit over different levels of production and sales is called:
Break even analysis
A useful technique that enables managers to examine the relationships among cost, price, revenue, and profit over different levels of production and sales is called ______.
Break-even analysis
Which of the following is NOT an objective of a market penetration pricing strategy?
Charge the highest price possible
When a 10% decrease in price produces more than a 10% increase in quantity sold, the product or service is responsive to price changes and is considered to be _____________.
Elastic
By reducing consumers' search costs, _______ adds value; consumers can spend less of their valuable time comparing prices, including sale prices, at different stores.
Everyday low pricing
With a(n) _________strategy, companies stress the continuity of their retail prices at a level somewhere between the regular, nonsale price and the deep-discount sale prices their competitors may offer.
Everyday low pricing
Sometimes the cost per unit of a new product will decrease as the total sales increase. This is known as the ____________ effect.
Experience Curve
With the _________ effect, as sales continue to grow, the costs continue to drop, allowing even further reductions in the price.
Experience curve
For a firm, rent, landscaping, and insurance are examples of:
Fixed costs
Which pricing strategy is characterized by the setting of a low introductory price to help drive consumer awareness and create an incentive for the consumer to buy now?
Market penetration strategy
The quick service restaurant (QSR) market is considered an _____________.
Monopolistic Competition
When there are many firms competing for customers in a given market, but the products are differentiated, it is known as:
Monopolistic competition
________ occurs when there are many firms competing for customers in a given market but their products are differentiated.
Monopolistic competition
In an advertisement, Sears provides a price, in smaller print and labeled "Reg.," to indicate that $35 is the regular price of Levi jeans. In addition, the advertisement highlights the current "sale" price of $31. The "Reg." price appears as an example of ___________.
Reference pricing
Firms that use a(n) _______ orientation to set prices believe that increasing sales will help the firm more than increasing profits.
Sales
When a consumer buys another brand of the same type of product due to an increase in price or a decrease in value, this is referred to as the _______ effect.
Subsitution
A percentage increase in the quantity demanded for Product A results in a percentage decrease in quantity demanded for Product B. Products for which demand is negatively related are known as:
Substitute products
Firms usually implement a _______ strategy when they have a particular profit goal as their overriding concern.
Target profit pricing
Which of the following is an example of pure competition? -A county water board, which is the sole provider of water to the county. -The oil industry, with a limited number of providers. -Agricultural products like corn and soybeans, where many sellers provide essentially identical products. -Designer Apparel, with many providers who look for ways to differentiate themselves.
-Agricultural products like corn and soybeans, where many sellers provide essentially identical products.
The Five C's of competitive pricing are:
-Company -Climate -Customers -Competitors -Collaborators and overall business climate
Calculate the break -even point for Don's Drone Company: The company has $3 million in fixed costs, its average drone sells for $100, and variable costs are $60 per unit. How many units does the company need to sell to break even?
-Contribution per unit = $100-$60 = $40 -Break even point (units) = Fixed costs/Contributions per unit -BEP (units) = $3,000,000/$40 = $75,000
List the drawbacks of a market penetration pricing strategy:
-Customers would perceive that the product is probably low quality -The company would need a large production capacity -Setting the price lower than the items value is "leaving money on the table."
Potential factors that can affect whether a firm's pricing strategy remains effective from one day to the next:
-Economic conditions -Gov't Regualtions -Competitors
The five C's of pricing include:
Costs
In the classic downward-sloping demand curve, as price increases, demand for the product or service _______.
Decreases
_________ can create excitement and attract customers through the "get them while they last" atmosphere that occurs during a sale.
High/low pricing
The more substitute products there are available, the ___________ the price elasticity of demand for a given product will likely be.
Higher
Consumers are generally ___________ sensitive to price increases for necessities like milk than for items such as restaurant dining.
Less
The goal of _________ strategy is to generate profit and establish a new product or service in the market as quickly as possible.
Market Penetration
In the utilities industry, there is generally only one provider of power in each region of the country. This is an example of which level of price competition?
Monopoly
What is the break-even point for selling a new style of tennis shoes if fixed costs are $100,000, the variable costs are $10 per unit, the target return is 20 percent, and the contribution per unit is $25?
Need Help
What is the break-even point for selling a new video game if fixed costs are $50,000, the variable costs are $20 per unit, and the contribution per unit is $40?
Need Help
Commercial airline travel in the United States is an example of which level of price competition?
Oligopolistic competition
Over the years, Walmart has been accused of opening stores in new communities with artificially low prices, set for the sole purpose of driving competing stores in the area out of business. This type of behavior is called __________ pricing.
Predatory
________ is/are illegal under both the Sherman Act and the Federal Trade Commission Act because it constrains free trade and represents a form of unfair competition.
Predatory pricing
Most goods for sale follow the traditional downward sloping demand curve with the exception of _______ products.
Prestige
With ______ products a higher price might lead to a greater quantity sold, but only up to a certain point.
Prestige
Each point on the demand curve represents the quantity demanded at a specific ______.
Price
A ____________ pricing strategy can be used when innovators and early adopters are willing to pay a higher price to obtain a new product or service.
Price Skimming
For _______ to work, the product or service must be perceived as breaking new ground in some way, offering consumers new benefits currently unavailable in alternative products.
Price Skimming
Loyalty toward a particular brand makes other brands seem less substitutable which decreases:
Price elasticity of demand
Instituting a company-wide policy that all products must provide for at least an 11 percent profit margin to reach a particular profit goal for the firm is an example of which pricing orientation?
Profit Oriented
With ___________, there are a large number of sellers of standardized products or commodities that consumers perceive as substitutable, such as grains, gold, meat, spices, or minerals.
Pure competition
Firms that are less concerned with the level of profits and more interested in the rate at which profits are generated, relative to their investments, tend to use:
Target return pricing
As people make more money, their spending behavior changes. This is known as:
The income effect