Chapt. 14

Samson rents rooms in his hotel for an average of $100 per night. The variable cost per rented room is $20, to cover maid service and utilities. His fixed costs are $100,000 and his profit last year was $20,000. For Samson, the contribution per unit is

$80.

________ products are products whose demands are positively related and as such, they rise or fall together.

Complementary

At the break-even point, profits are maximized.

False

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.

How can a company find its way out of a market characterized by pure competition?

differentiate the product in some way, even by packaging, so customers will see it as distinct

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.

French luxury goods manufacturer and retailer Hermès is known for making expensive leather goods. But paying $300,168 for a handbag at auction, which is over the standard retail price of $280,000, is extraordinary, and not for the casual shopper. The handbag is considered a

prestige product.

If a 1 percent decrease in price results in less than a 1 percent increase in the quantity demanded, demand is

price inelastic.

Because there are many firms with similar products in purely competitive markets,

price is determined by the laws of supply and demand.

Because there are only a few firms in markets with oligopolistic competition,

price wars may occur.

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.

A customer orientation toward pricing implicitly invokes the concept of

value

Consider a bakery like Entenmann's: The majority of the ________ costs are the cost of the ingredients, primarily flour.

variable

If the fixed costs of manufacturing a new cell phone are $10,000, the sales price is $60, and variable cost per unit is $20, the break-even point is

250 units.

______ shows the relationship between income and demand.

A demand curve

Brands that have developed loyal customers have a higher price elasticity of demand.

False

Costs related to supply and costs related to demand are the two primary cost categories.

False

The demand curve for prestige products generally slopes downward due to higher prices.

False

The demand curve for prestige products generally slopes downward due to higher prices. Group starts

False

When a firm has a particular profit goal as its overriding concern, it will use target return pricing to meet the profit objective. Group starts

False

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

In U.S. markets, there are many substitute products for Lucky Charms cereal, suggesting the price elasticity of demand for Fruit Loops is high. Group starts

True

Price is the only part of the marketing mix that does not generate costs.

True

Pricing strategies should be aligned with a firm's overall goals and objectives.

True

Pricing strategies should be aligned with a firm's overall goals and objectives. Group starts

True

Rarely is the lowest-price product offering the dominant brand in a given market.

True

Rarely is the lowest-price product offering the dominant brand in a given market. Group starts

True

The key to successful pricing is to match the product with the consumer's perception of value.

True

When the price of milk goes up, demand does not fall significantly, because people still need to buy milk. However, if the price of T-bone steaks rises beyond a certain point, people will buy fewer of them because they can turn to the many substitutes for this cut of meat. This refers to price elasticity of demand.

True

When the price of milk goes up, demand does not fall significantly, because people still need to buy milk. However, if the price of T-bone steaks rises beyond a certain point, people will buy fewer of them because they can turn to the many substitutes for this cut of meat. This refers to price elasticity of demand. Group starts

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.

When CarMax promises a "no-haggle" pricing structure, it exhibits ________ because it provides additional value to potential used car buyers by making the process simple and easy.

a customer orientation

For which of the following is demand likely to be most sensitive to price increases?

a specific brand of soft drink

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.

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.

The point at which the number of units sold generates enough revenue to equal the total costs of running an operation is known as the

break-even point.

In many high-end resort markets, Westin hotels compete directly with Crown Plaza hotels. When it comes to pricing, Westin tends to charge its guests similar rates to what the Crown Plaza hotels charge. Westin is using a ________ pricing strategy.

competitive parity

percentage change in quantity demanded of Product A compared to the percentage change in price of Product B.

consumers make their purchase decisions based on perceived value.

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.

customers

The break-even point is estimated by

dividing fixed costs by contribution per unit.

The Curtain's Coffee company is located in a business district with few customers on the weekend. To attract customers on Saturday and Sundays, it reduces its prices on these two days. This is an example of

dynamic pricing.

The price elasticity of demand for a teeth-whitening kit is −1.5. The market for this product is considered

elastic.

A demand curve is built on the assumption that

everything but price and demand remains the same.

A study found that, among addicted smokers, a 10 percent increase in the price of cigarettes resulted in a 2 percent decrease in quantity demanded. For these consumers, cigarettes have a(n) ________ price elasticity demand.

inelastic

There is often only one provider of cable television services in each region of the country: Time Warner is in New York, Comcast is in most of New England, and so forth. When Comcast recently proposed a plan to buy Time Warner, the purchase ultimately could not be completed, mostly due to concerns that it would have caused Comcast to become an overly large ________ with too much power.

monopolist

everything but price and demand remains the same.

monopolist

If a firm is engaged in ________ competition, it should seek a way to differentiate itself.

monopolistic

In a market with ________ there are many firms providing differentiated products.

monopolistic competition

What type of competition occurs when there are many firms competing for customers in a given market, but their products are differentiated?

monopolistic competition

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.

For which of the following is demand likely to be least sensitive to price increases?

prescription drugs

In ________ many firms provide similar products that are considered substitutes for each other.

pure competition

What price competitive level would be indicated when the price is usually set according to the laws of supply and demand?

pure competition

Juliannna wants her firm's gourmet snacks to be the leading brand in the U.S. market. When adopting a pricing strategy designed to gain market share, she should remember that

rarely is the lowest-price offering the dominant brand in a market.Correct

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

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

Which of the following is most likely to be characterized by pure competition in the United States?

soybeans

When the price for Blu-ray players dropped, the demand for DVD players went down, so DVD players and Blu-ray players are

substitute products.

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

Unlike product, promotion, or place, price is the only part of the marketing mix

that generates revenue.

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

According to a typical demand curve, the higher the price,

the lower the quantity consumers will buy.

The more substitutes that exist in a market,

the more sensitive consumers will be to changes in the price of a particular product.