Chapter 12 mindtap

geographic

A business marketer may offer _______ pricing that involves reducing a product's price relative to the transportation costs or other costs associated with the physical distance between buyer and seller.

price, nonprice

A business must decide whether it will use_______ competition only or _______ competition before setting a price for its product.

$950; $912

A few months ago, a major B2B supplier raised prices of its products by 10 percent to compensate for changes in market conditions. One of its sales reps, Tamika was surprised when orders from her regular customers plummeted. Her normal order was $1,100. After the price increase, the average order dropped by 25 percent. Tamika became concerned that customers might look elsewhere. For this reason, she decided to start offering discounts. When one of her loyal customers, David, purchases $950 worth of product for his firm, the supplier gives David the terms "4/20 net 30." She wants to maintain her relationship with David and would ideally like to receive payment in less than a month. Refer to Scenario 12.5. How much would David have to pay if he pays in 25 days? In 19 days?

Cash

A few months ago, a major B2B supplier raised prices of its products by 10 percent to compensate for changes in market conditions. One of its sales reps, Tamika was surprised when orders from her regular customers plummeted. Her normal order was $1,100. After the price increase, the average order dropped by 25 percent. Tamika became concerned that customers might look elsewhere. For this reason, she decided to start offering discounts. When one of her loyal customers, David, purchases $950 worth of product for his firm, the supplier gives David the terms "4/20 net 30." She wants to maintain her relationship with David and would ideally like to receive payment in less than a month. Refer to Scenario 12.5. What type of discount is the supplier offering David?

2.5; elastic

A few months ago, a major B2B supplier raised prices of its products by 10 percent to compensate for changes in market conditions. One of its sales reps, Tamika, was surprised when orders from her regular customers plummeted. Her normal order was $1,100. After the price increase, the average order dropped by 25 percent. Tamika became concerned that customers might look elsewhere. For this reason, she decided to start offering discounts. When one of her loyal customers, David, purchases $950 worth of product for his firm, the supplier gives David the terms "4/20 net 30." She wants to maintain her relationship with David and would ideally like to receive payment in less than a month. Refer to Scenario 12.5. Consider how the average order amount changed when prices were raised $75. The elasticity of demand is _______. With this in mind, the product can best be described as _______.

Value

A recent consumer trend has led grocery stores to expand their offering of organic produce, grass-fed beef, free-range chicken, and other products that consumers view as highly desirable given their attributes related to the use of pesticides, ethical treatment of animals, and environmental impact of the products. Consumers are willing to pay more for products that possess these positive attributes. What pricing concept best characterizes consumers' willingness to pay higher prices for products that possess desirable features or characteristics?

A cash discount

ACE Corp. offers a price discount to encourage prompt payment. Which of the following is it likely to use?

A decrease in total revenue

ACE Corp.'s products have elastic demand. If ACE raises the price of products, what will be the result?

nonprice competition

Apple has long promoted the style, design, and quality of its products and has become very successful because many consumers consider these characteristics desirable. Apple can best be described as operating in an environment of _______.

market share objective

Artemis Inc. has a pricing objective to increase its primary product's sales relative to total industry sales. This is best described as a _______.

second

Assessing how customers in the target market evaluate price is the _______ stage in the pricing process.

differential

Blue Ribbon Farms is a family-owned farm and sells its seasonal produce, meat, eggs, and bakery items at several farmers' markets within a 60-mile radius of the farm. The owners utilize a Square payment system for credit cards, which is conveniently attached to a digital device such as an iPhone or iPad; however, the farm is charged a credit card fee of 8 percent of the retail price to process each credit card transaction. To encourage shoppers to pay with cash, Blue Ribbon Farms offers a 10 percent discount on purchases for consumers who pay by cash or check. Blue Ribbon Farms is utilizing a _______ pricing strategy.

Evaluation of competitors' prices

Camila is undergoing the eight-step process for establishing prices for a newly launched product. She has just finished assessing the target market's evaluation of possible prices. What is Camila's next step?

40

Chantel, a resident of Denver, Colorado, decided to open up her own fine jewelry store. To do so, she used her life savings and a loan from the bank. Chantel was able to open up a store with sufficient inventory. She markets the jewelry as the "finest jewelry in the West." The most popular item Chantel sells is a rose gold bracelet that sells for $550. During one month, Chantel's fixed costs are $6,000. Her variable costs average about $400. Refer to Scenario 12.1. How many rose gold bracelets would Chantel have to sell to break even?

inelastic

Chantel, a resident of Denver, Colorado, decided to open up her own fine jewelry store. To do so, she used her life savings and a loan from the bank. Chantel was able to open up a store with sufficient inventory. She markets the jewelry as the "finest jewelry in the West." The most popular item Chantel sells is a rose gold bracelet that sells for $550. During one month, Chantel's fixed costs are $6,000. Her variable costs average about $400. Refer to Scenario 12.1. When Chantel raised the price of her rose gold bracelets by $75 to cover unexpected expenses, she was surprised to see that demand appeared to increase. She was making more sales at a higher price. This means the rose gold bracelets are _______.

raw materials

Costs that change with the level of production, such as raw materials costs, are referred to as

fixed

Costs that don't change with the level of production, such as rent, are referred to as _______ costs.

a marginal cost

Custom Hot Rods specializes in restoring or creating custom vehicles and motorcycles for customers who appreciate one-of-a-kind vehicles. Custom Hot Rods typically produces two units each month. If it's able to produce one more unit each month, it will incur _______.

purchase situation

Daniel always has to purchase popcorn whenever he goes to the movies. Popcorn is typically marked up 1,275 percent. However, Daniel is willing to pay this price. For Daniel the _______ is influencing his view of price.

Customary

Danny has a dilemma. He works for a chocolate company and the price of chocolate is going up. The most logical solution would be to raise the price. However, Danny knows from his history in the business that their loyal customers would not look favorably on a price increase. For customers, candy bars are one of those items where the price rarely changes. Danny's firm has sold its candy bars for $0.99 for the past two decades. Danny feels that the next best solution to absorbing the extra costs is to make the candy bars slightly smaller without lowering the price. Danny's company is most likely using which of the following pricing strategies?

trade

Discounts that are used to attract and keep effective resellers by compensating them for performing certain functions such as transportation or warehousing are called _______ discounts.

Price skimming

Eduardo's company is about to release a new electronics product. The electronics product is estimated to have a short life cycle before it is replaced by an upgraded one. The company would like to recover the capital spent to produce the product. It therefore decides to charge the highest possible price for the product upon release. Eduardo's firm recognizes this might provide an advantage to competitors who may release the product at a lower price, but it believes customers will feel that the higher price signals higher quality. Refer to Scenario 12.3. What type of pricing strategy is Eduardo's company using for this product?

Negotiated pricing

Felipe goes to a Toyota dealership looking for a new car. He finds a Toyota Corolla he really likes. The time has come to meet with the salesperson. What type of pricing strategy is the salesperson likely to adopt with Felipe?

yield management

Firefly Space Shuttles is using a strategy of maximizing revenues by making numerous price changes in response to demand, competitors' prices, or environmental conditions. This is best described as _______.

market share

Forouzan works at a firm that wants to develop a new pricing strategy for one of its products. The company has decided that its main objective for this product is to increase the product's sales in relation to industry sales. Forouzan has obtained a list of prices that tell her how much similar products are being sold for. Forouzan is particularly interested in the industry's top competitor because it has so much market share. After determining the price of its major competitor, Forouzan decided to undercut their price by several dollars. She believes putting a sign in their stores that features her company's discounted price next to the price of their major competitor for the same product will show consumers that Forouzan's company offers them a much better deal. However, she knows that she has to be careful not to misrepresent the competitor's price in the process. Refer to Scenario 12.4. Forouzan's firm has adopted a _______ pricing objective.

Evaluating competitors' prices

Forouzan works at a firm that wants to develop a new pricing strategy for one of its products. The company has decided that its main objective for this product is to increase the product's sales in relation to industry sales. Forouzan has obtained a list of prices that tell her how much similar products are being sold for. Forouzan is particularly interested in the industry's top competitor because it has so much market share. After determining the price of its major competitor, Forouzan decided to undercut their price by several dollars. She believes putting a sign in their stores that features her company's discounted price next to the price of their major competitor for the same product will show consumers that Forouzan's company offers them a much better deal. However, she knows that she has to be careful not to misrepresent the competitor's price in the process. Refer to Scenario 12.4. When Forouzan is examining the list of prices, she is most likely in which of the following stages?

Comparison discounting

Forouzan works at a firm that wants to develop a new pricing strategy for one of its products. The company has decided that its main objective for this product is to increase the product's sales in relation to industry sales. Forouzan has obtained a list of prices that tell her how much similar products are being sold for. Forouzan is particularly interested in the industry's top competitor because it has so much market share. After determining the price of its major competitor, Forouzan decided to undercut their price by several dollars. She believes putting a sign in their stores that features her company's discounted price next to the price of their major competitor for the same product will show consumers that Forouzan's company offers them a much better deal. However, she knows that she has to be careful not to misrepresent the competitor's price in the process. Refer to Scenario 12.4. Which of the following pricing strategies is Forouzan planning to adopt?

Product quality

If Peloton seeks to lead the electronics industry in innovation, what type of pricing objective will it most likely adopt?

It should expect to sell more at higher prices, up to a point.

If a firm sells a prestige product, what kind of relationship between price and quantity demanded should it expect?

elastic

If a shift in price causes an opposite change in total revenue, then the product is _______.

To send a signal of high quality

In a competitive marketplace, why would a firm price its product slightly higher than those of its rivals?

Marginal cost will exceed marginal revenue.

Juan thinks he has reached the point where he has maximized his profit. However, because this can be tricky to determine, he is not sure. He decides to test it by selling one more unit. If Juan is correct in his assumption, what should happen when he sells this additional unit?

Dynamic pricing

LEGOLAND is implementing a new type of pricing. When demand increases and more customers visit the parks, the price will increase. When demand dips during the slow season, prices will decrease. This is a way to help balance out supply and demand. What is another name for the type of pricing that LEGOLAND is using?

Evaluating competitors' prices

Lexi operates a service business that engages in systematically collecting data on brands and prices at competitors' stores for her business customers. For which stage of the price establishment process would this service be most appropriate?

Cost-plus

Lin is attempting to price a piece of custom-made equipment for a gym. The production costs of the equipment are hard to assess. She decides it would just be easier to add a specified dollar amount to the total cost. What type of pricing is Lin using?

Determining the final price

Malcolm has decided that he wants to open up his own law practice. The time has come to establish prices for his services. Due to his extensive experience and legal background, he believes that his fees should not relate directly to the time or effort spent on specific cases. Now that Malcolm has chosen the pricing strategy he wants to use, what is his next step?

they know the prices charged for competing brands

Marketers improve their ability to establish prices appropriately when _______.

Assessing the target market's evaluation of price

Miguel is setting prices for new couches. The couch he is currently looking at is higher quality and expected to last longer than a traditional couch. Miguel expects to set the price of the couch high because he knows that consumers anticipate paying more for longer-lasting products. What stage of the pricing process is Miguel currently at?

quantity

Rental car companies purchase thousands of new cars each year for their fleets. Companies like Hertz and Enterprise Rent-A-Car are likely to receive _______ discounts when purchasing from automobile manufacturers.

Building rent

Rex is opening a retail outlet and will primarily sell used video games and game systems. Which of the following would most likely represent a fixed cost for Rex?

Price competition

Sherman's is a family-owned furniture and appliance retailer with four locations in central Illinois. The business is family-owned and is now run by the son of the founder. Sherman's frequently uses television advertising and social media to promote the business and recently began offering a price match guarantee. The company is encouraging customers to check competitor prices while shopping at Sherman's and will even offer customers the use of an iPad to check deals. Sherman's will meet or beat any advertised competitor's price on similar merchandise. What type of practice is Sherman's implementing through its price-match guarantee?

variable

Sweet Things is a bakery specializing in cupcakes, cookies, and pies. The owners purchase ingredients such as sugar, flour, spices, baking soda, chocolate, and butter as raw materials to create their sweet treats. These ingredients or raw materials would most likely be classified as _______ costs.

periodic discounting

The Black Friday sale is highly anticipated by shoppers and many online and brick-and-mortar retail stores offer extreme discounts on items ranging from laptop computers to televisions to attract consumers to their stores. Some consumers even arrive at the retail location several hours before the store opens to wait in line and be one of the first shoppers allowed in the store. The Black Friday sale is an example of a _______ pricing strategy.

19.8 percent

The PlayStation 5 retails for $499 at GameStop, and the cost to GameStop is $400. What is the markup as a percentage of the selling price?

marginal

The change in total revenue that would be received when one additional unit is sold is known as _______ revenue.

objectives, specific

The first stage in the pricing process is to set pricing ______ and the final stage is to determine the product's______ price

price elasticity of demand

The mathematical result of dividing the percentage change in quantity demanded by the percentage change in price is known as the _______.

fixed, fixed

To calculate the breakeven point, a firm divides______ costs by per-unit contribution to ______ costs

The importance customers place on a product, How much value customers expect from a product, What product quality customers expect

To more accurately gauge the target market's evaluation of price, firms should look at which of these? (Select three)

responding to rivals' price changes and keeping its costs low

To use price competition most effectively, an organization should focus on _______ and _______. (Select two)

Demand goes up as the price goes down.

What happens in a normal demand curve, where there is an inverse relationship between price and quantity?

It will make money on each unit sold after that point.

What happens when the firm achieves the breakeven point?

Development of pricing objectives

What is the first step in establishing prices?

Captive

What type of pricing involves a firm setting a low price for a basic product and a higher price for something needed to operate that product?

market share

When a company looks at its product's sales relative to total sales for that industry, it is calculating its _______.

Price skimming

When a company sets a high price for the introduction of a new product, it is using which type of pricing?

Secondary-market pricing

When a firm sets one price in its home market and a different, higher price in a higher-cost market far away, it is using which type of pricing?

origin, destination

When the buyer pays for delivery of a business product, the price as quoted as F.O.B. _____ but when the seller pays for delivery the price is quoted as F.O.B. ________

Encourages customers to try the new product Helps increase sales volume, which leads to production economies of scale

Which of the following are advantages of penetration pricing? (Select two)

Reference pricing Price lining

Which of the following are not examples of promotional pricing? (Select two)

transfer pricing, geographic pricing, and trade discounts

Which of the following are types of pricing used in business markets? (Select three)

Determination of a specific price

Which of the following is the final step in the process of establishing prices?

Target market elasticity

Which one of the following is not an element that a firm should consider when it determines a specific price for its product?

Dining room furniture

Which one of the following types of products is not subject to inelastic demand?

lower

With demand-based pricing, a company will typically set a _______ price during slow periods to boost demand.

Nonprice competition

_______ occurs when a marketer utilizes distinctive product features, service, product quality, promotion, packaging, or other factors to differentiate its products or services from their competitors.

cost plus

_______ pricing applies a specific dollar amount or percentage of the cost that is added to the seller's cost to establish the final price of a product or service. This type of pricing is frequently utilized in government and defense contracts.

Return on investment

_______ pricing objectives generally require some amount of trial and error since not all data and inputs are available when first setting prices.

markup

_______ pricing, which is typically used by retailers such as Best Buy, calculates the retail price by adding a predetermined percentage of the cost to the cost of the product.

multiple unit pricing

a firm sells tow or more identical products for a single price

type of product

buyers are less sensitive to items purchased occasionally, such as luggage

purchase situation

customers will pay more for popcorn bought in a movie theater

target market

different customers pay different prices for goods and services, such as meals

competition based pricing

it looks primarily at how rivals price their products

demand based pricing

it's a good way to avoid overcrowding during busy periods

Markup pricing

it's a quick and easy way to determine prices for a wide variety of products

cost plus pricing

it's helpful when a firm can't easily predict what its costs will be

bundle pricing

packaging two complementary products together for a single price

customary pricing

pricing items based on the basis of tradition

Everyday low prices

pricing products low consistently

odd number pricing

puts certain numbers at the end of a price

trade discount

the list price is reduced for intermediaries that perform a function like warehousing

seasonal discount

the price is reduced for buyers that make purchases during off peak periods

cash discount

the price is reduced for buyers that pay promptly

quantity discount

the price is reduced for customers who buy in large quantities

allowance

the price is reduced to achieve a desired goal

survival

to attract more sales by pricing low, even if this means temporary losses

profit

to earn a certain percentage of sales revenue or certain dollar amount

return on investment

to earn specific gain on money spent

status quo

to keep firm's situation the same

market share

to keep or build the firm's product sales relative to overall industry sales

cash flow

to quickly recover capital spent

product quality

to signal goods are made wll

elastic demand

total revenue moves in the opposite direction to the shift in price total revenue increase with a decrease in price

inelastic demand

total revenue moves in the same direction as the shift in price total revenue decreases with a decrease in price

inelastic demand

when consumer demand is insensitive to price changes

elastic demand

when consumer demand is sensitive to price changes.