mark 14

Raymond estimates that the fixed costs associated with opening a new bank branch are $500,000. He expects the branch to attract 1,000 new customer accounts in the first year, each of which will cost $50 per year to service. He also expects to generate $100,000 per year in revenue. For Raymond, the total cost of opening the new branch and remaining open for one year will be

$550,000. Total costs = Fixed costs + Variable costs, or $500,000 + (1,000 × $50) = $550,000. Revenues are not a factor when calculating total costs.

Jacob 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 Jacob, the contribution per unit is

$80. Contribution per unit = Price - Variable cost per unit = $100 - $20 = $80. His fixed costs and profit are not needed for this calculation.

Jason rents rooms in his hotel for an average of $100 per night. The variable cost per rented room is $20. His fixed costs are $100,000 and his target profit is $20,000. For Jason to earn his target profit, he will need to rent out ________ rooms.

1,500 Break-even point (units) = (Fixed costs + Target profit) ÷ Contribution per unit = ($100,000 + $20,000) ÷ ($100 - $20) = $120,000 ÷ $80 = 1,500.

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. Contribution per unit is $60 - $20 = $40. Then we divide the fixed costs by the contribution per unit. $10,000 ÷ $40 = 250 units.

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

Complementary

What situation is occurring if a 1 percent decrease in price results in more than a 1 percent increase in quantity demand?

Demand is price elastic.

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

What is one of the drawbacks of using a price skimming strategy?

Firms must consider the high costs associated with producing a small volume of product.

__________ price fixing occurs when competitors collude to control prices, and __________ price fixing occurs within a marketing channel to control prices passed on to consumers.

Horizontal; vertical

What makes a high/low pricing strategy appealing to sellers?

It attracts two distinct market segments.

__________ pricing tactics lower the price of a product below the store's cost.

Loss leader

According to your text, research has consistently shown that consumers usually rank which of the four Ps as one of the most important factors in their purchase decisions?

Price

_______ measures consumers' sensitivity to price changes.

Price elasticity of demand

__________ is the practice of colluding with other firms to control prices.

Price fixing

_______ occurs when members of the marketing channel collude to control the prices passed on to consumers.

Vertical price fixing

Customers must see value in a product or service before they are willing to exchange time or money to obtain it, but not all customers see the same value in a product. To analyze how many units will be sold at any given price point, marketers draw on

a demand curve.

The saying "leaving money on the table" is associated with

a market penetration strategy when there is an opportunity for price skimming.

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

a specific brand of soft drink

Frank's Heating and Air Conditioning Company specializes in electric heat pumps. Frank 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.

Bill desperately needed tires for his car, and he found an ad with an incredibly low price. When he got there, he found out that those had supposedly been sold out, and he was pressured into buying tires that were more expensive than he wanted. Bill found out later that Marcelo had the same experience at the store a few weeks earlier. It's quite possible that both Bill and Marcelo had become the victim of a deceptive pricing tactic known as

bait and switch.

In developing marketing strategies, why is price often the most challenging of the four Ps to manage?

because it is the least understood element of the marketing mix

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.

Variable costs change with

changes in the quantity being produced.

Which of the following is not one of the five Cs of pricing?

collaboration

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

When firms set prices similar to those of competitors, they are following a strategy of

competitive parity.

When Ursula decides how to price new products in her gift store, she measures the value of her product offerings against those of the other stores in her area. Ursula uses a _______ pricing strategy.

competitor-oriented

Diane owns a bakery where she sells cupcakes. Two blocks down there is another bakery, CC's Bakery, that sells cupcakes for $1 less than Diane. Diane decides to lower her price and match CC's Bakery prices. What type of pricing strategy is Diane implementing?

competitor-oriented pricing

Bill is a yacht broker in the southeastern United States. For years he has had difficulty selling large yachts locally because there were few places to dock these boats. Yachts and spaces to dock them are an example of

complementary products.

In general, prices should not be based on costs because

consumers make their purchase decisions based on perceived value.

When a firm sets its pricing strategy based on how it can add value to its products or services it has embraced a(n) _______ orientation to pricing.

customer

A "no-haggle" pricing policy is a type of _____ pricing strategy.

customer-oriented

Julia'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. Julia's is using a _______ pricing strategy.

customer-oriented

If the price for a product increases, the demand for the complementary product will

decrease

Managers of Wendy's fast-food restaurants keep track of prices at competitors such as McDonald's, Burger King, and Arby's, knowing that a decrease in the prices at these other fast-food restaurants will

decrease demand for Wendy's products.

The break-even point is estimated by

dividing fixed costs by contribution per unit.

The process of charging different prices for goods or services based on the type of customer, level of demand, or time of the day, week, or season is referred to as

dynamic pricing.

When it comes to measuring consumers' price sensitivity, products are viewed as either

elastic or inelastic.

Break-even analysis is useful because it allows managers to

estimate the quantity they will need to sell at a given price to break even.

A demand curve is built on the assumption that

everything but price and demand remains the same.

The __________ occurs when unit cost drops as the quantity sold increases.

experience curve effect

A(n) _______ market legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer.

gray

Reese and Janelle own a boutique in the United States. Recently they took a trip to China and while there, the couple purchased a large quantity of name-brand handbags for a cost significantly lower than what the manufacturer charges for the same product in the United States. Upon their return, the couple sold the handbags in their store for less than any other store in the area. This is an example of what takes place in a(n) _______ market.

gray

Dan is especially price sensitive. He has been known to line up on "Black Friday" (the day after Thanksgiving) at 4 a.m. to be among the first to buy sale items. Dan would likely respond to a(n) _______ pricing strategy.

high/low

In a(n) _______ pricing strategy, marketers rely on the promotion of sales, during which prices are temporarily reduced to encourage purchases.

high/low

Which of the following is the most logical example of complementary products?

hot dogs and hot dog buns

Dynamic pricing is also referred to as _______ pricing.

individualized

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

A strategy of setting prices based on how customers develop their perceptions of value can often be the most effective pricing strategy, especially if the strategy

is supported by consistent advertising and distribution strategies.

The observation that consumers are generally more sensitive to price increases than to price decreases suggests that

it is easier to lose customers with a price increase than to gain customers with a price decrease.

With a __________ pricing strategy, marketers set a low initial price for the introduction of a new product or service.

market penetration

It is the responsibility of __________ to determine the ethical approach to setting prices so consumers find value and the firm can make a profit.

marketers themselves

A _______ strategy involves accurately measuring all the factors needed to predict sales and profits at various price levels, so that the price level that produces the highest return can be chosen.

maximizing profits

If a firm in a purely competitive market can differentiate its product or service, it becomes part of a(n) _______ market.

monopolistic competition

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

monopolistic competition

Pricing _______ products is especially challenging because little or nothing is known about consumers' perceptions of its value.

new-to-the-world

For a price skimming strategy to work, the product or service must

offer consumers some new benefit currently unavailable in alternative products.

The commercial airline industry is considered what type of market?

oligopolistic competition

Price is the _____________ a consumer is willing to make to acquire a specific product or service.

overall sacrifice

Cross-price elasticity is the

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

If a telecommunications company drastically cuts the price for cellular phone service in order to eliminate local competitors, the company could be charged with

predatory pricing.

Sharon 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. Sharon was considering

premium pricing.

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

prescription drugs

There is an old saying "If you have to ask the price of a yacht, you cannot afford it." Products like yachts are most likely to be associated with

prestige pricing.

A demand curve shows the relationship between _______ in a period of time.

price and demand

The Clayton Act and the Robinson-Patman Act forbid certain types of

price discrimination.

The _______ is the ratio of the percentage change in quantity demanded to the percentage change in price.

price elasticity of demand

Barry customizes Harley-Davidson motorcycles. No two cycles are alike. He notices that very few customers even ask the price of his motorcycles before they decide to purchase them. Demand for his motorcycles is probably

price inelastic.

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.

The contribution per unit is

price minus variable cost per unit.

When Apple Computer Company introduced the iPhone—a combination phone, MP3 player, and Internet access device—in 2007, it was priced at $499, considerably higher than either the iPod or competing cell phones. Hoping to attract innovators and early adopters, Apple was most likely pursuing a __________ pricing strategy.

price skimming

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

price wars may occur.

At the break-even point,

profits are zero.

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

pure competition

The major objectives associated with a market penetration pricing strategy are to

quickly build sales and market share.

Historically, prices were

rarely changed except in response to radical shifts in market conditions.

Julia 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.

Brad always buys and uses Nike brand golf balls. If he finds a Titleist or Callaway ball in the rough, he gives it away. Brand-loyal golfers like Brad allow Nike to charge a higher price and not lose many sales. By building a strong brand, Nike has effectively

reduced the price elasticity of demand for its products.

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

reducing the price elasticity of demand.

Everyday low pricing (EDLP) provides value to consumers by

reducing their search costs.

David manages a Shoney's restaurant. He is considering staying open later in the evening. For David, the variable costs associated with staying open longer hours will include all of the following except

rent on the restaurant building.

Gary 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

Bernard's firm has set corporate direction to become one of the leaders in each of its significant market segments. It was Bernard'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 Bernard's effort?

sales-oriented

Charging a relatively high price for new and innovative products to those consumers most willing and able to pay the high price is called price

skimming.

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

smartphone service providers

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

soybeans

Ryan gave the manager of his convenience store a set of binoculars so she could see the gasoline prices charged by the other convenience store at that intersection. Ryan told the manager to always match the gasoline prices of the other store. Ryan is using a _______ pricing strategy.

status quo

Naomi tells her sales representatives the goal is to generate at least a 20 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.

Rodi owns Hallman's 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. Rodi has observed the impact of _______ on demand for his service.

the income effect

Sales of national brands of orange juice tend to increase when the economy is doing well, while sales of generic orange juice increase when the economy is not doing well. This is an example of how _______ impacts demand for products.

the income effect

Natalie operates on a pretty tight budget. She is a price-conscious shopper and usually buys store or generic brands to save money. Recently, however, Natalie was given a pretty substantial raise. As such, she has altered her shopping patterns and now regularly buys more expensive name-brand goods. This is an example of

the income effect.

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

the lower the quantity consumers will buy.

Because there are many firms in monopolistic competition markets,

the many competitors will focus on product differentiation.

The more substitutes that exist in a market,

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

A reference price is

the price against which buyers compare the actual selling price.

The full price of a product or service includes all of the following except

the price of alternative products and services.

A reference price might be considered deceptive if

the reference price has been inflated or is fictitious.

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

Gray markets can be a challenge to marketers because

they may tarnish the manufacturer's image.

A customer orientation toward pricing implicitly invokes the concept of

value

Labor, materials, and energy are typically __________ costs.

variable