Marketing 3013: Chapter 11

Sosoft Company has increased the price of its hand soap, but sells it in a smaller bottle. This is an example of _________.

shrinkflation

If the cost to produce a widget is $10 and the firm sells the widget for $15, the firm's profit margin will be __________ dollars.

five (5)

Calculating the total cost of a product begins with an understanding of the two major types of costs: ________ and ________.

fixed; variable

Fill in the blanks to complete the sentence. A firm that takes branded products and sells them through legal, but unauthorized, distribution channels is participating in the ________ market.

gray

Last month, Janelle's firm sold 120 GPS units at a price of $99.95 each. She incurred $1200 in fixed costs and $280 in variable costs. Janelle's revenue for the month was ________.

120 x 99.95 = $11,994

The Wheeler-Lea Act of 1938 is also known as the ________ Act.

Advertising

________ is the result of the price charged to customers multiplied by the number of units sold.

Revenue

_______ prices are the prices that consumers consider reasonable and fair for a product. a. Break-even b. Comparison c. Marginal d. Reference e. Market

d. Reference

Price is the amount of something that a buyer exchanges with a seller to obtain a product. This exchange can be in the form of _______. (Check all that apply.) a. goodwill b. effort c. time d. money

b. effort c. time d. money

For countries involved in a trade agreement, such as the United States, Canada, and Mexico, transactions between these countries are easier if _______. a. the countries take part in the black market b. there is an absence of tariffs between the countries c. the countries decide to use tariffs d. the countries take part in the gray market e. the countries implement trade embargoes

b. there is an absence of tariffs between the countries

Whereas odd pricing often ends in "9," even pricing often ends in _______. a. two b. zero c. four d. six

b. zero

According to your text, one of the most common mistakes made when pricing products is to _______. a. price products based on the marginal cost of of the items b. price an item based on a competitor's price c. charge someone less than they are willing to pay d. set the price too high on an introductory product e. fail to incorporate fixed and variable costs into a product's price

c. charge someone less than they are willing to pay

The name-your-own-price strategy is best compared to a(n) _______. a. craft show b. garage sale c. trade show d. auction

d. auction

A Broadway theater production that tries to fill empty seats by lowering the price as the day of the production draws closer is using _______. a. demand discounting b. price skimming c. odd pricing d. dynamic pricing e. market pricing

d. dynamic pricing

In April, a company priced its product at $59.95 and sold 10,000 units. In May, it priced the same product at $52.95 and sold 15,000 units, indicating that demand for the product is _______. a. unstable b. unpredictable c. inelastic d. elastic e. stable

d. elastic

Manufacturers of luxury products often use (odd/even) pricing.

even

Tony sells hot dogs from a cart for $2.50 each. In the summer months, he typically sells 200 hot dogs a day. Tony thinks if he reduces the price to $2 he will increase sales significantly. However, when he reduced the price, he only sold about 15 more hot dogs per day. This represents demand that is ________.

inelastic

As an element of evaluating demand for a product, ________ ________can be defined as the change in total cost that results from producing one additional unit of product.

marginal cost

The amount a product sells for above the total cost of the product itself is its __________ _________.

profit margin

McDonald's prices its Extra Value Meals at $4.99. McDonald's is most likely using a(n) ________ pricing tactic in this instance.

odd

_________ pricing is a strategy in which a firm prices a product a few cents below the next dollar amount.

odd

________ ________ could be considered an attempt to create a monopoly and is, therefore, illegal under U.S. law.

predatory pricing

The money, time, or effort that a buyer exchanges with a seller to obtain a product is referred to as ________.

price

While shopping for cable television services, Brett found that if he ordered the package that included basic cable, HBO, Showtime, Redzone, and the MLB Network he could get a better price than if he just ordered basic cable alone. This strategy of packaging products together and selling them at a single price is called ________ ________.

price bundling

The degree to which the price of a product affects consumers' purchasing behavior is referred to as _______ ________.

price senesitivity

According to traditional economic theory, setting price is as simple as finding the point at which marginal ________ equals marginal ________.

revenue; cost

There are ________ steps in the price-setting process

six (6)

The break-even point is calculated by dividing total fixed costs by the ________ ________ ________.

unit contribution margin

________ costs are costs that can change depending on the number of units produced or sold.

variable

Dynamic pricing helps marketers emphasize ________ _________,which is a strategy for maximizing revenue even when a firm has only a fixed amount of goods or services.

yield management

True or false: The Robinson-Patman Act established the Federal Trade Commission in order to enforce laws aimed at prohibiting unfair methods of competition.

False *Reason: The Federal Trade Commission was created as part of the Federal Trade Commission Act of 1914.

True or false: Survival pricing is applicable for use as a permanent pricing strategy.

False *Reason: Survival pricing should be used on a temporary basis to allow a firm to endure a difficult time as a means of staying in business.

In addition to technological and economic factors, which of the following are unique challenges related to global pricing for firms seeking to increase their revenue and profits? (Check all that apply.) a. Dumping b. Price discrimination c. Tariffs d. The gray market e. Federal Trade Commission Act

a. Dumping c. Tariffs d. The gray market

Select the instances in which a consumer would most likely be price sensitive. (Check all that apply.) a. Josyln was surprised to see the price of the prom dress she wanted was much higher than she thought it would be. b. Jeb is looking for an apartment to rent. Along with what he can spend, his parents have agreed to give him $200 a month towards his rent payment. c. Beth has to buy some new gloves and a hat for an upcoming skiing trip. d. Quentin can only afford to spend a certain amount on a new car. e. Mitch thought the package price that was being asked for his new cell phone and data plan was totally unreasonable.

a. Josyln was surprised to see the price of the prom dress she wanted was much higher than she thought it would be. d. Quentin can only afford to spend a certain amount on a new car. e. Mitch thought the package price that was being asked for his new cell phone and data plan was totally unreasonable.

Which of the following are ethical issues marketers may face as they seek to set prices for their products? (Check all that apply.) a. Predatory pricing b. Markup pricing c. Price discrimination d. Odd pricing e. Price fixing

a. Predatory pricing c. Price discrimination e. Price fixing

Which element of the marketing mix is directly related to the value a product delivers to consumers, as well as the value it captures for the firm in terms of revenue and profits? a. Price b. Promotion c. Place d. Product

a. Price

Which of the following are common pricing objectives a firm would seek to utilize? (Check all that apply.) a. Profit maximization b. Volume maximization c. Predatory pricing d. Survival pricing e. Revenue generation

a. Profit maximization b. Volume maximization d. Survival pricing

According to your text, which of the following are considered variable costs for a firm? (Check all that apply.) a. Raw material b. Delivery costs c. Employee salaries d. Advertising costs e. Sales commissions

a. Raw material b. Delivery costs e. Sales commissions

_______ are price reductions given to customers purchasing goods or services out of season. a. Seasonal discounts b. Underprices c. Price bundles d. Cost pricing e. Calendar discounts

a. Seasonal discounts

What considerations should marketers take into account when determining which pricing tactic to use? (Check all that apply.) a. The value customers perceive the product to have b. The customers' ability to pay c. How customers' intend to use the product d. How many competitors are offering similar products

a. The value customers perceive the product to have b. The customers' ability to pay c. How customers' intend to use the product

Your text indicates that there are two factors that influence price that are often overlooked. What are they? (Check all that apply.) a. Underpricing b. Unbundling c. Reference prices d. Escalator clauses e. Marginal revenue f. Marginal cost

a. Underpricing c. Reference prices

When a firm is trying to determine what sales volume is needed to achieve a profit of zero, it is engaged in _______. a. break-even analysis b. marginal cost analysis c. marginal revenue analysis d. volume maximization e. profit maximization

a. break-even analysis

A retailer inflated the price of its dining room sets so that when it put them on sale, it appeared to customers that they were getting a better deal than they really were. In doing so, the retailer was engaged in _______. a. deceptive pricing b. price discrimination c. odd pricing d. predatory pricing e. price fixing

a. deceptive pricing

The biggest advantage of markup pricing is that it is ________. a. easy b. implied c. monitored d. contained

a. easy

Firms that want to promote an image of _______ to customers would most likely pursue a strategy of prestige pricing. a. exclusivity b. durability c. fairness d. value-consciousness e. being budget friendly

a. exclusivity

A pricing tactic that involves selling a product at a price that causes the firm a financial loss is called _______. a. loss-leader pricing b. odd pricing c. seasonal discounting d. prestige pricing e. even pricing

a. loss-leader pricing

Similar to a firm's marketing objectives, its pricing objectives should be _______. (check all that apply.) a. measurable b. broad c. specific d. general e. wide-ranging

a. measurable c. specific

Because it reflects the value a product delivers to consumers, as well as the value it captures for the firm, decisions involving _______ are considered one of the most important strategic decisions a firm faces. a. price b. promotion c. advertising d. delivery e. place

a. price

If you were willing to pay $10 for a product, but the firm only charges you $8, the firm will most likely see a reduction in _______. a. profit b. sales c. demand d. costs

a. profit

A profit maximization strategy is designed to maximize _______. a. profits on each unit sold b. production and related costs c. the volume of product sold d. advertising expenditures e. revenue to just cover costs

a. profits on each unit sold

According to recent research, approximately what percentage of consumers search for and purchase a low-priced product using an in-store shopping app or online search engine? a. 75% b. 40% c. 5% d. 20% e. 90%

b. 40%

Which of the following price discrimination scenarios are legal under the Robinson-Patman Act? (Check all that apply.) a. Allowing a significant price reduction on an artificially high retail price b. Charging different prices as a result of a going-out-of-business sale c. Promising to match competitor's prices if the consumer produces proof of the lower price d. Charging different prices if it is part of a quantity discount program

b. Charging different prices as a result of a going-out-of-business sale c. Promising to match competitor's prices if the consumer produces proof of the lower price d. Charging different prices if it is part of a quantity discount program

In the second quarter of the year, the motorcycle dealer sold 50 bikes at $15,000 each. For the third quarter, the dealer reduced the price to $13,750 and sold 53 units. Which of the following statements is accurate regarding this situation? a. Demand is elastic and total revenue fell in the third quarter. b. Demand is inelastic and total revenue fell in the third quarter. c. Demand is inelastic and revenue rose in the third quarter. d. Demand is neither elastic nor inelastic, but revenue rose in the third quarter. e. Demand is elastic and total revenue rose in the third quarter.

b. Demand is inelastic and total revenue fell in the third quarter. *Reason: The price change only yielded a small increase (only 3 more bikes) of bikes sold indicating that the demand is inelastic. Elastic demand produces a large change in quantity demanded for a given change in price.

Which of the following statements regarding the "gray market" are true? (Check all that apply.) a. The gray market is the practice of illegally buying and selling products outside of sanctioned channels. b. Gray market goods cut into a firm's revenue and profits. c. The increasingly interconnected nature of world economies makes gray market exchanges difficult, if not impossible. d. Gray market buying and selling often occurs when the price of an item is significantly higher in one country than another. e. Gray market goods allow consumers to obtain legally produced items for less than they could normally.

b. Gray market goods cut into a firm's revenue and profits. d. Gray market buying and selling often occurs when the price of an item is significantly higher in one country than another. e. Gray market goods allow consumers to obtain legally produced items for less than they could normally.

What factors have made global pricing more transparent and, in many cases, more competitive in recent times? (Check all that apply.) a. Government regulations b. Growing Internet access c. Advertising campaigns d. Global trade agreements e. Technological advancements

b. Growing Internet access e. Technological advancements

Websites like eBay and priceline.com are types of _______. a. predatory pricing sites b. NYOP auctions c. escalator sites d. loss-leader auctions e. dumping sites

b. NYOP auctions

What takes place in an unbundling strategy? a. Changing production processes so that each component is manufactured separately b. Separating out the individual goods that make up a product and pricing each one separately c. Pricing products a few cents below the next dollar amount d. Adding a certain amount to the cost of each item in a product set e. Taking related product lines that were marketed as one and creating separate promotional campaigns for each

b. Separating out the individual goods that make up a product and pricing each one separately

Which of the following factors affect price sensitivity? (Check all that apply.) a. Promotional costs b. Size of the expenditure c. Price-quality perceptions d. Delivery and storage costs e. Perceived risk

b. Size of the expenditure c. Price-quality perceptions e. Perceived risk

Penetration pricing is another name for which pricing objective? a. Survival pricing b. Volume maximization c. Price skimming d. Profit maximization e. Target pricing

b. Volume maximization

Which of the following broadened the FTC's powers to include protecting consumers from false advertising? a. Sherman Antitrust Act b. Wheeler-Lea Act c. Federal Trade Commission Act d. Robinson-Patman Act

b. Wheeler-Lea Act

As a pricing tactic, a marketer decides to add 10% to the price of the product to arrive at the final selling price. This is an example of _______ pricing. a. prestige b. cost-plus c. odd d. profit e. survival

b. cost-plus

In the price-setting process, after demand has been evaluated, the next step is to _______. a. introduce production b. determine the costs c. define the pricing objectives d. analyze the competition e. evaluate the supply

b. determine the costs

What are the two most common and effective strategies for raising prices? a. volume maximization b. unbundling c. escalator clauses d. dumping e. price fixing

b. unbundling c. escalator clauses

Once a firm has estimated fixed and variable costs, it can incorporate them into a(n) ________-________ analysis to determine how much it would need to sell to make the product profitable.

break-even

What type of agreement protects providers of goods and services should they encounter unreasonable financial hardship as a result of uncontrollable increases in the costs required to deliver products to consumers? a. A hardship waiver b. A unity clause c. An escalator clause d. A demand clause e. An oversight clause

c. An escalator clause

According to your text, what has been the outcome for marketers pricing products now that consumers have access to mobile applications while shopping? a. It has reduced the need for extensive advertising on products which lowers the product's price. b. Pricing has become easier because stores can now just "price match" any product in order to sell it. c. Marketers must aggressively review the prices of online stores when setting the initial price of an item. d. The price of products has increased due to the fact that staff must be employed to create and monitor mobile apps.

c. Marketers must aggressively review the prices of online stores when setting the initial price of an item.

_______ is common in B2B settings in which different customers might be charged different rates due to the quantities they buy or the differing terms of a negotiated contract. a. Deceptive pricing b. Predatory pricing c. Price discrimination d. Markup pricing e. Price fixing

c. Price discrimination

What is the process of items shrinking in size or quantity while their price remains the same or increase? a. Deflation b. Shrinkage c. Shrinkflation d. Stabilization

c. Shrinkflation

The Federal Trade Commission Act established the agency that was given the authority to enforce laws aimed at prohibiting unfair methods of competition. What is the name of this agency? a. The National Labor Relations Board b. The Federal Communications Commission c. The Federal Trade Commission d. The Consumer Protection Agency

c. The Federal Trade Commission

Which of the following exemplifies the fact that technology has shifted the balance of power from companies to consumers? a. Bar code scanners used at the point-of-sale give companies information that allow them to better market their products. b. The Internet allows companies to research what their competitors are doing. c. The Internet has made it possible for customers to comparison shop for products from companies all over the world. d. Automated production systems lead to more efficient and cost-effective manufacturing. e. Social networking sites allow companies to advertise their products in ways never thought possible.

c. The Internet has made it possible for customers to comparison shop for products from companies all over the world.

What is being measured by the price elasticity of demand? Multiple choice question. a. The percentage change in total cost that results from producing one additional unit of product b. The point at which the costs needed to produce a product outweigh the demand for the product c. The percentage change in quantity demanded in response to a percentage change in price d. The degree to which the price of a product affects consumers' purchasing behavior e. The cash outlay given to obtain a product in comparison to the cost to make that product

c. The percentage change in quantity demanded in response to a percentage change in price

As a tactic, predatory pricing is aimed mainly at _______. a. overseas markets b. consumers c. competitors d. service industries

c. competitors

The central focus of determining what pricing tactic to use should be the _______. a. available budget b. competition c. customer d. marketing staff e. sales staff

c. customer

In an industry in which a small number of firms compete, firms will typically _______. a. price the product significantly higher than competitors b. price the product significantly lower than competitors c. match the price of competitors d. price the product slightly lower than competitors

c. match the price of competitors

The two major electronic dealers in town conspired together to set the price of new high definition televisions. In doing so, they are engaging in _______. a. price discrimination b. predatory pricing c. price fixing d. price inflation e. deceptive pricing

c. price fixing

The removal of tariffs due to international agreements has caused countries to enact anti-________ laws to protect their local industries.

dumping

Fred's Fish House has been hit especially hard by the economic recession. Realizing that people are struggling to afford dining out, Fred has decided to implement a(n) _______ pricing strategy where he will lower the cost of the menu items to the point where his revenue will just cover his costs, allowing him to survive until the economy picks back up again. a. price skimming b. endurance c. survival d. marginal e. penetration

c. survival

Technology has helped to shift the balance of power from ________ to ________.

companies; customers

If you wanted to determine the profit of your sales on $6,000 worth of goods, you would subtract your total _________ from the $6,000.

costs or expenses

Compare the following statements and select the one that is accurate regarding a volume maximization strategy. a. Volume maximization assumes customers value a product's differentiating attributes and are will to pay more to get them. b. A volume maximization strategy is best used when a product is in its introductory stage. c. Volume maximization is designed to maximize cash flow over the short term. d. A volume maximization strategy sets prices low to encourage a greater volume of purchases. e. Volume maximization should not be used as a permanent strategy, but is effective in allowing a firm to endure a difficult time.

d. A volume maximization strategy sets prices low to encourage a greater volume of purchases.

How should pricing strategies be addressed during the product life cycle? a. If a product is priced correctly, it should not be affected by changes in the product life cycle. b. Choosing a price is a one-time decision that is made for each individual product. c. Once a pricing strategy is determined, it should remain in place throughout the product life cycle. d. Pricing strategies evolve and should be reevaluated throughout the product life cycle.

d. Pricing strategies evolve and should be reevaluated throughout the product life cycle.

In a market structure in which there are a large number of buyers and sellers, the pricing impact of any single firm will be _______. a. nonexistent b. substantially large c. moderate d. fairly small e. somewhat large

d. fairly small

Drake's company has just come out with a new product. When the firm launches the product, it intends to set the price relatively high for awhile and then decrease the price to a more sustainable level for the long term. This is an example of a _______ pricing objective. a. survival b. volume maximization c. customer-driven d. profit maximization e. predatory

d. profit maximization

A strategy in which a company sells its exports to another country at a lower price than it sells the same product in its domestic market is referred to as ________.

dumping

Lucy is the owner of a full-service pet grooming salon. For the month of May, she will pay $1,500 in rent, $3,200 in salaries, and $100 on advertising. A full-service pet grooming costs $30.00. Unit variable costs per grooming are $7.50. Approximately how many full-service pet groomings does Lucy need to perform to break-even for the month? a. 71 b. 157 c. 160 d. 199 e. 213

e. 213 *Reason: Fixed costs = 4,800 (rent, salaries, and advertising); Unit contribution margin = 22.50($30-7.50); Break-even point = 4,800/22.5= 213

Which pricing tactic has grown explosively due to improving and readily available technological tools that facilitate the ease with which prices can be updated to reflect changes in supply, demand, or market conditions? a. Market pricing b. Flexible pricing c. Predatory pricing d. Penetration pricing e. Dynamic pricing

e. Dynamic pricing

What is the biggest disadvantage to using markup pricing? a. It is too simplistic for most applications. b. It is a hard strategy to implement. c. It cannot be used on every type of product. d. Its use is only good in the introductory stage of the product life cycle. e. It is not effective at maximizing profits.

e. It is not effective at maximizing profits.

When it comes to setting prices, which of the following stakeholders would be most interested in setting prices high across all product lines in order to increase profits for the firm? a. Salespeople and employees b. Customers c. Competitors d. Suppliers e. Marketing executives

e. Marketing executives

What pricing tactic involves adding a certain amount to the cost of a product to set the final selling price? a. Profit margin pricing b. Price bundling c. Prestige pricing d. Odd pricing e. Markup pricing

e. Markup pricing

What is the final stage of the price-setting process? a. Implement the pricing strategy b. Analyze and respond to the competitive price environment c. Redefine the pricing objectives d. Reevaluate supply and demand e. Monitor and evaluate the effectiveness of the price

e. Monitor and evaluate the effectiveness of the price

When identifying reference prices, which of the following would provide marketers with the best information regarding the price sensitivity of customers? a. Historical pricing data b. Social media experts c. Human resource department d. Sales forecasts e. The sales staff

e. The sales staff

Used as a measure of price sensitivity, _______ gives the percentage change in quantity demanded in response to a percentage change in price. a. marginal revenue b. the break-even point c. return-on-investment d. volume sensitivity e. price elasticity of demand

e. price elasticity of demand

As a landlord, Jason wants to protect himself in the event that taxes on his apartment complex increase. To do so, he most likely will add a(n) ________ clause to his rental agreements.

escalator