MKTG 351 Chapter 20 Test Bank

Glenwood is considering a markup pricing basis, with the cost for office visit plus vaccines at $45. If Glenwood were to add a markup of 33.3 percent of the costs, its price would be

$60

A retailer of Real Dry deodorant prices it at $2.00; it costs the retailer $1.40. What is the markup as a percentage of selling price?

30 percent

J.C. Penney's pays $16.50 for a six-ounce bottle of cologne and sells it for $25.95. Its markup as a percentage of cost is approximately ___________ percent for this product.

57

Which of the following pricing objectives sets prices to recover cash as quickly as possible?

Cash flow

The manager at Best Buy puts a sign up next to a Pioneer audio system that reads, "Only $199.99! $60 less than Circuit City." This is an example of what type of pricing strategy?

Comparison discounting

If PepsiCo sets its twelve-pack price at $3.99 to match the price charged by Coca-Cola, Pepsi is using which of the following pricing methods?

Competition-based

For custom-made equipment or commercial construction projects, which pricing method is most likely used?

Cost-plus

Steinway produces concert grand pianos, often using the custom materials and designs desired by a specific customer. The average price of these pianos runs about $50,000 depending on the exact piano. What type of pricing does Steinway most likely use for these pianos?

Cost-plus

A company wanting to maximize profits from its new product would use product-line pricing.

FALSE

A marketer uses only one pricing objective to avoid organizational confusion.

FALSE

A psychological price is designed to encourage purchases on the basis of rational response rather than on the basis of emotional reactions.

FALSE

Cost-based pricing results in a high price when demand is high and a low price when demand is low.

FALSE

Demand-based pricing strategies are easy to use.

FALSE

Differential pricing is effective mainly when focusing on only one market segment.

FALSE

Grocery stores use negotiated pricing strategies.

FALSE

It is usually easy to obtain an accurate price list for a competitor's products.

FALSE

Marketers that evaluate competitors' prices do so to set their own prices slightly below those of competitors.

FALSE

Markup pricing is not used often by marketers because establishing a percentage markup greatly increases the complexity of the decision-making process.

FALSE

Penetration pricing is one new-product pricing approach that provides the most flexible introductory price.

FALSE

Price skimming is designed to yield maximum unit sales volume.

FALSE

Random discounting means discounting various products on a systematic basis.

FALSE

The effectiveness of demand-based pricing often depends on a marketer's ability to determine all the costs associated with the product.

FALSE

The government frequently uses competition-based pricing in granting defense contracts.

FALSE

The objective of maintaining or increasing market share depends on growth in industry sales.

FALSE

The price of a hotel room is more important to a business traveler than to a tourist.

FALSE

The role played by attitudes toward price in the overall evaluation of the marketing mix is a minor concern in identifying the target market.

FALSE

The six stages of setting prices should always be followed if prices are to be set correctly.

FALSE

The use of market share as a pricing objective oversimplifies the value of price in contributing to profits.

FALSE

The use of price skimming discourages competitors from entering a market.

FALSE

Two types of new-product pricing are price skimming and product-line pricing.

FALSE

If Wrigley set its pricing objective as attaining 38 percent of the chewing gum market, what else would be needed to make this a true pricing objective?

Identification of a time period for accomplishment

A firm establishes which of the following pricing objectives to maintain or increase its product's sales in relation to total industry sales?

Market share

Which of the following pricing approaches is used most often by retailers?

Markup pricing

Which of the following would be used in setting the price of a new product if considerable competition is expected?

Penetration pricing

A product that has more features than those of its competition, or that is perceived to be of higher quality, warrants using which type of pricing strategy?

Premium pricing

Which of the following pricing strategies often results in a retailer losing money on the product?

Price leader

What type of pricing strategy is used in a situation where demand for a product is price inelastic and the seller has an ethical responsibility not to overcharge the client?

Professional pricing

Which of the following pricing objectives is rarely operational because its achievement is difficult to measure?

Profit maximization

A manager at JC Penney discovers that Sears has reduced the price of its children's Levi's from $31.99 to $24.99, according to an advertisement in the Sunday newspaper. She immediately phones her store and instructs the salesperson on duty to put a sign up next to their children's Levi's that reads, "SALE: $24.99." This is an example of what pricing strategy?

Random discounting

A Macy's manager designs the casual clothing department such that one of Macy's private label pairs of jeans, priced at $24.99, is positioned next to a national brand of jeans, such as Levis, priced at $39.99. What is the manager attempting to accomplish?

Reference pricing strategy

What type of pricing objective would an organization use if it were in a favorable position and desired nothing more?

Status quo

Which pricing objective de-emphasizes price and can lead to a climate of nonprice competition in an industry?

Status quo

Which type of pricing objective can reduce a firm's risk by helping to stabilize demand for its products?

Status quo

A firm that considers costs and revenue secondary to competitors' prices when setting its own prices is using a competition-based pricing strategy.

TRUE

A major reason why retailers use markup pricing is that it is convenient.

TRUE

A marketer is usually in a better position to establish prices when it knows the prices charged for competing brands.

TRUE

A price-leader approach is a pricing approach most often used in supermarkets to attract consumers by giving them special low prices on a few items.

TRUE

A pricing strategy is a course of action designed to achieve pricing and marketing objectives.

TRUE

An early-bird special offered by a restaurant during off-peak hours is an example of the secondary-market pricing strategy.

TRUE

Competition-based pricing is important if competing products are almost homogeneous or if price is the key variable in the marketing strategy.

TRUE

Cost-based pricing strategies result in a percentage being added to the cost of the product.

TRUE

Cost-plus pricing is popular in periods of rapid inflation.

TRUE

Differential pricing means different buyers pay different prices for the same quality and quantity

TRUE

Grocery stores that position their less expensive, private brands next to more expensive, well-known manufacturer brands on the shelf are using the concept of reference pricing.

TRUE

In some cases, prices are assigned to goods on the basis of nothing more than custom.

TRUE

Markup can be stated as a percentage of the cost or as a percentage of the selling price.

TRUE

Which of the following is a requirement for setting pricing objectives?

The objectives should be explicitly stated.

Glenwood Pet Hospital is considering implementing a new pricing strategy for its veterinarian services. After reviewing the previous three years' revenue, Glenwood finds that most of its customers bring their pets in for the required annual vaccinations and then only if the animal is ill. Glenwood's objective is to generate more income per customer on an annual basis. The hospital has previously priced its services by charging a flat fee for the office visit, a fee for each vaccine, and a fee for each type of examination beyond the basic office visit. Most customers pay the flat office fee and a fee for a rabies vaccine. Glenwood is now considering a new plan where the pet owner would pay one fee that would cover an office visit, the required rabies vaccine, and additional vaccines that prevent heartworm, kennel-cough, and fleas. Glenwood hopes to encourage the pet owners to view their pet's health as part of a prevention program, rather than a one-time annual visit. Glenwood's previous pricing strategy is an example of __________ pricing, while the new strategy is an example of __________ pricing.

a la carte; bundle

If Kroger Food Stores advertises 2-liter bottles of Pepsi for 89 cents to generate store traffic that will purchase other items at regular prices, the grocer is using

a price leader.

Odd-even pricing is

a psychological pricing strategy.

When Gabriella logs on to Dell's website, she sees a notebook model priced well below $1,000. As she continues through the site to view the other options, she realizes the first one she saw was the cheapest model available, but she of course wants more features. Dell is utilizing

bait pricing.

When Mia and Shane are planning their honeymoon, their travel agent tells them that if they buy a special package, their trip to Paris will include meals, tickets to the theater, and a rental car in addition to airfare and a hotel. This is an example of the use of

bundle pricing.

Some grocery stores collect data on competitive prices

by using full-time comparison shoppers.

Maintaining or increasing market share

can be achieved even if industry sales are flat or decreasing.

A market share objective

can be used effectively whether total industry sales are rising or falling.

Lexmark sells some of its color printers for about $100, but the refill cartridges cost over $30 each. Lexmark's pricing strategy would be best labeled as

captive pricing.

Pricing the basic product in a product line low while pricing related items at a higher level is called

captive pricing.

Gambrell Designs thinks its new product, the Automatic Dog Walker, will have a short product life cycle; therefore, its marketing department sets its primary pricing objective as

cash flow.

Companies that focus on particular product categories and rely on everyday low pricing to acquire a large market share through aggressive and competitive pricing strategies are often referred to as

category killers.

Showing a product's price along with its previous price, the price of a competing brand, or the price at another retail outlet is called

comparison discounting.

When products in an industry are relatively homogeneous and price is a key purchase consideration,

competition-based pricing becomes more important.

If General Mills looks at Kellogg's cereal prices as the primary method of determining its own prices, General Mills is using

competition-based pricing.

The federal government often uses _____ pricing when it grants defense contracts.

cost-plus

When a seller's costs are usually determined during or after a product is made and then a specified percentage or dollar amount is added to the cost to establish a price, an organization is using _____ pricing.

cost-plus

When determining markup as a percentage of cost, divide the markup amount by

cost.

Goods that are priced primarily based on the way they have always been priced are examples of

customary pricing.

The three primary bases for developing prices are

demand, competition, and cost.

Amtrak prices its tickets so that it is less expensive to travel on weekends than during the week when there is heavy business travel. This illustrates ___________ pricing.

demand-based

If a product is priced based on how many or how few people want it at a particular time and place, ______ pricing is being used.

demand-based

Rayban has decided to promote the new sunglass line as an "affordable luxury" and plans significant promotional expenditures. With these objectives, which of the following should Rayban use to price its product line?

demand-based pricing

When establishing prices, a marketer's first step is to

develop pricing objectives.

Many firms decide to charge various prices to individual customers for the same quality and quantity of product, a pricing strategy known as

differential pricing.

Sony management decided to use skimming as a pricing strategy for its newest line of high- definition television (HDTV) sets. It should be aware that this strategy does not

discourage competitors from entering the market.

Some companies attempt to reduce or eliminate the use of frequent short-term price reductions by using

everyday low prices.

Pricing strategies and methods

help direct and structure the selection of a final price.

A penetration pricing strategy is particularly appropriate when demand is

highly elastic.

Competitors' prices, along with the marketing variables they emphasize, are determining factors in

how important price will be to customers.

A product is a price leader when

it is sold at less than cost in the hope that sales of other products will increase.

If Nabisco had established a pricing objective of selling one out of every three crackers consumed in the world, it would have established an objective based on

market share.

A cost-based pricing method commonly used in retail is called

markup pricing.

Products such as light bulbs, canned soft drinks, and ice cream sandwiches are usually priced using

multiple-unit pricing.

Marketers at organizations engaged in nonprice competition

need competitive price information to make sure that their products are priced at approximately the same level as the prices of competing brands.

Maria recently put her house on the market at an asking price of $260,000. She realizes, however, that in order to sell the house, she may have to use

negotiated pricing.

Price skimming and penetration pricing are both strategies used for

new-product pricing.

If Rayban selected the prices for its new sunglasses to be $60, $70, or $80, this would most likely be an example of using __________ pricing to enhance its distinctive positioning strategy.

odd-even

Marketers must take steps to make sure that the pricing objectives they set are consistent with the organization's ___________ objectives and ___________ objectives.

overall; marketing

The management at Allied Electronics is having difficulty in raising the introductory price on system components to cover the increased costs of producing the sensing devices for home security systems. Apparently, Allied used a(n) ___________ strategy in pricing these components.

penetration

All of the following are pricing strategies used by companies establishing prices of multiple products within a product line except

penetration pricing.

Glenwood's closest competitor, The Hearthstone Pet Hospital, currently charges $60 for each basic office visit. If Glenwood were to price its basic office visit at $45, it would most likely be employing which of the following?

penetration pricing.

If Nabisco wants to quickly gain a large market share with its new line of reduced-fat snack crackers, it should use

penetration pricing.

A problem associated with _____ is that consumers can predict when prices will be lowered and delay purchases until that time.

periodic discounting

Glenwood has decided that it is going to offer a special package offer if the prevention plan is purchased within the first 30 days of each year's time for vaccinations. This type of pricing strategy would be an example of

periodic discounting.

The "White Sale" that many department stores have every year a few weeks after Christmas is an example of

periodic discounting.

Breyer's produces a variety of ice cream flavors and lines of varying qualities. The higher quality ice cream varieties are priced higher than the basic ones. Breyer's is using _____ to price its ice cream.

premium pricing

If REVO sets the price for its sunglasses at $240, it is using psychological pricing to convey

prestige.

To attract customers into a store, Safeway advertises its milk at less than cost, hoping that customers will purchase other groceries as well. This pricing strategy is called

price leader pricing.

The pricing strategy that assumes that demand is relatively inelastic over certain price ranges is called

price lining.

When an organization sets a number of prices for selected groups of merchandise, this is commonly referred to as

price lining.

All of the following are psychological techniques except

price skimming.

If Norelco introduced a new electric razor that sonically removes hair and priced it first at $175 and then at $150 before reducing the price to $100, the firm's initial pricing strategy is known as

price skimming.

When Sharp first introduced its line of graphing calculators, it set the price quite high; it has lowered the price as competitors have entered the market. The pricing strategy initially used by Sharp is called

price skimming.

When businesses charge the highest possible price that customers who really want the new product will pay, they are using

price skimming.

Given Rayban's plan for positioning the new sunglass line, they should use a __________ strategy when introducing their new product.

price-skimming

Reference pricing is

pricing a product at a moderate level and positioning it next to a more expensive model or brand.

If an organization sets prices to recover research and development expenses and establish a premium quality image for its product, it would be using a _________ pricing objective.

product quality

The pricing of Clinique makeup considerably higher than brands such as Cover Girl, Revlon, and Maybelline is used to communicate ______, which is the company's primary pricing objective.

product quality

Westin Inc. has an objective of achieving a 25 percent return from its overall sales. This is an example of a ______ pricing objective.

profit

Price leaders, comparison discounting, and special-event pricing are applications of

promotional pricing.

For customers, value is a function of the product's

quality attributes.

A marketer is most likely to set prices according to a cash-flow objective when a

quick return on investment is desired.

If a business decides to reduce its prices once in a while on an unsystematic basis, it is using

random discounting.

Most pricing objectives based on ___________ are achieved by trial and error because not all cost and revenue data are available when prices are set.

return on investment

Executives in Japan decided to price Lexus luxury cars in the United States at $55,000 while pricing them at $66,000 in their own country. This is an example of

secondary-market pricing.

Markup is measured either as a percentage of _____ or a percentage of _____.

selling price; cost

A sale at The Bon Marche the day after Thanksgiving to kick off the Christmas season would be considered

special-event pricing.

Maintaining a certain market share, meeting competitors' prices, maintaining a favorable image, and achieving price stability are all associated with a _____ pricing objective.

status quo

When a company adjusts price levels so that it can increase sales volume to levels that match the organization's expenses, it is said to employ a _________ objective.

survival

A sale that advertised prices "up to 65 percent off" the original price uses

tensile pricing.

A price-skimming strategy assumes that

the initial demand is highly inelastic.

Marketers improve their ability to establish prices appropriately when

they know prices charged for competing brands.

Bundle pricing may be perceived to be of value by customers because

they prefer buying a combination of bundled products in a single transaction, which saves time, effort, and perhaps money.

Competition-based pricing is

used when costs and revenues are secondary to competitors' prices.

When consumers are making do with less expensive products and shopping more selectively, manufacturers and retailers must focus on the ___________ of their products.

value

Suppose that Rayban is considering a new line of sunglasses that would be sold in major department stores. The new line would be positioned as a more distinctive brand than the typical glasses sold through department stores, and would be priced higher than other brands in the store, but a lower price line than the current Rayban lines that are sold through more selective stores. In determining the price for this sunglass line, Rayban wants to gather information about all brands sold in department stores and about customers' perceptions of those brands. Rayban's plan of gathering information about the other brands sold in department stores, including their prices, would most likely be used in a __________ basis for pricing.

Competition

Captive pricing, premium pricing, bait pricing, and price lining are all strategies aimed at maximizing the profits of an entire product line rather than an individual product.

TRUE

Knowing the target market's evaluation of price allows the marketer to know how much emphasis to place on price and how to price a product relative to competition.

TRUE

One pitfall of cost-plus pricing for the buyer is that the seller may increase costs to establish a larger profit base.

TRUE

Penetration pricing and price skimming of the market are two types of new-product pricing.

TRUE

Periodic discounting is often predictable so consumers wait to make purchases until they can benefit from the price reductions.

TRUE

Prestige pricing is used when a higher price is consistent with buyers' attitudes toward the quality or image of a product.

TRUE

Pricing objectives should be considered overall goals to aid the organization in its long-range plans.

TRUE

Some stores employ comparison shoppers to learn what prices their competitors are charging.

TRUE

The importance of price depends on the type of product, the type of target market, and the purchase situation.

TRUE

The local florist advertises a discount on arrangements during the month of April because the anniversary of the store's opening is in April. This is an example of special-event pricing.

TRUE

The objective of profit maximization is rarely operational because its achievement is difficult to measure.

TRUE

The way that pricing is used in the marketing mix will influence the determination of the final price.

TRUE

When a company prices one item in a line low with the intention of selling a higher-priced item in the same line, it is using

bait pricing.

If General Motors determines that it wants to sell 200,000 Chevrolet Acadias and sets the price at $29,500 because it knows that at that price it will reach that goal, the firm would be using a ___________ pricing method.

demand-based

During July and August, Lakewood Links Golf Course, located in South Carolina, offers weekday rates of $13 for a round of golf with a cart. During the rest of the year, the weekday rates are between $25 and $35. This is an example of the use of

demand-based pricing.

Research indicates that both market share and ___________ are good indicators of profitability.

product quality

When a company attempts to influence a consumer's perception of price to make a product's price more attractive and reduce "sticker shock," it is using a ______ pricing strategy.

psychological