Ch 14 Smartbook
A demand curve shows that a company will sell 10,000 units if it prices its new product at $200 per unit, but it will sell 20,000 units if it reduces the price to $75. If the company wants to maximize profits, it should price the new product at ______.
$200
How does penetration pricing discourage rival companies from entering the market?
Competitors who enter the market will temporarily face higher unit costs. Usually none of the companies make much profit in this situation.
What advantage is there for a company to offer products at prices below actual market value?
Customers are more likely to try the product because they are not risking as much money.
Which of the following do you need to know to calculate target return price?
Fixed costs Expected unit sales Variable costs
A break-even analysis graph shows curves for which of the following?
Revenue Fixed Costs Total Costs
Which strategy is used by firms that believe increasing volume of sales will help the firm more than increasing profits?
Sales-oriented strategy
Which of the following are drawbacks of a market penetration pricing strategy?
Setting the price lower than the item's value "leaves money on the table." Companies need to have a large production capacity. Setting low prices may indicate to consumers that the product is not of high quality.
Which of the following is an example of a monetary sacrifice included in the overall price of a product or service?
Shipping
Firms engaged in competitor orientation might use which of the following strategies?
Status quo pricing, competitive parity
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 total costs is known as ______.
break-even point
What is the name for the point at which the lines on a break-even analysis graph intersect?
break-even point
Variable costs ______ production volume
change with
Status quo pricing ____________.
changes prices only to meet those of competition
When developing a pricing strategy, channel members should ______.
clearly communicate their pricing goals to one another
If a company needs to raise the prices of some its products, it should choose to raise the prices of ______ products because relatively fewer customers will stop buying the product as a result.
inelastic
When a 10% decrease in price results in less than a 10% increase in quantity sold, demand for the product or service is described as ______.
inelastic
Which of the following are considered deceptive reference prices?
inflated prices fictitious pricing
Some states require some minimum markup and prohibit ______ pricing, where items are sold at a price below the store's cost.
loss leader
LaShonda is determined to undercut her rival and win a prize for selling the most cosmetics door-to-door. To ensure her victory, LaShonda slashes her prices below what she has to pay when she buys products from the manufacturer. She is engaging in ______.
loss-leader pricing
Which pricing tactic lowers the price below store cost?
loss-leader pricing
Bait and switch is a deceptive practice because the store lures customers in with a very ______ price only to pressure these customers into purchasing a ______ priced model.
low;higher
The goal of a(n) ______ strategy is to generate profit and establish a new product or service in the market as quickly as possible.
market penetration
The situation in which many firms compete for customers in a given market and the products are differentiated is known as ______.
monopolistic competition
In many geographic areas, utilities such as water and electricity are available from only one provider. This is an example of a level of competition called a(n) ______.
monopoly
Price is one of the _______ in a consumer's purchase decision
most important factors
When only a few firms dominate a market, it is known as ______ competition.
oligopolistic
Setting prices with a close eye on how consumers develop their perceptions of value can be ______.
one of the most effective pricing strategies
By focusing on target profit pricing, maximizing profits, or target return pricing, a firm is implementing a______ orientation
profit
Target return pricing is an example of what type of orientation?
profit
Why is it difficult to prove that a firm is engaged in predatory pricing?
prosecutors must prove the firm's intent
In what type of market is decommoditization most advantageous?
pure competition
The situation in which consumers perceive that different companies sell products that are substitutable is known as ______.
pure competition
A ______ price is the benchmark, original, or regular price against which buyers compare the actual selling price of the product.
reference
Fixed costs ______.
remain at the same level despite changes in production
A store that helps its customers achieve economies of scale by buying as a group is a(n)
retailer cooperative
Ace Hardware, which is a group of independently owned stores, helps its customers to buy products at the lowest possible price by buying as a group at discount, is an example of a ______.
retailer cooperative
Sometimes firms selling a pioneering product will set a very low price in order to attract many customers before competitors enter the market. This is an example of a _________ orientation.
sales
Buyers compare the reference price to the actual ______ of the product, which helps them decide how much they would be willing to pay for the item.
selling price
The contribution per unit is the ______ minus the variable cost per unit.
selling price per unit
When a firm uses a mathematical model to identify the price at which the firm will make the most money possible, it is implementing ________.
the maximizing profits strategy
Price is defined as _____________
the overall sacrifice a consumer is willing to make to acquire a specific product or service
When the price of DVD players drops, theoretically based on demand elasticity, the demand for DVDs is likely to ______.
increase
Which of the following is an example of a monopoly?
A county water board that is the sole provider of water to the county
Price insensitive
Apple increases the price of the new iPhone by 25% and sales decrease less than 1%.
Which of the following best describes how managers have historically treated pricing?
As an afterthought
Assuming the economy and other factors stay the same, a downward-sloping demand curve for a product shows which of the following?
As price decreases, demand increases. As price increases, demand decreases.
Which of the following would most likely be a loss-leader pricing tactic?
Buy one box of cereal at the regular price, get one free.
Which of the following pieces of legislation address illegal forms of price discrimination?
Clayton Act Robinson-Patman Act
Which of the following are considered part of the five Cs of pricing?
Company objectives, Customers, Costs, Competition, Channel members
the overall sacrifice a consumer makes to acquire a product or service is known as
Price
A firm may set low prices to do which of the following?
Encourage current firms to leave the market, take market share away from competitors, discourage new firms from entering the market.
In the customer orientation strategy, firms might sell their products or services at high prices in order to accomplish which of the following?
Enhance the value of the products in consumer's' minds, Enhance the company's reputation and image
Which of the following is an example of pure competition?
Essentially identical agricultural products like corn and soybeans provided by many sellers
Which of the following are essential to proving a complaint of predatory pricing?
Evidence that the prices charged were below the firm's average cost Evidence that the firm meant to eliminate its competition
Predatory pricing is illegal for which of the following reasons?
It drives most competition out of business and leaves the market in the control of only a few companies. It is an unfair method of competition. It inhibits free trade.
Which of the following are benefits of the high/low pricing strategy?
It generates excitement due to the limited duration of sales. It attracts consumers at both ends of the price sensitivity scale. It serves two different market segments.
Which of the following is correct with respect to predatory pricing?
It is outlawed by the Sherman Act and Federal Trade Commission Act.
Which of the following are limitations to break-even analysis?
It must be conducted several times at different quantities. It uses an average price rather than specific prices. It cannot predict how many units will sell.
Channel members include which of the following?
Manufacturers Retailers Wholesalers
Which of the following is another term for target return percentage?
Markup
Strategies that can be used as part of the profit orientation strategy include which of the following?
Maximizing profits, target profit pricing
Price sensitive
Pepsi drops the price of a six-pack by 50% and sales increase 78%. Pepsi drops the price of a six-pack by 50% and sales increase 78%.
If McDonald's reduces the price of a Big Mac by 25% and sales increase by more than 50%, the firm could describe demand as which of the following?
Price sensitive, elastic
Which of the following is an example of monopolistic competition?
The apparel industry, with many providers that seek ways to differentiate themselves and claim market share
When the price of a new product is being set via price skimming, what happens after the first round of sales has saturated the high-price market?
The company lowers its price somewhat to attract customers from the next segment of the market.
Companies using a price skimming strategy must ensure which of the following?
The initial price is not too low. Competitors cannot enter the market easily.
Which of the following is an example of an oligopoly?
The oil industry, with a limited number of providers
What are drawbacks of price skimming?
The unit costs of producing small volumes of products is relatively high. Customers who already bought the product may feel cheated when the price is eventually lowered.
Which of the following accurately characterize demand curves?
They relate demand to prices while assuming everything else remains unchanged. They show how much consumers will demand during a specific period at different prices.
Which of the following do companies take into account when engaging in dynamic pricing?
Time of day Type of customer Level of demand
Which of the following are reasons that firms implement a market penetration pricing strategy?
To discourage competitors To establish market share To build sales To earn profits
How do managers use break-even analysis?
To find a production quantity where, for a given price, costs are equal to revenues.
When firms compete by lowering price at retail, they are engaged in ______.
a price war
Which of the following does a break-even analysis provide?
an average price to charge under conditions
Price fixing is the illegal tactic of cooperating with other firms to ______ prices.
artificially establish
The five Cs of pricing include _______.
company objectives
If a firm sets prices similar to major competitors' prices, this is an example of ___________ pricing
competitive parity
If firms strategize according to the premise that they should measure themselves primarily against firms challenging them directly for customers, they have adopted a ______ orientation.
competitor
Products whose demands are positively related to one another are known as ______ products.
complementary
products are items whose demands are positively related, so that they rise and fall together. An example would be Blu-ray players and Blu-ray discs.
complimentary
The percentage change in the quantity of one product demanded compared with the percentage change in price in another product is called _________-price elasticity
cross price
When firms use a penetration pricing strategy, they expect the experience ________ effect to occur
curve
Some specialty retailers attempt to compete not by setting low prices but by justifying higher prices through high levels of personalized service. This is an example of a ______ orientation to pricing.
customer
In the United States, it is considered unethical and illegal for advertisements to ______ the consumer so much that the person is harmed.
deceive
A national retail chain has signs throughout its stores that say: "Sale! 50% off our regular price!" Journalists investigate and discover that the company has never sold any merchandise at what it calls its regular price. The business has engaged in ______.
deceptive reference pricing
In a pure competition market, to differentiate products, firms are advised to ______.
decommoditize products
The graph that shows how many units of a product or service consumers will want during a specific period at different prices is known as the ______ curve.
demand
A small, isolated community has only four auto mechanics. They drink together in the local bar, where they all agree to charge the same inflated price for their services. When cars break down, customers have no choice but to pay whatever the mechanics ask. The mechanics are engaging in ______.
horizontal price fixing
Profit alone ______ how many units should be sold before a firm breaks even.
does not indicate
For most products, demand increases as the price decreases. Because of this general trend, demand curves usually have a(n) ______ slope.
downward
Prestige products or services do not follow the ______ curve.
downward sloping demand
Using predatory pricing, a firm sets a very low price for one or more of its products with the goal of ______.
driving its competition out of business
With _______ pricing, also known as individualized pricing, companies charge different prices based on the type of customer, the day of the week, and the level of demand.
dynamic
Which of the following types of theories is the maximizing profits strategy based on?
economic
When a 10% decrease in price produces more than a 10% increase in quantity sold, the product or service is responsive to price changes and is considered to be ______.
elastic
A restaurant sets the prices on its menu at about $1 below those of its competitors. Unlike other restaurants, it does not offer weekly specials at a large discount nor does it offer coupons. This business is using the ______ pricing method.
everyday low
When Walmart reports that its average prices will usually be lower than the competition, but it does not offer many sales, the company is using the ______ pricing strategy.
everyday low
With the ______ pricing strategy, a company adopts retail prices that are typically somewhere between the product's regular price and the sharply discounted sale prices that competitors occasionally offer.
everyday low
The strategy of ______ appeals to consumers because it reduces their need to spend time comparing prices at various stores.
everyday low pricing (EDLP)
Sometimes the cost per unit of a new product will decrease as the total sales increase. This is known as the ______ effect.
experience curve
How do consumers generally describe the role of price in their purchase decisions?
extremely important
Price discrimination is illegal under all conditions: true/false
false
Puffery is illegal in advertising: true/false
false
True or false: A firm with a primary objective of very high sales growth will have the same pricing strategy as a firm with a primary objective of being a quality leader
false
For a firm, rent, landscaping, and insurance are examples of ______ costs.
fixed
Price is one element in the marketing mix that __________.
generates revenue
Retailers often sell overstocked merchandise to unauthorized discount dealers who are part of the
gray market
When consumers relish the challenge of getting the lowest price and are willing to expend the time and effort to seek out the lowest price every time, retailers should use the ______ pricing strategy.
high/low
The ______ pricing strategy features frequent sales, during which prices are lowered for a short time.
high/low pricing
Which pricing strategy appeals to customers who are price sensitive as well as to those who are not?
high/low pricing
When there are many substitute products available, the price elasticity of demand for a given product will likely be ______.
higher
A demand curve enables a firm to examine prices ______.
in terms of demand and the firm's objectives
Under competitive ________, companies set their prices close to those of their major competitors
parity
When a new product or service is launched, companies that use a ______ strategy will attempt to attract customers quickly by offering a very low price at first.
penetration pricing
A firm sets extremely low prices for its products so that most customers will stop shopping elsewhere. This will cause other companies to go out of business and leave the firm with no more competition. The firm has engaged in ______.
predatory pricing
A firm that opens new stores in a community and sets artificially low prices with the sole purpose of driving competing stores in the area out of business is said to engage in a type of behavior called ______ pricing.
preditory
____________ _____________occurs when a company has a very low price for its product(s) in order to drive its competition out of business.
preditory pricing
Generating high value perceptions among consumers in order to set a higher-than-average price is known as ________ pricing
premium
When a firm deliberately prices a product above the prices set for competing products to entice those customers for whom pricing does not matter, the firm is engaging in _______ Pricing
premium
Products that cost a lot of money but that people buy anyway because of the status and exclusivity that they project to others are called ___________products
prestige
The equation for price elasticity of demand is the percentage change in quantity demanded divided by percentage change in ______.
price
If a firm sells the same product to different resellers at different prices, it can be considered ______.
price descrimination
Loyalty toward a particular brand makes other brands seem less substitutable, which decreases ______.
price elasticity of demand
The ratio of change in a price and its effect on the quantity of the product demanded is known as ______.
price elasticity of demand
Scheming with other companies to control prices is called ______.
price fixing
Which of the following does the Sherman Antitrust Act address?
price fixing
Firms using which of the following strategies face relatively high unit costs associated with producing small volumes of products?
price skimming
For a ______ strategy to work, consumers must believe that the product or service offers an innovation or other benefit not available from the competition.
price skimming
In preparation for introducing a new doll to the market, a toy company advertises and creates so much demand that little girls are lined up at the stores, determined to be the first to own one. The toy company sells these first dolls at twice their actual retail value. This is an example of ______.
price skimming
Break-even analysis examines the relationships between which of the following?
price, cost
To achieve target pricing, a company uses ________ to stimulate sales at a specific profit level
price, pricing, or prices
Competition, channel members, costs, customers, and company objectives are the five critical components of ________.
pricing
Compared to other company objectives, a sales-oriented firm ______.
sets prices very low to generate new sales, even if profits suffer
The customer orientation strategy increases value by doing which of the following?
setting prices to match consumer expectations, focusing on customer satisfaction
A pricing ______ is the general way a company decides how its prices will be determined over the long term, based on the five Cs of pricing.
strategy
A percentage increase in the quantity demanded for Product A results in a percentage decrease in quantity demanded for Product B. Products for which demand is negatively related are known as ______ products.
substitute
When the change in demand for one product negatively affects the demand for another product, the items are known as ______ products.
substitute
Consumers' ability to replace other products with the focal brand is known as ______.
substitution effect
On which of the following does brand loyalty have the most significant effect?
substitution effect
When a firm is aiming for a particular amount of profit as its overriding concern, it usually implements ________.
target profit pricing
When a firm is aiming for a particular amount of profit as its overriding concern, it usually implements________
target profit pricing
Firms that are less concerned with the level of profits and more interested in the rate at which profits are generated relative to their investments tend to use ________.
target return pricing
When incomes drop, the demand for an elastic product ______.
tends to decrease
Price minus the variable cost per unit equals ______.
the contribution per unit
As people make more money, their spending behavior changes. This is known as ______.
the income effect
Setting the price for a new product is less difficult when other products like it are already being sold. This is true because ______.
the market will have established a general value for that sort of item
An example of a nonmonetary sacrifice made in acquiring a product or service is ______.
time
The _____ is fixed costs plus the sum of the variable costs.
total cost
Price times quantity is ____
total revenue
Variable cost per unit times quantity equals ______.
total variable cost
Channel members can have different perspectives when it comes to strategies: true or false?
true
Pricing is difficult to manage because it is the least ________ of the four Ps
understood
When a new product is launched in a market where similar items are already being sold, how is the price typically determined?
value-based methods
Primary labor and materials are also known as ______ because they change with production volume.
variable costs
Total cost is _______
variable costs plus fixed costs
A price ______ occurs when oligopolistic companies compete with each other by repeatedly lowering their prices.
war
Other elements in the marketing mix may or may not be perfect, but if the price is wrong, revenue __________.
will not accrue
At the break-even point, profits on the sale of a product are ______.
zero