Chapter 20- Setting Prices

Which of the following pricing strategies often results in a retailer losing money on the product? a) Price leader b) Psychological discounting c) Penetration pricing d) Special-event pricing e) Ethical pricing

a) Price leader

Which pricing objective de-emphasizes price and can lead to a climate of nonprice competition in an industry? a) Status quo b) Return on investment c) Market share d) Survival e) Cash flow

a) Status quo

Which type of pricing objective can reduce a firm's risk by helping to stabilize demand for its products? a) Status quo b) Market share c) Survival d) Cash flow e) Return on investment

a) Status quo

Which of the following statements about markup pricing is correct? a) The use of similar markups reduces price competition. b) Markup pricing is inconvenient to use. c) Markup pricing results in a high price when demand is high and a low price when demand is low. d) Markup pricing is a demand-based pricing method. e) Using markups makes pricing a time-consuming, difficult process.

a) The use of similar markups reduces price competition.

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 a) bait pricing. b) a price leader. c) penetration pricing. d) price lining. e) captive pricing.

a) bait pricing.

Maintaining or increasing market share a) can be achieved even if industry sales are flat or decreasing. b) is an infrequently used pricing objective in most industries. c) depends upon the overall growth of the total industry. d) is a profit-related objective based on price. e) is directly tied to leading an industry in product quality.

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

When products in an industry are relatively homogeneous and price is a key purchase consideration, a) competition-based pricing becomes more important. b) demand-based pricing dominates pricing decisions. c) firms tend to use secondary-market pricing. d) cost-based methods like markup pricing are dominant. e) customary pricing is often used.

a) competition-based pricing becomes more important.

The decision of Macy's to use even prices such as $60 for a Ralph Lauren Polo shirt is an application of odd-even pricing, and even prices are often used to a) give a product an upscale or exclusive image. b) show customers products are priced based on tradition. c) coordinate efforts with a promotional campaign. d) indicate prices have been cut to the last penny. e) facilitate comparison to competitors' prices.

a) give a product an upscale or exclusive image.

Pricing strategies and methods a) help direct and structure the selection of a final price. b) are the last decisions made for a new product. c) are the same for all of a company's products. d) are the most important decisions made for a product. e) require limited planning on the part of management.

a) help direct and structure the selection of a final price.

Products such as light bulbs, canned soft drinks, and ice cream sandwiches are usually priced using a) multiple-unit pricing. b) reference pricing. c) price lining. d) bundle pricing. e) odd-even pricing.

a) multiple-unit pricing.

If Nabisco wants to quickly gain a large market share with its new line of reduced-fat snack crackers, it should use a) penetration pricing. b) random discounting. c) captive pricing. d) price skimming. e) everyday low prices.

a) penetration pricing.

The pricing strategy that assumes that demand is relatively inelastic over certain price ranges is called a) price lining. b) odd-even pricing. c) price skimming. d) prestige pricing. e) customary pricing.

a) price lining.

For customers, value is a function of the product's a) quality attributes. b) price. c) price and durability. d) quality and functional attributes. e) quality relative to the quality of competing brands.

a) quality attributes.

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 a) secondary-market pricing. b) price skimming. c) bait pricing. d) prestige pricing. e) random discounting.

a) secondary-market pricing.

Markup is measured either as a percentage of _____ or a percentage of _____. a) selling price; cost b) cost; profit c) revenue; contribution margin d) resources used; cost e) demand; competition

a) selling price; cost

A sale that advertised prices "up to 65 percent off" the original price uses a) tensile pricing. b) random discounting. c) periodic discounting. d) bait pricing. e) psychological pricing.

a) tensile pricing.

Competition-based pricing is a) used when costs and revenues are secondary to competitors' prices. b) not useful as a method of increasing market share. c) not useful if the competing products are homogeneous. d) not able to increase sales. e) used when competing products are heterogeneous.

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

Which of the following would be used in setting the price of a new product if considerable competition is expected? a) Psychological pricing b) Penetration pricing c) Odd-even pricing d) Price skimming e) Prestige pricing

b) Penetration pricing

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) reference pricing. b) a price leader. c) special-event pricing. d) comparison discounting. e) professional pricing.

b) a price leader.

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 a) multiple-unit pricing. b) bundle pricing. c) prestige pricing. d) price lining. e) price packaging.

b) bundle pricing.

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 a) bait pricing. b) captive pricing. c) customary pricing. d) price lining. e) complementary pricing.

b) 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 a) market share. b) cash flow. c) profit. d) product quality. e) status quo.

b) cash flow.

When determining markup as a percentage of cost, divide the markup amount by a) price. b) cost. c) quantity. d) revenue. e) 100.

b) 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. a) cost-plus b) demand-based c) competitive d) secondary markup e) seasonal

b) 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. a) markup b) demand-based c) competitive d) peak e) differential

b) demand-based

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 a) generate capital to cover research and development costs. b) discourage competitors from entering the market. c) provide flexibility in the introductory base price. d) protect the firm from covering costs if prices are set too low. e) reduce the stress that may be placed on the firm's production capabilities.

b) discourage competitors from entering the market.

A penetration pricing strategy is particularly appropriate when demand is a) increasing. b) highly elastic. c) highly inelastic. d) decreasing. e) inefficient.

b) highly elastic.

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 a) cash flow. b) market share. c) survival. d) return on investment. e) dollar sales volume.

b) market share.

Marketers must take steps to make sure that the pricing objectives they set are consistent with the organization's ___________ objectives and ___________ objectives. a) advertising; marketing b) overall; marketing c) marketing; promotional d) overall; promotional e) overall; revenue

b) overall; marketing

When an organization sets a number of prices for selected groups of merchandise, this is commonly referred to as a) prestige pricing. b) price lining. c) customary pricing. d) odd-even pricing. e) ethical pricing.

b) price lining.

Research indicates that both market share and ___________ are good indicators of profitability. a) low pricing b) product quality c) limited competition d) sales growth e) ROI pricing

b) 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. a) market share b) product quality c) status quo d) profitability e) cash flow

b) product quality

If a business decides to reduce its prices once in a while on an unsystematic basis, it is using a) price reduction planning. b) random discounting. c) bait pricing. d) periodic discounting. e) penetration pricing.

b) random discounting.

Marketers improve their ability to establish prices appropriately when a) there is nonprice competition. b) they know prices charged for competing brands. c) their products are of better quality than the competition's. d) the main objective is image building. e) using psychological pricing.

b) they know prices charged for competing brands.

Bundle pricing may be perceived to be of value by customers because a) they always pay a lower price per item than they would have if they bought each item separately. b) they prefer buying a combination of bundled products in a single transaction, which saves time, effort, and perhaps money. c) the companies selling the products can sell them at a lower price because their costs of packaging are lower. d) they are purchasing complementary products, which is convenient for them. e) they can purchase items that are consumed frequently in larger quantities.

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

A retailer of Real Dry deodorant prices it at $2.00; it costs the retailer $1.40. What is the approximate markup as a percentage of selling price? a) 3 percent b) 14.3 percent c) 30 percent d) 70 percent e) 20 percent

c) 30 percent

Which of the following pricing objectives sets prices to recover cash as quickly as possible? a) Market share b) Profit c) Cash flow d) Return on investment e) Product quality

c) 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? a) Random discounting b) Periodic discounting c) Comparison discounting d) Penetration pricing e) Everyday low prices

c) Comparison discounting

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? a) Markup b) Competition-based c) Cost-plus d) Demand-based e) Secondary-market

c) Cost-plus

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? a) Custom pricing b) Special-event pricing c) Premium pricing d) Price lining e) Bait pricing

c) Premium pricing

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? a) Price lining b) Prestige pricing c) Professional pricing d) Customary pricing e) Price skimming

c) Professional pricing

Pricing the basic product in a product line low while pricing related items at a higher level is called a) premium pricing. b) bait pricing. c) captive pricing. d) price skimming. e) price lining.

c) captive pricing.

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 a) competition-based pricing. b) reference pricing. c) comparison discounting. d) captive pricing. e) psychological pricing

c) comparison discounting.

The three primary bases for developing prices are a) profit, demand, and competition. b) supply, demand, and marketing objectives. c) demand, competition, and cost. d) markup, cost, and cost-plus. e) negotiation, periodicity, and randomness.

c) demand, competition, and cost.

Marketers at organizations engaged in nonprice competition a) are more concerned about knowing competitors' prices than are marketers in organizations that are engaged in price competition. b) are not concerned about the prices of competing brands. c) need competitive price information to make sure that their products are priced at approximately the same level as the prices of competing brands. d) rely on customers to help them gather information regarding the prices of competing brands. e) experience high levels of price instability.

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

Most pricing objectives based on ___________ are achieved by trial and error because not all cost and revenue data are available when prices are set. a) market share b) cash flow c) return on investment d) survival e) profit

c) return on investment

Running a big sale in order to generate enough cash flow to pay creditors is typical in a situation in which a firm's primary pricing objective is a) status quo. b) profit. c) survival. d) market share. e) recovery.

c) survival.

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. a) 64 b) 36 c) 18 d) 57 e) 45

d) 57

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? a) Demand-based b) Cost-based c) Reference pricing d) Competition-based e) Price leader

d) Competition-based

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? a) Statement of demand elasticities b) Identification of cost structure c) Breakeven analysis d) Identification of a time period for accomplishment e) Establishment of a subsequent pricing policy

d) 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? a) Cash flow b) Sales potential c) Product quality d) Market share e) Status quo

d) Market share

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? a) Secondary-market pricing b) Bait-pricing c) Reference pricing d) Random discounting e) Comparison discounting

d) Random discounting

Odd-even pricing is a) a cost-based strategy. b) competition-based. c) a rarely used technique. d) a psychological pricing strategy. e) a form of unethical pricing.

d) a psychological pricing strategy.

The federal government often uses _____ pricing when it grants defense contracts. a) markup b) differential c) breakeven d) cost-plus e) competition-based

d) 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. a) markup b) demand-based c) differential d) cost-plus e) expensed-based

d) cost-plus

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 a) differential pricing. b) incentives. c) competition-based pricing. d) demand-based pricing. e) random discounting.

d) demand-based pricing.

A product is a price leader when a) it is sold at the highest price. b) its price maximizes profits. c) an increase or decrease in price leads to increased revenue or lower costs. d) it is sold at less than cost in the hope that sales of other products will increase. e) its price leads the industry in sales.

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

Price skimming and penetration pricing are both strategies used for a) product-line pricing. b) business products only. c) psychological pricing. d) new-product pricing. e) promotional pricing.

d) new-product pricing.

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. a) odd-even b) skimming c) lining d) penetration e) psychological

d) penetration

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. a) survival b) return on investment c) market share d) product quality e) cash flow

d) product quality

A sale at The Bon Marche the day after Thanksgiving to kick off the Christmas season would be considered a) psychological pricing. b) comparison discounting. c) customary pricing. d) special-event pricing. e) captive pricing.

d) special-event pricing.

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. a) market share b) cash flow c) return on investment d) survival e) profit

d) survival

When consumers are making do with less expensive products and shopping more selectively, manufacturers and retailers must focus on the ___________ of their products. a) price b) quality c) availability d) value e) image

d) value

For custom-made equipment or commercial construction projects, which pricing method is most likely used? a) Prestige b) Premium c) Differential d) Return-on-investment e) Cost-plus

e) Cost-plus

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? a) Everyday low prices strategy b) Odd-even pricing strategy c) Prestige pricing strategy d) Special-event pricing strategy e) Reference pricing strategy

e) Reference pricing strategy

Which of the following is a requirement for setting pricing objectives? a) The objectives should be short-term oriented. b) There should be only one pricing objective. c) An evaluation of competitors' prices should be made. d) The cost structure should be identified. e) The objectives should be explicitly stated.

e) The objectives should be explicitly stated.

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 a) bait and switch. b) price lining. c) captive pricing. d) penetration pricing. e) bait pricing.

e) bait pricing.

Some grocery stores collect data on competitive prices a) by calling their competitors. b) on a quarterly basis. c) through stores' purchase data. d) from their resellers. e) by using full-time comparison shoppers.

e) by using full-time comparison shoppers.

A market share objective a) is not recommended when sales for the total industry are declining. b) is not especially useful when sales for the total industry are increasing. c) is not especially useful when sales for the total industry are flat. d) is useful primarily in an industry where total sales are increasing. e) can be used effectively whether total industry sales are rising or falling.

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

If General Mills looks at Kellogg's cereal prices as the primary method of determining its own prices, General Mills is using a) price fixing. b) price discrimination. c) demand-based pricing. d) market share pricing. e) competition-based pricing.

e) competition-based pricing.

Goods that are priced primarily based on the way they have always been priced are examples of a) traditional pricing. b) professional pricing. c) everyday low prices. d) price lining. e) customary pricing.

e) customary 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. a) cost-plus b) competition-based c) psychological d) comparison e) demand-based

e) demand-based

Competitors' prices, along with the marketing variables they emphasize, are determining factors in a) the instability of prices in a particular industry. b) using markup pricing for consumer goods. c) how much marketing research a firm needs to collect. d) using differential pricing to demonstrate quality differences. e) how important price will be to customers.

e) how important price will be to customers.

A cost-based pricing method commonly used in retail is called a) value pricing. b) cost-plus pricing. c) cost discounting. d) differential pricing. e) markup pricing.

e) markup pricing.

All of the following are pricing strategies used by companies establishing prices of multiple products within a product line except a) premium pricing. b) price lining. c) captive pricing. d) bait pricing. e) penetration pricing.

e) penetration pricing.

A problem associated with _____ is that consumers can predict when prices will be lowered and delay purchases until that time. a) random discounting b) penetration pricing c) reference pricing d) everyday low pricing e) periodic discounting

e) periodic discounting

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 a) price lining. b) special-event pricing. c) differential pricing. d) comparison discounting. e) price leader pricing.

e) price leader pricing.

All of the following are psychological techniques except a) customary pricing. b) prestige pricing. c) reference pricing. d) odd-even pricing. e) price skimming.

e) price skimming.

Price leaders, comparison discounting, and special-event pricing are applications of a) psychological pricing. b) professional pricing. c) product-line pricing. d) bait-and-switch. e) promotional pricing.

e) promotional pricing.

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. a) competition-based b) professional c) promotional d) comparison e) psychological

e) psychological

Maintaining a certain market share, meeting competitors' prices, maintaining a favorable image, and achieving price stability are all associated with a _____ pricing objective. a) product quality b) market share c) survival d) profit e) status quo

e) status quo

A price-skimming strategy assumes that a) the initial demand is highly elastic. b) the product is efficient. c) it will be difficult to recoup development costs. d) all consumers have homogeneous tastes. e) the initial demand is highly inelastic.

e) the initial demand is highly inelastic.

When establishing prices, a marketer's first step is to a) determine demand. b) develop pricing objectives. c) select a pricing policy. d) evaluate competitors' prices. e) determine a pricing method.

b) develop pricing objectives.

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 a) secondary-market pricing. b) reference pricing. c) negotiated pricing. d) price lining. e) professional pricing.

c) negotiated pricing.

The "White Sale" that many department stores have every year a few weeks after Christmas is an example of a) secondary pricing. b) off-peak pricing. c) periodic discounting. d) random discounting. e) captive pricing.

c) 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. a) captive pricing b) price baiting c) premium pricing d) bait pricing e) differential pricing

c) premium pricing

A marketer is most likely to set prices according to a cash-flow objective when a a) trial-and-error approach to the market is acceptable. b) certain market share must be maintained. c) quick return on investment is desired. d) higher price is acceptable to the firm. e) product is expected to have a long life cycle.

c) quick return on investment is desired.

What type of pricing objective would an organization use if it were in a favorable position and desired nothing more? a) Return on investment b) Cash flow c) Profit d) Status quo e) Survival

d) Status quo

The fact that senior citizens are charged a lower price at movie theaters than younger adults is an example of ___________ pricing. a) price-line b) promotional c) professional d) differential e) psychological

d) differential

If REVO sets the price for its sunglasses at $240, it is using psychological pricing to convey a) thrift. b) cost cutting. c) value. d) prestige. e) availability.

d) prestige.

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 a) penetration pricing. b) psychological pricing. c) price lining. d) price skimming. e) odd-even pricing.

d) 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 a) customary pricing. b) odd-even pricing. c) penetration pricing. d) price skimming. e) prestige pricing.

d) price skimming.

When businesses charge the highest possible price that customers who really want the new product will pay, they are using a) premium pricing. b) prestige lining. c) captive pricing. d) price skimming. e) penetration pricing.

d) price skimming.

Reference pricing is a) listing the manufacturer's suggested retail price on the price tag along with the store's lower price. b) mentioning the price that other retailers charge for the same product on the display for the product. c) using a consumer's internal perceptions of what the appropriate price should be to help price a firm's products. d) pricing a product at a moderate level and positioning it next to a more expensive model or brand. e) using prices in advertising so that customers will have a point of reference when they come to the retail facility.

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

Westin Inc. has an objective of achieving a 25 percent return from its overall sales. This is an example of a ______ pricing objective. a) market share b) cash flow c) return on investment d) profit e) status quo

d) profit