Chapter 20

Which of the following is the final step in the process of establishing prices?

determination of a specific price

Which of the following is true about assumptions related to a price skimming strategy?

demand for the product is inelastic

A temporary reduction of prices on a patterned or systematic basis is known as _______.

periodic discounting

Which of the following pricing strategies is NOT utilized when establishing prices for a product line?

price skimming

Fernando had already passed through airport security and was sitting at the Delta terminal when he realized he forgot to pack the charging cable for his cell phone. He located the nearest CNBC News & Gifts store in the terminal and purchased a new cable. He was appalled at the inflated price for the cable, and normally wouldn't pay that much, but he felt he couldn't make it through his whole trip without one. Fernando was influenced by _______.

the purchase situation

Which of the following best describes circumstances under which competition-based pricing should be utilized?

Commonly utilized among producers of relatively homogeneous products when consumers are sensitive to price

Yield management is a strategy of maximizing revenues by making numerous changes in response to demand, competitors' prices, or environmental conditions.

True

Which of the following is the best definition of value?

Value combines price with quality attributes and is often used by consumers to differentiate among competing brands.

A pricing strategy should yield a certain price or range of prices, which is the final step in the pricing process.

true

Marketers can employ one or multiple pricing objectives.

true

When Nintendo first introduced the Wii, it set a very high price point and created a very high demand for the product during the introductory stage. This strategy is known as _______.

price skimming

A recent consumer trend has led grocery stores to expand their offering of organic produce, grass-fed beef, free-range chicken, and other products that consumers view as highly desirable given their attributes related to the use of pesticides, ethical treatment of animals, and environmental impact of the products. Consumers are willing to pay more for products that possess these positive attributes. What pricing concept best characterizes consumers' willingness to pay higher prices for products that possess desirable features or characteristics?

value

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

value

_______ combines price and quality attributes, which consumers use to differentiate among competing brands.

value

Understanding the consumers' expectations of _______ helps a marketer correctly assess the target market's evaluation of price.

value and quality

Which of the following methods is utilized to gather data about competitive prices?

All of the answer choices are ways to gather data about competitive prices

Which of the following includes the various bases for pricing?

Demand-based, competition-based, and cost-based

Aldi, normally the low-price leader in grocery stores, is starting to become concerned with the increasing number of Lidl stores in the United States. To maintain its leader status, which of the following methods will Aldi most likely employ?

Hire comparison shoppers to purchase a typical basket of goods from Lidl and compare prices

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

Identification of a time period for accomplishment

Apple has successfully introduced several new products utilizing a skimming approach where it charges the highest possible price during the introduction stage of the product life cycle. Which of the following is NOT one of the benefits of a skimming strategy?

May achieve lower levels of sales but still recoup developmental costs

Why might a competitor's price list not reflect the actual prices at which the competitive products are sold?

Negotiation is often involved in the final selling price.

What are the two ways that markup percentage can be calculated?

Percentage of cost and percentage of selling price

The marketing manager for the BMW X5 is developing pricing objectives and sent the following objective statement to the Vice President for review, "Increase market share in the large SUV market to 22% and achieve a 15% return on investment." Which of the following statements is correct regarding this objective statement?

The statement should include a time frame for accomplishing the objective.

Mattress Doctor utilizes direct mail and social media advertising on Facebook to promote its special offers such as a Beauty Rest mattress set for $499. Lucy and Dan visited the store thinking they would purchase the set for $499 but realized after trying out different models of Simmons mattresses that they would have to spend considerably more money for a mattress set that they liked and found comfortable. The Mattress Doctor is using _______ pricing to attract customers to the store.

bait

In _______, marketers put a low price on one item in the product line with the intention of selling a higher-priced item in the line.

bait pricing

Canon has several lines of digital cameras and often markets its Rebel DSLR camera body with a basic lens at an affordable price of $399. However, consumers who desire additional lenses might pay $400 or more for each additional lens. What type of pricing is Canon utilizing for its Rebel product line?

captive

Marketers may utilize _______ pricing for items within a product line where the basic product is priced low but items that are required to operate or enhance the basic product are priced higher.

captive

Many consumers love shopping at discount stores like T.J. Maxx, HomeGoods, or Marshall's. Cindy and Tamra were recently shopping at HomeGoods and saw some dining room chairs they really liked. The price tag had a retail price of $79.95 with additional detail of manufacturer's suggested retail price of $129.95. They thought this was a great discount and decided to purchase two chairs for their apartment. What type of pricing strategy does HomeGoods utilize in pricing the chairs and other merchandise?

comparison discounting

A company that utilizes _______ pricing may choose to set their prices below competitors' prices or at the same level.

competition-based

Bounty paper towels likes to set its prices for the value pack of six paper towels slightly lower than Scott paper towels to attract more consumers to purchase the Bounty brand. This is an example of _______ pricing.

competition-based

When marketers are developing pricing objectives, they should ensure that the objectives are _______.

consistent with the firm's marketing and overall objectives

Airlines will often change prices depending upon day of the week, time of day, and number of days before the flight. It is quite common that a person sitting next to you on a flight paid a much different price than you did. What type of pricing strategy are the airlines most likely using?

dynamic pricing

Alamo Rent A Car uses _______ depending on the number of reservations it has, how many cars are on the lot, and how many cars it expects to be returned. It can change its prices based on these factors several times throughout the day.

dynamic pricing

Recently Walmart utilized a commercial showing employees using a big pair of scissors to cut prices and stated "low price guarantee." Walmart also utilizes signage throughout the store on various items that say, "Low Prices" or "Low Price Guarantee." What type of pricing strategy is Walmart utilizing?

everyday low pricing (EDLP)

After marketers determine a specific price, it will not change.

false

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

false

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

false

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

false

Demand-based pricing would be appropriate for all of the following, except _______.

food trucks

Lorenzo noticed on a recent shopping trip to Walmart that many of the items in the store had prices with an $0.88 ending. For example, a household multi-surface cleaner was priced at $2.88. Walmart is utilizing which pricing strategy?

odd-even pricing

Which of the following is NOT a technique affiliated with promotional pricing?

odd-even pricing

Pricing is a unique component to the marketing mix because _______.

of its flexibility

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

_______ pricing is often utilized to discourage competitors from entering the market.

penetration

Kellogg's strives to lead the cereal industry by obtaining a high market share across various types and varieties of cereal. In order to capture a large market share upon introduction of new products, Kellogg's should utilize _______.

penetration pricing

The _______ pricing objective is utilized to recover research and development expenses and create the impression that its products may last longer, are more durable, and are better than competitors' products.

product quality

The price of Lenovo laptop computers is typically higher than competitive brands, such as Toshiba and Dell. Consumers often consider the Lenovo brand to be better than other brands and it's likely that Lenovo is using a _______ pricing objective.

product quality

_______ pricing is typically utilized by marketing consultants and accountants who have great skill or experience in their fields. Professional accountants may determine their pricing decisions by using a set fee for various types of services such as $99 for filing a simple tax return and $400 for filing an itemized return for a couple.

professional

A company that identifies price and cost levels that allow the company to make the most amount of money possible would be utilizing which type of pricing objective?

profit

Walgreens offers a variety of over-the-counter medication for allergies, colds, and flu symptoms such as Zyrtec, Tylenol Cold & Flu, and Robitussin cough syrup. The store has a private label brand and typically places the private label or store brand right next to the major brand of the same product and prominently displays the product's price with a shelf tag. Walgreens believes this approach will result in a great proportion of sales for its private label brand that produces higher profit margins for the store and is using a _______ pricing approach.

reference

Pricing a product at a moderate level and physically positioning it next to a more expensive model or brand in the hope that the customer will use the higher price as a comparison is known as _______.

reference pricing

_______ pricing objectives generally require some amount of trial and error since not all data and inputs are available when first setting prices.

return on investment

Marketers at Stouffer's have assessed their target market's evaluation of price and evaluated their competitors' prices. Their next step in establishing prices will be to _______.

select a basis for pricing

Anheuser-Busch, Inc often gathers market research information to determine the prices that MillerCoors, Heineken, and various craft breweries such as New Belgium Brewing Co. and Sierra Nevada Brewing Co. are charging for their products. Anheuser-Busch then attempts to set prices at a similar level as these other companies' products. What type of method is Budweiser utilizing?

competition-based pricing

Stones Custom Choppers is a motorcycle repair and maintenance shop specializing in customizing and restoring motorcycles to its customers' specifications. Rebuilds and custom bikes typically cost $20,000 and up, and each one is unique to the customer's size, interest, and personality. What type of pricing is most appropriate for the company?

cost-plus

What type of pricing is typically utilized by defense contractors when placing bids for projects with the government?

cost-plus

_______ pricing applies a specific dollar amount or percentage of the cost that is added to the seller's cost to establish the final price of a product or service. This type of pricing is frequently utilized in government and defense contracts.

cost-plus

The Local Oak Restaurant offers dinner specials daily priced at $8 each and typically prepares 50 units of the special entrée. The restaurant knows that at $8 all 50 of the entrees will be sold and some customers who arrive later in the evening may not be able to get the special. What type of pricing is the Local Oak Restaurant implementing?

demand-based

The Old Country Buffet charges $12 per person for its dinner buffet. However, consumers who dine at the restaurant between 4 p.m. and 6 p.m. are charged an "Early Bird" rate of $9 per person. What type of pricing is the Old Country Buffet utilizing?

demand-based

The belief behind _______ is that it is better to take a lower profit margin on a sale than no revenue at all.

demand-based pricing

What is the first step in establishing prices?

development of pricing objectives

Nabisco is considering two pricing objectives. The first is to sell one out of every three crackers consumed in the world, an objective based on _______ ; the second is to meet, but not beat, competitors' prices of cookie products, which is a _______ objective.

market share; status quo

_______ pricing, which is typically used by retailers such as Best Buy, calculates the retail price by adding a predetermined percentage of the cost to the cost of the product.

markup

Kroger grocery stores often use _______ pricing to encourage customers to purchase more units of a single product and take advantage of lower, per-unit prices. Thus, customers save money when purchasing multiple items of the same product at one time versus buying only one item at different points in time.

multiple-unit

Mitch Harris is an avid car collector and enjoys buying and selling British sports cars. He's currently on the market for a Lotus Evora and has seen them advertised between $42,000 and $65,000 depending upon the model year, options, and condition of the vehicle. Mitch is very interested in one particular advertisement and plans to contact the owner to discuss the vehicle. The owner is asking $54,500 for the vehicle, but Mitch believes he will be able to utilize _______ pricing to purchase the vehicle.

negotiated

Some retailers utilize _______ as a pricing strategy by offering discounts after Christmas or back-to-school offers to attract consumers to shop. However, this strategy may backfire as consumers may put off purchases in anticipation of a sale or reduced-price offer.

periodic discounting

Dallas owns a pet grooming business called Pawsatively Perfect. He only works weekdays between 8 a.m. and 5 p.m. He has loyal customers and enjoys all of the pets he grooms. Dallas is happy with the amount of business he currently has and would like to maintain his current work load. Dallas would likely employ which type of pricing objective?

status quo

AutoZone recently placed a newspaper and Facebook advertisement for a sale on tires that included the statement "up to 40 percent off" on certain brands such as Pirelli, Michelin, and Yokohama. This added statement is an example of _______ pricing.

tensile

Stepan is a global manufacturer of chemicals such as surfactants and polymers that are sold to manufacturers such as Procter & Gamble for use in its shampoos, laundry detergent, and soap products. Stepan competes with a variety of other chemical suppliers and knows that in general, it is a higher-priced and higher-quality supplier. However, Stepan doesn't know exactly how much its competitors charge for similar products. Which of the following practices should Stepan utilize to identify the prices competitors are charging for similar products?

using consumer pricing surveys

Jeremy is considering purchasing a new vehicle and is comparing the costs of a car that has the "Basic" package versus the "Sports" package. The "Sports" package includes a larger set of wheels and tires, stiffer suspension, and specially designed seating for the driver and passenger. Jeremy likes the "Basic" package fine but would prefer the car with the larger wheels and tires.He's looked at prices of wheels and tires on TireRack.com and notices that the vehicle with the "Sports" package would be priced comparably to buying the "Basic" package plus just the wheels and tires from TireRack. Eventually, Jeremy decides that purchasing the vehicle with the "Sports Package" makes the most sense even though he's indifferent to the seating or suspension options. This is an example of _______ pricing.

bundle

Beats by Dr. Dre headphones are sold at Target for $159.00, and Target is able to purchase them for $90. What is the markup percentage of cost that Target is using on this product?

76.7%

Which of the following statements is true regarding market share pricing objectives?

An organization can increase its market share even if sales for the total industry are flat or declining.

Which of the following descriptions is most appropriate for price lining?

Consumer demand for products is relatively inelastic and consumers tend to concentrate their purchases without responding to slight changes in price.

Which of the following best explains consumers' motivations to respond positively to bundle pricing?

Consumers appreciate the opportunity to save time related to shopping and enjoy increased convenience.

Which of the following is NOT one of the requirements for pricing objectives?

Include a comparison to the competition

The manufacturers of a tablet computer are planning to increase the price of the product above the price used during product launch to cover costs associated with product development and increased shipping costs related to overseas production. They are concerned that consumers will respond negatively to a price increase. What type of initial pricing strategy did the company most likely utilize?

Penetration pricing

A recent study by a consulting firm estimates a 11% annual growth rate for the gaming industry with revenues projected to reach $180.1 billion by 2021. Companies such as Microsoft and Sony fiercely compete for these dollars.In order to entice customers to purchase its system, Microsoft offers a variety of packages for their popular Xbox One console. Upon release of the Xbox One, Microsoft included the game console, a console controller, Kinect camera, HDMI cable, wired mono headset, and a 14-day trial for Microsoft Xbox Live Gold—all for $499. Shoppers could also purchase the Xbox One console without the Kinect camera (and all other accessories) for $399. The Kinect camera if purchased separately was priced at $149. Microsoft is utilizing a _______ pricing strategy.

bundle

Dollar Shave Club was founded on the idea that replacement razors are too expensive. Customers can buy a razor handle and a small number of blade cartridges for an affordable price, but replacement blade cartridges are priced very high. Companies like Gillette and Schick are using _______.

captive pricing

Many fashion or trendy products are expected to have a relatively short product life cycle and managers seek to recover cash as quickly as possible. Which pricing objective would be most appropriate for fashion or trendy products?

cash flow

The _______ pricing objective is often utilized to encourage rapid sales and recover cash as quickly as possible.

cash flow

The Casey's General Store chain typically operates in smaller markets and provides grocery items, liquor, pizza, and gasoline. Their prices of most grocery items, such as milk, eggs, juice, and bread, are typically priced higher than a grocery store because consumers are willing to pay more for the convenience. However, because Casey's General Store is often competing with several gas stations within a short radius of each location, it monitors the price of gas at various local outlets and adjusts prices daily to be at the same price or just under a competitor's price for gasoline. Casey's General Store is applying the _______ pricing basis.

competition-based

The formula to calculate the markup as a percentage of cost places _______ in the denominator.

cost

Rohit and Kushi recently retired to South Carolina and discovered a fine art furniture maker with whom they contracted to build a custom walnut dining table for their new home. The contractor utilized _______ pricing by multiplying 150% times the cost of the lumber and materials to build the table to arrive at the purchase price.

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

Cinemark Theatres charges $10 per person (on average) for movie tickets on Friday and Saturday nights after 6 p.m. but offers matinee prices of $7 per person for tickets at all other times during the week and before 6 p.m. on Fridays and Saturdays. What type of pricing is Cinemark using?

demand-based

Companies such as airlines utilize _______ pricing where they charge higher prices for airline fares during peak travel periods such as holidays when a large number of consumers will likely be traveling. However, they price fares lower during off-peak days.

demand-based

Blue Ribbon Farms is a family-owned farm and sells its seasonal produce, meat, eggs, and bakery items at several farmers' markets within a 60-mile radius of the farm. The owners utilize a Square payment system for credit cards, which is conveniently attached to a digital device such as an iPhone or iPad; however, the farm is charged a credit card fee of 8% of the retail price to process each credit card transaction. In order to encourage shoppers to pay with cash, Blue Ribbon Farms offers a 10% discount on purchases for consumers who pay by cash or check. Blue Ribbon Farms is utilizing a _______ pricing strategy.

differential

Stephen King is the owner of a 100-seat capacity restaurant in a mid-sized city and has significant restaurant experience but often struggles with decisions about pricing. Over the years however, he's developed a simple method where he applies a straight 35% to the cost of an item as his retail price. Stephen always knows the various cost elements of his entrees, side dishes, and beverages and simply multiplies the 35% times the cost to arrive at the final price to charge guests. What type of pricing is Stephen utilizing?

mark-up pricing

Nabisco Foods has noticed a decline in sales for its various brands of cookies, and sales for cookies in general are declining. However, Nabisco still hopes that its Oreo cookies can achieve a higher percentage of sales compared to competing cookie brands. This is an example of a _______ pricing objective.

market share

Spirit Airlines is a relatively new entrant to the no-frills, value-oriented airline segment and hopes to capture a large proportion of the dollars consumers spend on air travel in the value segment over the next year by taking customers away from other airlines such as Southwest, Frontier, and Allegiant. What type of pricing objective is Spirit Airlines utilizing?

market share

Which of the following is NOT a technique associated with psychological pricing?

penetration pricing

`Which new product pricing strategy builds market share quickly to encourage product trial?

penetration pricing

Many department store retailers traditionally plan a "White Sale" in mid-January to motivate shoppers to their store and encourage them to spend money after the holiday season. A traditional "White Sale" typically covers towels, sheets, and other staple items that consumers do not routinely purchase. The term was coined as sheets, pillowcases, and towels were traditionally white in color—hence the name, "White Sale." Over the years, shoppers have come to expect the traditional sale of household linens and delay their purchase until the early part of the year when they know these products' prices will be drastically reduced. The "White Sale" is an example of the _______ strategy.

periodic discounting

The Black Friday sale is highly anticipated by shoppers and many online and brick-and-mortar retail stores offer extreme discounts on items ranging from laptop computers to televisions to attract consumers to its stores. Some consumers even arrive at the retail location several hours before the store opens to wait in line and be one of the first shoppers allowed in the store. The Black Friday sale is an example of a _______ pricing strategy.

periodic discounting

The holiday shopping season is a busy one for retailers and shoppers alike as retailers strive to offer a selection of products that shoppers will want to purchase as gifts for friends and family members. Some consumers might shop all throughout the year to gather the various gifts for friends and family members, while the majority of shoppers will purchase items in a narrow window the three to four weeks before Christmas. Retailers face stiff competition for the consumer's gift purchasing business and may realize 40% to 50% of their annual sales during the holiday shopping frenzy.In order to attract more customers to their retail store, chains such as Target and Walmart advertise significant price reductions on desired items such as laptop computers, television sets, and gaming systems. More and more shoppers are anticipating these heavy discounts for the few days after Thanksgiving and especially on Black Friday and Cyber Monday. They are concentrating their holiday shopping on these days to maximize the discounts they could get when purchasing gifts. The holiday sales known as Black Friday and Cyber Monday are examples of the _______ strategy.

periodic discounting

Budweiser has a variety of different beers that it offers using the Budweiser name and prices the highest-quality beers such as its Platinum beverage at a higher price than other products in the line. What type of product-line pricing strategy is Budweiser implementing?

premium

_______ pricing is utilized by marketers as a product-line pricing strategy and is implemented by charging the highest price for products that are the most versatile and most desirable version of a product.

premium

Jennifer Sloan was recently hired by IBM as a solutions sales representative upon graduation from college and after working with the company for two years, now earns a base salary of $90,000 as well as commissions on sales and bonuses for exceeding her quarterly sales quotas. Jennifer is a fashionista and enjoys purchasing the latest styles and fashions from high-end designers such as Chanel, Dolce Gabbana, and her favorite red-soled shoes from Christian Louboutin that cost $500 or more per pair.Jennifer realizes that comparable products from other brands are priced much lower but enjoys the added luxury of these designer labels and feels that the quality is much better. In addition, Jennifer meets regularly with senior executives including vice presidents and presidents of companies and believes her image is related to her success as a sales representative. What type of pricing strategy do Christian Louboutin, Chanel, and Dolce Gabbana most likely utilize?

prestige

The Dollar Store has most items priced at $1, but they do carry some items priced at $3, $5, and even $10. This is an example of _______.

price lining

_______ is the strategy of selling products at certain predetermined prices that reflect explicit price breaks and is common for clothing and accessory products. This policy assumes that demand for various groups or sets of products is inelastic.

price lining

Xbox is releasing a new game system and will most likely utilize a _______ pricing strategy where they will charge the highest possible price they believe consumers will pay during the introductory stage of the product life cycle. However, when Frito Lay unveils a new product such as Tostitos Rolls, they utilize a _______ pricing strategy by setting a low price and build market share quickly as well as discourage competitors from entering the market.

price skimming; penetration

Juno Chang is the owner of a local upscale, fine dining restaurant and typically sets prices in order to achieve a 50% return on sales revenues. This is an example of a _______ pricing objective.

profit

_______ pricing is often employed by marketers such as cell phone companies including Verizon and AT&T who attempt to influence a customer's perception of price to make a product's price more attractive or evoke a customer's emotions in the purchase decision.

psychological

A Perfect Pair is a designer clothing boutique featuring fresh fashions for women who like to dress in up-to-the-minute fashions and have high levels of discretionary income to spend on clothing. The store does not offer very many discounts on clothing since it purchases in small amounts and frequently sells all that it orders. However, A Perfect Pair does price reductions on a nonsystematic basis, so customers are sometimes surprised to visit the store and notice items have been reduced from regular price. What pricing strategy is A Perfect Pair utilizing?

random discounting

A temporary reduction of prices on an unsystematic basis is called _______.

random discounting

The electronics manager at Best Buy just saw an advertisement for Walmart on the iPad mini 4 for $349 and up. He contacted the regional manager for Best Buy and got approval to meet the price on the product at his Best Buy store location. What type of pricing strategy does this represent?

random discounting

Carnival Cruise lines has several cruise ships that port near Orlando, Florida, and they often run specials on last minute sailings to customers who reside in Florida. Carnival is seeking to generate a higher percentage of occupancy on its sailings by attracting local customers at discounted rates. Carnival Cruise lines does not advertise these special prices in any other geographic market. This is an example of _______ pricing.

secondary market

One downside for customers to cost-plus pricing is _______.

sellers may increase stated costs to gain a larger profit

The Guiliani family desperately needed a new stove as theirs had only two working burners. They decided to wait just a few more weeks until Home Depot had their Labor Day sale, which usually resulted in 40% off appliances. The Labor Day sale is an example of _______.

special-event pricing

Professionals such as accountants and attorneys typically use a _______ pricing objective where nonprice competition occurs since pricing is not utilized as a competitive tool.

status quo

AMC Theaters has recently noticed a decline in movie theater attendance due to consumers' shifting media habits, such as streaming movies via Netflix, Hulu, and Amazon Prime. The theater chain is setting prices low to attract more sales and motivate consumers to return to the cinema for newly released movies. What type of pricing objective is AMC Theaters utilizing?

survival

Occasionally, firms may utilize a _______ pricing objective by temporarily setting prices low even below costs in order to generate higher levels of sales.

survival

The Farmhouse Restaurant has been struggling to attract customers for its lunch service and decides to utilize a _______ pricing objective where it prices its lunch specials below costs at $5.99 per person to attract customers to the restaurant. The restaurant hopes this is a short-term strategy that will increase revenue and create more loyal customers who will return to the restaurant even if the lunch special price is increased.

survival

Marketers improve their ability to establish prices appropriately when _______.

they know prices charged for competing brands

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

true

The Nintendo Switch retails for $299 at GameStop and the cost to GameStop is $200. What is the markup as a percentage of selling price?

33%