Final Ch. 14
Raymond estimates that the fixed costs associated with opening a new bank branch are $500,000. He expects the branch to attract 1,000 new customer accounts in the first year, each of which will cost $50 per year to service. He also expects to generate $100,000 per year in revenue. For Raymond, the total cost of opening the new branch and remaining open for one year will be:
$550,000.
Jacob rents rooms in his hotel for an average of $100 per night. The variable cost per rented room is $20, to cover maid service and utilities. His fixed costs are $100,000 and his profit last year was $20,000. For Jacob, the contribution per unit is
$80
Jason rents rooms in his hotel for an average of $100 per night. The variable cost per rented room is $20. His fixed costs are $100,000 and his target profit is $20,000. For Jason, to earn his target profit, he will need to rent out ________ rooms.
1,500
If the fixed costs of manufacturing a new cell phone are $10,000, the sales price is $60, and variable cost per unit is $20, the break-even point is
250 units.
How can a company find its way out of a market characterized by pure competition?
Differentiate the product in some way, even by packaging, so customers will see it as distinct.
Which of the following is the most logical example of complementary products?
Hot dogs and hot dog buns
__________ pricing tactics lower the price of a product below cost.
Loss leader
_________________ measures consumers' sensitivity to price changes.
Price elasticity of demand
Assume the demand for electricity, a necessity with few substitutes, is -0.2. If the electric company raised its rates by 10 percent, we would expect
a 2 percent decrease in quantity demanded.
Customers must see value in a product or service before they are willing to exchange time or money to obtain it, but not all customers see the same value in a product. To analyze how many units will be sold at any given price point, marketers draw on
a demand curve
Yurgen is opening a financial consulting service for high-income retirees in his area. This target market is used to paying for quality and associates high quality with high prices. Yurgen should probably NOT use a market penetration pricing strategy because
a low price might signal low quality.
For which of the following is demand likely to be most sensitive to price increases?
a specific brand of soft drink
Frank's Heating and Air Conditioning Company specializes in electric heat pumps. Frank keeps track of the price of natural gas, knowing that
an increase in the price of natural gas will increase demand for his electrical heating systems.
Margaret has been invited to a fancy dinner party and wants to bring a good bottle of wine as a gift for the host. Since she does not know much about wine, she will likely use the price of the wines as
an indicator of quality.
In a __________ pricing tactic, sellers advertise low prices and then aggressively pressure customers to purchase higher-priced versions of the product advertised with the low price.
bait and switch
The point at which the number of units sold generates enough revenue to equal the total costs of running an operation is known as the
break-even point.
Variable costs change with
changes in the quantity being produced.
Which of the following is NOT one of the five Cs of pricing?
collaboration
In many high-end resort markets, Westin hotels compete directly with Crown Plaza hotels. Each firm weighs the comparative advantages and disadvantages of its offerings to determine whether to price above, equal to, or below the other hotel. In these markets, the hotels are using a _______________ pricing strategy.
competitive parity
When firms set prices similar to those of competitors, they are following a strategy of
competitive parity.
When Ursula decides how to price new products in her gift store, she measures the value of her product offerings against those of the other stores in her area. Ursula uses a __________________ pricing strategy.
competitor-oriented
Diane owns a bakery where she sells cupcakes. Two blocks down there is another bakery, CC's Bakery, that sells cupcakes for $1 less than Diane. Diane decides to lower her price and match CC's Bakery prices. What type of pricing strategy is Diane implementing?
competitor-oriented pricing
Bill is a yacht broker in the southeastern United States. For years he has had difficulty selling large yachts locally because there were few places to dock these boats. Yachts and spaces to dock them are an example of
complementary products
In general, prices should not be based on costs because
consumers make their purchase decisions based on perceived value.
A no-haggle pricing policy is a type of _______________ pricing strategy.
customer-oriented
Julia's is an upscale women's clothing store. Prices are based on customers' beliefs about the value of the clothing. The store focuses on a limited target market and provides excellent customer service. Julia's is using a ________________ pricing strategy.
customer-oriented
Traditional demand curve economic theory is used by marketers to understand _______________ in the five Cs of pricing.
customers
Price advertisements should never
deceive customers to the point of doing harm.
If the price for a product increases, the demand for the complementary product will
decrease
Managers of Wendy's fast food restaurants keep track of prices at competitors such as McDonald's, Burger King, and Arby's, knowing that a decrease in the prices at these other fast food restaurants will
decrease demand for Wendy's products.
The break-even point is estimated by
dividing fixed costs by contribution per unit.
Break-even analysis is useful because it allows managers to
estimate the quantity they will need to sell at a given price to break even.
A demand curve is built assuming that
everything but price and demand remains the same.
Production of the DeLorean car, made famous in the film Back to the Future, never got above 25,000 units during its lifetime. Automobile industry analysts estimate that production of this car needed to reach around 300,000 units to achieve the __________, a decrease in unit cost as product volume increases.
experience curve effect
The __________ occurs when unit cost drops as the quantity sold increases.
experience curve effect
Gerald has a number of customers for his lawn care service who never question his bill but expect their lawns to be perfect. These customers do not want low prices, they want
high value.
Tess is the marketing manager for a fast food restaurant chain. She uses a target return pricing strategy because her firm's primary objective is to
increase profits
A study found that, among addicted smokers, a 10 percent increase in the price of cigarettes resulted in a 2 percent decrease in quantity demanded. For these consumers, cigarettes have a(n) ________________ price elasticity demand.
inelastic
Price skimming focuses on selling products to __________ and __________ in the consumer adoption process model.
innovators; early adopters
A strategy of setting prices based on how customers develop their perceptions of value can often be the most effective pricing strategy, especially if the strategy
is supported by consistent advertising and distribution strategies.
One of the limitations associated with break-even analysis is that
it assumes that there is only one price.
The observation that consumers are generally more sensitive to price increases than to price decreases suggests that
it is easier to lose customers with a price increase than to gain customers with a price decrease.
Odd prices often suggest __________ to consumers.
low quality
Mario is the first retailer in town to sell games for Sony's new PlayStation 3 machine. Mario wants to quickly capture as much of the market for the new games as possible. Mario will likely use a __________ pricing strategy.
market penetration
With a __________ pricing strategy, marketers set a low initial price for the introduction of a new product or service.
market penetration
A _________________ strategy involves accurately measuring all the factors needed to predict sales and profits at various price levels, so that the price level that produces the highest return can be chosen.
maximizing profits
Earl was known for driving 30 miles to save a dollar on the price for his favorite beverage. Earl perceived price as ________________, while most consumers recognize price as the ______________ made to acquire a good or service.
money paid; overall sacrifice
If a firm in a purely competitive market can differentiate its product or service, it becomes part of a _______________ market.
monopolistic competition
In a market with _______________, there are many firms providing differentiated products.
monopolistic competition
Developing pricing strategies for __________ is one of the most challenging tasks a manager can undertake.
new products
The commercial airline industry is considered what type of market?
oligopolistic competition
Price is the _____________ a consumer is willing to make to acquire a specific product or service.
overall sacrifice
Cross-price elasticity is the
percentage change in quantity demanded of product A compared to the percentage change in price of product B.
Sharon knew that her established customers liked her product much better than her competitor's. She was planning to expand into new markets, and she was considering pricing. She was leaning toward charging a higher price than competitors to help demonstrate that hers was a high-quality product. Sharon was considering
premium pricing
For which of the following is demand likely to be least sensitive to price increases?
prescription drugs
There is an old saying, "If you have to ask the price of a yacht, you cannot afford it." Products like yachts are most likely to be associated with
prestige pricing.
A demand curve shows the relationship between ___________________ in a period of time.
price and demand
If a 1 percent decrease in price results in more than a 1 percent increase in quantity demand, demand is
price elastic.
Barry customizes Harley-Davidson motorcycles. No two cycles are alike. He notices that very few customers even ask the price of his motorcycles before they decide to purchase them. Demand for his motorcycles is probably
price inelastic
If a 1 percent decrease in price results in less than a 1 percent increase in the quantity demanded, demand is
price inelastic
Because there are many firms with similar products in purely competitive markets,
price is determined by the laws of supply and demand.
The contribution per unit is
price minus variable cost per unit.
Because there are only a few firms in markets with oligopolistic competition,
price wars may occur.
At the break-even point,
profits are zero.
In _______________, many firms provide similar products that are considered substitutes for each other.
pure competition
The major objectives associated with a market penetration pricing strategy are to
quickly build sales and market share.
Historically, prices were
rarely changed except in response to radical shifts in market conditions.
Julia wants her firm's gourmet snacks to be the leading brand in the U.S. market. When adopting a pricing strategy designed to gain market share, she should remember that
rarely is the lowest-price offering the dominant brand in a market.
Brad always buys and uses Nike brand golf balls. If he finds a Titleist or Callaway ball in the rough, he gives it away. Brand loyal golfers like Brad allow Nike to charge a higher price and not lose many sales. By building a strong brand, Nike has effectively
reduced the price elasticity of demand for its products.
Marketers spend millions of dollars annually trying to create or reinforce brand loyalty. Brand loyalty changes the demand curve for the firm's products by
reducing the price elasticity of demand.
Marketers advertising an artificially high regular price are unethically attempting to influence consumers'__________ perceptions.
reference price
In determining the price for his company's new pocket digital camera, Matt determines what consumers consider the regular or original price for similar cameras available in the market. Matt is assessing the influence of __________ on pricing strategy.
reference prices
For marketers to advertise a price as their __________, the Better Business Bureau recommends that at least 50 percent of the sales of a product occur at that price.
regular price
David manages a Shoney's restaurant. He is considering staying open later in the evening. For David, the variable costs associated with staying open longer hours will include all of the following EXCEPT
rent on the restaurant building.
Gary is the marketing manager for an automobile dealership. His boss tells him the firm's primary goal is to increase its local market share from 15 to 30 percent. His firm is using a ________ orientation.
sales
Health clubs often use a low, introductory offer price to get people to join their club. These low prices represent a ______________ pricing strategy.
sales orientation
Many years ago Honda's Accord and Ford's Taurus were the top two selling cars in the United States. As the year was coming to an end, Ford cut the price of the Taurus, hoping to outsell the Accord and allow Ford to claim that "Taurus is the best-selling car in America." Ford was using a ___________________ pricing strategy.
sales orientation
Bernard's firm has set corporate direction to become one of the leaders in each of its significant market segments. It was Bernard's job to examine the pricing to determine how to maximize market share, even at the expense of profits in the short run. What kind of company objective would guide Bernard's effort?
sales-oriented
Marlie designs and manufactures specialty furniture. She has a number of unique products but can only produce in limited quantities. Marlie will probably NOT use a market penetration strategy because
she could not meet a rapid rise in demand.
Charging a relatively high price for new and innovative products to those consumers most willing and able to pay the high price is called price
skimming
When Apple Computer company introduced the iPhone—a combination phone, MP3 player, and Internet access device—in 2007, it was priced at $499, considerably higher than either the iPod or competing cell phones. Apple was probably pursuing a __________ pricing strategy.
skimming
When Burroughs Wellcome introduced the first anti-AIDS drugs, it initially set the price at $10,000 for a year's supply. Burroughs Wellcome was probably pursuing a __________ pricing strategy.
skimming
Which of the following markets is MOST likely to be characterized by oligopolistic competition in the United States?
soft drinks
Which of the following is most likely to be characterized by pure competition in the United States?
soybeans
Ryan gave the manager of his convenience store a set of binoculars so she could see the gasoline prices charged by the other convenience store at that intersection. Ryan told the manager to always match the gasoline prices of the other store. Ryan is using a _____________________ pricing strategy.
status quo
Naomi tells her sales representatives the goal is to generate at least a 20 percent return on investment for all of the industrial building supplies they sell. Naomi is using a _______________ pricing strategy.
target return
Unlike product, promotion, or place, price is the only part of the marketing mix
that generates revenue.
Rodi owns Hallman's auto repair service. He has observed over the years that customers keep their high-mileage cars longer when the economy is doing poorly, creating demand for his maintenance and repair service. Rodi has observed the impact of ______________ on demand for his service.
the income effect
Sales of national brands of orange juice tend to increase when the economy is doing well, while sales of generic orange juice increase when the economy is not doing well. This is an example of how ____________ affects demand for products.
the income effect
According to a typical demand curve, the higher the price,
the lower the quantity consumers will buy.
Because there are many firms in monopolistic competition markets,
the many competitors will focus on product differentiation.
The more substitutes that exist in a market,
the more sensitive consumers will be to changes in the price of a particular product.
A reference price is
the price against which buyers compare the actual selling price.
The full price of a product or service includes all of the following EXCEPT
the price of alternative products and services.
One problem in relying on price elasticity and demand curves when setting prices is that
the way a product or service is marketed can have a profound impact on price elasticity.
Gray markets can be a challenge to marketers because
they may tarnish the manufacturer's image.
Price is often the most challenging of the four Ps to manage, partly because it is often ______________ in developing marketing strategies.
treated as an afterthought
A customer orientation toward pricing implicitly invokes the concept of
value
Labor, materials, and energy are typically __________ costs.
variable
To discourage consumers from buying in gray markets, some manufacturers have
warned consumers that their warranty is null and void if purchased through a gray market supplier.
