MKT 111 Chapter 9

39) Under oligopolistic competition, the market consists of only a few large sellers.

TRUE Diff: 1 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Analytical thinking

98) Sellers are prohibited from using predatory pricing.

TRUE Diff: 1 LO: 9-6: Discuss the major public policy concerns and key pieces of legislation that affect pricing decisions. AACSB: Ethical understanding and reasoning

2) ________ is the only element in the marketing mix that produces revenue. A) Price B) Place C) Promotion D) Product E) Profit

A Diff: 1 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Analytical thinking

4) Which of the following sets the price floor lower limit for a product's pricing? A) product costs B) profits C) competition D) elements of the product mix E) consumer perceptions of value

A Diff: 1 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Analytical thinking

5) ________ uses buyers' perceptions of what a product is worth as the key to pricing. A) Customer value-based pricing B) Target return pricing C) Cost-plus pricing D) Psychological pricing E) Competition-based pricing

A Diff: 1 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Application of knowledge

34) The relationship between the price charged for a product and the resulting demand level can be shown in a(n) ________. A) demand curve B) supply curve C) elastic demand slope D) break-even chart E) inelastic demand slope

A Diff: 1 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Analytical thinking

51) Which of the following conditions is most likely essential for implementing a successful market-skimming pricing strategy for a product? A) The product's quality and image must support its high price. B) Lower-priced alternatives can enter the market easily. C) Low prices promote more market growth than high prices. D) The product's price matches its manufacturing costs. E) A low-price position of the product is maintained.

A Diff: 1 LO: 9-3: Describe the major strategies for pricing new products. AACSB: Reflective thinking

80) When a manufacturer offers a ________, a customer buys a product from a manufacturer's dealer within a specified time period, and the manufacturer then sends the customer a check. A) cash rebate B) quantity discount C) promotional allowance D) flash sale E) functional discount

A Diff: 1 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Application of knowledge

7) When establishing prices, it's important for a manager to understand that "good value" is not the same as ________. A) "low price" B) "high price" C) "bargain basement" D) "perceived value" E) "everyday value"

A Diff: 2 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Analytical thinking

11) Rent, electricity, and executive salaries that do not vary with production or sales level are referred to as ________ costs. A) fixed B) variable C) break-even D) target E) promotional

A Diff: 2 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Application of knowledge

30) In ________, the market consists of many buyers and sellers trading in a uniform commodity, such as wheat, copper, or financial securities. A) pure competition B) monopolistic competition C) oligopolistic competition D) a pure monopoly E) a pure monopsony

A Diff: 2 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Application of knowledge

69) Which group is most likely offered functional discounts by manufacturers? A) trade-channel members that perform sales tasks B) consumers who buy products in large quantities C) buyers who pay their bills before the due date D) buyers who purchase merchandise out of season E) retailers that participate in advertising programs

A Diff: 2 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Analytical thinking

91) Which of the following would most likely trigger a price increase? A) cost inflation B) reduced demand C) cheaper alternatives D) reduced expenses E) overproduction

A Diff: 2 LO: 9-6: Discuss the major public policy concerns and key pieces of legislation that affect pricing decisions. AACSB: Analytical thinking

92) The Sherman Act, Clayton Act, and Robinson-Patman Act are all federal laws that were initially adopted to curb the formation of ________. A) monopolies B) oligopolies C) competitive markets D) international markets E) limited partnerships

A Diff: 2 LO: 9-6: Discuss the major public policy concerns and key pieces of legislation that affect pricing decisions. AACSB: Ethical understanding and reasoning

31) There are more than 50 blueberry farmers in Shammonton, New Jersey, that grow, package, and distribute the same quality blueberries. An individual farmer cannot charge more than the going market price per unit without the risk of losing business to the other farmers. This is an example of ________. A) pure competition B) monopolistic competition C) oligopolistic competition D) a pure monopoly E) a black market

A Diff: 3 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Analytical thinking

49) With each new generation of Apple iPhone, iPad, or Mac computer, new models start at a high price then work their way down as newer models are introduced. Apple initially uses a ________ strategy. A) market-skimming B) target costing C) deceptive D) market-penetration E) predatory

A Diff: 3 LO: 9-3: Describe the major strategies for pricing new products. AACSB: Analytical thinking

53) Posh Collections introduced a new watch to appeal to upscale consumers. The company will most likely use a(n) ________ strategy. A) market-skimming pricing B) market-penetration pricing C) optional-product pricing D) by-product pricing E) allowance pricing

A Diff: 3 LO: 9-3: Describe the major strategies for pricing new products. AACSB: Analytical thinking

56) NerdHerd Electronics sells three different sizes of televisions at three different prices. In this case, the company's pricing strategy is referred to as ________ pricing. A) product line B) optional-product C) by-product D) product bundle E) captive-product

A Diff: 3 LO: 9-4: Explain how companies find a set of prices that maximizes the profits from the total product mix. AACSB: Analytical thinking

74) Busch Stadium in St. Louis charges different prices for seats in different areas of the ball park, even though each seat costs the same for the owners of the stadium. What is this form of pricing called? A) location-based pricing B) market-skimming pricing C) product-form pricing D) time-based pricing E) market-penetration pricing

A Diff: 3 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Analytical thinking

83) Wilkinson & Company sells plumbing supplies across the United States. Wilkinson uses Chicago as its central location for determining freight costs regardless of the city from which products are actually shipped. For example, a Dallas customer pays the freight cost from Chicago to Dallas even if the goods are shipped from Dallas. Wilkinson most likely uses ________ pricing. A) basing-point B) FOB-origin C) freight-absorption D) zone E) reference

A Diff: 3 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Analytical thinking

25) What are the two different types of costs a company incurs? Explain with examples.

A company's costs take two forms: fixed and variable. Fixed costs (also known as overhead) are costs that do not vary with production or sales level. For example, a company must pay each month's bills for rent, heat, interest, and executive salaries regardless of the company's level of output. Variable costs vary directly with the level of production. Each PC produced by HP involves a cost of computer chips, wires, plastic, packaging, and other inputs. Although these costs tend to be the same for each unit produced, they are called variable costs because the total varies with the number of units produced. Total costs are the sum of the fixed and variable costs for any given level of production. Management wants to charge a price that will at least cover the total production costs at a given level of production. Diff: 2 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Analytical thinking

12) Costs that change directly with the level of production are referred to as ________ costs. A) fixed B) variable C) target D) capital E) payroll

B Diff: 1 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Application of knowledge

15) ________ pricing is an approach whereby a firm tries to determine the price at which it will break even or earn the profit it is seeking. A) Competition-based B) Target return C) Cost-plus D) Good-value E) Value-added

B Diff: 1 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Application of knowledge

76) Pricing a product based on consumers' reference prices is referred to as ________ pricing. A) geographical B) psychological C) allowance D) by-product E) captive-product

B Diff: 1 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Application of knowledge

78) ________ prices are carried in buyers' minds and used when looking at a given product. A) Captive-product B) Reference C) Promotional D) Geographical E) Dynamic

B Diff: 1 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Application of knowledge

9) Providing extra amenities to differentiate and support high-priced products is referred to as ________ pricing. A) high-low B) value-added C) target return D) everyday low E) cost-plus

B Diff: 2 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Application of knowledge

27) Each PC produced by HP involves a cost of computer chips, wires, plastic, packaging, and other inputs. Although these costs tend to be the same for each unit produced, they are called ________ costs because the total changes based on the number of units produced. A) fixed B) variable C) target D) capital E) payroll

B Diff: 2 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Analytical thinking

28) Los Amigos, a new Mexican restaurant, has set up shop across the street from Hot Tamales and More. Which of the following pricing strategies will Los Amigos likely use? A) cost-plus B) competition-based C) break-even D) good-value E) target costing

B Diff: 2 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Analytical thinking

32) Under ________, the market consists of many buyers and sellers trading over a range of prices rather than a single market price. A) pure competition B) monopolistic competition C) oligopolistic competition D) a pure monopoly E) a pure monopsony

B Diff: 2 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Application of knowledge

50) The first Target store opened in 1962. Its initial strategy was to set prices low to attract a large number of buyers quickly and win a large market share. This is referred to as ________. A) market-skimming pricing B) market-penetration pricing C) value-added pricing D) target costing E) deceptive pricing

B Diff: 2 LO: 9-3: Describe the major strategies for pricing new products. AACSB: Analytical thinking

61) Salon Du Jour offers special combination packages at a reduced price. Separately, a haircut is $30 and a conditioning treatment is $35. But the combo price is $50. This is referred to as ________ pricing. A) by-product B) product bundle C) captive-product D) optional-product E) product line

B Diff: 2 LO: 9-4: Explain how companies find a set of prices that maximizes the profits from the total product mix. AACSB: Analytical thinking

57) Computer World sells laptops separately from accessory products like docking stations, anti-virus software, and external hard drives. This is referred to as ________ pricing. A) product bundle B) optional-product C) market-penetration D) by-product E) product line

B Diff: 3 LO: 9-4: Explain how companies find a set of prices that maximizes the profits from the total product mix. AACSB: Analytical thinking

60) Netcorp, an Internet service provider, charges its users a fixed rental fee for its basic package, which has a download limit. If a user exceeds this download limit, an additional fee is charged for every download. In this case, the firm's pricing strategy is referred to as ________ pricing. A) by-product B) two-part C) optional-product D) segmented E) promotional

B Diff: 3 LO: 9-4: Explain how companies find a set of prices that maximizes the profits from the total product mix. AACSB: Analytical thinking

70) The National Tree Company offers resellers half-price reductions on artificial Christmas trees if they purchase them in July. This is an example of a ________. A) functional discount B) seasonal discount C) promotional allowance D) trade-in allowance E) quantity discount

B Diff: 3 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Analytical thinking

3) Which of the following sets the price ceiling for a product's pricing? A) profits B) product costs C) consumer perceptions of value D) elements of the product mix E) competition

C Diff: 1 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Analytical thinking

35) When demand hardly changes with a small change in the price of a product, the demand for the product is best described as ________. A) elastic B) flexible C) inelastic D) variable E) cyclical

C Diff: 1 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Analytical thinking

52) Which of the following conditions is most likely essential for implementing a successful market-penetration pricing strategy for a product? A) The product's quality supports its high price. B) Alternative products can enter the market easily. C) The market for the product is highly price sensitive. D) Prices increase incrementally as sales volume increases. E) Production costs rise with an increase in marketing efforts.

C Diff: 1 LO: 9-3: Describe the major strategies for pricing new products. AACSB: Analytical thinking

6) A ________ pricing strategy for an offering begins with an assessment of customer needs and perceptions. Then a target price is set based on customer perceptions of worth. A) cost-based B) target costing C) value-based D) value-added E) competition-based

C Diff: 2 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Analytical thinking

1) ________ is the sum of all the values that customers exchange for the benefits of having or using a product or service. A) Payroll B) Profit C) Price D) Cost E) Salary

C Diff: 2 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Application of knowledge

10) ________ pricing involves setting prices based on the expenses involved in producing, distributing, and selling a product plus a fair rate of return for a company's effort and risk. A) Competition-based B) Value-added C) Cost-based D) Good-value E) Demand-based

C Diff: 2 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Application of knowledge

33) Under ________, the market consists of a few large sellers who are highly sensitive to each other's pricing and marketing strategies. A) pure competition B) monopolistic competition C) oligopolistic competition D) a pure monopoly E) pure monopsony

C Diff: 2 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Application of knowledge

59) How do firms that use captive-product pricing make up for the low prices of their main products? A) They reduce the cost of the captive products. B) They provide the captive products as freebies. C) They set high markups on the captive products. D) They increase the price of the main products. E) They offer the captive products and main products together at a reasonable price.

C Diff: 2 LO: 9-4: Explain how companies find a set of prices that maximizes the profits from the total product mix. AACSB: Analytical thinking

77) Consumers rely less on price to judge the quality of a product when they ________. A) lack information about the product B) are unable to research the product C) have prior experience with the product D) are unable to judge the quality of the product E) rely on cues from sellers to differentiate a high or low price

C Diff: 2 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Analytical thinking

82) Which of the following pricing strategies is the opposite of FOB-origin pricing? A) basing-point pricing B) dynamic pricing C) uniform-delivered pricing D) freight-absorption pricing E) zone pricing

C Diff: 2 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Analytical thinking

95) ________ pricing occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers. A) Predatory B) Psychological C) Deceptive D) Cost-plus E) Allowance

C Diff: 2 LO: 9-6: Discuss the major public policy concerns and key pieces of legislation that affect pricing decisions. AACSB: Ethical understanding and reasoning

14) Lovely Skin is establishing a pricing strategy for a new moisturizer. The total cost to produce each unit is $3.50. The company has decided to add a $1.50 markup, so the unit price to distributors will be $5. Lovely Skin is using a ________ approach to price the new moisturizer. A) value-added B) good-value C) cost-plus D) competitor-based E) break-even

C Diff: 3 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Analytical thinking

29) Radox, a luxury watch brand, identifies a market segment that is willing to pay premium prices for its watches, and Radox managers select an ideal selling price. Managers then determine the costs to create watches that meet the ideal selling price. The company's pricing approach is referred to as ________. A) mass production B) cost-plus pricing C) target costing D) value-added pricing E) target return pricing

C Diff: 3 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Analytical thinking

73) Metro Museum has different admission prices for students, adults, and seniors. All three groups are entitled to the same services. This form of pricing is called ________ pricing. A) time-based B) location-based C) customer-segment D) by-product E) product form

C Diff: 3 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Analytical thinking

85) The Vitamin Shoppe sells natural vitamins and supplements. Product prices are adjusted frequently to meet the needs of individual customers. For example, long-time customers receive discounts. This strategy is most likely an example of ________ pricing. A) zone B) competition-based C) dynamic D) basing-point E) penetration

C Diff: 3 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Analytical thinking

94) Penny Bank, a discount store, is highly competitive. When entering a new market, Penny Bank often cuts prices so deeply that it sells below costs, effectively pushing smaller retail stores with less purchasing power out of the market. In this case, Penny Bank is using ________. A) market skimming B) psychological pricing C) predatory pricing D) deceptive pricing E) cost-plus pricing

C Diff: 3 LO: 9-6: Discuss the major public policy concerns and key pieces of legislation that affect pricing decisions. AACSB: Ethical understanding and reasoning

90) Explain how companies that market their products internationally decide what prices to charge in different countries.

Companies that market their products internationally must decide what prices to charge in different countries. In some cases, a company can set a uniform worldwide price. However, most companies adjust their prices to reflect local market conditions and cost considerations. A firm must consider economic conditions, competitive situations, laws and regulations, and development of the wholesale and retail system. Consumer perceptions and preferences also may vary from country to country, calling for different prices. The company may have different marketing objectives in various world markets. Costs play an important role in setting international prices. In some cases, price escalation may result from differences in selling strategies or market conditions. In most instances, however, it is simply a result of the higher costs of selling in another country—the additional costs of operations, product modifications, shipping and insurance, import tariffs and taxes, exchange-rate fluctuations, and physical distribution. Diff: 3 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Diverse and multicultural work environments

26) Explain competition-based pricing.

Competition-based pricing involves setting prices based on competitors' strategies, costs, prices, and market offerings. Consumers will base their judgments of a product's value on the prices that competitors charge for similar products. In assessing competitors' pricing strategies, a company should consider several factors. First, it must find how the company's market offering compares with competitors' offerings in terms of customer value. If consumers perceive that the company's product or service provides greater value, the company can charge a higher price. If consumers perceive less value relative to competing products, the company must either charge a lower price or change customer perceptions to justify a higher price. Next, the company should determine the strength of its current competitors and their current pricing strategies. If the company faces a host of smaller competitors charging high prices relative to the value they deliver, it might charge lower prices to drive weaker competitors from the market. If the market is dominated by larger, lower-price competitors, the company may decide to target unserved market niches with value-added products and services at higher prices. Finally, no matter what price the company charges—high, low, or in between—it must try to give customers superior value for that price. Diff: 3 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Analytical thinking

24) What is customer value-based pricing? Describe the two types of value-based pricing.

Customer value-based pricing uses buyers' perceptions of value as the key to pricing. Value-based pricing means that the marketer cannot design a product and marketing program and then set the price. Price is considered along with all other marketing mix variables before the marketing program is set. The company first assesses customer needs and value perceptions. It then sets its target price based on customer perceptions of value. The targeted value and price drive decisions about what costs can be incurred and the resulting product design. As a result, pricing begins with analyzing consumer needs and value perceptions, and the price is set to match perceived value. It is important to remember that "good value" is not the same as "low price." The two types of value-based pricing are good-value pricing and value-added pricing. More and more, marketers have adopted the strategy of good-value pricing—offering the right combination of quality and good service at a fair price. In many cases, this has involved introducing less-expensive versions of established, brand name products. Many companies also adopt value-added pricing strategies. Rather than cutting prices to match competitors, they attach value-added features and services to differentiate their offers and thus support their higher prices. Diff: 3 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Analytical thinking

13) ________ costs refer to the sum of the fixed and variable costs for any given level of production. A) Target B) Marginal C) Value-based D) Total E) Break-even

D Diff: 1 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Application of knowledge

79) What type of pricing is being used when a company temporarily prices its products below the list price to create buying excitement and urgency? A) segmented pricing B) psychological pricing C) geographical pricing D) promotional pricing E) dynamic pricing

D Diff: 1 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Application of knowledge

8) Retailers like Kohl's and JCPenney carry less-expensive versions of established brand name products or new lower-price lines. They have adopted a ________ pricing strategy. A) high-low B) target return C) cost-plus D) good-value E) market-skimming

D Diff: 2 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Analytical thinking

75) Movie theaters charge matinee pricing during the daytime, and resorts give weekend and seasonal discounts. This is illustrative of a ________ pricing strategy. A) product form B) market-penetration C) market-skimming D) time-based E) value-added

D Diff: 2 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Analytical thinking

71) Vac "N" Sew, a consumer electronics outlet, offers a price reduction of $100 when customers bring in a used vacuum cleaner and exchange it for a new vacuum cleaner or sewing machine. This is an example of a ________. A) functional discount B) cash discount C) seasonal discount D) trade-in allowance E) by-product allowance

D Diff: 3 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Analytical thinking

72) When Nabisco offers to cover half the cost of all local advertising for supermarkets that sell Oreo Cookies, the company is granting ________. A) cash discounts B) seasonal discounts C) quantity discounts D) promotional allowances E) trade-in allowances

D Diff: 3 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Analytical thinking

84) Computer Works is a computer accessories manufacturer based in Brazil. All customers in South America pay the same freight charge, $20, when they order products from the company. All customers in North America pay a freight charge of $50. The company's pricing strategy is referred to as ________ pricing. A) basing-point B) FOB-origin C) freight-absorption D) zone E) uniform-delivered

D Diff: 3 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Analytical thinking

36) Which of the following is an economic factor that affects the pricing decisions of a company? A) market-penetration practices B) top management decisions C) promotional activities D) reseller policies E) interest rates

E Diff: 1 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Analytical thinking

93) ________ pricing refers to selling below cost with the intention of punishing a competitor or gaining higher long-run profits by putting competitors out of business. A) Oligopolistic B) Captive C) Dynamic D) Zone E) Predatory

E Diff: 1 LO: 9-6: Discuss the major public policy concerns and key pieces of legislation that affect pricing decisions. AACSB: Ethical understanding and reasoning

17) Which of the following statements about break-even analysis is most likely true? A) It determines how customer-perceived value changes with value-added pricing. B) It is a tool used to calculate fixed costs. C) It is used to determine the maximum price that can be set on a product. D) It is a tool marketers use to examine the relationship between supply and demand. E) It fails to consider customer value and the relationship between price and demand.

E Diff: 2 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Analytical thinking

58) Establishing prices for razor blades that must be used with a razor blade system is known as ________ pricing. A) by-product B) market-penetration C) product line D) product bundle E) captive-product

E Diff: 2 LO: 9-4: Explain how companies find a set of prices that maximizes the profits from the total product mix. AACSB: Analytical thinking

81) Which of the following pricing strategies charges the same price plus freight to all customers, regardless of their location? A) basing-point pricing B) freight-absorption pricing C) FOB-origin pricing D) zone pricing E) uniform-delivered pricing

E Diff: 2 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Application of knowledge

16) The Fashion Store, a new startup, sets product prices so that revenues will equal manufacturing and marketing costs. The pricing strategy used by the company is referred to as ________ pricing. A) good-value B) value-added C) cost-plus D) competition-based E) target return

E Diff: 3 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Analytical thinking

46) What is a demand curve? Why is it useful to marketers?

Each price a company might charge will lead to a different level of demand. The relationship between the price charged and the resulting demand level is illustrated in a demand curve. The demand curve shows the number of units the market will buy in a given time period at different prices that might be charged. In the normal case, demand and price are inversely related - that is, the higher the price, the lower the demand. Understanding a demand curve is crucial to good pricing decisions. In a monopoly, the demand curve shows the total market demand resulting from different prices. If a company faces competition, its demand at different prices will depend on whether competitors' prices stay constant or change with the company's own prices. Diff: 2 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Analytical thinking

48) What external factors affect the pricing decisions made by organizations?

External factors that affect pricing decisions include the nature of market and demand, competitors' strategies, and competitors' prices. Economic conditions can also have a strong impact on the firm's pricing strategies. Economic factors such as a boom or recession, inflation, and interest rates affect pricing decisions because they affect consumer spending, consumer perceptions of the product's price and value, and the company's costs of producing and selling a product. Beyond the market and the economy, a company must consider several other factors in its external environment when setting prices. It must know what impact its prices will have on other parties in its environment, such as resellers' reactions to prices. The company should set prices that give resellers a fair profit, encourage their support, and help them to sell the product effectively. The government is another important external influence on pricing decisions. Finally, social concerns may need to be taken into account. In setting prices, a company's short-term sales, market share, and profit goals may need to be tempered by broader societal considerations. Diff: 3 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Analytical thinking

18) Unlike the other marketing mix elements, price plays a minor role in creating customer value and building customer relationships.

FALSE Diff: 1 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Analytical thinking

19) Break-even pricing involves setting prices based on competitors' strategies, costs, prices, and market offerings.

FALSE Diff: 1 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Application of knowledge

42) If demand is elastic rather than inelastic, sellers typically consider increasing their prices.

FALSE Diff: 1 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Analytical thinking

23) Competitive pricing is a variation of break-even pricing.

FALSE Diff: 2 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Application of knowledge

40) The demand curve shows the number of units the market will buy in a given time period at similar prices.

FALSE Diff: 2 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Analytical thinking

43) Pricing strategies usually remain the same as a product passes through its life cycle.

FALSE Diff: 2 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Analytical thinking

38) In monopolistic competition, the market is dominated by one seller.

FALSE Diff: 2 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Application of knowledge

54) Market penetration makes sense when a product's quality and image must support its higher price.

FALSE Diff: 2 LO: 9-3: Describe the major strategies for pricing new products. AACSB: Analytical thinking

62) Captive-product pricing refers to setting prices across an entire product line.

FALSE Diff: 2 LO: 9-4: Explain how companies find a set of prices that maximizes the profits from the total product mix. AACSB: Application of knowledge

87) Freight-absorption pricing is used for market skimming and holding on to monopolistic markets.

FALSE Diff: 2 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Application of knowledge

97) Federal legislation on price-fixing states that sellers must set prices after talking to customers and competitors.

FALSE Diff: 2 LO: 9-6: Discuss the major public policy concerns and key pieces of legislation that affect pricing decisions. AACSB: Ethical understanding and reasoning

21) An airline runs a 6-month promotional program where all baggage fees are waived. It is using a cost-based pricing strategy.

FALSE Diff: 3 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Analytical thinking

41) There is no true substitute for coffee. If the price goes from $8 to $12 for a package of k-cups due to a coffee bean shortage, demand will remain relatively unchanged. This is an example of demand elasticity.

FALSE Diff: 3 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Analytical thinking

100) What is the difference between price-fixing and predatory pricing? How do governments discourage firms from engaging in such practices?

Federal legislation on price-fixing states that sellers must set prices without talking to competitors. Otherwise, price collusion is suspected. Price-fixing is illegal per se—that is, the government does not accept any excuses for price-fixing. As such, companies found guilty of these practices can receive heavy fines. Recently, governments at the state and national levels have been aggressively enforcing price-fixing regulations in industries ranging from gasoline, insurance, and concrete to credit cards, CDs, computer chips, and e-books. Price-fixing is also prohibited in many international markets. Sellers are also prohibited from using predatory pricing—selling below cost with the intention of punishing a competitor or gaining higher long-run profits by putting competitors out of business. This protects small sellers from larger ones that might sell items below cost temporarily or in a specific locale to drive them out of business. Diff: 3 LO: 9-6: Discuss the major public policy concerns and key pieces of legislation that affect pricing decisions. AACSB: Ethical understanding and reasoning

67) Explain product line pricing. Provide an example.

In product line pricing, management must decide on the price steps to set between the various products in a line. The price steps should take into account cost differences between products in a line. More important, they should account for differences in customer perceptions of the value of different features. For example, at a Mr. Clean car wash, you can choose from any of six wash packages, ranging from a basic exterior-clean-only "Bronze" wash for $5; to an exterior clean, shine, and protect "Gold" package for $12; to an interior-exterior "Signature Shine" package for $27 that includes the works, from a thorough cleaning inside and out to a tire shine, underbody rust inhibitor, surface protectant, and even air freshener. The car wash's task is to establish perceived value differences that support the price differences. Diff: 2 LO: 9-4: Explain how companies find a set of prices that maximizes the profits from the total product mix. AACSB: Analytical thinking

89) What is segmented pricing? Briefly describe the different types of segmented pricing.

In segmented pricing, the company sells a product or service at two or more prices, even though the difference in prices is not based on differences in costs. Segmented pricing takes several forms. Under customer-segment pricing, different customers pay different prices for the same product or service. Under product-form pricing, different versions of the product are priced differently but not according to differences in their costs. Using location-based pricing, a company charges different prices for different locations, even though the cost of offering each location is the same. Finally, using time-based pricing, a firm varies its price by the season, the month, the day, and even the hour. Diff: 2 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Analytical thinking

55) Distinguish between market-skimming pricing and market-penetration pricing.

Many companies that invent new products set high initial prices to skim revenues layer by layer from the market. This is known as market-skimming pricing. For this strategy to work, the product's quality and image must support its higher price, and enough buyers must want the product at that price. The costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more. Competitors should not be able to enter the market easily and undercut the high price. Market-penetration pricing is used to penetrate the market quickly to attract a large number of buyers in a short period and win a large market share by setting a low initial price. For this strategy to work, the market must be highly price sensitive so that a low price produces more market growth. Production and distribution costs must fall as sales volume increases. Also, the low price must help keep out competition and be maintained over time. Diff: 3 LO: 9-3: Describe the major strategies for pricing new products. AACSB: Analytical thinking

47) Explain the concept of price elasticity.

Price elasticity refers to how responsive demand will be to a change in price. If demand hardly changes with a small change in price, the demand is inelastic. If demand changes greatly, the demand is elastic. If demand is elastic rather than inelastic, sellers will consider lowering their prices. A lower price will produce more total revenue. This practice makes sense as long as the extra costs of producing and selling more do not exceed the extra revenue. At the same time, most firms want to avoid pricing that turns their products into commodities. Diff: 2 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Analytical thinking

68) Which pricing mix strategy should be used in relation to saleable scrap materials? How does this strategy function?

Producing products and services often generates by-products. If the by-products have no value and if getting rid of them is costly, this will affect the pricing of the main product. When using by-product pricing, a manufacturer can seek a market for scraps or by-products and accept any price that covers more than the cost of disposing of or storing and delivering the by-products. By-product pricing allows the seller to reduce the main product's price to make it more competitive. Diff: 3 LO: 9-4: Explain how companies find a set of prices that maximizes the profits from the total product mix. AACSB: Application of knowledge

99) Identify a few situations in which price cuts or price increases might be necessary.

Several situations may lead a firm to consider cutting its price. Price cuts may be necessary when there is excess capacity. Another is falling demand in the face of strong price competition or a weakened economy. In such cases, a firm may aggressively cut prices to boost sales and market share. A company may also cut prices in a drive to dominate the market through lower costs. A major factor in price increases is cost inflation. Rising costs squeeze profit margins and lead companies to pass cost increases along to customers. Another factor leading to price increases is over-demand. When a company cannot supply all that its customers need, it may raise its prices, ration products to customers, or both. Diff: 3 LO: 9-6: Discuss the major public policy concerns and key pieces of legislation that affect pricing decisions. AACSB: Analytical thinking

20) If consumers perceive less value relative to competing products, a company should attempt to change customer perceptions to justify a higher price.

TRUE Diff: 2 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Analytical thinking

22) A break-even chart shows the total cost and total revenue expected at various sales volume levels of a product.

TRUE Diff: 2 LO: 9-1: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. AACSB: Application of knowledge

37) Price elasticity is a measure of the sensitivity of demand to changes in price.

TRUE Diff: 2 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Application of knowledge

65) When a manufacturer seeks a market for by-products and accepts a price that covers more than the cost of storing and delivering those by-products, the manufacturer is able to reduce the main product's price to make it more competitive.

TRUE Diff: 2 LO: 9-4: Explain how companies find a set of prices that maximizes the profits from the total product mix. AACSB: Analytical thinking

66) Price bundling promotes the sales of products consumers might not otherwise buy, but the combined price must be low enough to get them to buy the bundle.

TRUE Diff: 2 LO: 9-4: Explain how companies find a set of prices that maximizes the profits from the total product mix. AACSB: Analytical thinking

86) A firm considering a price change must worry about the reactions of its competitors as well as those of its customers.

TRUE Diff: 2 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Analytical thinking

88) An important consideration when determining what price to charge in a specific country is the nature of the wholesaling and retailing system in that country.

TRUE Diff: 2 LO: 9-5: Discuss how companies adjust and change their prices to take into account different types of customers and situations. AACSB: Diverse and multicultural work environments

96) The Robinson-Patman Act seeks to prevent unfair price discrimination by ensuring that sellers offer the same price terms to customers at a given level of trade.

TRUE Diff: 2 LO: 9-6: Discuss the major public policy concerns and key pieces of legislation that affect pricing decisions. AACSB: Ethical understanding and reasoning

63) Universal Appliance prices its refrigerators at five distinct price levels based on finish, style, capacity, and features. They range from $799 to $9,500. This is an illustration of price steps.

TRUE Diff: 3 LO: 9-4: Explain how companies find a set of prices that maximizes the profits from the total product mix. AACSB: Analytical thinking

64) Dynamic pricing is particularly suitable for Internet-based companies like Amazon who want to be responsive to shoppers' desires and marketplace changes.

TRUE Diff: 3 LO: 9-4: Explain how companies find a set of prices that maximizes the profits from the total product mix. AACSB: Analytical thinking

45) With reference to pricing in different types of markets, compare oligopolistic competition with a pure monopoly.

Under oligopolistic competition, the market consists of only a few large sellers. As there are few sellers, each seller is alert and responsive to competitors' pricing strategies and marketing moves. In a pure monopoly, the market is dominated by one seller. The seller may be a government monopoly, a private regulated monopoly, or a private unregulated monopoly. Pricing is handled differently in each case. Diff: 2 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Analytical thinking

44) With reference to the different types of markets, compare pure competition with monopolistic competition.

Under pure competition, the market consists of many buyers and sellers trading in a uniform commodity. No single buyer or seller has much effect on the going market price. Under monopolistic competition, the market consists of many buyers and sellers trading over a range of prices rather than a single market price. A range of prices occurs because sellers can differentiate their offerings to buyers. Diff: 2 LO: 9-2: Identify and define the other important external and internal factors affecting a firm's pricing decisions. AACSB: Analytical thinking