Ch 14

In one year, the Sunrise Hotel incurred $100,000 in fixed costs. Because the hotel booked 10,000 room nights, its total variable cost is $100,000 (10,000 room nights × $10 per room). Thus, its total cost is

$200,000

Kyle 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 Kyle, the total cost of opening the new branch and remaining open for one year will be

$550,000

Samson 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 Samson, the contribution per unit is

80 (100-20)

At the break-even point, profits are maximized.

False

Brands that have developed loyal customers have a higher price elasticity of demand.

False

The demand curve for prestige products generally slopes downward due to higher prices.

False

When a firm has a particular profit goal as its overriding concern, it will use target return pricing to meet the profit objective.

False

Costs related to supply and costs related to demand are the two primary cost categories.

False - variable and fixed

American Airlines just reduced its fares for summer flights by $100. Delta Airlines changes its pricing structure and reduces its flights by $100 as well. Delta is employing status-quo pricing.

True

Variable costs change with

changes in the quantity being produced

In general, prices should not be based on costs because

consumers make their purchase decisions based on perceived value

The break-even point is estimated by

dividing fixed costs by contribution per unit

One of the limitations associated with break-even analysis is that

it assumes that there is only one price

Raoul was known for driving 20 miles just to save a dollar on the price of his favorite beverage. Raoul perceived price as ________ for a good or service, while most consumers recognize price as the ________ made to acquire a good or service.

money paid; overall sacrifice

If a firm is engaged in ________ competition, it should seek a way to differentiate itself.

monopolistic

Naomi tells her sales representatives the goal is to generate at least a 15 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

A customer orientation toward pricing implicitly invokes the concept of

value

Which of the following is the most logical example of complementary products?

glizzy wit a bun

Hayla 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

Predatory pricing

is illegal in the United States under both the Sherman Antitrust Act and the Federal Trade Commission Act

Which of the following markets is most likely to be characterized by oligopolistic competition in the United States?

smartphone service providers

Consider a bakery like Entenmann's: The majority of the ________ costs are the cost of the ingredients, primarily flour.

variable

Samar 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

Because consumers are generally more sensitive to price increases than to price decreases, it is easier to lose current customers with a price increase than it is to gain new customers with a price decrease.

True

In U.S. markets, there are many substitute products for Lucky Charms cereal, suggesting the price elasticity of demand for Fruit Loops is high.

True

Price is the only part of the marketing mix that does not generate costs.

True

Pricing strategies should be aligned with a firm's overall goals and objectives.

True

Rarely is the lowest-price product offering the dominant brand in a given market.

True

The key to successful pricing is to match the product with the consumer's perception of value.

True

When CarMax promises a "no-haggle" pricing structure, it exhibits ________ because it provides additional value to potential used car buyers by making the process simple and easy.

a customer orientation

In developing marketing strategies, why is price often the most challenging of the four Ps to manage?

because it is the least understood element of the marketing mix

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

In many high-end resort markets, Westin hotels compete directly with Crown Plaza hotels. When it comes to pricing, Westin tends to charge its guests similar rates to what the Crown Plaza hotels charge. Westin is using a ________ pricing strategy.

competitive parity

When firms set prices similar to those of competitors, they are following a strategy of

competitive parity

________ products are products whose demands are positively related and as such, they rise or fall together.

complementary

Evan 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

Imelda'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. Imelda's is using a ________ pricing strategy.

customer-orientated

A "no-haggle" pricing policy is a type of _____ pricing strategy.

customer-oriented

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

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

demand curve

______ shows the relationship between income and demand.

demand curve

What situation is occurring if a 1 percent decrease in price results in more than a 1 percent increase in quantity demand?

demand is price elastic

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 se it as distinct

The Curtain's Coffee company is located in a business district with few customers on the weekend. To attract customers on Saturday and Sundays, it reduces its prices on these two days. This is an example of

dynamic pricing

The price elasticity of demand for a teeth-whitening kit is −1.5. The market for this product is considered

elastic (because its less than 1)

When it comes to measuring consumers' price sensitivity, product prices are viewed as either

elastic or inelastic

A demand curve is built on the assumption that

everything but price and demand remains the same

Dynamic pricing is also referred to as ________ pricing.

individualized

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

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

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

In a market with ________ there are many firms providing differentiated products.

monopolistic competition

Cross-price elasticity is the

percentage change in quantity demanded of Product A compared to the percentage change in price of Product B

Rita 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. Rita was considering

premium pricing

A demand curve shows the relationship between ________ during a specific period of time.

price and demand

If a 1 percent decrease in price results in less than a 1 percent increase in the quantity demanded, demand is

price inelastic

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

What price competitive level would be indicated when the price is usually set according to the laws of supply and demand?

pure competition

Historically, prices were

rarely changed except in response to radical shifts in market conditions

Ozzie 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

Many years ago Honda's Accord and Ford's Taurus were the two top-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

Abdul's firm has set corporate direction to become one of the leaders in each of its significant market segments. It was Abdul's job to examine the firm's pricing strategy to determine how to maximize market share, even at the expense of profits in the short run. What kind of company objective would guide Abdul's effort?

sales-oriented

Which of the following is most likely to be characterized by pure competition in the United States?

soybeans - grains, gold, meat, spices, minerals, etc.

Byron 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. Byron told the manager to always match the gasoline prices of the other store. Byron is using a ________ pricing strategy.

status-quo

When Delta increases its average fares, American Airlines and United often follow with similar increases. This is an example of

status-quo pricing

When the price for Blu-ray players dropped, the demand for DVD players went down, so DVD players and Blu-ray players are

substitute products

Wilhelm owns Do-It-Right 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. Wilhelm has observed the impact of ________ on demand for his service.

the income effect

Because there are many firms in monopolistic competition markets,

the many competitors will focus on product differentiation

There are many options available to consumers when it comes to breakfast cereals. So, if Kellogg's significantly increases the price of Rice Krispies, consumers are more apt to buy alternate cereals instead. This illustrates which concept?

the substitution effect

One problem in relying on price elasticity and demand curves when setting prices is

the way a product or service is marketed can have a profound impact on price elasticity

________ are included in the full price of a product or service.

travel costs