Chapter 14 SmartBook: Pricing Concepts For Capturing Value
The graph that shows how many units of a product or service consumers will want during a specific period at different prices is known as the ______ curve.
demand
Which of the following are drawbacks of a market penetration pricing strategy? (Select all that apply.)
Setting the price lower than the item's value "leaves money on the table." Companies need to have a large production capacity. Setting low prices may indicate to consumers that the product is not of high quality.
If a company needs to raise the prices of some its products, it should choose to raise the prices of ______ products because relatively fewer customers will stop buying the product as a result.
inelastic
When a 10% decrease in price results in less than a 10% increase in quantity sold, demand for the product or service is described as ______.
inelastic
In many geographic areas, utilities such as water and electricity are available from only one provider. This is an example of a level of competition called a(n) ______.
monopoly
When only a few firms dominate a market, it is known as ______ competition.
oligopolisitc
Under competitive ___, companies set their prices close to those of their major competitors.
parity
When a new product or service is launched, companies that use a ______ strategy will attempt to attract customers quickly by offering a very low price at first.
penetration pricing
Sometimes firms selling a pioneering product will set a very low price in order to attract many customers before competitors enter the market. This is an example of a ______ orientation.
sales
Compared to other company objectives, a sales-oriented firm ______.
sets prices very low to generate new sales, even if profits suffer
Firms that are less concerned with the level of profits and more interested in the rate at which profits are generated relative to their investments tend to use ______.
target return pricing
Scheming with other companies to control prices is called ______.
price fiixing
When a firm is aiming for a particular amount of profit as its overriding concern, it usually implements ______.
target profit pricing
Using predatory pricing, a firm sets a very low price for one or more of its products with the goal of ______.
driving its competition out of business
Which of the following types of theories is the maximizing profits strategy based on?
economical
True or false: Price discrimination is illegal under all conditions.
False
Which pricing tactic lowers the price below store cost?
loss leader pricing
Loyalty toward a particular brand makes other brands seem less substitutable, which decreases ______.
the price elasticity of deamdn
Consumers' ability to replace other products with the focal brand is known as ______.
the substitution effect
Which of the following is an example of monopolistic competition? (Note that monopolistic competition is NOT a monopoly.)
The apparel industry, with many providers that seek ways to differentiate themselves and claim market share
Price fixing is the illegal tactic of cooperating with other firms to ______ prices.
artificially establish
The point at which the number of units sold generates enough revenue to equal total costs is known as ______.
break even poin
Status quo pricing ______.
changes prices only to meet those of competition
When firms use a penetration pricing strategy, they expect the experience ___ effect to occur.
curve
Which of the following are considered part of the five Cs of pricing? (Select all that apply.)
customers competition company objectives channel members
A national retail chain has signs throughout its stores that say: "Sale! 50% off our regular price!" Journalists investigate and discover that the company has never sold any merchandise at what it calls its regular price. The business has engaged in ______.
deceptive reference pricing
In the United States, it is considered unethical and illegal for advertisements to ______ the consumer so much that the person is harmed.
decive
Price is the one element in the marketing mix that ______.
generates revenues
A small, isolated community has only four auto mechanics. They drink together in the local bar, where they all agree to charge the same inflated price for their services. When cars break down, customers have no choice but to pay whatever the mechanics ask. The mechanics are engaging in ______.
horizontal price fixing
Some states require some minimum markup and prohibit ______ pricing, where items are sold at a price below the store's cost.
loss-leader
LaShonda is determined to undercut her rival and win a prize for selling the most cosmetics door-to-door. To ensure her victory, LaShonda slashes her prices below what she has to pay when she buys products from the manufacturer. She is engaging in ______.
loss-leader pricing
The goal of a(n) ______ strategy is to generate profit and establish a new product or service in the market as quickly as possible.
market penetration
A firm sets extremely low prices for its products so that most customers will stop shopping elsewhere. This will cause other companies to go out of business and leave the firm with no more competition. The firm has engaged in ______.
predatory pricing
If a firm sells the same product to different resellers at different prices, it can be considered ______.
price discriminaiton
Which of the following does the Sherman Antitrust Act address?
price fixgin
Firms using which of the following strategies face relatively high unit costs associated with producing small volumes of products?
price skimmin
In preparation for introducing a new doll to the market, a toy company advertises and creates so much demand that little girls are lined up at the stores, determined to be the first to own one. The toy company sells these first dolls at twice their actual retail value. This is an example of ______.
price skimming
When Apple first introduced the iPhone, some consumers were willing to pay the premium $599 price tag. Apple was using a(n) ______ strategy.
price skimming
Manufacturers often set a(n) ______ price and attempt to require retailers to sell their merchandise at this price.
suggested retail
Price minus the variable cost per unit equals ______.
the contribution per unit
As people make more money, their spending behavior changes. This is known as ______.
the income effect
The key characteristic of vertical price fixing is that ______.
the parties who collude are at different levels of the same marketing channels
Price times quantity is ______.
total revenue
At the break-even point, profits on the sale of a product are ______.
zero
If a firm sets prices similar to major competitors' prices, this is an example of ______ pricing.
competitive parity
A pricing ______ is the general way a company decides how its prices will be determined over the long term, based on the five Cs of pricing.
strategy
A firm may set low prices to do which of the following?
Discourage new firms from entering the market Encourage current firms to leave the market Take market share away from competitors
Predatory pricing is illegal for which of the following reasons? (Select all that apply.)
It is an unfair method of competition. It inhibits free trade. It drives most competition out of business and leaves the market in the control of only a few companies.
Which of the following is correct with respect to predatory pricing?
It is outlawed by the Sherman Act and Federal Trade Commission Act.
Channel members include which of the following? (Select all that apply.)
Manufacturers Retailers Wholesalers
Which of the following is another term for target return percentage?
Markup
The situation in which many firms compete for customers in a given market and the products are differentiated is known as ______.
Monopolisitic competition
Which of the following occur under horizontal price fixing? (Select all that apply.)
Price is eliminated as an influence on the consumer's decision-making process. Business rivals that produce and sell the same type of merchandise scheme together.
When the price of a new product is being set via price skimming, what happens after the first round of sales has saturated the high-price market?
The company lowers its price somewhat to attract customers from the next segment of the market.
The strategy of ______ appeals to consumers because it reduces their need to spend time comparing prices at various stores.
everyday low pricing (EDLP)
Firms engaged in competitor orientation might use which of the following strategies? (Select all that apply.)
competitive parity status quo pricing
Which of the following is an example of a monopoly?
A county water board that is the sole provider of water to the county
What is a manufacturer's suggested retail price (MSRP)?
A price set by manufacturers to pressure retailers to sell the product at that price
Which of the following would most likely be a loss-leader pricing tactic?
Buy one box of cereal at the regular price, get one free.
Which of the following do you need to know to calculate target return price? (Select all that apply.)
Expected unit sales Variable costs Fixed costs
Which of the following are considered deceptive reference prices? (Select all that apply.)
Fictitious prices Inflated prices
The customer orientation strategy increases value by doing which of the following? (Select all that apply.)
Focusing on customer satisfaction Setting prices to match consumer expectations
Which pricing strategy appeals to customers who are price sensitive as well as to those who are not?
High/low pricing
Which strategy is used by firms that believe increasing volume of sales will help the firm more than increasing profits?
Sales oriented strategy
Which of the following accurately characterize demand curves? (Select all that apply.)
They show how much consumers will demand during a specific period at different prices. They relate demand to prices while assuming everything else remains unchanged.
Which of the following are reasons that firms implement a market penetration pricing strategy? (Select all that apply.)
To establish market share To build sales To earn profits To discourage competitors
How do managers use break-even analysis?
To find a production quantity where, for a given price, costs are equal to revenues.
True or false: Customers are one of the five Cs of pricing.
True
True or false: In general, customers are more sensitive to price increases than to price decreases.
True
When firms compete by lowering price at retail, they are engaged in ______.
price war
Assuming the economy and other factors stay the same, a downward-sloping demand curve for a product shows which of the following? (Select all that apply.)
As price decreases, demand increases. As price increases, demand decreases.
The five Cs of pricing are company objectives, customers, cost, channel members, and ___.
competition
How does penetration pricing discourage rival companies from entering the market? (Select all that apply.)
Competitors who enter the market will temporarily face higher unit costs. Usually none of the companies make much profit in this situation.
What advantage is there for a company to offer products at prices below actual market value?
Customers are more likely to try the product because they are not risking as much money.
What are drawbacks of price skimming? (Select all that apply.)
Customers who already bought the product may feel cheated when the price is eventually lowered. The unit costs of producing small volumes of products is relatively high.
True or false: A firm with a primary objective of very high sales growth will have the same pricing strategy as a firm with a primary objective of being a quality leader.
False
True or false: Puffery is illegal in advertising.
False
An example of a nonmonetary sacrifice made in acquiring a product or service is ______.
time
Which of the following is an example of an oligopoly?
The oil industry, with a limited number of providers
The five Cs of pricing include ______.
company objectives
The five Cs of pricing are: company objectives, customers, channel partners, competition, and ___.
cost
Break-even analysis examines the relationships between which of the following? (Select all that apply.)
cost price
The five Cs of pricing include ______.
cost consideratiosn
For most products, demand increases as the price decreases. Because of this general trend, demand curves usually have a(n) ______ slope.
downward
Prestige products or services do not follow the ______ curve.
downward sloping demand curve
When a 10% decrease in price produces more than a 10% increase in quantity sold, the product or service is responsive to price changes and is considered to be ______.
elastic
Sometimes the cost per unit of a new product will decrease as the total sales increase. This is known as the ______ effect.
experince curve
A demand curve enables a firm to examine prices ______.
in terms of demand and the firm's objectives
The types of strategies that could be implemented in a profit orientation strategy include which of the following? (Select all that apply.)
maximizing profits strategy target return pricing
___ ___ occurs when a company has a very low price for its product(s) in order to drive its competition out of business.
predatory pricing
A firm that opens new stores in a community and sets artificially low prices with the sole purpose of driving competing stores in the area out of business is said to engage in a type of behavior called ______ pricing.
predatroy
Products that cost a lot of money but that people buy anyway because of the status and exclusivity that they project to others are called ___ products.
prestige
The contribution per unit is the __ minus the variable cost per unit.
price
If McDonald's reduces the price of a Big Mac by 25% and sales increase by more than 50%, the firm could describe demand as which of the following? (Select all that apply.)
price sensitive elastic
Target return pricing is an example of what type of orientation?
profit
Which of the following is an example of a monetary sacrifice included in the overall price of a product or service?
shipping
With ___ quo pricing, companies change their prices only to meet those of their competitors.
status
Setting the price for a new product is less difficult when other products like it are already being sold. This is true because ______.
the market will have established a general value for that sort of item
Total cost is ______.
variable costs plus fixed costs
The ratio of change in a price and its effect on the quantity of the product demanded is known as ______.
price elasticity of demand
When a new product appeals to consumers who are willing to pay a premium price to have an innovation first, marketers should use a ______ strategy.
price skimming
Competition, channel members, costs, customers, and company objectives are the five critical components of ______.
pricing
By focusing on target profit pricing, maximizing profits, or target return pricing, a firm is implementing a ______ orientation.
profit
On which of the following does brand loyalty have the most significant effect?
substitution effect
______ makes up one of the Cs of the five Cs of pricing.
the customer
Prestige products or services follow the premise that ______ associated with the product.
the higher the price, the greater the status
A price ___ occurs when oligopolistic companies compete with each other by repeatedly lowering their prices.
war
When there are many substitute products available, the price elasticity of demand for a given product will likely be ______.
higher
When the price of DVD players drops, theoretically based on demand elasticity, the demand for DVDs is likely to ______.
increase
Which piece of legislation governs price fixing in the United States?
Sherman Antitrust Act
When a new product is launched in a market where similar items are already being sold, how is the price typically determined?
Value-based methods
With the ______ pricing strategy, a company adopts retail prices that are typically somewhere between the product's regular price and the sharply discounted sale prices that competitors occasionally offer.
everyday low
When a firm uses a mathematical model to identify the price at which the firm will make the most money possible, it is implementing ______.
maximizing profits strategy
A demand curve shows that a company will sell 10,000 units if it prices its new product at $200 per unit, but it will sell 20,000 units if it reduces the price to $75. If the company wants to maximize profits, it should price the new product at ______.
200
Which of the following are benefits of the high/low pricing strategy? (Select all that apply.)
It generates excitement due to the limited duration of sales. It attracts consumers at both ends of the price sensitivity scale. It serves two different market segments.
A useful technique that enables managers to examine the relationships among cost, price, revenue, and profit over different levels of production and sales is called ______.
break-even analysis
One of the five Cs of pricing is ______.
compeition
If firms strategize according to the premise that they should measure themselves primarily against firms challenging them directly for customers, they have adopted a ______ orientation.
competitor
Products whose demands are positively related to one another are known as ______ products.
complementary
___ products are items whose demands are positively related, so that they rise and fall together. An example would be Blu-ray players and Blu-ray discs.
complementary
The percentage change in the quantity of one product demanded compared with the percentage change in price in another product is called ___-price elasticity.
cross
Some specialty retailers attempt to compete not by setting low prices but by justifying higher prices through high levels of personalized service. This is an example of a ______ orientation to pricing.
customer
Profit alone ______ how many units should be sold before a firm breaks even.
does not indicate
The ______ pricing strategy features frequent sales, during which prices are lowered for a short time.
high/low
When consumers relish the challenge of getting the lowest price and are willing to expend the time and effort to seek out the lowest price every time, retailers should use the ______ pricing strategy.
high/low
The equation for price elasticity of demand is the percentage change in quantity demanded divided by percentage change in ______.
price
To achieve target profit pricing, a company uses ___ to stimulate sales at a specific profit level.
price
the overall sacrifice a consumer makes to acquire a product or service is known as ?
price
When incomes drop, the demand for an elastic product ______.
tends to decrease
Price is best defined as ______.
the overall sacrifice a consumer is willing to make to acquire a specific product or service
The _____ is fixed costs plus the sum of the variable costs.
total cost
Variable cost per unit times quantity equals ______.
total variable cost
Other elements in the marketing mix may or may not be perfect, but if the price is wrong, revenue ______.
will not accrue
