Intro to marketing 13-14

A company incurs fixed costs of $35,000 and average variable costs of $7 per item. This company sells 10,000 units and just breaks even. The unit selling price for the product is:

$10.50

MycroFiber is a producer of microfiber material for the auto detailing industry. Jamal, the owner of MycroFiber is highly skilled in the technical and manufacturing areas, but does not understand pricing. Jamal knows he wants to cover the cost of production when selling his material and needs revenue to cover his overhead costs and to make a profit. To be sure he meets these goals, Jamal decides to take a cost-based pricing approach. If MycroFiber's cost of production is $4 a square yard, Jamal and Jamal prices his material at $10 a square yard, what is MycroFiber's markup percentage?

150%

A firm with $50,000 in fixed costs, selling price of $25 per unit, and variable costs of $5 a unit has a breakeven volume of:

2,500

What are the problems associated with product-line pricing?

A common problem can be distinguishing the quality between products. If we look at suits the materials change the quality and price but to someone that does not often buy suits justifying the quality difference might be difficult against the price

Which of the following is the best example of supply?

All of the women's shoes available for sale for $100 a pair this year

Breakeven sales volume is calculated as:

Breakeven point (in units) = Total Fixed costs/Contribution Margin

A firm has $50,000 in fixed costs, a selling price of $25 per unit, and variable costs of $5 a unit. If the fixed costs are reduced to $40,000:

Breakeven volume will decrease.

A firm has $50,000 in fixed costs, a selling price of $25 per unit, and variable costs of $5 a unit. If the fixed costs increase to $60,000:

Breakeven volume will increase.

When Josh stopped at the convenience store for a drink, he noticed that in both the cooler and the fountain drinks the prices of all the soft drinks were identical. You could choose Coke, Pepsi, Dr. Pepper, Mountain Dew, or many others, but they were all the same price. This is an example of:

Competitive parity pricing

Charged with preventing anticompetitive, deceptive, or unfair business practices, the ______ oversees enforcement of more than 70 laws, many of which influence pricing practices.

FTC

A company will never sell a product below the production costs.

False

A shortcoming of the breakeven model is that it assumes that per-unit variable costs change at different levels of operation.

False

Businesses that use cost-based pricing always apply the same markup percentage across all products.

False

Often there are cost efficiencies with longer production runs that will result in lower variable cost per unit.

False

Prestige pricing is a common approach for fast food restaurants.

False

Temporary price cuts are the only tactic available for increasing a product's market share.

False

You know a cost is a fixed cost if that expense remains the same regardless of sales volume (such as the number of customers served or the units produced).

False

The price of products only includes the costs incurred by the manufacturer for procuring the raw material and for processing the products.

False-costs incurred

In the grocery business, you're pretty much stuck in a competitive pricing environment. You can't afford to attract more customers by lowering all of your prices, but what could you do differently with your product and pricing tactics to entice people through your stores' doors?

Holding a 20% off sale on five to eight seasonal items each week

Which of the following is a disadvantage associated with product-line pricing?

It does not provide flexibility for making price changes on individual items.

Which of the following statements is true about the forecasting technique known as the "test market"?

It provides realistic information on actual purchases rather than on customers' intention to buy.

Which of the following is true of promotional pricing?

It uses lower-than-normal price as a temporary component in the selling strategy.

Jamara has started a home party business that hosts parties and those attending paint signs. Jamara must pay $500 a year to be a representative for Paint A Sign. In addition, Jamara buys all the materials for the parties, including the metal base, the paints, brushes, stencils, and transfers. Currently, these items all add up to $10 on average. Jamara charges each participant $25 for each sign they make. For Jamara's Paint A Sign business, the $500 is a fixed cost per year. Which of the following is true?

Jamara will pay the Paint A Sign company $500 regardless of the number of parties she hosts.

You are a buyer for Kroger grocery stores, and you're negotiating a deal with the sales representative for Folger's coffee. Obviously, you'd like to get the best deal possible. Under the Robinson-Patman Act, which of the following discounts would be considered legal?

Like all other retailers, you can get a 5% discount if you order a minimum of 5,000 cases of coffee every three months.

When a company sells its goods or services at a price less than the overall costs, the company incurs a:

Loss

While both use a mathematical calculation, there is an important different between "markup" and "margin." Which of the following is correct?

Markup is a percentage added to the cost of the product and margin is a percentage of the sales price left over after paying for the cost of the product.

Which of the following is an example of a qualitative forecasting technique?

McDonald's offers a new pulled pork sandwich in Cincinnati for the next three months

Identify and briefly describe two legal constraints placed on pricing.

Price gouging is a major legal constraint, to me, this is something in southern MS, we face often during hurricane season. Many gas stations will raise their prices temporarily before, during, and after hurricanes hit because they know the demand is great and a necessity to run generators and travel. Another constraint is price dumping which is when companies sell a product in their country and then turn around and sell it for less in another country.

Which of the following is an example of a volume pricing objective?

Reducing price to get a higher share of market

What is market-plus pricing? Why do companies practice a skimming strategy?

Skimming is when a newer product hits the market and companies test in a way how much consumers will pay for this product.

Several factors influence the best price. In particular three core issues influence the correct price. Which of the following is NOT one of the three foundations of pricing?

Supply

Your invention is a hit! Your investment in TV informercials has really paid off, and you've already ordered another 10,000 units to be manufactured. What do you anticipate will happen next?

Supply will increase due to copycat products appearing on the market.

A company might sell a product below the production costs for short-term promotional purposes

True

Breakeven analysis is an effective tool for marketers in assessing the sales required for covering costs and achieving specified profit levels.

True

Businesses that use cost-based pricing often have different markup percentage for different types of products.

True

Value pricing is a common approach for fast food restaurants.

True

A price is the amount of funds required to purchase a good or service

True price amount

Many firms attempt to promote stable prices by meeting competitors' prices to maintain pricing parity.

True stable prices

A value pricing strategy focuses on the benefits a product or service provides in comparison to the price and the quality of competing offerings.

True- value pricing

A pricing strategy that emphasizes benefits of a product in comparison to the price and quality levels of competing offerings is called _____ pricing.

Value

An organization's total costs are typically divided into:

Variable and fixed costs

Items such as raw materials and labor costs, which change with the level of production, are known as:

Variable costs

Consumers today perceive that, within price limits, there is:

a direct relationship between the quality and price of a product.

Psychological pricing is based on the premise that:

certain prices or price ranges make products more appealing to buyers than others

Firms with a prestige pricing objective are most likely to:

charge a higher price than most competitors to enhance their perceived quality.

Selling price of the product minus the variable cost of the product yields:

contribution margin

A firm that uses the product cost plus a target markup percentage to calculate the sales price is using:

cost-based pricing

Firms expect each of their products to:

cover the direct costs of production and help contribute to the regular fixed costs.

A demand is said to be inelastic when the:

elasticity of demand is less than 1

Market ___, which refers to the condition when suppliers make just enough of a product and price it in a way that consumers buy it all, rarely happens and is usually temporary.

equilibrium

A leader merchandise is a product offered by retailers to customers at less than cost to attract them to stores.

false

A low price is a sure sell because the demand for many goods is highly elastic.

false

A price of $9.97 is less likely to appeal to customers than $9.95 or $9.99.

false

A skimming pricing strategy is commonly used as a market entry price for distinctive goods and services with high initial competition.

false

A skimming pricing strategy is ineffective in marketing higher-end goods.

false

Companies can avoid penalties under the Robinson-Patman Act as long as they can demonstrate that their price discounts and promotional allowances restrict competition.

false

If consumers can easily find close substitutes for a good or service, the product's demand tends to be inelastic.

false

Marketers who have adopted a product-line pricing strategy have one major advantage in that they have no difficulty making price changes on individual items.

false

Setting prices is a one-time decision for most products in most companies.

false

The breakeven model assumes per-unit variable costs do not change at different levels of operation. In reality, per-unit variable costs often increase as production quantities increase.

false

While price offers a dramatic means of achieving competitive advantage, it is the most difficult marketing variable for competitors to match.

false

A cost that remains stable at any production level within a certain range is called a(n) _____ cost.

fixed

Items such as lease payments, administrative staffing, and insurance costs, that remain stable at any production level within a certain range are known as:

fixed costs

A firm's breakeven volume will increase if:

fixed costs increase.

A firm can reduce its breakeven volume by:

increasing contribution margin./decreasing fixed costs

Fixed costs typically include items such as:

lease payments, administrative staffing, and insurance costs that remain stable at any production level within a certain range.

A penetration pricing strategy is called _____ pricing when it implements the premise that a lower-than-market price will attract buyers and move a brand from an unknown newcomer to brand-recognition or brand-preference stage.

market-minus

Javier is the business manager at his college. In his role, Javier makes a lot of business decisions. Javier has installed a vending machine in a dorm for soft drinks. The machine rents for $200 a month and the electrical use is minimal. Javier buys soft drinks for $.25 each and charges $.75 each from the vending machine. Currently, the machine has a sales volume of 400 cans a month. What is the current profit or loss from the machine?

no profit or loss

In the absence of other cues:

price is an important indicator of product quality to consumers

When a men's clothing store sells suits at four price levels ($295, $455, $525, and $650), the store's retail policy is _____ pricing.

product-line

A firm with $50,000 in fixed costs, selling price of $25 per unit, and variable costs of $5 a unit is currently operating at breakeven volume. This firm has:

profits of zero.

A newly opened seafood restaurant advertises various deals on meal packages and special prices on dinner packages to attract customers. This is an example of _____ pricing.

promotional

A pricing policy that assumes that some prices are more appealing than others is known as _____ pricing

psychological

Prestige pricing objectives emphasize:

quality and exclusivity

A skimming pricing strategy is more commonly used by firms to:

set a market-entry price for distinctive goods or services with little or no initial competition.

A retailer that uses a cost-based pricing approach would base its price on:

the wholesale cost of the item

The breakeven point is the point at which:

total revenue from sales equals total cost.

A couple of years ago, Google - the information services giant - made one of its first forays into manufacturing and selling a physical product: the Google Pixel smartphone. It is highly unlikely that Google used ___ to forecast sales of this new product.

trend analysis

A private-label product priced below the lower limit can be regarded as too cheap by potential customers.

true

Breakeven calculations ensure that both fixed and variable costs and are covered.

true

Citibank offers an opportunity for credit card customers to transfer balances from competitive cards and pay low financing for a six-month period. After the introductory period is over, the rate will increase to the normal interest rate. Citibank's strategy is to penetrate the market and obtain increased market share.

true

Most companies set prices using competitive pricing as their primary pricing strategy.

true

Penetration pricing is often used in a market in which a new product is likely to face strong competition when introduced.

true

Price is an important indicator of quality for many consumers.​

true

Pricing decisions are influenced by a variety of legal constraints imposed by federal, state, and local governments.

true

Since many firms begin penetration pricing with the intention of increasing prices in the future, success depends on generating numerous trial purchases.

true

Skimming is an effective strategy to use when products are distinctive or have little competition.

true

Skimming pricing strategies are also known as "market-plus pricing."

true

The ticket reselling market is both highly fragmented and susceptible to fraud and distorted pricing.

true

State laws requiring sellers to maintain minimum prices for comparable merchandise are called _____ laws.

unfair-trade

A cost that changes with the level of production is called a(n) _____ cost.

variable

Krizia is excited about the bakery that they just started. In her bakery, rent, utilities, and salaries of non-production staff will all be elements of:

Fixed cost

Parker Industries is a small company with a big name! Parker Industries is actually a one-person company that imports strands of LED lights from China and sells them through its website. Parker's only overhead is a storage unit for inventory that costs $125 a month and a $25 monthly fee for website hosting. Currently, Parker imports the lights for $.99 each (including inbound shipping) and sells them for $4.49. Parker also pays shipping expenses of $.50 per light strand. If Parker found a comparable storage for $100 a month, what would happen?

Fixed cost would decrease

Since it involves the use of a high price relative to prices of competing products or services, the skimming pricing strategy is sometimes referred to as _____ pricing.

market-plus

High-demand sporting or concert events have encountered an expensive, often illegal, form of pricing where tickets are resold at a much higher price than what it was originally bought for. This practice is called ticket scalping.

true

Lysol sanitizing wipes entered the market at a low sales price and was supported by heavy couponing. As the initial trial period passed, the pricing slowly rose and the couponing became more infrequent. This activity is an example of penetration pricing.

true

The price elasticity of demand (or elasticity of demand) is the percentage change in the quantity of a good or service demanded divided by the percentage change in its price.

true

Tiffany, Rolex, Gucci, and Prada represent exclusivity, meaning their prices are mostly inelastic.

true

Unfair-trade laws were intended to protect small specialty shops, such as dairy stores, from loss-leader pricing tactics.

true

When a chain store sells certain products below cost to attract customers, it is practicing a loss-leader price tactic.

true