PMK chap 10
113) Developing an effective integrated marketing mix program involves coordinating price decisions with product design promotion and A) distribution B) production C) assembly D) warranty E) competition
Answer: A AACSB: Analytical thinking Skill: Application decisions. Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
FALSE . A) pure competition B) monopolistic competition C) oligopolistic competition D) pure monopoly E) the dominant firm model
Answer: A AACSB: Analytical thinking Skill: Application Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Challenging
"21) Underpriced products ." A) produce less revenue than they would if they were priced at the level of perceived value B) sell poorly in the global marketplace C) produce more revenue than they would if they were priced at the level of perceived value D) mostly offer higher value than those with a high markup price E) are characterized by rapidly declining demand
Answer: A AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
51) With accumulated production experience and a higher volume of production companies not "only become more efficient but also ." A) gain economies of scale B) incur higher overhead costs C) create derived demand in the market D) spend more per unit of produced output E) tend to routinely spend less on inputs
Answer: A AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"56) Experience-curve pricing assumes that ." A) competitors are weak and not willing to match price cuts B) competitors are strong and invincible C) aggressive pricing adversely affects product image D) volume-based production slows down organizational learning E) lower-cost technologies are almost always inferior
Answer: A AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
"68) The break-even volume is the point at which ." A) the total revenue and total cost curves intersect B) demand equals supply C) the production of one more unit will not lead to increase in demand D) the company can pay off all its long-term debt E) a firm exceeds the sales forecast
Answer: A AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
"76) Companies can legitimately charge a higher price if ." A) consumers perceive that the company's product offers greater value B) the demand for products manufactured by a firm is highly elastic C) the cost of advertising is minimal D) derived demand remains constant E) consumers de-emphasize quality
Answer: A AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
15) Which of the following is true of value-based pricing? A) The targeted value and price drive decisions about what costs can be incurred and the resulting product design. B) Value-based pricing is mostly product driven. C) Value-based pricing involves setting prices based on the costs of producing distributing and selling the product plus a fair rate of return for its effort and risk. D) The marketer usually designs a product and marketing program and then sets the price. E) A company using value-based pricing designs what it considers to be a good product adds up the costs of making the product and sets a price that covers costs plus a target profit.
Answer: A AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
131) In which situation is the market dominated by one seller? A) pure monopoly B) monopolistic competition C) oligopolistic competition D) pure competition E) free market
Answer: A AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
133) Which of the following shows the number of units the market will buy in a given time period at different prices that might be charged? A) demand curve B) supply curve C) learning curve D) break-even pricing E) target costing
Answer: A AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
117) A decision to position the product on high-performance quality will mean that the . A) seller must charge a higher price to cover higher costs B) seller must charge a lower price to attract more customers C) producer must step down production D) marketer must boost derived demand in the market E) break-even volume will be fairly low
Answer: A AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
128) Which of the following is true with regard to pure competition? A) Under pure competition no single buyer or seller has much effect on the going market price. B) In a purely competitive market marketing research is of utmost importance. C) In a purely competitive market product development is the focus of most firms. D) Under pure competition the market consists of many buyers and sellers who trade over a range of prices rather than a single market price. E) Under pure competition the market consists of only a few large sellers.
Answer: A AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
"28) Bon Vivant offers an assortment of exclusive French wines at incredibly low prices. These prices are neither limited-time offers nor special discounts but represent the daily prices of products sold by Bon Vivant. This reflects Bon Vivant's pricing strategy." A) everyday low B) markup C) penetration D) break-even E) cost-based
Answer: A AACSB: Application of knowledge Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
"136) refers to a measure of the sensitivity of demand to changes in price. A) Price elasticity" B) A demand curve C) Price-value equation D) Marginal utility E) Income elasticity of demand
Answer: A AACSB: Application of knowledge Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
"54) To take advantage of a downward-sloping experience curve a company must do all of the following EXCEPT ." A) increase the product's price B) be able to sell the higher volume of product C) price its product lower D) increase its production output E) decrease its costs through experience gained
Answer: A AACSB: Reflective thinking Skill: Critical Thinking Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Challenging
"40) Fixed costs ." A) are costs that do not vary with production or sales level B) vary directly with the level of production C) decrease with accumulated production experience D) are the sum of the overhead and variable costs for any given level of production E) represent the annual costs of inputs incurred by a company
Answer: A Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"118) Price setting is usually determined by in small companies." A) the top managers B) the marketing department C) the sales department D) divisional managers E) product managers
Answer: A Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
"123) Under the market consists of many buyers and sellers trading in a uniform commodity." A) pure competition B) monopolistic competition C) oligopolistic competition D) a pure monopoly E) the dominant firm model
Answer: A Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
"140) In the aftermath of the Great Recession of 2008 to 2009 consumers . A) have become more value conscious" B) have become less value conscious C) exhibit great interest in prestige pricing D) show no interest in price cutting E) rarely endorse value-for-money deals
Answer: A Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
"2) is the only element in the marketing mix that produces revenue." A) Price B) Product C) Place D) Fixed costs E) Variable costs
Answer: A Skill: Concept Objective: LO 10.1: ,Answer the question "What is a price?" and discuss the importance of pricing in today's fast-changing environment. Difficulty: Easy
"13) pricing uses buyers' perceptions of value as the key to pricing." A) Customer value-based B) Cost-based C) Time-based D) Markup E) Target return
Answer: A Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"29) pricing involves charging higher prices on an everyday basis but running" frequent promotions to lower prices temporarily on selected items. A) High-low B) Everyday low C) Cost-plus D) Break-even E) Penetration
Answer: A Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"47) The long-run average cost (LRAC) curve indicates the ." A) per unit cost of output in the long run B) projected total production costs of competitors C) variable costs incurred by a firm over time D) fixed costs incurred by a firm over the long term E) number of units the market will buy in a given time period at different prices that might be charged
Answer: A Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"37) A company must pay each month's bills for rent heat interest and executive salaries regardless of the company's level of output. This exemplifies its costs." A) overhead B) variable C) target D) total E) unit
Answer: A Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
affecting pricing decisions. A) external B) internal C) economic D) cultural E) organizational
Answer: A Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
159) What is a demand curve? Explain its importance in the context of pricing decisions.
Answer: A demand curve shows the number of units the market will buy in a given time period at different prices that might be charged. Each price the company might charge will lead to a different level of demand. The relationship between the price charged and the resulting demand level is shown in the demand curve. In the normal case demand and price are inversely related-that is the higher the price the lower the demand. Thus the company would sell less if it raised its price from P1 to P2. In short consumers with limited budgets probably will buy less of something if its price is too high. Understanding a brand's price-demand curve is crucial to good pricing decisions. Most companies try to measure their demand curves by estimating demand at different prices. The type of market makes a difference. In a monopoly the demand curve shows the total market demand resulting from different prices. If the company faces competition its demand at different prices will depend on whether competitors' prices stay constant or change with the company's own prices. AACSB: Application of knowledge Written and oral communication Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
70) A company faces fixed costs of $100000 and variable costs of $8 per unit. It plans to directly sell its product in the market for $12. How many units must it produce and sell to break even? A) 20000 B) 25000 C) 30000 D) 35000 E) 40000
Answer: B AACSB: Analytical thinking Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Challenging
73) A manufacturer has fixed costs of $100000 a variable cost of $10 per unit of output and break-even volume of 50000 units. What should the manufacturer's unit cost be in order to break even? A) $10 B) $12 C) $14 D) $16 E) $20
Answer: B AACSB: Analytical thinking Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Challenging
43) The total production costs at Kellner Machine Works are $87000 out of which $45000 represent fixed costs. Which of the following is representative of the variable costs incurred by the company? A) $35000 B) $42000 C) $45000 D) $87000 E) $132000
Answer: B AACSB: Analytical thinking Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
78) Which of these is NOT a way in which pricing can accomplish company objectives? A) set prices to attract new customers and retain existing customers B) raise prices to create excitement for a brand C) set prices low to hinder competition from entering the market D) price one product to help sales of other products in the company's line E) set price to keep the loyalty of resellers
Answer: B AACSB: Analytical thinking Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
"4) Price is important to managers ." A) because prices cannot be changed quickly so must be correctly determined B) because a small percentage improvement in price can generate a large percentage increase in profitability C) but other marketing mix elements create customer value and build relationships D) but product features can be changed more quickly E) but has little impact on a firm's market share
Answer: B AACSB: Analytical thinking Skill: Concept Objective: LO 10.1: ,Answer the question "What is a price?" and discuss the importance of pricing in today's fast-changing environment. Difficulty: Challenging
"49) The learning curve is representative of the ." A) per unit cost of output in the long run B) drop in the average per-unit production cost that comes with accumulated production experience C) number of units the market will buy in a given time period at different prices that might be charged D) total market demand resulting from different prices E) per unit cost of output in the short run
Answer: B AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"50) As production workers become better organized and more familiar with equipment the average cost per unit tends to decrease with the ." A) increase in the diseconomies of scale B) accumulated production experience C) decrease in the economies of scale D) increase in derived demand E) increase in primary demand
Answer: B AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
11) What sets the floor for product prices? A) consumer perceptions of the product's value B) product costs C) competitors' strategies D) advertising budgets E) market competition
Answer: B AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"36) Companies with higher costs ." A) can drive out competitors through their pricing strategy B) intentionally pay higher costs so that they can add value through higher quality and claim higher prices and margins C) can set lower prices that result in increased sales though with lower margins D) specialize in selling products without value-added features E) are more financially successful
Answer: B AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
"52) The experience curve reveals that ." A) repetition in production has no visible impact on production costs B) repetition in production enhances efficiency C) the average cost of production remains the same with accumulated production experience D) repetition in production adds to the costs and thereby increases the prices of outputs E) the average cost of production increases with accumulated production experience
Answer: B AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
32) Which of the following is true with regard to value-added pricing? A) Companies that practice value-added pricing typically match the competition by cutting prices. B) Companies practicing value-added pricing differentiate their offers by attaching value-added features to offerings that in turn justify higher prices. C) The intrinsic value of products sold by companies practicing value-added pricing is far less than their actual selling price. D) Companies practicing value-added pricing primarily rely on cost differentiation. E) Value-added pricing is the most suitable pricing strategy in pure monopolies.
Answer: B AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
110) Which of the following is an external factor that affects pricing decisions in a company? A) the company's overall marketing strategy B) the nature of the market C) the organizational objectives of the company D) elements of the company's marketing mix E) the annual advertising budget of rival firms
Answer: B AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
26) Azure Air an airline company offers attractive prices to customers with tighter budgets. A no-frills airline it charges for all other additional services such as baggage handling and in- flight refreshments. Which of the following best describes Azure Air's pricing method? A) target profit pricing B) good-value pricing C) cost-based pricing D) break-even pricing E) penetration pricing
Answer: B AACSB: Application of knowledge Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
"27) Retailers such as Costco and Walmart charge a constant daily low price with few or no temporary price discounts. This is an example of pricing." A) competition-based B) everyday low C) cost-plus D) break-even E) penetration
Answer: B AACSB: Application of knowledge Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"71) As a manufacturer increases the price ." A) efficiency drops B) the break-even volume drops C) competition is minimized D) the total costs increase E) the profit margin shrinks
Answer: B AACSB: Application of knowledge Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
23) Which of the following involves introducing less-expensive versions of established brand name products? A) markup pricing B) good-value pricing C) time-based pricing D) cost-based pricing E) target profit pricing
Answer: B AACSB: Application of knowledge Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"137) If demand hardly changes with a small change in price the demand is . A) variable" B) inelastic C) highly elastic D) derived E) negative
Answer: B AACSB: Application of knowledge Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
"139) Dips in the economy and the instant price comparisons made possible by the Internet have contributed to ." A) decreased consumer price sensitivity B) increased consumer price sensitivity C) a less direct relationship between supply and demand D) low brand equity for luxury goods E) decreased brand loyalty
Answer: B AACSB: Information technology Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
60) Herbie Inc. a firm manufacturing sandwich makers has fixed costs of $250000 variable costs of $20 per unit of output and expected unit sales of 50000 units. What is the unit cost of a sandwich maker manufactured by Herbie? A) $15 B) $25 C) $30 D) $50 E) $75
Answer: B AACSB: Reflective thinking Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Challenging
"41) Costs that change with the level of production are referred to as ." A) fixed costs B) variable costs C) target costs D) total costs E) overhead costs
Answer: B Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"59) Lawyers accountants and other professionals typically price by adding a standard markup for profit. This exemplifies ." A) target pricing B) cost-plus pricing C) value-based pricing D) break-even pricing E) penetration pricing
Answer: B Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"66) Target return pricing uses the concept of a(n) which shows the total cost and total revenue expected at different sales volume levels." A) BCG matrix B) break-even chart C) SWOT analysis D) demand curve E) experience curve
Answer: B Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
65) Target return pricing is a variation of which of the following cost-oriented pricing approaches? A) cost-plus pricing B) break-even pricing C) markup pricing D) value-based pricing E) fixed cost pricing
Answer: B Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"127) Under the market consists of many buyers and sellers who trade 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) the dominant firm model
Answer: B Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
"24) pricing refers to offering just the right combination of quality and gratifying service at a fair price." A) Markup B) Good-value C) Cost-plus D) Target profit E) Break-even
Answer: B Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"120) In industrial markets typically has the final say in setting the pricing objectives and policies of a company." A) the sales manager B) top management C) the production manager D) the HR department E) the sales staff
Answer: B Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
156) What are the different internal factors that affect a firm's pricing decisions?
Answer: Beyond customer value perceptions costs and competitor strategies the company must consider several additional internal and external factors. Internal factors affecting pricing include the company's overall marketing strategy objectives and marketing mix as well as other organizational considerations. Price is only one element of the company's broader marketing strategy. If the company has selected its target market and positioning carefully then its marketing mix strategy including price will be fairly straightforward. Some companies position their products on price and then tailor other marketing mix decisions to the prices they want to charge. Other companies deemphasize price and use other marketing mix tools to create nonprice positions. AACSB: Written and oral communication Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
162) "Beyond the market and the economy the company must consider several other factors in its external environment when setting prices." Explain this statement.
Answer: Beyond the market and the economy the 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. How will resellers react to various 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. AACSB: Application of knowledge Written and oral communication Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
109) Explain break-even pricing.
Answer: Break-even pricing (target return pricing) refers to setting price to break even on the costs of making and marketing a product or setting price to make a target return. Target return pricing uses the concept of a break-even chart which shows the total cost and total revenue expected at different sales volume levels. AACSB: Application of knowledge Written and oral communication Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
"74) When performing a break-even analysis the manufacturer should consider all of the following EXCEPT ." A) probable demand B) likely profits C) competitors' pricing D) estimated break-even volumes E) different prices
Answer: C AACSB: Analytical thinking Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Challenging
"44) The fixed cost in manufacturing a single LED monitor is $40 and the variable cost is $12. If the company expects to manufacture 5000 monitors the total costs would be ." A) $60000 B) $200000 C) $260000 D) $420000 E) $500000
Answer: C AACSB: Analytical thinking Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
42) In 2011 the fixed costs of a company were $500000 and its variable costs equaled "$150000. In 2010 the company made an annual profit of $200000. It has been predicted that despite a steady growth the company's variable costs will likely equal $300000 by 2013. The total costs of the company in 2011 were ." A) $350000 B) $450000 C) $650000 D) $800000 E) $950000
Answer: C AACSB: Analytical thinking Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
"114) Elmo Inc. a global conglomerate designed the ElBrush an electric toothbrush. Sensing market demand for the electric toothbrush Elmo started with an ideal selling price of $13 based on customer value considerations and then targeted costs to ensure that the price was met. This exemplifies ." A) competition-based pricing B) cost-plus pricing C) target costing D) everyday low pricing E) high-low pricing
Answer: C AACSB: Analytical thinking Skill: Application Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Challenging
"130) The movie industry in a country is controlled by six large studios that receive 90 percent of the annual revenues from movies. This is an example of a(n) ." A) pure competition B) monopolistic competition C) oligopolistic competition D) pure monopoly E) government monopoly
Answer: C AACSB: Analytical thinking Skill: Application Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Challenging
"116) DivetheBlue a company marketing deep-sea diving equipment charges very high prices for its products. Despite the availability of many low-priced products in the market customers seem to prefer DivetheBlue which has earned a reputation for selling high-quality products. This exemplifies ." A) a pure monopoly B) an oligopoly C) a nonprice position D) break-even pricing E) target costing
Answer: C AACSB: Analytical thinking Skill: Application Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
"135) Bruno Servers has decided to decrease its prices on its popular higher-range servers. The company can reasonably expect to increase." A) fixed costs B) variable costs C) demand D) additional value E) overhead costs
Answer: C AACSB: Analytical thinking Skill: Application Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
"20) The perceived value of different product offers can be reasonably assessed by ." A) conducting a SWOT analysis B) preparing demand curves C) conducting surveys and experiments D) collecting data about competitors' offers E) setting a benchmark for product quality
Answer: C AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"31) Companies that adopt value-added pricing ." A) consider value-added features as a fitting substitute for aggressive cost cutting B) set incredibly low prices to meet competition C) attach value-added features and services to differentiate their offers and support their higher prices D) overprice their products without any apparent justification E) underprice their products and lower quality to boost demand in the short-run
Answer: C AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
10) What sets the ceiling for product prices? A) product manufacturing costs B) sellers' perceptions of the product's value C) customer perceptions of the product's value D) variable costs E) break-even volume
Answer: C AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
17) Which of the following processes does value-based pricing reverse? A) high-low pricing B) everyday low pricing C) cost-based pricing D) good-value pricing E) value-added pricing
Answer: C AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"35) Companies with lower costs ." A) specialize in selling products with value-added features B) usually market products with inferior quality thereby justifying the low selling price C) can set lower prices that result in smaller margins but greater sales and profits D) tend to overprice products owing to their monopolistic advantage E) usually set higher prices that result in higher margins
Answer: C AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
"45) As production moves up the average cost per unit decreases because ." A) variable costs decrease B) of increasing diseconomies of scale C) fixed costs are spread over more units D) overhead costs decrease E) revenue increases
Answer: C AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
"53) A downward-sloping experience curve is indicative of ." A) the negative customer perception about a company's products B) the falling demand for a company's products C) the falling unit production cost of a company D) the low quality of a company's products E) slow and inadequate organizational learning
Answer: C AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
111) Which of the following is an internal factor that affects pricing decisions in a company? A) the nature of the market B) the degree of inflation in the economy C) the overall marketing strategy of the company D) the forces of demand and supply in the market E) consumers' perception of value
Answer: C AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
"25) When McDonald's and other fast food restaurants offer ""value menu"" items at surprisingly low prices they are most likely using pricing." A) break-even B) target profit C) good-value D) cost-plus E) target return
Answer: C AACSB: Application of knowledge Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
46) A cell phone manufacturing firm produced 1000 cell phones a day but believed that it could reasonably step up production to 2000 cell phones a day. Consequently it built a larger plant and installed efficient machinery and work arrangements to realize the projected output. Which of the following can most likely be inferred from this information? A) The unit cost of producing 2000 cell phones per day would be twice that of the unit cost of producing 1000 units per day. B) A production plant with the capacity of producing 5000 cell phones a day would be most efficient. C) The unit cost of producing 2000 cell phones per day would be lower than the unit cost of producing 1000 units per day. D) A 2000-capacity production plant would be less efficient because of increasing diseconomies of scale. E) The fixed costs of the firm are more likely to increase with the increase in output.
Answer: C AACSB: Reflective thinking Skill: Critical Thinking Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Challenging
"34) involves setting prices based on the costs for producing distributing and selling the product plus a fair rate of return for effort and risk." A) Value-based pricing B) Competition-based pricing C) Cost-based pricing D) Penetration pricing E) Break-even pricing
Answer: C Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"57) The simplest pricing method is pricing." A) value-based B) fixed cost C) cost-plus D) target return E) competition-based
Answer: C Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"58) Cost-plus pricing ." A) is a complex pricing method B) involves pricing that accurately reflects production costs C) involves adding a standard markup for profit D) aims at breaking even on the costs of making and marketing a product E) is a value-based pricing method
Answer: C Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"19) A restaurant wants to use value-based pricing. It knows the costs of the ingredients in the food. It must also factor in in determining customer satisfaction and value." A) wages of employees B) costs of utilities of the restaurant FALSE D) travel distance for customers E) percentage of bar patrons versus dining patrons
Answer: C Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
"119) Price setting is usually determined by in large companies." A) top managers B) external stakeholders C) product managers D) non-executive employees E) the sales department
Answer: C Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
Principles of Marketing 17e (Kotler/Armstrong) Chapter 10 Pricing: Understanding and Capturing Customer Value "1) refers to the amount of money charged for a product or service." A) Value B) Cost C) Price D) Wage E) Salary
Answer: C Skill: Concept Objective: LO 10.1: ,Answer the question "What is a price?" and discuss the importance of pricing in today's fast-changing environment. Difficulty: Easy
64) Which of the following is a cost-based approach to pricing? A) value-based pricing B) high-low pricing C) target return pricing D) good value pricing E) EDLP
Answer: C Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"122) Departments or managers that have an influence on pricing include sales managers finance managers accountants and ." A) engineering managers B) human resources managers C) production managers D) customers E) resellers
Answer: C Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
107) What is competition-based pricing?
Answer: Competition-based pricing refers to setting prices based on competitors' strategies prices costs and market offerings. AACSB: Written and oral communication Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
108) Distinguish between value-based pricing and cost-based pricing.
Answer: 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. Although costs are an important consideration in setting prices cost-based pricing is often product driven. The company designs what it considers to be a good product adds up the costs of making the product and sets a price that covers costs plus a target profit. Marketing must then convince buyers that the product's value at that price justifies its purchase. AACSB: Application of knowledge Written and oral communication Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
"33) In an effort to differentiate its offerings from its competitors Pegasus Computers decided to add an extra USB port in all its laptops besides providing a free pair of Delphi power bass headphones with every Pegasus laptop. Although the additional features increased the price of the laptops by $500 Pegasus was confident that the strategy would help boost demand for its laptops substantially. This is an example of ." A) good-value pricing B) markup pricing C) break-even pricing D) value-added pricing E) cost-based pricing
Answer: D AACSB: Analytical thinking Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Challenging
18) A pharmaceutical company in Utah recently released a new and expensive anti-ulcer drug in the market. The company justifies the high price of the drug by claiming that it is highly effective for treating all kinds of ulcers. The company also claims that the new drug will help bring down the need for invasive surgeries an additional benefit for patients. Which of the following pricing strategies is the pharmaceutical company most likely using in this instance? A) target pricing B) markup pricing C) cost-based pricing D) value-based pricing E) break-even pricing
Answer: D AACSB: Analytical thinking Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Challenging
"115) PoolPak produces climate-control systems for large swimming pools. The company's customers are more concerned about service support for maintaining their systems than the initial price of the product. PoolPak specializes in and differentiates itself through both cutting- edge technologies used to build its high-value climate control systems as well as seamless quality service. PoolPak's prices are very high but demand for its climate-control systems seems to be forever on the rise. This exemplifies ." A) target costing B) a pure monopoly C) cost-plus pricing D) a nonprice position E) break-even pricing
Answer: D AACSB: Analytical thinking Skill: Application Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Challenging
144) If Milt Alden focuses on overall costs of manufacturing plus profit in setting product prices which strategy would he employ? A) break-even pricing B) competition-based pricing C) value-added pricing D) cost-plus pricing E) good-value pricing
Answer: D AACSB: Analytical thinking Skill: Application Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
3) Which of the following is true with regard to price? A) Historically price has had the least perceptible impact on buyer choice. B) Price is the least flexible element in the marketing mix. C) Unlike product features and channel commitments prices cannot be changed quickly. D) Price is the sum of all the values that customers give up to gain the benefits of having a product. E) Prices only have an indirect impact on a firm's bottom line.
Answer: D AACSB: Analytical thinking Skill: Concept Objective: LO 10.1: ,Answer the question "What is a price?" and discuss the importance of pricing in today's fast-changing environment. Difficulty: Moderate
"12) Effective pricing involves understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value." A) competition-oriented B) cost-based C) time-based D) customer-oriented E) marketer-oriented
Answer: D AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"30) Department stores such as Kohl's and JCPenney's practice high-low pricing by ." A) charging a constant everyday low price B) providing few or no temporary price discounts C) increasing prices temporarily on select products D) having frequent sale days for store credit-card holders E) underpricing most consumer items
Answer: D AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
62) Why is markup pricing most likely impractical? A) Calculating costs is complicated due to fluctuations. B) By tying the price to cost sellers oversimplify pricing. C) When all firms in the industry use this pricing method prices tend to be similar. D) The method ignores demand and competitor prices. E) With a standard markup consumers know when they are being overcharged.
Answer: D AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
63) Why is markup pricing most likely popular? A) Sellers are more certain about demand than about costs. B) Markup pricing tends to maximize market competition. C) Markup pricing affords buyers greater bargaining power. D) Sellers do not need to make frequent adjustments as demand changes. E) Markup pricing is designed to set prices to break even on the costs of making and marketing a product.
Answer: D AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
"138) If demand changes greatly with a small change in price the demand is . A) variable" B) inelastic C) derived D) elastic E) negative
Answer: D AACSB: Application of knowledge Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
"61) Samsung Mobile plans to launch a new phone with a unit cost of $270 and wants to earn a 10 percent markup on its sales. Samsung's markup price is ." A) $275 B) $280 C) $295 D) $300 E) $335
Answer: D AACSB: Reflective thinking Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Challenging
"38) Overhead costs as the number of units produced increases." A) decrease B) increase steadily C) fluctuate D) remain the same E) increase rapidly
Answer: D Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
14) Factors a company considers in setting its price include all of the following EXCEPT . A) competitors' strategies and prices B) product costs C) overall marketing strategy and mix D) value of the product on the pre-owned market E) nature of the market and demand
Answer: D Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
16) What is usually the first step in cost-based pricing? A) testing the product concept with potential customers B) determining the marketing mix strategy C) setting a price that covers costs plus a target profit D) designing a good product E) adding up the costs of making the product
Answer: D Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
"141) Ways companies have avoided relying on price cuts in the new value-conscious era include all of the following EXCEPT ." A) by adding more affordable product lines for the cost-conscious consumer B) by redefining the "value" in their value propositions C) by adding premium product lines for the higher end consumer D) by offering deep discounts E) by creating price tiers
Answer: D Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
129) Which of the following is true with regard to monopolistic competition? A) Under monopolistic competition the market consists of many buyers and sellers who trade at a single market price. B) Under monopolistic competition the market consists of only a few large sellers. C) In a monopolistic market little time is spent on marketing strategy. D) Sellers can differentiate their products to buyers. E) In a monopolistic market price becomes a major competitive tool.
Answer: D Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
22) The Great Recession of 2008 to 2009 triggered a shift in consumer attitudes toward . A) variety and price B) perceptions of value C) locations of stores D) price and quality E) economic data
Answer: D Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
72) Mansfield Pharmaceuticals markets Zipro an antibiotic. The firm has fixed costs of $1000000 and variable costs of $2 per bottle of 50 tablets priced at $10 per bottle. What is the break-even volume? A) 25000 B) 55000 C) 100000 D) 115000 E) 125000
Answer: E AACSB: Analytical thinking Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Challenging
67) John assured his venture capitalists an earning of 25-percent return on equity when he began his IT startup. In order to achieve this result he will most likely use which of the following pricing approaches? A) value-based pricing B) markup pricing C) EDLP D) customer-based pricing E) target return pricing
Answer: E AACSB: Analytical thinking Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
39) Which of the following is most likely a fixed cost? A) sales representative commissions B) product distribution costs C) manufacturing input costs D) temporary worker salaries E) facility rental payments
Answer: E AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
69) Which of the following statements about break-even analysis is true? A) It is used to determine how much production experience a company must have in order to achieve desired efficiencies. B) It is a technique used to calculate fixed costs. C) It determines the amount of retained earnings a company will have during a given accounting period. D) It is a technique marketers use to determine the relationship between supply and demand. E) It is calculated by using variable costs the unit price and fixed costs.
Answer: E AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
"132) Under oligopolistic competition ." A) the market consists of a single dominant seller B) the market consists of numerous small sellers C) the market consists of many buyers and sellers who trade over a range of prices rather than a single market price D) sellers are typically unresponsive to competitors' pricing strategies and marketing moves E) the market consists of only a few large sellers
Answer: E AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
"112) Companies using target costing ." A) first design a new product and then determine its cost B) tailor their products to be in line with the marketing mix C) routinely neglect customer value considerations D) avoid determining an ideal selling price until analyzing test market results E) start with an ideal selling price and then target costs that will ensure that the price is met
Answer: E AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
124) Which of the following exemplifies a pure competitive market? A) a market where many buyers and sellers trade over a range of prices rather than a single market price B) a market where a single firm controls the larger fraction of the market share C) a market where a few powerful firms control the larger fraction of the market share D) a market characterized by only a few large sellers E) a market where many buyers and sellers trade in a uniform commodity
Answer: E AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
125) Which of the following is true of a pure competitive market? A) A single seller has a major effect on the current and future market price. B) Companies spend significantly on marketing research and product development. C) The advertising budget of companies is usually huge. D) Sellers try to develop differentiated offers for different customer segments. E) Sellers spend little time on marketing strategy.
Answer: E AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
134) Which of the following is true about the demand curve? A) A demand curve indicates the drop in the average per-unit production cost that comes with accumulated production experience. B) A demand curve indicates the cost per unit of output in the long run. C) A demand curve indicates the cost per unit of output in the short run. D) In a monopoly the demand curve does not indicate the total market demand resulting from different prices. E) A demand curve shows the number of units the market will buy in a given time period at different prices that might be charged.
Answer: E AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
55) Which of the following is most likely a risk associated with experience-curve pricing? A) High-volume production facilities are unable to meet demand. B) New technology often leads to productivity problems. C) Demand for the product fluctuates unpredictably. D) Consumers tend to prefer new brands over established ones. E) Aggressive pricing often gives a product a cheap image.
Answer: E AACSB: Application of knowledge Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
75) Which of the following involves setting prices based on a rival firm's strategies costs prices and market offerings? A) target return pricing B) good-value pricing C) competitor value-added pricing D) market-based pricing E) competition-based pricing
Answer: E AACSB: Application of knowledge Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
"48) A manufacturing plant is designed to produce 2000 flat-screen TVs per day. But demand is higher than that. If the company tries to increase its production to 2500 TVs per day the average costs will because ." A) decrease the plant becomes more efficient B) stay the same the plant becomes more efficient C) decrease the plant becomes inefficient D) increase the plant becomes more efficient E) increase the plant becomes inefficient
Answer: E AACSB: Reflective thinking Skill: Critical Thinking Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Challenging
"121) In industries in which pricing is a key factor often set the best prices or help others in setting them." A) sales departments B) salespeople C) production managers D) line managers E) pricing departments
Answer: E Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
161) Briefly describe how economic conditions impact a firm's pricing strategies.
Answer: Economic conditions can have a strong impact on a 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. In the aftermath of the recent Great Recession of 2008 to 2009 many consumers have rethought the price-value equation. They have tightened their belts and become more value conscious. Consumers will likely continue their thriftier ways well beyond any economic recovery. As a result many marketers have increased their emphasis on value-for-the-money pricing strategies. The most obvious response to the new economic realities is to cut prices and offer discounts. Thousands of companies have done just that. Lower prices make products more affordable and help spur short-term sales. However such price cuts can have undesirable long-term consequences. Lower prices mean lower margins. Deep discounts may cheapen a brand in consumers' eyes. And once a company cuts prices it is difficult to raise them again when the economy recovers. AACSB: Application of knowledge Written and oral communication Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
80) Product costs set the ceiling for prices.
Answer: FALSE AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
147) In a pure monopoly the market consists of many buyers and sellers who trade over a range of prices rather than a single market price.
Answer: FALSE AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
150) If demand changes greatly with price the demand is inelastic.
Answer: FALSE AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
151) The more elastic the demand the more it pays for the seller to raise the price.
Answer: FALSE AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
6) Price is the most inflexible of the marketing mix elements.
Answer: FALSE AACSB: Application of knowledge Skill: Concept Objective: LO 10.1: ,Answer the question "What is a price?" and discuss the importance of pricing in today's fast-changing environment. Difficulty: Easy
95) Markup pricing is used when a firm tries to determine the price at which it will break even or make the target return it is seeking.
Answer: FALSE AACSB: Application of knowledge Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
84) Good-value pricing usually is used by premium brands and rarely by less-expensive brands.
Answer: FALSE AACSB: Application of knowledge Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
86) Department stores that practice everyday low pricing typically provide frequent sale days early-bird savings and bonus earnings for store credit-card holders.
Answer: FALSE AACSB: Application of knowledge Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
79) Customer perceptions of the product's value set the floor for prices.
Answer: FALSE Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
82) Value-based pricing uses the sellers' perception of value as the key to pricing.
Answer: FALSE Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
89) Cost-based pricing involves setting prices based on consumer perception of value.
Answer: FALSE Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
91) Average cost tends to increase with accumulated production experience.
Answer: FALSE Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
90) A company will be at an advantage even if it costs more than its competitors to make and sell a similar product.
Answer: FALSE Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
92) A downward-sloping experience curve is indicative of a company's rapidly increasing production costs.
Answer: FALSE Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
101) What is good-value pricing?
Answer: Good-value pricing refers to offering just the right combination of quality and good service at a fair price. AACSB: Written and oral communication Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
102) What is high-low pricing?
Answer: High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items. AACSB: Written and oral communication Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
104) Explain the significance of a downward-sloping experience curve.
Answer: If a downward-sloping experience curve exists this is highly significant for the company. Not only will the company's unit production cost fall but it will fall faster if the company makes and sells more during a given time period. AACSB: Written and oral communication Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
105) A marketer's fixed costs are $400000. The variable cost is $16 per unit and the price of the product is $24 per unit. If the company wants to make a profit how many units must it sell and at what price?
Answer: If the company wants to make a profit it must sell more than 50000 units at $24 each. AACSB: Analytical thinking Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Challenging
155) What is a pure monopoly?
Answer: 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. AACSB: Written and oral communication Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
154) Who typically sets prices in large and small companies?
Answer: In small companies prices are often set by top management rather than by the marketing or sales departments. In large companies pricing is typically handled by divisional or product managers. AACSB: Written and oral communication Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
9) Define price. Discuss its importance.
Answer: In the narrowest sense price is the amount of money charged for a product or a service. More broadly price is the sum of all the values that customers give up to gain the benefits of having or using a product or service. Historically price has been the major factor affecting buyer choice. In recent decades however nonprice factors have gained increasing importance. Even so price remains one of the most important elements that determines a firm's market share and profitability. Price is the only element in the marketing mix that produces revenue all other elements represent costs. Price is also one of the most flexible marketing mix elements. Unlike product features and channel commitments prices can be changed quickly. At the same time pricing is the number one problem facing many marketing executives and many companies do not handle pricing well. Some managers view pricing as a big headache preferring instead to focus on other marketing mix elements. However smart managers treat pricing as a key strategic tool for creating and capturing customer value. Prices have a direct impact on a firm's bottom line. A small percentage improvement in price can generate a large percentage increase in profitability. More important as part of a company's overall value proposition price plays a key role in creating customer value and building customer relationships. AACSB: Analytical thinking Written and oral communications Skill: Concept Objective: LO 10.1: ,Answer the question "What is a price?" and discuss the importance of pricing in today's fast-changing environment. Difficulty: Moderate
99) Explain the concept of the price ceiling.
Answer: Price ceiling represents the price above which there is no demand. AACSB: Written and oral communication Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
160) Explain price elasticity. What determines the elasticity of demand?
Answer: Price elasticity refers to a measure of the sensitivity of demand to changes in price. If demand hardly changes with a small change in price the demand is inelastic. If demand changes greatly it 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. In recent years forces such as deregulation and the instant price comparisons afforded by the Internet and other technologies have increased consumer price sensitivity turning products ranging from telephones and computers to new automobiles into commodities in some consumers' eyes. AACSB: Analytical thinking Written and oral communications Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
98) Explain the concept of the price floor.
Answer: Price floor represents the price below which there is no profit. AACSB: Written and oral communication Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
7) List some important characteristics of price.
Answer: Price is the only element in the marketing mix that produces revenue all other elements represent costs. Price is also one of the most flexible marketing mix elements. Unlike product features and channel commitments prices can be changed quickly. AACSB: Application of knowledge Written and oral communication Skill: Concept Objective: LO 10.1: ,Answer the question "What is a price?" and discuss the importance of pricing in today's fast-changing environment. Difficulty: Moderate
83) Using value-based pricing a marketer would not design a product and marketing program before setting the price.
Answer: TRUE AACSB: Analytical thinking Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
81) In customer value-based pricing price is considered along with all other marketing mix variables before the marketing program is set.
Answer: TRUE AACSB: Analytical thinking Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
146) Price decisions must be coordinated with product design distribution and promotion decisions to form a consistent and effective integrated marketing mix program.
Answer: TRUE AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
148) A demand curve shows the number of units the market will buy in a given time period at different prices that could be charged.
Answer: TRUE AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
149) 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.
Answer: TRUE AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
152) If demand is elastic rather than inelastic sellers will consider lowering their prices.
Answer: TRUE AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
153) While lower prices may attract additional customers it is possible for pricing strategies to result in the product becoming a commodity in the customers' eyes.
Answer: TRUE AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
5) Prices have a direct impact on a firm's bottom line.
Answer: TRUE AACSB: Application of knowledge Skill: Concept Objective: LO 10.1: ,Answer the question "What is a price?" and discuss the importance of pricing in today's fast-changing environment. Difficulty: Easy
94) Markup pricing is popular because when all firms in the industry use this pricing method prices tend to be similar so price competition is minimized.
Answer: TRUE AACSB: Application of knowledge Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
85) Cost-based pricing is often product driven.
Answer: TRUE Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
87) Overhead costs are costs that do not vary with production or sales level.
Answer: TRUE Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
88) Variable costs change directly with the level of production.
Answer: TRUE Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
93) The simplest pricing method is cost-plus pricing which involves adding a standard markup to the cost of the product.
Answer: TRUE Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
96) A break-even chart shows the total cost and total revenue expected at various sales volume levels.
Answer: TRUE Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
97) Break-even volume is the number of unit sales required for total revenue to cover total cost.
Answer: TRUE Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
145) Internal factors affecting pricing include the company's overall marketing strategy objectives and marketing mix.
Answer: TRUE Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Easy
106) A marketer's fixed costs are $400000 the variable cost is $16 per unit and the price of the product is $24 per unit. What is the company's break-even point in dollar sales?
Answer: The break-even point in dollar sales is $1200000. AACSB: Analytical thinking Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Challenging
100) Briefly describe the process of value-based pricing.
Answer: 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. AACSB: Written and oral communication Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Moderate
103) Define total costs.
Answer: Total costs are the sum of the fixed and variable costs for any given level of production. AACSB: Written and oral communication Skill: Concept Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Easy
158) Briefly discuss monopolistic competition.
Answer: Under monopolistic competition the market consists of many buyers and sellers who trade over a range of prices rather than a single market price. A range of prices occurs because sellers can differentiate their offers to buyers. Because there are many competitors each firm is less affected by competitors' pricing strategies than in oligopolistic markets. Sellers try to develop differentiated offers for different customer segments and in addition to price freely use branding advertising and personal selling to set their offers apart. AACSB: Analytical thinking Skill: Concept Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Moderate
157) Compare and contrast pure competition and oligopolistic competition.
Answer: Under pure competition the market consists of many buyers and sellers trading in a uniform commodity such as wheat copper or financial securities. No single buyer or seller has much effect on the going market price. In a purely competitive market marketing research product development pricing advertising and sales promotion play little or no role. Thus sellers in these markets do not spend much time on marketing strategy. On the other hand under oligopolistic competition the market consists of only a few large sellers. Because there are few sellers each seller is alert and responsive to competitors' pricing strategies and marketing moves. AACSB: Application of knowledge Written and oral communication Skill: Synthesis Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Challenging
8) Why is price considered one of the most flexible elements of the marketing mix?
Answer: Unlike product features and channel commitments prices can be changed quickly. AACSB: Application of knowledge Skill: Concept Objective: LO 10.1: ,Answer the question "What is a price?" and discuss the importance of pricing in today's fast-changing environment. Difficulty: Easy
Refer to the scenario below to
answer the following question(s). Considering that most young households have limited financial resources Alden attempts to engage in target costing. "In doing this" says Milt Alden the co-founder of Alden Electronics "we have better control over keeping price right in line with customers." Alden manufactures a three-speed blender its top seller along with a five-speed blender. The hand mixers are manufactured in two variants-a small handheld mixer with two rotating beaters and another that comes with an optional stand and an attached mixing bowl. Alden's temperature-controlled skillets are manufactured in a single style with three color options. "Our product offerings are narrower" Milt Alden added "but our line workers know each product like the back of their hands. This allows us to produce superior products while holding our prices low. 143) Milt Alden uses which of the following strategies for pricing his products? A) basing company price on competitors' prices B) using everyday low pricing C) initiating an aggressive promotional campaign D) starting with customer-value considerations E) focusing on overall fixed costs of manufacturing ,Answer: D AACSB: Analytical thinking Skill: Application Objective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions. Difficulty: Challenging
Refer to the scenario below to
answer the following question(s). Alden Manufacturing produces small kitchen appliances-blenders hand mixers and electric skillets-under the brand name First Generation. Alden attempts to target newlyweds and first- time home buyers with this brand. Considering that most young households have limited financial resources Alden attempts to engage in target costing. "In doing this" says Milt Alden the co-founder of Alden Electronics "we have better control over keeping price right in line with customers." Alden manufactures a three-speed blender its top seller along with a five-speed blender. The hand mixers are manufactured in two variants-a small handheld mixer with two rotating beaters and another that comes with an optional stand and an attached mixing bowl. Alden's temperature-controlled skillets are manufactured in a single style with three color options. "Our product offerings are narrower" Milt Alden added "but our line workers know each product like the back of their hands. This allows us to produce superior products while holding our prices low. "77) Milt Alden says that his line workers ""know each product like the back of their hands"" and that this knowledge helps the company keep its prices low. This indicates that Alden Manufacturing most likely benefits from the ." A) cost-plus pricing B) value-added pricing C) experience curve D) inelastic demand in the market E) derived demand in the market ,Answer: C AACSB: Analytical thinking Skill: Application Objective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions company costs and competitor strategies when setting prices. Difficulty: Challenging
