Ch 14
In one year, the Sunrise Hotel incurred $100,000 in fixed costs. Because the hotel booked 10,000 room nights, its total variable cost is $100,000 (10,000 room nights × $10 per room). Thus, its total cost is
$200,000
Kyle estimates that the fixed costs associated with opening a new bank branch are $500,000. He expects the branch to attract 1,000 new customer accounts in the first year, each of which will cost $50 per year to service. He also expects to generate $100,000 per year in revenue. For Kyle, the total cost of opening the new branch and remaining open for one year will be
$550,000
Samson rents rooms in his hotel for an average of $100 per night. The variable cost per rented room is $20, to cover maid service and utilities. His fixed costs are $100,000 and his profit last year was $20,000. For Samson, the contribution per unit is
80 (100-20)
At the break-even point, profits are maximized.
False
Brands that have developed loyal customers have a higher price elasticity of demand.
False
The demand curve for prestige products generally slopes downward due to higher prices.
False
When a firm has a particular profit goal as its overriding concern, it will use target return pricing to meet the profit objective.
False
Costs related to supply and costs related to demand are the two primary cost categories.
False - variable and fixed
American Airlines just reduced its fares for summer flights by $100. Delta Airlines changes its pricing structure and reduces its flights by $100 as well. Delta is employing status-quo pricing.
True
Variable costs change with
changes in the quantity being produced
In general, prices should not be based on costs because
consumers make their purchase decisions based on perceived value
The break-even point is estimated by
dividing fixed costs by contribution per unit
One of the limitations associated with break-even analysis is that
it assumes that there is only one price
Raoul was known for driving 20 miles just to save a dollar on the price of his favorite beverage. Raoul perceived price as ________ for a good or service, while most consumers recognize price as the ________ made to acquire a good or service.
money paid; overall sacrifice
If a firm is engaged in ________ competition, it should seek a way to differentiate itself.
monopolistic
Naomi tells her sales representatives the goal is to generate at least a 15 percent return on investment for all of the industrial building supplies they sell. Naomi is using a ________ pricing strategy.
target return
Unlike product, promotion, or place, price is the only part of the marketing mix
that generates revenue
A customer orientation toward pricing implicitly invokes the concept of
value
Which of the following is the most logical example of complementary products?
glizzy wit a bun
Hayla is the marketing manager for a fast-food restaurant chain. She uses a target return pricing strategy because her firm's primary objective is to
increase profits
Predatory pricing
is illegal in the United States under both the Sherman Antitrust Act and the Federal Trade Commission Act
Which of the following markets is most likely to be characterized by oligopolistic competition in the United States?
smartphone service providers
Consider a bakery like Entenmann's: The majority of the ________ costs are the cost of the ingredients, primarily flour.
variable
Samar customizes Harley-Davidson motorcycles. No two cycles are alike. He notices that very few customers even ask the price of his motorcycles before they decide to purchase them. Demand for his motorcycles is probably
price inelastic
Because consumers are generally more sensitive to price increases than to price decreases, it is easier to lose current customers with a price increase than it is to gain new customers with a price decrease.
True
In U.S. markets, there are many substitute products for Lucky Charms cereal, suggesting the price elasticity of demand for Fruit Loops is high.
True
Price is the only part of the marketing mix that does not generate costs.
True
Pricing strategies should be aligned with a firm's overall goals and objectives.
True
Rarely is the lowest-price product offering the dominant brand in a given market.
True
The key to successful pricing is to match the product with the consumer's perception of value.
True
When CarMax promises a "no-haggle" pricing structure, it exhibits ________ because it provides additional value to potential used car buyers by making the process simple and easy.
a customer orientation
In developing marketing strategies, why is price often the most challenging of the four Ps to manage?
because it is the least understood element of the marketing mix
The point at which the number of units sold generates enough revenue to equal the total costs of running an operation is known as the
break-even point
In many high-end resort markets, Westin hotels compete directly with Crown Plaza hotels. When it comes to pricing, Westin tends to charge its guests similar rates to what the Crown Plaza hotels charge. Westin is using a ________ pricing strategy.
competitive parity
When firms set prices similar to those of competitors, they are following a strategy of
competitive parity
________ products are products whose demands are positively related and as such, they rise or fall together.
complementary
Evan is a yacht broker in the southeastern United States. For years he has had difficulty selling large yachts locally because there were few places to dock these boats. Yachts and spaces to dock them are an example of
complementary products
Imelda's is an upscale women's clothing store. Prices are based on customers' beliefs about the value of the clothing. The store focuses on a limited target market and provides excellent customer service. Imelda's is using a ________ pricing strategy.
customer-orientated
A "no-haggle" pricing policy is a type of _____ pricing strategy.
customer-oriented
Managers of Wendy's fast-food restaurants keep track of prices at competitors such as McDonald's, Burger King, and Arby's, knowing that a decrease in the prices at these other fast-food restaurants will
decrease demand for Wendy's products
Customers must see value in a product or service before they are willing to exchange time or money to obtain it, but not all customers see the same value in a product. To analyze how many units will be sold at any given price point, marketers draw on
demand curve
______ shows the relationship between income and demand.
demand curve
What situation is occurring if a 1 percent decrease in price results in more than a 1 percent increase in quantity demand?
demand is price elastic
How can a company find its way out of a market characterized by pure competition?
differentiate the product in some way, even by packaging, so customers will se it as distinct
The Curtain's Coffee company is located in a business district with few customers on the weekend. To attract customers on Saturday and Sundays, it reduces its prices on these two days. This is an example of
dynamic pricing
The price elasticity of demand for a teeth-whitening kit is −1.5. The market for this product is considered
elastic (because its less than 1)
When it comes to measuring consumers' price sensitivity, product prices are viewed as either
elastic or inelastic
A demand curve is built on the assumption that
everything but price and demand remains the same
Dynamic pricing is also referred to as ________ pricing.
individualized
A strategy of setting prices based on how customers develop their perceptions of value can often be the most effective pricing strategy, especially if the strategy
is supported by consistent advertising and distribution strategies
The observation that consumers are generally more sensitive to price increases than to price decreases suggests that
it is easier to lose customers with a price increase than to gain customers with a price decrease
A ________ strategy involves accurately measuring all the factors needed to predict sales and profits at various price levels, so that the price level that produces the highest return can be chosen.
maximizing profits
In a market with ________ there are many firms providing differentiated products.
monopolistic competition
Cross-price elasticity is the
percentage change in quantity demanded of Product A compared to the percentage change in price of Product B
Rita knew that her established customers liked her product much better than her competitor's. She was planning to expand into new markets, and she was considering pricing. She was leaning toward charging a higher price than competitors to help demonstrate that hers was a high-quality product. Rita was considering
premium pricing
A demand curve shows the relationship between ________ during a specific period of time.
price and demand
If a 1 percent decrease in price results in less than a 1 percent increase in the quantity demanded, demand is
price inelastic
The contribution per unit is
price minus variable cost per unit
Because there are only a few firms in markets with oligopolistic competition,
price wars may occur
At the break-even point,
profits are zero
In ________ many firms provide similar products that are considered substitutes for each other.
pure competition
What price competitive level would be indicated when the price is usually set according to the laws of supply and demand?
pure competition
Historically, prices were
rarely changed except in response to radical shifts in market conditions
Ozzie is the marketing manager for an automobile dealership. His boss tells him the firm's primary goal is to increase its local market share from 15 to 30 percent. His firm is using a ________ orientation.
sales
Many years ago Honda's Accord and Ford's Taurus were the two top-selling cars in the United States. As the year was coming to an end, Ford cut the price of the Taurus, hoping to outsell the Accord and allow Ford to claim that "Taurus is the best-selling car in America." Ford was using a ________ pricing strategy.
sales-orientation
Abdul's firm has set corporate direction to become one of the leaders in each of its significant market segments. It was Abdul's job to examine the firm's pricing strategy to determine how to maximize market share, even at the expense of profits in the short run. What kind of company objective would guide Abdul's effort?
sales-oriented
Which of the following is most likely to be characterized by pure competition in the United States?
soybeans - grains, gold, meat, spices, minerals, etc.
Byron gave the manager of his convenience store a set of binoculars so she could see the gasoline prices charged by the other convenience store at that intersection. Byron told the manager to always match the gasoline prices of the other store. Byron is using a ________ pricing strategy.
status-quo
When Delta increases its average fares, American Airlines and United often follow with similar increases. This is an example of
status-quo pricing
When the price for Blu-ray players dropped, the demand for DVD players went down, so DVD players and Blu-ray players are
substitute products
Wilhelm owns Do-It-Right Auto Repair Service. He has observed over the years that customers keep their high-mileage cars longer when the economy is doing poorly, creating demand for his maintenance and repair service. Wilhelm has observed the impact of ________ on demand for his service.
the income effect
Because there are many firms in monopolistic competition markets,
the many competitors will focus on product differentiation
There are many options available to consumers when it comes to breakfast cereals. So, if Kellogg's significantly increases the price of Rice Krispies, consumers are more apt to buy alternate cereals instead. This illustrates which concept?
the substitution effect
One problem in relying on price elasticity and demand curves when setting prices is
the way a product or service is marketed can have a profound impact on price elasticity
________ are included in the full price of a product or service.
travel costs
