Chapter 12 - Questions
Scenario 12.5. A few months ago, a major B2B supplier raised prices of its products by 10 percent to compensate for changes in market conditions. One of its sales reps, Tamika was surprised when orders from her regular customers plummeted. Her normal order was $1,100. After the price increase, the average order dropped by 25 percent. Tamika became concerned that customers might look elsewhere. For this reason, she decided to start offering discounts. When one of her loyal customers, David, purchases $950 worth of product for his firm, the supplier gives David the terms "4/20 net 30." She wants to maintain her relationship with David and would ideally like to receive payment in less than a month. Refer to Scenario 12.5. How much would David have to pay if he pays in 25 days? In 19 days? $912; $950 $950; $912 $923; $950 $950; $665 $950; $760
$950; $912
What happens in a normal demand curve, where there is an inverse relationship between price and quantity? - The price goes up as demand goes up. - The price goes down as demand goes up. - Demand goes up as the price goes down. - Demand goes down as the price goes down.
- Demand goes up as the price goes down.
Which of the following are advantages of penetration pricing? (Select two) - Allows more flexibility in making price changes - Encourages customers to try the new product - Helps increase sales volume, which leads to production economies of scale - Helps recover high research and development costs more quickly - Holds down demand when the firm has limited production capability at the introduction
- Encourages customers to try the new product - Helps increase sales volume, which leads to production economies of scale
To more accurately gauge the target market's evaluation of price, firms should look at which of these? (Select three) - How much value customers expect from a product - How different customers respond to the marketing mix - The importance customers place on a product - How sensitive a customer is to the purchase situation - What product quality customers expect
- How much value customers expect from a product - The importance customers place on a product - What product quality customers expect
If a firm sells a prestige product, what kind of relationship between price and quantity demanded should it expect? - It should expect to sell more at higher prices, up to a point. - It should expect to sell more at ever-higher prices. - It should expect to sell more when it lowers the price. - It should expect to sell less at ever-higher prices.
- It should expect to sell more at higher prices, up to a point.
What happens when the firm achieves the breakeven point? - It will make money on each unit sold after that point. - It will meet demand on each unit sold after that point. - It will lose money on each unit sold after that point. - It will increase costs on each unit sold after that point.
- It will make money on each unit sold after that point.
The PlayStation 5 retails for $499 at GameStop, and the cost to GameStop is $400. What is the markup as a percentage of the selling price? 19.8 percent 24.8 percent 80.2 percent 50.3 percent
19.8 percent
Scenario 12.5. A few months ago, a major B2B supplier raised prices of its products by 10 percent to compensate for changes in market conditions. One of its sales reps, Tamika, was surprised when orders from her regular customers plummeted. Her normal order was $1,100. After the price increase, the average order dropped by 25 percent. Tamika became concerned that customers might look elsewhere. For this reason, she decided to start offering discounts. When one of her loyal customers, David, purchases $950 worth of product for his firm, the supplier gives David the terms "4/20 net 30." She wants to maintain her relationship with David and would ideally like to receive payment in less than a month. Refer to Scenario 12.5. Consider how the average order amount changed when prices were raised $75. The elasticity of demand is _______. With this in mind, the product can best be described as _______. 2.5; inelastic 0.4; inelastic 2.5; elastic 1.0; elastic 0.4; elastic
2.5; elastic
Scenario 12.1. Chantel, a resident of Denver, Colorado, decided to open up her own fine jewelry store. To do so, she used her life savings and a loan from the bank. Chantel was able to open up a store with sufficient inventory. She markets the jewelry as the "finest jewelry in the West." The most popular item Chantel sells is a rose gold bracelet that sells for $550. During one month, Chantel's fixed costs are $6,000. Her variable costs average about $400. Refer to Scenario 12.1. How many rose gold bracelets would Chantel have to sell to break even? 40 37 54 24 50
40
Miguel is setting prices for new couches. The couch he is currently looking at is higher quality and expected to last longer than a traditional couch. Miguel expects to set the price of the couch high because he knows that consumers anticipate paying more for longer-lasting products. What stage of the pricing process is Miguel currently at? Evaluating competitors' prices Assessing the target market's evaluation of price Determining the final price Choosing a basis for setting prices Developing pricing objectives
Assessing the target market's evaluation of price
Which of the following is the final step in the process of establishing prices? Selection of a pricing strategy Determination of a specific price Selection of a basis for pricing Assessment of target market's evaluation of price
Determination of a specific price
Juan thinks he has reached the point where he has maximized his profit. However, because this can be tricky to determine, he is not sure. He decides to test it by selling one more unit. If Juan is correct in his assumption, what should happen when he sells this additional unit? Profit will increase but at a slower rate. Profits will be reduced to zero. Marginal cost will exceed marginal revenue. Marginal revenue will exceed marginal cost. Juan will break even on his sales.
Marginal cost will exceed marginal revenue.
When a firm sets one price in its home market and a different, higher price in a higher-cost market far away, it is using which type of pricing? Periodic discounting Secondary-market pricing Negotiated pricing Price skimming
Secondary-market pricing
ACE Corp. offers a price discount to encourage prompt payment. Which of the following is it likely to use? A cash discount A trade discount A quantity discount A seasonal discount An allowance
a cash discount
ACE Corp.'s products have elastic demand. If ACE raises the price of products, what will be the result? An increase in market share A decrease in market share An increase in total revenue A decrease in product inventory A decrease in total revenue
a decrease in total revenue
multiple-unit pricing
a firm sells two or more identical products for a single price
Custom Hot Rods specializes in restoring or creating custom vehicles and motorcycles for customers who appreciate one-of-a-kind vehicles. Custom Hot Rods typically produces two units each month. If it's able to produce one more unit each month, it will incur _______. fewer variable costs increased fixed costs lower average variable costs a marginal cost
a marginal cost
Rex is opening a retail outlet and will primarily sell used video games and game systems. Which of the following would most likely represent a fixed cost for Rex? Employee compensation Building rent Electricity Advertising expenditures
building rent
Later in the year, your company will also launch a fitness ring that can track heart rate variability and monitor sleep. All the data are uploaded to a smartphone app that sends push notifications with suggested lifestyle changes based on the consumer's health. The ring will normally cost $200—the same as the bracelet. Your marketing director suggests selling both the ring and the bracelet together for $350. This type of pricing tactic is called _______. bundle pricing customary pricing multiple-unit pricing reference price
bundle pricing
type of product
buyers are less sensitive to items purchased occasionally, such as luggage
What type of pricing involves a firm setting a low price for a basic product and a higher price for something needed to operate that product? Customary Bundle Captive Premium
captive
Scenario 12.5. A few months ago, a major B2B supplier raised prices of its products by 10 percent to compensate for changes in market conditions. One of its sales reps, Tamika was surprised when orders from her regular customers plummeted. Her normal order was $1,100. After the price increase, the average order dropped by 25 percent. Tamika became concerned that customers might look elsewhere. For this reason, she decided to start offering discounts. When one of her loyal customers, David, purchases $950 worth of product for his firm, the supplier gives David the terms "4/20 net 30." She wants to maintain her relationship with David and would ideally like to receive payment in less than a month. Refer to Scenario 12.5. What type of discount is the supplier offering David? Trade Transfer Cumulative Cash Allowance
cash
Your goal in setting a price is not to match competitors' prices or try to steal market share. More than anything, you want to get back the cash invested in developing your new product. You have chosen which pricing objective? Product quality Survival Cash flow Status quo
cash flow
Scenario 12.4. Forouzan works at a firm that wants to develop a new pricing strategy for one of its products. The company has decided that its main objective for this product is to increase the product's sales in relation to industry sales. Forouzan has obtained a list of prices that tell her how much similar products are being sold for. Forouzan is particularly interested in the industry's top competitor because it has so much market share. After determining the price of its major competitor, Forouzan decided to undercut their price by several dollars. She believes putting a sign in their stores that features her company's discounted price next to the price of their major competitor for the same product will show consumers that Forouzan's company offers them a much better deal. However, she knows that she has to be careful not to misrepresent the competitor's price in the process. Refer to Scenario 12.4. Which of the following pricing strategies is Forouzan planning to adopt? Comparison discounting Penetration pricing Price lining Customary pricing Special-event pricing
comparison discounting
Lin is attempting to price a piece of custom-made equipment for a gym. The production costs of the equipment are hard to assess. She decides it would just be easier to add a specified dollar amount to the total cost. What type of pricing is Lin using? Markup Demand-based Dynamic Cost-plus Yield management
cost-plus
_______ pricing applies a specific dollar amount or percentage of the cost that is added to the seller's cost to establish the final price of a product or service. This type of pricing is frequently utilized in government and defense contracts. Demand-based Competition-based Markup Cost-plus
cost-plus
Danny has a dilemma. He works for a chocolate company and the price of chocolate is going up. The most logical solution would be to raise the price. However, Danny knows from his history in the business that their loyal customers would not look favorably on a price increase. For customers, candy bars are one of those items where the price rarely changes. Danny's firm has sold its candy bars for $0.99 for the past two decades. Danny feels that the next best solution to absorbing the extra costs is to make the candy bars slightly smaller without lowering the price. Danny's company is most likely using which of the following pricing strategies? Product-line Everyday low price Penetration Price leader Customary
customary
purchase situation
customers will pay more for popcorn bought in a movie theatre
Malcolm has decided that he wants to open up his own law practice. The time has come to establish prices for his services. Due to his extensive experience and legal background, he believes that his fees should not relate directly to the time or effort spent on specific cases. Now that Malcolm has chosen the pricing strategy he wants to use, what is his next step? Determining the final price Evaluating competitors' prices Assessing the target market's evaluation of price Choosing a basis for setting prices Developing pricing objectives
determining the final price
What is the first step in establishing prices? Evaluating competitors' prices Development of pricing objectives Determining a basis for pricing Determination of a specific price
development of pricing objectives
target market
different customers pay different prices for goods and services, such as meals
Blue Ribbon Farms is a family-owned farm and sells its seasonal produce, meat, eggs, and bakery items at several farmers' markets within a 60-mile radius of the farm. The owners utilize a Square payment system for credit cards, which is conveniently attached to a digital device such as an iPhone or iPad; however, the farm is charged a credit card fee of 8 percent of the retail price to process each credit card transaction. To encourage shoppers to pay with cash, Blue Ribbon Farms offers a 10 percent discount on purchases for consumers who pay by cash or check. Blue Ribbon Farms is utilizing a _______ pricing strategy. premium random discounting penetration differential
differential
Which one of the following types of products is not subject to inelastic demand? Status-symbol cars Gasoline Electricity Dining room furniture
dining room furniture
LEGOLAND is implementing a new type of pricing. When demand increases and more customers visit the parks, the price will increase. When demand dips during the slow season, prices will decrease. This is a way to help balance out supply and demand. What is another name for the type of pricing that LEGOLAND is using? Dynamic pricing Competition-based pricing Cost-plus pricing Cost-based pricing Markup pricing
dynamic pricing
If a shift in price causes an opposite change in total revenue, then the product is _______. inelastic unknown elastic unitary
elastic
The instructor for the premium boot camp class charges Maria $50 per class. However, a new fitness instructor approaches Maria about trying to teach at her gym. The instructor is just as qualified to teach as Maria's current fitness instructor, and after a detailed review of the new fitness instructor's class Maria believes that both instructors are fit to teach the class. However, Maria cannot afford to keep both instructors. The new fitness instructor will only charge Maria $35 per class. Maria likes that the new instructor is cheaper and, in the end, goes with the new instructor. Maria's demand for a fitness instructor was ________. fixed elastic marginal inelastic
elastic
Lexi operates a service business that engages in systematically collecting data on brands and prices at competitors' stores for her business customers. For which stage of the price establishment process would this service be most appropriate? Selecting a basis for pricing Assessing the target market's evaluation of price Developing pricing objectives Evaluating competitors' prices Selecting a pricing strategy
evaluating competitors' prices
Scenario 12.4. Forouzan works at a firm that wants to develop a new pricing strategy for one of its products. The company has decided that its main objective for this product is to increase the product's sales in relation to industry sales. Forouzan has obtained a list of prices that tell her how much similar products are being sold for. Forouzan is particularly interested in the industry's top competitor because it has so much market share. After determining the price of its major competitor, Forouzan decided to undercut their price by several dollars. She believes putting a sign in their stores that features her company's discounted price next to the price of their major competitor for the same product will show consumers that Forouzan's company offers them a much better deal. However, she knows that she has to be careful not to misrepresent the competitor's price in the process. Refer to Scenario 12.4. When Forouzan is examining the list of prices, she is most likely in which of the following stages? Evaluating competitors' prices Assessing the target market's evaluation of price Developing pricing objectives Determining the final price Choosing a basis for setting prices
evaluating competitors' prices
Camila is undergoing the eight-step process for establishing prices for a newly launched product. She has just finished assessing the target market's evaluation of possible prices. What is Camila's next step? Selection of a basis for pricing Evaluation of competitors' prices Development of pricing objectives Determination of a specific price Selection of a pricing strategy
evaluation of competitors' prices
Costs that don't change with the level of production, such as rent, are referred to as _______ costs. marginal variable fixed inelastic
fixed
You sell each bracelet for $200, with variable costs at $100 per unit. When you deduct the $100 costs from the selling price of each unit, what remains is the per-unit contribution to _______ costs. breakeven marginal average fixed
fixed
To calculate the breakeven point, a firm divides _____ costs by per-unit contribution to _____ costs. first blank: fixed variable elastic inelastic second blank: fixed variable elastic inelastic
fixed and fixed
Besides the monthly lease, the fitness center needs insurance coverage to protect against damage from a storm or fire and to cover any claims from members getting hurt. Maria will lease weights and cardio equipment and will have a monthly payment for that. She'll also pay for utilities monthly and will pay salaries for the staff, who run the facility. What type of costs are these expenses? Variable costs Breakeven costs Inelastic costs Fixed costs
fixed costs
A business marketer may offer _______ pricing that involves reducing a product's price relative to the transportation costs or other costs associated with the physical distance between buyer and seller. trade allowance geographic cash
geographic
For the new fitness ring, you are considering setting a price that will keep demand down because your production capacity will be limited during the introduction. Your strategy will be to set a _____ price, using the new-product strategy of _____ . first blank: competitive low moderate high second blank: differential pricing penetration pricing price skimming psychological pricing
high and price skimming
Scenario 12.1. Chantel, a resident of Denver, Colorado, decided to open up her own fine jewelry store. To do so, she used her life savings and a loan from the bank. Chantel was able to open up a store with sufficient inventory. She markets the jewelry as the "finest jewelry in the West." The most popular item Chantel sells is a rose gold bracelet that sells for $550. During one month, Chantel's fixed costs are $6,000. Her variable costs average about $400. Refer to Scenario 12.1. When Chantel raised the price of her rose gold bracelets by $75 to cover unexpected expenses, she was surprised to see that demand appeared to increase. She was making more sales at a higher price. This means the rose gold bracelets are _______. value conscious elastic inelastic price conscious typical products
inelastic
______ is when consumer demand is insensitive to price changes, and ______ is when consumer demand is sensitive to price changes. first blank: market share inverse demand inelastic demand elastic demand second blank: elastic demand total revenue inelastic demand market share
inelastic demand and elastic demand
competition-based pricing
it looks primarily at how rivals price their products
demand-based pricing
it's a good way to avoid overcrowding during busy periods
markup pricing
it's a quick and easy way to determine prices for a wide variety of products
cost-plus pricing
it's helpful when a firm can't easily predict what its costs will be
To use price competition most effectively, an organization should focus on _______ and _______. (Select two) keeping its costs low meeting demand as it changes keeping product quality high responding to rivals' price changes
keeping its costs low and responding to rivals' price changes
With demand-based pricing, a company will typically set a _______ price during slow periods to boost demand. lower higher equal to competitors lower than competitors
lower
The change in total revenue that would be received when one additional unit is sold is known as _______ revenue. variable average fixed marginal
marginal
Scenario 12.4. Forouzan works at a firm that wants to develop a new pricing strategy for one of its products. The company has decided that its main objective for this product is to increase the product's sales in relation to industry sales. Forouzan has obtained a list of prices that tell her how much similar products are being sold for. Forouzan is particularly interested in the industry's top competitor because it has so much market share. After determining the price of its major competitor, Forouzan decided to undercut their price by several dollars. She believes putting a sign in their stores that features her company's discounted price next to the price of their major competitor for the same product will show consumers that Forouzan's company offers them a much better deal. However, she knows that she has to be careful not to misrepresent the competitor's price in the process. Refer to Scenario 12.4. Forouzan's firm has adopted a _______ pricing objective. market share status quo profit return on investment cash flow
market share
When a company looks at its product's sales relative to total sales for that industry, it is calculating its _______. revenue market share price profit
market share
Artemis Inc. has a pricing objective to increase its primary product's sales relative to total industry sales. This is best described as a _______. product quality objective market share objective return on investment objective cash flow objective status quo objective
market share objective
_______ pricing, which is typically used by retailers such as Best Buy, calculates the retail price by adding a predetermined percentage of the cost to the cost of the product. Demand-based Cost-plus Competition-based Markup
markup
Felipe goes to a Toyota dealership looking for a new car. He finds a Toyota Corolla he really likes. The time has come to meet with the salesperson. What type of pricing strategy is the salesperson likely to adopt with Felipe? Professional pricing Customary pricing Negotiated pricing Secondary-market pricing Penetration pricing
negotiated pricing
Apple has long promoted the style, design, and quality of its products and has become very successful because many consumers consider these characteristics desirable. Apple can best be described as operating in an environment of _______. price competition nonprice competition pricing objectives marginal analysis price elasticity
nonprice competition
_______ occurs when a marketer utilizes distinctive product features, service, product quality, promotion, packaging, or other factors to differentiate its products or services from their competitors. Monopolistic competition Differential competition Price competition Nonprice competition
nonprice competition
The first stage in the pricing process is to set pricing _____ , and the final stage is to determine the product's _____ price. first blank: objectives strategies promotions references second blank: competitive comparison specific bundling
objectives and specific
When the buyer pays for delivery of a business product, the price as quoted as F.O.B. _____ , but when the seller pays for delivery the price is quoted as F.O.B. _____ first blank: origin transportation discount destination second blank: origin transportation discount destination
origin and destination
bundle pricing
packaging two complementary products together for a single price
The Black Friday sale is highly anticipated by shoppers and many online and brick-and-mortar retail stores offer extreme discounts on items ranging from laptop computers to televisions to attract consumers to their stores. Some consumers even arrive at the retail location several hours before the store opens to wait in line and be one of the first shoppers allowed in the store. The Black Friday sale is an example of a _______ pricing strategy. periodic discounting price lining random discounting bait
periodic discounting
A business must decide whether it will use _____ competition only or _____ competition before setting a price for its product. First Blank: nonpromotion price product quality packaging Second blank: demand customer service low-cost nonprice
price and nonprice
Sherman's is a family-owned furniture and appliance retailer with four locations in central Illinois. The business is family-owned and is now run by the son of the founder. Sherman's frequently uses television advertising and social media to promote the business and recently began offering a price match guarantee. The company is encouraging customers to check competitor prices while shopping at Sherman's and will even offer customers the use of an iPad to check deals. Sherman's will meet or beat any advertised competitor's price on similar merchandise. What type of practice is Sherman's implementing through its price-match guarantee? Nonprice competition Price competition Value-conscious pricing Integrated pricing
price competition
The mathematical result of dividing the percentage change in quantity demanded by the percentage change in price is known as the _______. price elasticity of demand marginal cost average variable cost marginal revenue
price elasticity of demand
Scenario 12.3. Eduardo's company is about to release a new electronics product. The electronics product is estimated to have a short life cycle before it is replaced by an upgraded one. The company would like to recover the capital spent to produce the product. It therefore decides to charge the highest possible price for the product upon release. Eduardo's firm recognizes this might provide an advantage to competitors who may release the product at a lower price, but it believes customers will feel that the higher price signals higher quality. Refer to Scenario 12.3. What type of pricing strategy is Eduardo's company using for this product? Price lining Penetration pricing Price skimming Differential pricing Captive pricing
price skimming
When a company sets a high price for the introduction of a new product, it is using which type of pricing? Penetration pricing Price skimming Demand-based pricing Differential pricing
price skimming
customary pricing
pricing items on the basis of tradition
everyday low prices (EDLPs)
pricing products low consistently
If Peloton seeks to lead the electronics industry in innovation, what type of pricing objective will it most likely adopt? Product quality Status quo Cash flow Survival Return on investment
product quality
Daniel always has to purchase popcorn whenever he goes to the movies. Popcorn is typically marked up 1,275 percent. However, Daniel is willing to pay this price. For Daniel the _______ is influencing his view of price. type of product marketing mix product quality target market purchase situation
purchase situation
odd-number pricing
puts certain numbers at the end of a price
Rental car companies purchase thousands of new cars each year for their fleets. Companies like Hertz and Enterprise Rent-A-Car are likely to receive _______ discounts when purchasing from automobile manufacturers. quantity trade cash seasonal
quantity
Which of the following are not examples of promotional pricing? (Select two) Reference pricing Special-event pricing Price leaders Comparison discounting Price lining
reference pricing and price lining
_______ pricing objectives generally require some amount of trial and error since not all data and inputs are available when first setting prices. Status quo Return on investment Market share Profit
return on investment
Assessing how customers in the target market evaluate price is the _______ stage in the pricing process. first eighth third second
second
Which one of the following is not an element that a firm should consider when it determines a specific price for its product? Governmental actions Current economic conditions Target market elasticity Changes in demand
target market elasticity
trade discount
the list price is reduced for intermediaries that perform a function like warehousing
seasonal discount
the price is reduced for buyers that make purchases during off-peak periods
cash discount
the price is reduced for buyers that pay promptly
quantity discount
the price is reduced for customers who buy in large quantities
allowance
the price is reduced to achieve a desired goal
Marketers improve their ability to establish prices appropriately when _______. their products are of better quality than the competition's there is nonprice competition they know the prices charged for competing brands the main objective is image building
they know the prices charged for competing brands
Survival
to attract more sales by pricing low, even if this means temporary losses
Profit
to earn a certain percentage of sales revenues or a certain dollar amount
Return on Investment
to earn a specific gain on money spent
Market share
to keep or build the firm's product sales relative to overall industry sales
Status Quo
to keep the firm's situation the same
Cash flow
to quickly recover capital spent
In a competitive marketplace, why would a firm price its product slightly higher than those of its rivals? To send a signal of high quality To increase market share To achieve a certain markup To deliver revenue in the long term
to send a signal of high quality
Product Quality
to signal that goods are well made
elastic demand
total revenue moves in the opposite direction to the shift in price and total revenue increases with a decrease in price
inelastic demand
total revenue moves in the same direction as the shift in price and total revenue decreases with a decrease in price
Discounts that are used to attract and keep effective resellers by compensating them for performing certain functions such as transportation or warehousing are called _______ discounts. trade seasonal allowance cash
trade
Which of the following are types of pricing used in business markets? (Select three) Transfer pricing Geographic pricing Comparison discounting Price leaders Trade discounts
transfer pricing geographic pricing trade discounts
A recent consumer trend has led grocery stores to expand their offering of organic produce, grass-fed beef, free-range chicken, and other products that consumers view as highly desirable given their attributes related to the use of pesticides, ethical treatment of animals, and environmental impact of the products. Consumers are willing to pay more for products that possess these positive attributes. What pricing concept best characterizes consumers' willingness to pay higher prices for products that possess desirable features or characteristics? Value Supply Demand Competitive differentiation
value
Sweet Things is a bakery specializing in cupcakes, cookies, and pies. The owners purchase ingredients such as sugar, flour, spices, baking soda, chocolate, and butter as raw materials to create their sweet treats. These ingredients or raw materials would most likely be classified as _______ costs. marginal sunk variable fixed
variable
Costs that change with the level of production, such as raw materials costs, are referred to as _____. marginal costs average fixed costs fixed costs variable costs
variable costs
If there is no demand to sell protein powder, then Maria won't have any expenses associated with it. If 100 members want to buy protein powder each month, Maria will need to purchase 100 bottles from her wholesaler. If 200 members want to buy it, then she'll need to purchase 200 bottles. There is a direct link between her sales levels for protein powder and the expenses related to those sales. These expenses would be referred to as ________. variable costs fixed costs marginal costs total costs
variable costs
Firefly Space Shuttles is using a strategy of maximizing revenues by making numerous price changes in response to demand, competitors' prices, or environmental conditions. This is best described as _______. competition-based pricing markup pricing cost-plus pricing yield management cost-based pricing
yield management