marketing chapter 13
Which of the following statements regarding a market share pricing objective is most accurate?
An advantage of market share as a pricing objective is that it is particularly insensitive to competitors' actions.
Break-even analysis refers to
a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output.
demand for a product is likely to be more price elastic if it
has many substitutes
Given that a firm's profit is high enough for it to remain in business, an objective may be to __________, which will in turn lead to increases in market share and profit.
increase dollar sales revenue
Value pricing
increasing product and service benefits while maintaining or decreasing price
Go to any Kroger supermarket and walk to the cereal aisle. You will notice that four major brands—Kellogg's, Quaker, General Mills, and Post—seem to occupy most of the shelf space. These cereals are all priced about the same. There is a good deal of product differentiation as the result of licensing agreements with movie studios (Disney, DreamWorks, etc.) and through the use of different health claims. The cereal industry is an example of what type of competitive market?
oligopoly
The money or other considerations (including other products and services) exchanged for the ownership or use of a product or service is referred to as
price
which of the following statements regarding pricing objectives is most accurate?
pricing objectives may change depending on the financial position of the company
all of the following are true about PRICE
small changed in price can have big effects on both the number of units sold and company profit the price for a product or service must earn a profit for the company the price must be "right"-- in the sense that customers must be willing to pay it the price must generate enough sales dollars to pay for the cost of developing, producing and marketing the product
A pair of $200 designer denim jeans cost so much because
the marketer must cover all of its operating costs while earning a profit.
Value
the ration of perceived benefits to price
Acme Shoe Co. sells heel replacement kits for men's shoes. It has fixed costs of $9 million and unit variable costs of $5 per pair. Acme is considering a switch from manual labor to an automated process. New equipment would cost an additional $4 million per year while lowering variable costs by $3 per shoe repair kit. How many kits would Acme have to sell at $17 per pair to make $2 million in profit in the next year with the automated process?
Using the profit equation, the quantity sold is calculated as follows: Profit = Total revenue - Total cost; Profit = (Unit price × Quantity sold) - Total cost; Profit = (P × Q) - [FC + (UVC × Q)]; $2,000,000 = ($17 × Q) - [($9,000,000 + $4,000,000) + (($5 - $3) × Q)]; $2,000,000 = $17Q - $13,000,000 - $2Q; $15,000,000 = $15Q; Q = 1,000,000 kits.
Which of the following would be an example of an objective in Step 1 of the price-setting process?
We need to make a profit of at least $1.2 million.
If competitive market circumstances are such that there is no price competition, no product differentiation, and the purpose of advertising is to increase demand for the product class, then __________ must exist in the industry.
a pure monopoly
An analysis of a prospective product shows that sales for it are expected to grow by at least 10 percent each year over the next five years before it enters the maturity phase of its product life cycle. This type of analysis would provide useful information in which step of the price-setting process?
identifying pricing objectives and constraints
Jane Westerlund owns a picture-framing store, The Caplow Co. The average price she receives for a framed picture is $120. This price must cover her costs for a typical framed picture, which consists of $5 for glass, $2 for matting, $13 for the frame, and $30 for the labor involved. She must also cover monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and $3,500 for her salary. Assuming there is no change in price or the quantity demanded, if Westerlund wants to increase her advertising expenses to a total of $1,000 (a $500 increase), this would cause total costs to __________ and the break-even quantity to __________.
increase; increase Increasing advertising expenses causes the total costs to increase, which in turn causes a higher break-even quantity. BEPQuantity before $500 advertising increase = FC ÷ (P - UVC) = ($1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and $3,500 for her salary) ÷ (($120) - ($5 for glass, $2 for matting, $13 for the frame, and $30 for the labor)) = $5,200 ÷ ($120 - $70) = $5,200 ÷ $50 = 104 units. BEPQuantity after the $500 advertising increase = $5,700 ÷ $50 = 114 units, which means that an additional 10 units will need to be sold to break even if a $500 increase in advertising is incurred. See Figure 13-10 in the textbook.