Marketing Chapter 14
The _____ of demand is the percentage change in the quantity of a good or service demanded divided by the percentage change in its price.
price elasticity
Which of the following is the best example of supply?
All of the women's shoes available for sale for $100 a pair this year
Long before the invention of iPhones, iPads, and iWatches, Apple was charging a premium for its personal desktop computers, which performed the same functions as other PC brands. Of the following, which is the least likely motivation for this pricing strategy?
Apple needed to recoup its research and design investments faster.
You planned to use trend analysis to forecast sales of the new yogurt being introduced by your dairy products firm. However, the marketing director just informed you that trend analysis is inappropriate for this purpose. Assuming he or she is correct, what is his or her most likely reason?
Because the product is new, historical data is not available.
The vice president of marketing of a large grocery chain has determined to deemphasize the prices of the company's products and to concentrate marketing efforts on other factors such as the products' benefits and features. Which strategy is the vice president most likely to use?
Competitive pricing strategy
Which of the following statements is true about the forecasting technique known as the "jury of executive opinion"?
Contributors may lack the background knowledge and experience to make meaningful predictions.
In 2014, the Golden Gate Bridge toll fee rose from $6 to $7. Beginning in 2015, the toll fee will go up by a quarter for each of the next four years. Administrators explained that fees were not keeping up with inflation because "toll revenues have remained flat." What situation are administrators counting on? Choose the correct answer.
Crossing the bridge will remain an inelastic demand.
Your company manufactures umbrellas, among other accessories. Six months ago, you projected sales of 5,000 units of your $16 umbrellas over the course of a year, so you produced 5,000 umbrellas. But so far you've sold less than half. What does this mean, and what is the best way to address the situation?
Demand of this product at this price is less than anticipated, so you should drop the price.
Deceptive business practices, including deceptive pricing schemes, are prevented by the
Federal Trade Commission (FTC)
Sal is currently in the market for a new car. He considers various factors before making his purchase; for example, he considers gas mileage, power-train warranty, safety records, status, price, and convenience. He then makes a final list of six possible vehicles to purchase. However, after thinking about all these things, he dismisses them and decides instead to purchase the highest price vehicle. Based on this information, what is the most likely reason for Sal's decision?
He assumed that the highest price car must also be the most prestigious and he would like to project a high-status image.
The availability of substitutes is likely to ______ elasticity of demand for your products.
Increase
Oh no! After all the time and money she spent obtaining the buyer intention survey, Robin learns the market research firm used defective data. Investors are giving her conflicting advice about how to redo the demand forecast. The main problem is that Robin doesn't have much time or money to conduct this research. Investor A recommends utilizing test markets to obtain a real-world assessment of her sales potential. This will provide the most accurate data. But Investor B supports a sales force composite, which would tap into the expertise of her own successful staff. Which investor's approach is best?
Investor B: Sales force composite
You are a buyer for Kroger grocery stores, and you're negotiating a deal with the sales representative for Folger's coffee. Obviously, you'd like to get the best deal possible. Under the Robinson-Patman Act, which of the following discounts would be considered legal?
Like all other retailers, you can get a 5% discount if you order a minimum of 5,000 cases of coffee every three months.
_____ pricing is a pricing policy in which products are offered to consumers at less than cost to attract them to stores in the hope that they will buy other merchandise at regular prices.
Loss leader
When you launched ImagineIt five years ago, you knew your revolutionary mini 3D printers would be wildly popular with home users, so a skimming pricing strategy was the obvious choice. Since then, a couple of competitors have entered the market, and supply has pretty much caught up with demand. Where do you go from here?
Lower your prices to be competitive with others on the market
Your friend Claire has just shared that she dreams of owning a world-famous Hermes Birkin handbag someday. When you inform her that there is a waiting list for these exclusive handbags, which usually sell for $12,000 and up, she says she's waiting for them to go on sale. What do you know about pricing that would influence how you respond?
Manufacturers of high-end, exclusive brands usually do not allow discounting to protect the prestige of the brand, so you should tell Claire that she probably won't ever see a sale.
Since it involves the use of a high price relative to prices of competing products or services, the skimming pricing strategy is sometimes referred to as _____ pricing.
Market-plus
Demand for your line of luxury evening wraps is likely to be ________ elastic than for your line of budget raincoats.
More
Don intends to use promotional pricing as an ongoing part of the marketing strategy for his automotive supply store. Because you are his friend - and have years of experience in retail marketing - you feel obligated to tell Don that he should rethink this plan. What point(s) do you make?
Overuse of promotional pricing can get customers hooked on lower-than-normal prices.
That guy! Your brother-in-law is finally fulfilling his dream - opening Giordini's Italiano Ristorante - and he's put you in charge of marketing. He says he wants to use something called penetration pricing to launch his business. Of all the penetration pricing ideas you come up with, which one are you least likely to use?
Pricing entrees exactly the same as the other two Italian restaurants in town
Robin was researching some similar, competing restaurants and found one that offers food options at three price points: a value menu; a menu of organic, sustainable options; and a gourmet menu. Each had a fixed price point. That restaurant was busy and seemed to have many loyal customers. Another restaurant was very strategic about offering higher priced, organic food and promoting it as "the finest farm-to-table foods in New England." However, this business seemed to be struggling. Based on this research, Robin is choosing between using a prestige-orientated psychological pricing tactic or a product-line tactic. Which should she choose?
Product-line tactic
A newly opened seafood restaurant advertises various deals on meal packages and special prices on dinner packages to attract customers. This is an example of _____ pricing.
Promotional
A retailer is facing difficult times: Sales are down and there has been a decrease in the number of customers visiting the store. The retailer decides to lower the prices on a few items, hoping this strategy will draw more customers who will not only purchase the discounted items but will also linger in the store and buy additional items. Which type of pricing policy is the retailer using?
Promotional pricing
A retailer wants to increase the number of customers shopping in her store. Which of the following has the greatest potential for success?
Promotional pricing
Brandon recently completed law school, passed the bar exam and began working for a prestigious law firm in Dallas, TX. The firm has a strict dress code and Brandon is required to wear business suits, dress shirts, ties, and dress shoes. He is investing in a new wardrobe and visited Men's Discount Warehouse to purchase new clothes. He shared his situation with Tim, his sales representative, and Tim told him that if he bought 2 suits, he would receive 2 dress shirts, 3 ties, and 2 pairs of socks for free. Which of the following statements is TRUE regarding this example?
Promotions such as this are legal when differences in price reflect cost differentials
Robin must decide on her overall pricing approach. She is a premium provider of food, but operates in an extremely competitive environment, with many lower-priced alternatives. She knows it's important to establish a foothold in the market, then perhaps she can adjust pricing later to increase margins. Which approach should she choose?
Sales objectives, competitive strategy, and promotional tactic
Robin has been using promotional pricing tactics for a few months, with good results. But it's not sustainable and she must raise prices at some point, hopefully without seeing too big a drop in demand. Based on her research, demand is more inelastic during the summer tourist season, but more elastic during the rest of the year. Which time of year would it be best for Robin to experiment with raising prices?
Summer Season
A new boss just took over the marketing department where you work for a women's swimwear manufacturer. You hope to impress him or her with your knowledge of an important topic in your industry: How prices affect consumer perceptions of quality. You should make all of the following points except:
Supply and demand play no role in purchasing patterns when perceptions of quality are driven by price.
Your invention is a hit! Your investment in TV informercials has really paid off, and you've already ordered another 10,000 units to be manufactured. What do you anticipate will happen next?
Supply will increase due to copycat products appearing on the market.
Bath & Body Works brand shower gels retail for about $12.50 a bottle, while Suave Naturals shower gels retail for about $3.00 a bottle. A recent survey conducted by Suave revealed that many people enjoy the Suave gel fragrances just as much as the Bath & Body Works fragrances. Why might some people still be willing to pay a higher price for the Bath & Body Works products?
The higher price of Bath & Body Works products will make some people perceive them as better quality.
The owner of BargainSmartphones.com is determined to drive competitors such as CheapPhones.com out of business. He has plenty of money to invest in building his business, so he has instructed his marketing manager to slash prices by 25% to 50% on nearly every product until there aren't any other online cell phone retailers left. Which of the following statements is true about this situation?
This business owner is probably violating the Robinson-Patman Act.
You are the marketing manager of a small start-up retail company. You are aware that your company's pricing strategies are an important way to communicate your firm's image to consumers. You also realize that as a start-up your company must make every effort to attract customers. After thoroughly analyzing your competitors' offerings, you decide to set the prices of your company's merchandise at odd, unusual numbers slightly below a round number. For example, instead of pricing an item at $10.00 you price it at $9.95. What is the most likely reason to employ this odd pricing strategy?
This makes the price seem like $9.00 plus change rather than a full $10.00.
A banana supplier sells to both supermarket chains and independent food stores in the same region. The supermarket chains always generate more revenue than the independent food stores, because the supermarket chains order bananas more frequently and in bigger volume. To increase his or her profits from the independent food stores, the supplier wants to charge them more per bushel than he or she charges the chains. However, the supplier's director of marketing advises against it. Which of the following is the most likely reason for this advice?
This pricing policy might violate the Robinson-Patman Act.
______ trade laws require sellers to maintain ____ prices for ______ merchandise.
Unfair, minimum, comparable
State laws requiring sellers to maintain minimum prices for comparable merchandise are called _____ laws.
Unfair-trade
Personal training is your life, but you haven't increased your hourly rate since you started six years ago. You're still charging $50 an hour, when you really should be charging $80, given the excellent results you get. Based on what you know about the various factors that influence elasticity of demand, you:
aren't sure how elastic demand is, which means it would be best to raise your prices incrementally over the next year.
The amounts of a product that consumers will purchase at different prices during a specified period is referred to as:
demand
The more buyers purchase retail goods online, the ________ the elasticity of demand for your products is likely to be.
higher
The availability of complements is likely to _______ elasticity of demand for your products.
increase
When the price of Product A is raised by 1 percent, its sales drop by 0.06 percent. When the price of Product B is raised by 1 percent, its sales drop by 1.5 percent. This means that demand for Product A is _______, while demand for Product B is ________.
inelastic, elastic
To forecast sales for your firm's new product, you want to use a forecasting technique that is based solely on input from sources internal to the firm. Which of the following groups of techniques meets your criterion?
jury of executive opinion, sales force composite, and trend analysis
A penetration pricing strategy is called _____ pricing when it implements the premise that a lower-than-market price will attract buyers and move a brand from an unknown newcomer to brand-recognition or brand-preference stage.
market-minus
Martin has opened a new, trendy restaurant in the downtown section of a large city. There are, however, many competing restaurants in the neighborhood, and Martin knows that many of them have large customer followings. In order to obtain a relatively fast rate of market acceptance, Martin decides to offer two-for-one coupons to all patrons during the restaurant's opening weeks. After that limited time, Martin plans to withdraw the two-for-one offers and begin charging regular market prices. Martin is using a _______ pricing strategy.
penetration
A skimming pricing strategy is more commonly used by firms to:
set a market-entry price for distinctive goods or services with little or no initial competition.
A _____ pricing strategy helps manufacturers to distinguish their high-end products from similar products of their competitors.
skimming
A couple of years ago, Google - the information services giant - made one of its first forays into manufacturing and selling a physical product: the Google Pixel smartphone. It is highly unlikely that Google used ___ to forecast sales of this new product.
trend analysis
