MKT - Chap 10 (Part 3)
TRUE
101) Prices have a direct impact on a company's bottom line
FALSE
102) Demand and consumer value perceptions set the floor for prices
TRUE
103) Product costs set a floor to the price; consumer perceptions of the product's value set the ceiling.
FALSE
104) Value-based pricing is being used when costs vary directly with the level of product.
FALSE
105) Value-based pricing uses the company's perception of value.
TRUE
106) Value-based pricing is the reverse of cost-based pricing.
FALSE
107) EDLP is very similar to high-low pricing.
TRUE
108) Overhead cost is another term for fixed cost.
FALSE
109) Cost-based pricing relies on consumer perception of value to drive pricing.
FALSE
110) Average unit cost increases with accumulated production experience.
FALSE
111) An upward-sloping experience curve is beneficial for a company.
TRUE
112) The simplest pricing method is cost-plus pricing, which involves adding a standard markup to the cost of the product.
TRUE
113) Markup pricing is popular because prices tend to be similar and price competition is thus minimized.
TRUE
114) Target return pricing is used when a firm tries to determine the price at which it will break even or make the profit it is seeking.
TRUE
115) A break-even chart shows the total cost and total revenue expected at various sales volume levels.
TRUE
116) Environmental elements are categorized as external factors that affect pricing decisions
TRUE
117) In a pure monopoly, the market consists of one seller.
TRUE
118) The demand curve shows the number of units the market will buy in a given time period at different prices that might be charged. In normal cases, the higher the price, the lower the demand.
FALSE
119) If demand changes greatly with price, we say the demand is inelastic.
TRUE
120) Once a company cuts prices, it's difficulty to raise prices again when the economy recovers.
TRUE
121) When faced with price competition, cutting prices is often not the best answer.
TRUE
122) Using value-based pricing, a marketer would not design a product and marketing program before setting the price.
FALSE
123) Monopolies charge the full price because they do not fear attracting competition or regulation.
FALSE
124) Marketers may learn a few simple rules that apply equally to all price-demand relationships.
FALSE
125) The more elastic the demand, the more it pays for the seller to raise the price.
The firm determines the price at which it will break even. The firm can also add the target profit to the fixed costs and then determine the new, "break-even point," which now includes the target return. Pricing decisions can be made by examining where the total revenue and total cost curves intersect on a break-even chart at different price points and sales volume.
128) Explain how break-even analysis can be used for target return pricing.
The pricing strategy is largely determined by the company's target market and positioning objectives. Pricing decisions affect and are affected by product design, distribution, and promotion decisions. Costs set the floor for the company's price, which must cover all the costs of making and selling the product, plus a fair rate of return. In order to coordinate pricing goals and decisions, management must decide who within the organization is responsible for setting price.
129) Identify and describe the internal factors affecting a firm's pricing decisions.
Under pure competition, the market consists of many buyers and sellers trading in a uniform commodity. No single buyer or seller has much effect on the going market price. Under oligopolistic competition, the market consists of few sellers who are highly sensitive to each other's pricing and marketing strategies. The product can be uniform or nonuniform. There are few sellers because it is difficult for new sellers to enter the market. Each seller is alert to competitors' strategies and moves.
130) Compare pure competition with oligopolistic competition.
: Under oligopolistic competition, the market consists of a few sellers who are highly sensitive to each other's pricing and marketing strategies. There are few sellers because it is difficult for new sellers to enter the market. Under a pure monopoly, the market consists of one seller. Pricing is handled differently in each case. The seller may be a government monopoly, a private nonregulated monopoly, or a private regulated monopoly.
131) Compare oligopolistic competition with a pure monopoly.
: It estimates consumer demand at different prices. 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.
132) Describe what a demand curve is and explain how it helps businesses
: Price elasticity is a measure of the sensitivity of demand to changes in price. If demand hardly changes with a small change in price, we say the demand is inelastic. If demand changes greatly, we say the demand is elastic.
133) What does price elasticity reveal about a product?
First, the company should set prices that give resellers a fair profit. The company should also encourage their support. Finally, the company should help resellers to sell the product effectively.
134) The company must consider the impact its prices will have on resellers. Identify three ways the company can help resellers.
Economic conditions affect both the costs of producing a product and consumer perceptions of the product's price and value. The company should encourage and support resellers and help them to sell the product effectively. The governmentin the form of local, state, and federal lawsis another important influence on pricing decisions. Social concerns impact pricing, especially when a company's short-term sales, market share, and profit goals may have to be tempered by broader societal considerations.
135) When setting prices, the company must consider its external environment. Describe four parts of the external environment and how they affect businesses.
In recent decades, nonprice factors have gained increasing importance. However, price still remains one of the most important elements determining a firm's market share and profitability.
136) How important is price among the elements of the marketing mix?
Price can be changed quickly.
137) Why is price considered to be one of the most flexible elements of the marketing mix?
A price floor is the lowest price charged at which the company still earns some profits.
138) Explain the concept of a price floor.
A price ceiling is the highest price charged at which there is still some consumer demand.
139) Explain the concept of a price ceiling.
The company must determine the specific value that individual buyers assign to different competitive offers.
140) What must a company using value-based pricing find out about its customers?
With good-value pricing, a marketer offers just the right combination of quality and good service at a fair price.
141) Explain the strategy of good-value pricing.
: Using high-low pricing, a company sets higher prices on an everyday basis, but then runs frequent promotions to temporarily lower prices on selected items.
142) Explain the strategy of high-low pricing.
Fixed costs and variable costs make up total cost.
143) What costs make up a product's total cost?
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.
144) Explain the significance of a downward-sloping experience curve.
The break-even point in units is 50,000 units.
145) A marketer's fixed costs are $400,000, the variable cost is $16, and the company expects the product to sell for $24. What is the company's break-even point in units?
The break-even point in dollar sales is $1,200,000.
146) A marketer's fixed costs are $400,000, the variable cost is $16, and the company expects the product to sell for $24. What is the company's break-even point in dollar sales?
The profit is $80,000.
147) A marketer's fixed costs are $400,000, the variable cost is $16, and the company expects the product to sell for $24. If the marketer has sales of $1,440,000, what is its profit on this product?
Top management sets prices in small companies, whereas divisional or product line managers typically set prices in large companies.
148) Who typically sets prices in small companies? In large companies?
The market consists of one seller that dominates the market.
149) Explain a pure monopoly
Yes. A lower price will produce more needed revenue, as consumers will respond to the change in price and buy more.
150) If demand is elastic, will sellers consider lowering their prices? Explain.
: Customer perceptions of value set the upper limit for prices, and costs set the lower limit. However, in setting prices within these limits the company must then consider other 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. External factors include the nature of the market and demand, competitors' strategies and prices, and other environmental factors.
Discuss the importance of consumer perceptions of value and costs to setting prices.
The pricing environment changes at a fast pace, and value-seeking customers have put increased pricing pressure on many companies. However, companies are often too quick to reduce prices in order to get a sale rather than convincing buyers that their products are worth a higher price. A company's pricing, in addition, is often too cost-oriented rather than customer-value oriented. Companies have prices that are not revised often enough to reflect market changes. Another common problem is pricing that does not take the rest of the marketing mix into account.
Pricing and price competition account for the number-one problem facing many marketing executives. What are some of the frequent problems that companies encounter?
