WEEK 9

Why do customers associate price with quality? When should prestige pricing be used?

Consumers associate price with quality because of experience and because they have been socialised to believe that the higher the price, the higher the quality. Symbolic pricing should be used when the marketer can determine that a higher price is consistent with buyers' attitudes toward the expected cost of a product.

List the characteristics of products that have inelastic demand, and give several examples of such products.

Products typically have inelastic demand when people have strong needs and when there are very few substitutes for these products. Examples include many energy products and medicines.

Suppose managers at Caterpillar have determined that the costs associated with producing hay balers are equal to the price charged for the hay balers. This indicates that Caterpillar is producing at the ___________ point. a. Break-Even b. Marginal Revenue Less Than Marginal Cost c. Profit Margin d. Competitive Price e. Profit Maximising

a. Break-Even

Costs that do not vary with changes in the number of units produced and sold are called _____ costs. a. Fixed b. Total c. Invariable d. Variable e. Set

a. Fixed

When marketers emphasises price as an issue and match or beat the prices of other companies, they are using: a. Price Competition b. Nonprice Competition c. Competitive Pricing Strategies d. Demand-Based Pricing e. Supply-Based Pricing.

a. Price Competition

For most consumers, there is an assumed relationship between: a. Price and quality b. Value and cost c. Internal and external reference prices d. Value and price consciousness e. Prestige prices and value.

a. Price and quality

Price is: a. The value that is exchanged for products in a marketing transaction b. Money paid in a transaction c. Not important to buyers d. Of limited interest to sellers e. The most inflexible marketing mix decision variable.

a. The value that is exchanged for products in a marketing transaction

Marginal analysis involves examining: a. What happens to a firm's costs and revenues when production is changed by one unit b. The extra revenue produced by the sale of one more product c. The extra cost incurred by the production of one more unit d. The difference between marginal revenue and total revenue e. The difference between marginal cost and total cost.

a. What happens to a firm's costs and revenues when production is changed by one unit

Which of the following is not a concern of the practice of price competition? a. Emphasis on price b. Frequent price changes c. Price flexibility d. Focus on product features e. Competitors' prices

d. Focus on product features

Compare and contrast price and non-price competition. Describe the conditions under which each form works best.

Both price and non-price competition are competitive means by which firms attempt to gain market share and profit. They can be used separately or in unison, depending on the situation. With price competition, a marketer emphasises price as an issue and attempts to match or beat the prices of competitors that also are emphasising low price. A seller that competes on the basis of price has a great deal of flexibility in adjusting to meet competitive pressures. A disadvantage is that the competition can do the same thing. Non-price competition occurs when a seller elects to emphasise distinctive product features, service, quality, promotion, packaging, or other factors to distinguish its product from competing brands. One advantage to this competitive strategy is that a firm can build customer loyalty to its brand. A disadvantage is that it is fairly rigid and inflexible once applied.

Why do most demand curves demonstrate an inverse relationship between price and quantity?

Most demand curves have an inverse relationship between price and quantity because the quantity demanded for most products goes up as the price goes down. This means that the demand for most products is elastic - a change in price causes an opposite change in total revenue.

For what type of products would price skimming be most appropriate? For what type of products would penetration pricing be more effective?

Price skimming would be most appropriate for products that have associated research and developmental costs - for example, cameras, computers, calculators, and many technical products. Products introduced with penetration pricing usually have few differentiated advantages. Market penetration is more typical for lower-cost items such as food products and small household items.

In what ways do other marketing mix variables affect pricing decisions?

The product marketing mix variable has an important influence on pricing decisions because price is the value placed on what is exchanged. If the product is perceived as being of very high quality, a high price will correspond with this image. The place where a product is sold is also vital. It is important to keep the image of the outlet and the product within a similar range. Promotion is also an important variable to coordinate with price. Price has a psychological impact on customers, as do different advertising media and approaches. It is important to try to coordinate this factor with price.

One advantage of non-price competition is that: a. A market share becomes less important b. A firm can build customer loyalty c. Marketing efforts are completely eliminated d. Pricing is no longer a factor. e. Firm can react quickly to competitive efforts

b. A firm can build customer loyalty

A marketer sometimes uses temporary price reductions to: a. Increase the number of Competitors b. Gain Market Share c. Decrease Volume Sold d. Increase Revenue Per Item e. Control Demand.

b. Gain Market Share

For most products, a(n) ____ relationship exists between the price of a particular product and the quantity demanded. a. Inelastic b. Inverse c. Positive d. Unknown e. Elastic

b. Inverse

Sellers that emphasise distinctive product features to encourage brand preferences among customers are practising: a. Product Competition b. Non-Price Competition c. Brand Differentiation d. Price Competition e. Competitor Differentiation.

b. Non-Price Competition

The point at which the costs of producing a product equal the revenue earned from selling the product is called: a. Elasticity Of Demand b. The Breakeven Point c. Variable Costs d. Price Elasticity e. The Sum of Fixed And Variable Costs.

b. The Breakeven Point

What equation shows organisations the relationship between price and profit? a. Total variable costs + total fixed costs = sales - profits b. Price = profit per item x number of units sold c. (Price x quantity sold) - total costs = profits d. (Price - profits) x total costs = sales e. Total costs = (price x quantity sold) - profits

c. (Price x quantity sold) - total costs = profits

Which of the following is least likely to influence demand for a product? a. Changes in buyers' needs b. The presence of substitute goods c. Changes in manufacturing capacity in the industry d. The effectiveness of other marketing mix variables

c. Changes in manufacturing capacity in the industry

Advertisements for Suave shampoos emphasise that other shampoos may cost more but don't work any better than Suave. In this example, Suave is competing on the basis of: a. Service b. Market Share c. Price d. Selection e. Packaging

c. Price

When marketers at Consolidated Mustard Company tried to determine demand for their product, they found that at 50 cents, consumers wanted 2,000 jars; at $1.00, they wanted 6,000 jars; and at $1.50, they wanted 4,000 jars. What can Consolidated conclude? a. Consolidated did poor market demand research. b. Consolidated has an elastic product. c. Consolidated has an inelastic product. d. Consolidated mustard is a prestige good. e. Consolidated mustard has a normal demand curve.

d. Consolidated mustard is a prestige good.

A measure of sensitivity of demand in relation to changes in price is: a. A Demand Curve b. A Prestige Graph c. Marginal Analysis d. Price Elasticity of Demand e. Quantity Elasticity.

d. Price Elasticity of Demand

A firm's pricing objectives must be compatible with: a. The competitors' pricing objectives b. The firm's historical price objectives c. Product quality d. The organisation's marketing objectives e. The laws of demand in the industry.

d. The organisation's marketing objectives

Which of the following statements about price elasticity is false? a. Steak is an example of a product that has an elastic demand for most people because when price goes up, quantity demanded goes down proportionally. b. Elasticity of demand is the relative responsiveness of change in quantity demanded to change in price. c. If marketers can determine price elasticity, then setting prices at optimum levels is much easier. d. When price is raised on a product that has an inelastic demand, then total revenue will decrease. e. A product such as electricity has an inelastic demand.

d. When price is raised on a product that has an inelastic demand, then total revenue will decrease.