BUS 346 – Ch 14

24 August 2023
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question
Charging a relatively high price for new and innovative products to those consumers most willing and able to pay the high price is called price a. referencing. b. penetration. c. bundling. d. skimming. e. fixing.
answer
d. skimming. There are two primary new product pricing strategies: skimming, which focuses on selling at a high price to the innovators and early adopters on the diffusion of innovation curve, and market penetration, which focuses on selling at a low price to gain market share as quickly as possible.
question
Diane owns a bakery where she sells cupcakes. Two blocks down there is another bakery, CC's Bakery, that sells cupcakes for $1 less than Diane. Diane decides to lower her price and match CC's Bakery prices. What type of pricing strategy is Diane implementing? a. competitor-oriented pricing b. profit-oriented pricing c. internal pricing d. customer-oriented pricing e. sales-oriented pricing
answer
a. competitor-oriented pricing When firms take a competitor orientation, they strategize according to the premise that they should measure themselves primarily against their competition.
question
The contribution per unit is a. price minus total costs. b. break-even quantity divided by total fixed costs. c. price minus total variable cost. d. price minus variable cost per unit. e. total revenue minus total cost.
answer
d. price minus variable cost per unit. Contribution per unit = revenue - variable cost. This represents the revenue that is left over after covering variable costs.
question
Julia's is an upscale women's clothing store. Prices are based on customers' beliefs about the value of the clothing. The store focuses on a limited target market and provides excellent customer service. Julia's is using a ________________ pricing strategy. a. target profit b. customer-oriented c. target return d. maximizing profits e. status quo
answer
b. customer-oriented
question
Because there are many firms with similar products in purely competitive markets, a. consumers develop personal preferences. b. the many competitors will focus on variable cost pricing. c. firms find it easy to build strong, distinct brands. d. price is determined by the laws of supply and demand. e. advertising is heavily used.
answer
d. price is determined by the laws of supply and demand
question
Bill desperately needed tires for his car, and he found an ad with an incredibly low price. When he got there, he found out that those had been sold out, and he was pressured into buying tires that were more expensive than he wanted. Bill found out later that Marcelo had had the same experience at the store a few weeks earlier. It's quite possible that both Bill and Marcelo had become the victim of a deceptive pricing tactic known as a. loss leader pricing. b. off-season deceptions. c. desperation selling. d. bait and switch. e. inventory reduction pricing.
answer
d. bait and switch. Bait and switch tactics lure customers into the store with promises of low pricesโ€”often for products that are not even available in the store.
question
Price skimming focuses on selling products to __________ and __________ in the consumer adoption process model. a. early adopters; early majority b. laggards; innovators c. innovators; early adopters d. early majority; late majority e. late majority; laggards
answer
c. innovators; early adopters There are two primary new product pricing strategies: skimming, which focuses on selling at a high price to the innovators and early adopters on the diffusion of innovation curve, and market penetration, which focuses on selling at a low price to gain market share as quickly as possible.
question
Frank's Heating and Air Conditioning Company specializes in electric heat pumps. Frank keeps track of the price of natural gas, knowing that a. when the price of natural gas goes up, the quantity demanded also rises. b. the demand for natural gas is price elastic. c. an increase in the price of natural gas will increase demand for his electrical heating systems. d. gas heating systems and electrical heating systems are complementary goods. e. natural gas creates more environmental greenhouse effects than coal.
answer
c. an increase in the price of natural gas will increase demand for his electrical heating systems.
question
Barry customizes Harley-Davidson motorcycles. No two cycles are alike. He notices that very few customers even ask the price of his motorcycles before they decide to purchase them. Demand for his motorcycles is probably a. price sensitive. b. price elastic. c. price inelastic. d. income elastic. e. cross-price elastic.
answer
c. price inelastic. Since Barry's customers don't seem to care about the price, we would not expect to see demand change much as price changes. This describes a situation where demand is price inelastic.
question
One problem in relying on price elasticity and demand curves when setting prices is that a. the underlying ideas of the demand curve and elasticity are less relevant in the modern economy. b. the way a product or service is marketed can have a profound impact on price elasticity. c. marketing split from economics over the ideas of demand and elasticity. d. only economists can properly analyze demand curves and set prices using this tool. e. competitors can construct the same demand curves, so there is no advantage in using them.
answer
b. the way a product or service is marketed can have a profound impact on price elasticity. Demand curves and price elasticity are the result of many factors, not the least of which is the nature of the marketing mix.
question
If a 1 percent decrease in price results in more than a 1 percent increase in quantity demand, demand is a. cross-price elastic. b. status quo elasticity. c. price inelastic. d. derived demand inelastic. e. price elastic.
answer
e. price elastic.
question
If the price for a product increases, the demand for the complementary product will a. become more elastic. b. increase. c. stay the same. d. decrease. e. become more inelastic.
answer
d. decrease. Complementary products are things that are used together; if the price of one product increases, the demand for the complementary product will decrease because the total cost of using the two products together has increased.
question
In a market with _______________, there are many firms providing differentiated products. a. pure competition b. a duopoly c. monopolistic competition d. oligopolistic competition e. a monopoly
answer
c. monopolistic competition
question
Production of the DeLorean car, made famous in the film Back to the Future, never got above 25,000 units during its lifetime. Automobile industry analysts estimate that production of this car needed to reach around 300,000 units to achieve the __________, a decrease in unit cost as product volume increases. a. cumulative bundling benefit b. improvement value effect c. price fixing return d. experience curve effect e. slotting allowance benefit
answer
d. experience curve effect The experience curve refers to a drop in unit cost as the quantity sold increases.
question
For marketers to advertise a price as their __________, the Better Business Bureau recommends that at least 50 percent of the sales of a product occur at that price. a. cost-based price b. leader price c. fixed price d. zone price e. regular price
answer
e. regular price Advertised regular prices can be deceptive if very few product sales ever occurred at that price. This guideline prevents that kind of deception.
question
Developing pricing strategies for __________ is one of the most challenging tasks a manager can undertake. a. cost-based pricing b. quantity discounts c. new products d. seasonal rebate items e. zone pricing products
answer
c. new products New product pricing is very challenging because there is generally little data about consumer responses to different prices. In contrast, when an updated version of an existing product is introduced, all the knowledge about pricing for the existing product can be used when pricing the new product.
question
Margaret has been invited to a fancy dinner party and wants to bring a good bottle of wine as a gift for the host. Since she does not know much about wine, she will likely use the price of the wines as a. a measure of scarcity. b. an indicator of quality. c. an indicator of the variety. d. a measure of the income effect. e. a reflection of status quo pricing.
answer
b. an indicator of quality.
question
At the break-even point, a. fixed costs are zero. b. price is maximized. c. contribution per unit is zero. d. profits are zero. e. costs are zero.
answer
d. profits are zero.
question
Marketers spend millions of dollars annually trying to create or reinforce brand loyalty. Brand loyalty changes the demand curve for the firm's products by a. reducing the price elasticity of demand. b. shifting the market from a monopoly to pure competition. c. making demand more oligopolistic and less monopolistic. d. increasing the income effect. e. reducing fixed costs and increasing the gray marketing effect.
answer
a. reducing the price elasticity of demand.
question
According to a typical demand curve, the higher the price, Select one: a. the lower the quantity consumers will buy. b. the lower the output of producers. c. the greater the production costs. d. the greater the income effect. e. the lower the cross-price elasticity.
answer
a. the lower the quantity consumers will buy. A typical demand curve shows quantity purchased decreasing as price increases.
question
David manages a Shoney's restaurant. He is considering staying open later in the evening. For David, the variable costs associated with staying open longer hours will include all of the following EXCEPT a. rent on the restaurant building. b. energy costs. c. hours worked by the waiters and waitresses. d. ingredients used in preparing food. e. hours worked by cooks.
answer
a. rent on the restaurant building.
question
There is an old saying, "If you have to ask the price of a yacht, you cannot afford it." Products like yachts are most likely to be associated with a. prestige pricing. b. target return value. c. competitive parity pricing. d. cross-shopping. e. break-even point pricing.
answer
a. prestige pricing.
question
If a 1 percent decrease in price results in more than a 1 percent increase in quantity demand, demand is a. status quo elasticity. b. derived demand inelastic. c. cross-price elastic. d. price inelastic. e. price elastic.
answer
e. price elastic. If a 1 percent price decrease results in, say, a 1.1 percent increase in demand, price elasticity is equal to 1.1/-1 = -1.1. Price elasticity of less than -1.0 reflects elastic demand.
question
For which of the following is demand likely to be least sensitive to price increases? a. prescription drugs b. a specific brand of cereal c. restaurant meals d. theater tickets e. spring break vacations
answer
a. prescription drugs
question
Naomi tells her sales representatives the goal is to generate at least a 20 percent return on investment for all of the industrial building supplies they sell. Naomi is using a _______________ pricing strategy. a. sales orientation b. target profit c. status quo d. target return e. competitive parity
answer
d. target return
question
In determining the price for his company's new pocket digital camera, Matt determines what consumers consider the regular or original price for similar cameras available in the market. Matt is assessing the influence of __________ on pricing strategy. a. reference prices b. improvement value c. everyday low pricing d. cost of ownership e. odd-even prices
answer
a. reference prices
question
Price advertisements should never a. use price skimming after using price penetration. b. deceive customers to the point of doing harm. c. include puffery. d. use advertising allowances to increase sales promotion. e. include the price.
answer
b. deceive customers to the point of doing harm.
question
A demand curve is built assuming that a. the firm does not advertise. b. income is derived from demand. c. a change in quantity demanded causes a change in price. d. price remains the same, and fixed costs change. e. everything but price and demand remains the same.
answer
e. everything but price and demand remains the same. Demand curves evaluate how changes in price affect demand for the product. They assume that other factors such as advertising expenditures and economic conditions remain constant.
question
The major objectives associated with a market penetration pricing strategy are to a. minimize customer dissatisfaction and maximize reference price value. b. capture the high end of the market demand curve and lower introduction costs. c. match competitors' prices and communicate high quality. d. provide an incentive to purchase a less desirable product to obtain a more desirable product. e. quickly build sales and market share.
answer
e. quickly build sales and market share. There are two primary new product pricing strategies: skimming, which focuses on selling at a high price to the innovators and early adopters on the diffusion of innovation curve, and market penetration, which focuses on selling at a low price to gain market share as quickly as possible.
question
Mario is the first retailer in town to sell games for Sony's new PlayStation 3 machine. Mario wants to quickly capture as much of the market for the new games as possible. Mario will likely use a __________ pricing strategy. a. reference b. bundling c. price fixing d. skimming e. market penetration
answer
e. market penetration
question
Which of the following is most likely to be characterized by pure competition in the United States? a. soft drinks b. fast food restaurants c. computer operating systems d. cereal e. soybeans
answer
e. soybeans Pure competition refers to a market in which firms provide similar, undifferentiated products. This includes commodities like soybeans, salt, and sugar.
question
The commercial airline industry is considered what type of market? a. monopolistic competition b. oligopolistic competition c. monopoly d. duopoly e. pure competition
answer
b. oligopolistic competition When a market is characterized by oligopolistic competition, only a few firms dominate.
question
Ryan gave the manager of his convenience store a set of binoculars so she could see the gasoline prices charged by the other convenience store at that intersection. Ryan told the manager to always match the gasoline prices of the other store. Ryan is using a _____________________ pricing strategy. a. status quo b. target profit c. sales d. target return e. maximizing profits
answer
a. status quo A status quo pricing strategy is a type of competitor-oriented strategy in which the firm changes prices only when competitors change theirs.
question
Break-even analysis is useful because it allows managers to a. reposition products based on their break-even positioning revenue. b. estimate the quantity they will need to sell at a given price to break even. c. analyze the different elements contributing to their variable costs. d. determine the relationship between price and quantity demanded. e. quantify the relationship between price elasticity and product elasticity.
answer
b. estimate the quantity they will need to sell at a given price to break even. It is useful to know how many units a company must sell at a given price to break even. It helps in evaluating the financial feasibility of a proposed price.
question
Earl was known for driving 30 miles to save a dollar on the price for his favorite beverage. Earl perceived price as ________________, while most consumers recognize price as the ______________ made to acquire a good or service. a. overall sacrifice; monetary payment b. break-even amount; price elasticity c. variable cost; fixed cost d. fixed cost; variable payment e. money paid; overall sacrifice
answer
e. money paid; overall sacrifice
question
Odd prices often suggest __________ to consumers. a. superior quality b. low quality c. expired merchandise d. foreign-made goods e. uniqueness
answer
b. low quality Odd prices (prices that end in a 9) signal both low price and low quality to some consumers.
question
How can a company find its way out of a market characterized by pure competition? a. Consistently offer the lowest price until other competitors leave the market. b. Increase prices and attract different, quality-oriented customers. c. Differentiate the product in some way, even by packaging, so customers will see it as distinct. d. Increase the amount of available product to flood the market. e. Decrease the amount of available product until the market reacts.
answer
c. Differentiate the product in some way, even by packaging, so customers will see it as distinct. The difference between pure competition and monopolistic competition is that in pure competition, products are not differentiated, but in monopolistic competition, they are. So the way to move out of a purely competitive market is to differentiate the product in some way.
question
Price is the _____________ a consumer is willing to make to acquire a specific product or service. a. amount of money b. fixed cost c. variable cost d. target return e. overall sacrifice
answer
e. overall sacrifice
question
The __________ occurs when unit cost drops as the quantity sold increases. a. cumulative bundling benefit b. improvement value effect c. slotting allowance benefit d. price fixing return e. experience curve effect
answer
e. experience curve effect
question
Customers must see value in a product or service before they are willing to exchange time or money to obtain it, but not all customers see the same value in a product. To analyze how many units will be sold at any given price point, marketers draw on a. multiple regression analyses. b. a sales orientation. c. a demand curve. d. the law of averages. e. target return strategies.
answer
c. a demand curve.
question
Marketers advertising an artificially high regular price are unethically attempting to influence consumers'__________ perceptions. a. cost-based price b. fixed price c. seasonal price d. reference price e. leader price
answer
d. reference price