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Western University *

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Feb 20, 2024

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Chapter 11 - Pricing Concepts and Strategies: Establishing Value Chapter 11 Pricing Concepts and Strategies: Establishing Value     Multiple Choice Questions   1. Which of the following is NOT true about pricing?  A.  It is the only element of marketing mix that generate revenue B.  Implementing a good pricing strategy is challenging but can last effective for a very long time. C.  Price is broader than the money customers pay to purchase a product. D.  Price is one of the most important factors in customer purchase decisions E.  Pricing decisions should be viewed as opportunity to create value for customers. Even if a pricing strategy is implemented well, consumers, economic conditions, markets, competitors, government regulations, and even a firm's own products change constantly and that means a good pricing strategy today may not remain an effective strategy tomorrow.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-01 Explain what price is and its importance in establishing value in marketing. Topic: 11-01 The Importance of Pricing   11-1
Chapter 11 - Pricing Concepts and Strategies: Establishing Value 2. The following are critical components of pricing strategies EXCEPT:  A.  Promotions B.  Objectives C.  Competitions D.  Costs E.  Customers The five critical components of successful pricing strategies are: company objectives, competition, costs, customers, channel members.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Moderate Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-02 The Five Cs of Pricing   3. A firm with a company objective that can be implemented by focusing on target return pricing is using a:  A.  sales orientation. B.  customer orientation. C.  profit orientation. D.  demand orientation. E.  competitor orientation. Even though all company objectives may ultimately be oriented toward making a profit, firms implement a profit orientation as a part of their company objective by focusing on target profit pricing, maximizing profits, or target return pricing.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-03 Company Objectives   11-2
Chapter 11 - Pricing Concepts and Strategies: Establishing Value 4. The usual pricing strategy implemented by firms when they have a particular gain goal as their overriding concern is the:  A.  market penetration strategy. B.  target return pricing strategy. C.  improvement value strategy. D.  competitive parity strategy. E.  target profit pricing strategy. Firms usually implement target profit pricing when they have a particular profit goal as their overriding concern. To meet this targeted profit objective, firms use price to stimulate a certain level of sales at a certain profit per unit.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-03 Company Objectives   5. What is implemented by firms that focus on the rate at which their profits are generated relative to their investments rather than the absolute level of profits?  A.  Maximizing profits strategy B.  Target return pricing strategy C.  Value-based strategy D.  Competitive parity strategy E.  Target profit pricing strategy Target return pricing is a pricing strategy implemented by firms less concerned with the absolute level of profits and more interested in the rate at which their profits are generated relative to their investments. It is designed to produce a specific return on investment, usually expressed as a percentage of sales.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-03 Company Objectives   11-3
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 6. The maximizing profits strategy primarily relies on:  A.  advertising theory. B.  management theory. C.  marketing theory. D.  relativity theory. E.  economic theory. The maximizing profits strategy relies primarily on economic theory. If a firm can accurately specify a mathematical model that captures all the factors required to explain and predict sales and profits, it should be able to identify the price at which its profits are maximized.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-03 Company Objectives   7. Slate Inc. is the parent company of five brands. Slate decides that all the products under every brand must make a 20 percent gain margin in the upcoming financial year. This is an example of:  A.  profit orientation. B.  customer orientation. C.  sales orientation. D.  cost orientation. E.  competitor orientation. This is an example of profit orientation. Profit orientation is a company objective that can be implemented by focusing on target profit pricing, maximizing profits, or target return pricing.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-03 Company Objectives   11-4
Chapter 11 - Pricing Concepts and Strategies: Establishing Value 8. When determining its pricing strategy, if a firm is willing to let profits suffer in order to increase its customer base, the company objective is most likely to be:  A.  sales oriented. B.  customer oriented. C.  profit oriented. D.  cost oriented. E.  quality oriented. Firms using a sales orientation to set prices believe that increasing sales will help the firm more than increasing profits. Such firm could choose to set prices very low to generate a large volume of sales, even if that would cause profits to suffer initially.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-03 Company Objectives   9. Blue Corp., a company that manufactures high quality mobile phones, is set to launch a new series of tablets. In order to reduce competition and increase the demand for the new products, the company launches them at a very low price. Blue's objective is most likely to be:  A.  sales orientation. B.  customer orientation. C.  profit orientation. D.  quality orientation. E.  competitor orientation. Blue's objective is most likely to be sales oriented. Firms using a sales orientation to set prices believe that increasing sales will help the firm more than increasing profits. Setting prices very low to generate new sales and take sales away from competitors, even if profits suffer, is an example of sales-oriented objectives.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-03 Company Objectives   11-5
Chapter 11 - Pricing Concepts and Strategies: Establishing Value 10. A company launches a new car in the luxury segment. It studies the quality and price of other luxury cars available in the market and ensures that the price and features of the new launch are similar to the existing cars. The company's objectives are most likely to be:  A.  sales oriented B.  customer oriented. C.  profit oriented. D.  cost oriented. E.  competitor oriented. In this case, the company's objective is likely to be competitor oriented. When firms undertake a competitor orientation, they strategize according to the premise that they should measure themselves primarily against their competition. Some firms focus on competitive parity, which means they set prices that are similar to those of their major competitors.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-03 Company Objectives   11. A company objective that is based on the premise that the firm should measure itself primarily against its rivals is:  A.  sales oriented. B.  customer oriented. C.  profit oriented. D.  cost oriented. E.  competitor oriented. When firms undertake a competitor orientation, they strategize according to the premise that they should measure themselves primarily against their competition. Some firms focus on competitive parity, which means they set prices that are similar to those of their major competitors.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-03 Company Objectives   11-6
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 12. Which of the following is true of pricing based on competitor-oriented strategies?  A.  Value is only implicitly considered in this type of strategies. B.  Prices are decided based on the value perceived by customers. C.  Prices for new products are always low to reduce competition. D.  Products are priced to ensure a standard return on investment. E.  A profit margin is set, which determines the price of products. Competitive parity is a firm's strategy of setting prices that are similar to those of their major competitors. Value is only implicitly considered in competitor-oriented strategies, in the sense that competitors may be using value as part of their pricing strategies, so copying their strategy might provide value.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-03 Company Objectives   13. A company specializing in bathroom fittings offers state-of-the-art products. The products are high priced, and the company is aware that sales will be limited. The main objective is to enhance its reputation and image and thereby increase the company's value in the minds of consumers. This is an example of:  A.  sales orientation. B.  customer orientation. C.  profit orientation. D.  cost orientation. E.  competitor orientation. When a company's objective is customer oriented, it focuses on enhancing the image and reputation and thereby increasing the company's value in the minds of consumers.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Moderate Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-03 Company Objectives   11-7
Chapter 11 - Pricing Concepts and Strategies: Establishing Value 14. Amazon is selling its Kindle product at a price lower than the cost in a hope that customers will choose Kindle over competitors and purchase eBooks later on. Amazon pricing objective in this case is most likely to be:  A.  Profit orientation B.  Sales orientation C.  Long term orientation D.  Customer orientation E.  Competitive parity Amazon wants to increase its market share. The company is hoping to recover the cost later on by selling eBooks.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Difficult Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-03 Company Objectives   15. The pricing orientation that explicitly invokes the concept of value for the users of the product and in which prices are set to match the users' expectations is called:  A.  sales orientation. B.  customer orientation. C.  profit orientation. D.  market share orientation. E.  competitor orientation. Customer orientation is the pricing method that explicitly invokes the concept of customer value and setting prices to match consumer expectations. A firm can use a "no-haggle" price structure to make the purchase process simpler and easier for consumers, thereby lowering the overall price and ultimately increasing value.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-03 Company Objectives   11-8
Chapter 11 - Pricing Concepts and Strategies: Establishing Value 16. Which of the following shows how many units of a product or service consumers will request for during a specific period of time at different prices?  A.  A supply graph B.  The break-even point C.  The input-output ratio D.  A demand curve E.  A workflow analysis A demand curve shows how many units of a product or service consumers will demand during a specific period of time at different prices. Although in general as price increases, demand for the product or service decreases, not all products or services follow this downward-sloping demand curve for all levels of price.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-04 Customers   17. Which of the following refers to those products that consumers purchase for status rather than functionality?  A.  Consumer goods B.  Prestige products C.  Utility products D.  Convenience products E.  Standard products Prestige products or services are those that consumers purchase for their status rather than their functionality. The higher the price, the greater the status associated with it and the greater the exclusivity, because fewer people can afford to purchase it. For such products, a higher price also leads to a greater quantity sold—up to a certain point.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-04 Customers   11-9
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 18. A wealthy industrialist purchases a Van Gogh painting for his new home. He pays $140 million to procure this piece of work. In this case, the painting is an example of a(n):  A.  consumer good. B.  prestige product. C.  utility product. D.  convenience product. E.  standard product. Prestige products or services are those that consumers purchase for their status rather than their functionality. The higher the price, the greater the status associated with it and the greater the exclusivity, because fewer people can afford to purchase it.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Moderate Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-04 Customers   19. Those products whose demand curves are positively related, such that they rise or fall together, are called:  A.  substitute products. B.  complementary products. C.  inverse products. D.  convenience products. E.  prestige products. Products whose demand curves are positively related, such that they rise or fall together are called complementary products; a percentage increase in demand for one results in a percentage increase in demand for the other.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-04 Customers   11-10
Chapter 11 - Pricing Concepts and Strategies: Establishing Value 20. Those products for which changes in demand are negatively related are called:  A.  substitute products. B.  complementary products. C.  parallel products. D.  convenience products. E.  standard products. Substitute products are those products for which changes in demand are negatively related— that is, a percentage increase in the quantity demanded for one product results in a percentage decrease in the quantity demanded for the other.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-04 Customers   21. The change in the quantity of a product demanded by consumers because of a change in their earnings is called the:  A.  substitution effect. B.  experience curve effect. C.  leader pricing effect. D.  markdown effect. E.  income effect. Income effect refers to the change in the quantity of a product demanded by consumers because of a change in their income. Generally, as people's income increases, they tend to shift their demand from lower-priced products to higher-priced alternatives. Conversely, when incomes drop, consumers turn to less expensive alternatives or purchase less.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-04 Customers   11-11
Chapter 11 - Pricing Concepts and Strategies: Establishing Value 22. Consumers' ability to replace the focal brand with other products is called:  A.  the substitution effect. B.  the markdown effect. C.  the experience curve effect. D.  the competitive parity effect. E.  the income effect. The substitution effect refers to consumers' ability to substitute other products for the focal brand. The greater the availability of substitute products, the higher will be the price elasticity of demand for any given product.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-04 Customers   23. A fall in the price of gas leads to an increased demand for cars in the market. In this context, gas and car are examples of:  A.  substitute products. B.  complementary products. C.  alternate products. D.  luxury products. E.  prestige products. Products whose demand curves are positively related, such that they rise or fall together are called complementary products; a percentage increase in demand for one results in a percentage increase in demand for the other.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-04 Customers   11-12
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 24. The fall in the price of coffee in the market led to a fall in the demand for tea. In this context, coffee and tea are examples of:  A.  substitute products. B.  complementary products. C.  luxury products. D.  convenience products. E.  standard products. In this context, coffee and tea are examples of substitute products. They are considered substitute products because changes in their demand are negatively related.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-04 Customers   25. Jeff is a hockey player who uses hockey sticks manufactured by Teal Inc. Teal increases the price of hockey sticks, so Jeff switches to another brand offering the same quality of hockey sticks at a lower price. This change in brand is an example of the:  A.  substitution effect. B.  complementary effect. C.  supply effect. D.  demand effect. E.  income effect. The substitution effect refers to consumers' ability to substitute other products for the focal brand. The greater the availability of substitute products, the higher the price elasticity of demand for any given product will be.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-04 Customers   11-13
Chapter 11 - Pricing Concepts and Strategies: Establishing Value 26. Megan was an assistant manager in a firm when she had bought a Hyundai Accent L hatchback. After she was promoted to the position of a senior manager with a big pay raise, she bought a Volvo S80. This is an example of the:  A.  substitution effect. B.  pricing effect. C.  supply effect. D.  demand effect. E.  income effect. Income effect refers to the change in the quantity of a product demanded by consumers because of a change in their income. Generally, as people's income increases, they tend to shift their demand from lower-priced products to higher-priced alternatives. Conversely, when incomes drop, consumers turn to less expensive alternatives or purchase less.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Moderate Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-04 Customers   27. A local popular coffee shop has increased its regular coffee price by 15% and observed decrease in demand of 5%. The demand for the regular coffee at this coffee shop is:  A.  Elastic B.  Inelastic C.  Break even D.  Could be either elastic or inelastic E.  Prestige The demand for the regular coffee is inelastic as %change in quantity demanded is significantly lower than %change in price.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-04 Customers   11-14
Chapter 11 - Pricing Concepts and Strategies: Establishing Value 28. Mike wants to set up a factory to manufacture roller skates. He plans to employ a hundred people in his factory. Mike's primary expenses include rent, utilities, insurance, administrative salaries (for executives and higher-level managers), and depreciation of the physical plant and equipment. The expenses for raw material and labour to make the skates constitute the:  A.  standard costs. B.  variable costs. C.  rebate. D.  improvement value. E.  fixed costs. Variable costs are those costs, primarily labour and materials, which vary with production volume. As a firm produces more or less of a good or service, the total variable costs increase or decrease at the same time.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-05 Costs   29. The expenses that change depending on production volume are called the:  A.  standard costs. B.  variable costs. C.  rebatable expenses. D.  promotional expenses. E.  fixed costs. Variable costs are those costs, primarily labour and materials, which vary with production volume. As a firm produces more or less of a good or service, the total variable costs increase or decrease at the same time.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-05 Costs   11-15
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 30. Those expenses that remain essentially at the same level, regardless of any changes in the volume of production, are called:  A.  rebatable expenses. B.  variable costs. C.  unit costs. D.  marginal costs. E.  fixed costs. Fixed costs are those costs that remain essentially at the same level, regardless of any changes in the volume of production. Typically, these costs include items such as rent, utilities, insurance, administrative salaries, and depreciation.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-05 Costs   31. Which of the following is NOT true of the break-even point?  A.  It represents the point where a firm's profits is equal to zero. B.  It represents the point where a firm's revenue is equal total costs C.  It represents the point where the sales revenue equals the total costs of a product. D.  It represents the number of units required to be produced to meet the annual profit goal. E.  It represents the number of units required to cover both variable and fix costs. Break-even point is the point at which the number of units sold generates just enough revenue to equal the total costs. At this point, profits are zero.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Difficult Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-05 Costs   11-16
Chapter 11 - Pricing Concepts and Strategies: Establishing Value 32. The price excluding the variable costs per unit is referred to as the:  A.  total cost per unit. B.  fluctuating cost per unit. C.  contribution per unit. D.  average cost per unit. E.  rebatable cost per unit. Contribution per unit equals the price less the variable cost per unit. It is a variable used to determine the break-even point in units.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-05 Costs    Break-even analysis for Joe's store       11-17
Chapter 11 - Pricing Concepts and Strategies: Establishing Value 33. What would be the fixed cost of Joe's store?  A.  $100,000 B.  $50,000 C.  $10,000 D.  $5,000 E.  $1000 When the sales is 0, the cost is $50,000, which would be the fixed cost.   Blooms: Apply Difficulty: Moderate Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-05 Costs   34. What is the selling price at Joe's store?  A.  $100 B.  $1000 C.  $500 D.  $50 E.  $100,000 Looking at the Break Even point, selling 1000 units generate $100,000 revenue.   Blooms: Apply Difficulty: Difficult Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-05 Costs   11-18
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 35. How many units should Joe sells to break even?  A.  0 B.  500 C.  50 D.  100 E.  1000 Joe needs to sell 1000 units to break even.   Blooms: Apply Difficulty: Moderate Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-05 Costs   36. What is contribution per unit for Joe's store?  A.  $100 B.  $500 C.  $10 D.  $50 E.  $20 At the BEP.   Blooms: Apply Difficulty: Difficult Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-05 Costs   11-19
Chapter 11 - Pricing Concepts and Strategies: Establishing Value 37. Which of the following occurs when only one firm provides the product or service in a particular industry?  A.  Duopoly B.  Monopsony C.  Oligopoly D.  Monopoly E.  Oligopsony In a monopoly, only one firm provides the product or service in a particular industry, and as such results in less price competition. A monopoly that restricts competition by controlling an industry can be deemed illegal and broken apart by the government.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-06 Competition   38. Which of the following occurs when only a few firms providing a particular product or service dominate a market?  A.  Duopoly B.  Monopsony C.  Oligopoly D.  Monopoly E.  Oligopsony When a market is characterized by oligopolistic competition, only a few firms dominate the market. Firms typically change their prices in reaction to competition to avoid upsetting an otherwise stable competitive environment.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-06 Competition   11-20
Chapter 11 - Pricing Concepts and Strategies: Establishing Value 39. A situation in the market that occurs when two or more firms compete primarily by lowering their prices is referred to as:  A.  pure competition. B.  vertical price fixing. C.  horizontal price fixing. D.  price negotiation. E.  price war. Price war occurs when two or more firms compete primarily by lowering their prices in an oligopolistic market. Price wars often appear in the airline industry when a low-cost provider enters a market in which established carriers already exist.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-06 Competition   40. When many firms sell closely related but not homogeneous products, it is called:  A.  pure competition. B.  price engagement. C.  monopolistic competition. D.  oligopsony. E.  monopsony. Monopolistic competition occurs when there are many firms competing for customers in a given market but their products are differentiated. When so many firms compete, product differentiation rather than a strict pricing competition tends to appeal to consumers.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-06 Competition   11-21
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 41. When different companies sell commodity products that consumers perceive as substitutable, this is called:  A.  pure competition. B.  price engagement. C.  monopolistic competition. D.  oligopolistic competition. E.  noncompetitive marketing. Pure competition occurs when different companies sell commodity products that consumers perceive as substitutable. In such markets, price is usually set according to the laws of supply and demand.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-06 Competition   42. When a market legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer, it is called a:  A.  black market. B.  pure competition market. C.  monopoly market. D.  grey market. E.  monopsonic market. A grey market employs irregular but not necessarily illegal methods; generally, it legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-06 Competition   11-22
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 43. The pattern of buying both premium and low-priced merchandise or patronizing both expensive, status- and price-oriented retailers is called:  A.  prestige shopping. B.  wholesale shopping. C.  grey-market shopping. D.  cross-shopping. E.  premium shopping. Cross-shopping is the pattern of buying both premium and low-priced merchandise or patronizing both expensive, status-oriented retailers and price-oriented retailers. These stores offer fashionable merchandise at great values—values so good that if items last for only a few wearings, it doesn't matter to the customers.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-06 Competition   44. The telecommunication industry in Canada is controlled by handful companies, therefore, the competition is:  A.  Monopoly B.  Pure competition C.  Oligopoly D.  Monopolistic competition E.  Gray market When handful of firms control the market, it is an Oligopoly competition.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Moderate Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-06 Competition   11-23
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 45. Which of the following pricing methods determine the final price to charge without recognizing the role that consumers or competitors' prices play in the marketplace?  A.  Cost-based pricing method B.  Value-based pricing method C.  Competitor-based pricing method D.  Supply-based pricing method E.  Demand-based pricing method Cost-based pricing methods determine the final price to charge by starting with the cost. These methods do not recognize the role that consumers or competitors' prices play in the marketplace.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-09 Pricing Methods   46. Which of the following approaches attempts to reflect how a firm wants consumers to interpret its products relative to the offerings of rival companies?  A.  Cost-based pricing method B.  Value-based pricing method C.  Competitor-based pricing method D.  Supply-based pricing method E.  Demand-based pricing method Competitor-based pricing method is an approach that attempts to reflect how the firm wants consumers to interpret its products relative to the competitors' offerings. For example, setting a price very close to a competitor's price signals to consumers that the product is similar, whereas setting the price much higher signals greater features, better quality, or some other valued benefit.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-11 Competitor-based Methods   11-24
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 47. Which of the following pricing methods focuses on the overall worth of the product offering as perceived by consumers, who compare it what they need to sacrifice in order to acquire the product?  A.  Cost-based pricing methods B.  Value-based pricing methods C.  Competitor-based pricing methods D.  Supply-based pricing methods E.  Demand-based pricing methods Value-based pricing methods include approaches to setting prices that focus on the overall value of the product offering as perceived by the consumer. Consumers determine value by comparing the benefits they expect the product to deliver with the sacrifice they will need to make to acquire the product.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-12 Value-based Methods   48. The method in which a manager must estimate how much more, or less, consumers are willing to pay for a product relative to other comparable products is called the:  A.  improvement value method. B.  supply-based method. C.  price skimming method. D.  premium pricing method. E.  cost of ownership method. In the improvement value method, the manager must estimate the improvement value of a new product or service. This improvement value represents an estimate of how much more, or less, consumers are willing to pay for a product relative to other comparable products.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-12 Value-based Methods   11-25
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 49. A method for setting prices that determines the total expense of possessing a product over its useful life is called the:  A.  improvement value method. B.  supply-based method. C.  demand-based method. D.  premium pricing method. E.  cost of ownership method. The cost of ownership method is a value-based method for setting prices that determines the total cost of owning the product over its useful life. Using the cost of ownership method, consumers may be willing to pay more for a particular product because, over its entire lifetime, it will eventually cost less to own than a cheaper alternative.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-12 Value-based Methods   50. A strategy of selling a new product or service at a high price that innovators and early adopters are willing to pay to obtain is called:  A.  price fixing. B.  price skimming. C.  price discrimination. D.  bait and switch. E.  predatory pricing. Price skimming is a strategy of selling a new product or service at a high price that innovators and early adopters are willing to pay to obtain it. After the high-price market segment becomes saturated and sales begin to slow down, the firm generally lowers the price to capture (or skim) the next most price sensitive segment.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-16 New Product Pricing Strategies   11-26
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 51. Which of the following pricing strategies sets the initial price low for the introduction of a new product or service, with the objective of building sales, market share, and profits quickly?  A.  Market development pricing B.  Market extension pricing C.  Market establishment pricing D.  Market testing pricing E.  Market penetration pricing Firms using market penetration pricing set the initial price low for the introduction of the new product or service. Their objective is to build sales, market share, and profits quickly. The low market penetration price encourages consumers to purchase the product immediately.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-16 New Product Pricing Strategies   52. A car company introduces a new car in the market. It maintains a low introductory price to reach the middle-income group. The main objective of the company is to build sales and profits quickly. This is an example of:  A.  everyday low pricing. B.  external reference price. C.  high/low pricing. D.  market penetration pricing. E.  internal reference price. Firms using market penetration pricing set the initial price low for the introduction of the new product or service. Their objective is to build sales, market share, and profits quickly. The low market penetration price encourages consumers to purchase the product immediately.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-16 New Product Pricing Strategies   11-27
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 53. Blue Corp., a laptop manufacturer, introduces a new model in the market. Since the target audience for this product is students, Blue Corp. launches the model at a low price. The main objective of the company is to build sales and profits quickly. This is an example of:  A.  everyday low pricing. B.  external reference price. C.  high/low pricing. D.  market penetration pricing. E.  internal reference price. Firms using market penetration pricing set the initial price low for the introduction of the new product or service. Their objective is to build sales, market share, and profits quickly. The low market penetration price encourages consumers to purchase the product immediately.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-16 New Product Pricing Strategies   54. Ochre Inc. had marked its refrigerators at $729.94 as the original price. This was close to the standard price for refrigerators of the same quality in the market. Later, the price is brought down to $650.99. A customer compares Ochre's marked-down price with the original price and perceives an increased value. This is an example of:  A.  everyday low pricing. B.  external reference price. C.  high/low pricing. D.  market penetration pricing. E.  price skimming. A reference price is the price against which buyers compare the actual selling price of the product and that facilitates their evaluation process. The seller labels the reference price as the "regular price" or an "original price." When consumers view the "sale price" and compare it with the provided external reference price, their perceptions of the value of the deal will likely increase.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-17 Consumers' Use of Reference Pricing   11-28
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 55. Jared's, an exclusive deli, marked down its smoked sausages from $9.99 to $6.99 in a prominently displayed poster at its smoked meats section. When consumers viewed the sale price, they tended to pick more smoked sausages than they required. This is an example of strategy using:  A.  everyday low price. B.  external reference price. C.  high/low pricing. D.  market penetration pricing. E.  rebates. A reference price is the price against which buyers compare the actual selling price of the product, which facilitates their evaluation process. The seller labels the reference price as the "regular price" or an "original price." When consumers view the "sale price" and compare it with the provided external reference price, their perceptions of the value of the deal will likely increase.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-17 Consumers' Use of Reference Pricing   56. A strategy companies use to emphasize the continuity of their retail prices at a level somewhere between the regular, nonsale price and the deep-discount sale prices their competitors may offer is called:  A.  everyday low pricing. B.  external reference price. C.  high/low pricing. D.  market penetration pricing. E.  price skimming. With an everyday low pricing (EDLP) strategy, companies stress the continuity of their retail prices at a level somewhere between the regular, nonsale price and the deep discount sale prices their competitors may offer. By reducing consumers' search costs.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-14 Everyday Low Pricing (EDLP)   11-29
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 57. A company sells shoes at a price somewhere between the regular, nonsale price and the deep-discount sale prices that its competitors may offer. This is an example of:  A.  everyday low pricing. B.  external reference pricing. C.  high/low pricing. D.  price skimming. E.  odd pricing. With an everyday low pricing (EDLP) strategy, companies stress the continuity of their retail prices at a level somewhere between the regular, nonsale price and the deep discount sale prices their competitors may offer. By reducing consumers' search costs.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-14 Everyday Low Pricing (EDLP)   58. A store that sells childrens' clothes reduces its prices drastically during promotional sales. This is an example of:  A.  everyday low pricing. B.  external reference price. C.  high/low pricing. D.  market penetration pricing. E.  value-based pricing. A high/low pricing strategy relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-15 High Low Pricing   11-30
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 59. A pricing strategy that relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases, is called:  A.  everyday low pricing. B.  price skimming. C.  high/low pricing. D.  market penetration pricing. E.  odd pricing. A high/low pricing strategy relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-15 High Low Pricing   60. As the number of tourists in a village increases during Christmas, the hotels in the locality temporarily increase the rates of accommodation to make profit. This is an example of:  A.  price skimming. B.  external reference pricing. C.  high/low pricing. D.  market penetration pricing. E.  odd pricing. A high/low pricing strategy relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Moderate Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-15 High Low Pricing   11-31
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 61. A shoe manufacturer produces shoes for customers in the middle-range segment and the upper-range segment. It also has shoes in between these segments, at different prices, to represent distinct differences in quality. This is an example of:  A.  price fixing. B.  price bundling. C.  price discrimination. D.  leader pricing. E.  price lining. When marketers establish a price floor and a price ceiling for an entire line of similar products and then set a few other price points in between to represent distinct differences in quality, the tactic is called price lining. Having options at different price points means a company can satisfy customers with a range of tastes and budgets.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-19 Consumer Pricing Tactics   62. A car manufacturer offers cars in the luxury segment. It establishes a price floor and a price ceiling for its entire line of cars and then sets a few other price points in between to represent distinct differences in quality. It helps the manufacturer to satisfy a wide range of tastes and budgets. This is an example of:  A.  markdown. B.  price bundling. C.  price lining. D.  leader pricing. E.  listing allowance. When marketers establish a price floor and a price ceiling for an entire line of similar products and then set a few other price points in between to represent distinct differences in quality, the tactic is called price lining. Having options at different price points means a company can satisfy customers with a range of tastes and budgets.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-19 Consumer Pricing Tactics   11-32
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 63. A department store offers a discount if a shirt is purchased with a pair of trousers. The combined purchase would cost less than it would cost the customer to purchase the two individually. This is an example of:  A.  price fixing. B.  price bundling. C.  price discrimination. D.  leader pricing. E.  price lining. This practice of selling more than one product for a single, lower price is called price bundling. Firms bundle products together to encourage customers to stock up so they won't purchase competing brands, to encourage trial of a new product, or to provide an incentive to purchase a less desirable product or service to obtain a more desirable one in the same bundle.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-19 Consumer Pricing Tactics   64. A store that sells hockey equipment offers a discount if a customer also buys a pair of skates. The combined purchase costs less than it would cost the customer to buy the products individually. This is an example of:  A.  predatory pricing. B.  price bundling. C.  price lining. D.  leader pricing. E.  price fixing. This practice of selling more than one product for a single, lower price is called price bundling. Firms bundle products together to encourage customers to stock up so they won't purchase competing brands, to encourage trial of a new product, or to provide an incentive to purchase a less desirable product or service to obtain a more desirable one in the same bundle.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-19 Consumer Pricing Tactics   11-33
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 65. A newly opened supermarket offers vegetables at reduced prices so as to attract customers. The idea behind lowering the prices is that the customers who visit the supermarket to purchase these vegetables at lower costs are more likely to purchase other items offered in the supermarket. This pricing tactic is an example of:  A.  price fixing. B.  price bundling. C.  price lining. D.  leader pricing. E.  listing allowance. This practice of selling more than one product for a single, lower price is called price bundling. Firms bundle products together to encourage customers to stock up so they won't purchase competing brands, to encourage trial of a new product, or to provide an incentive to purchase a less desirable product or service to obtain a more desirable one in the same bundle.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-19 Consumer Pricing Tactics   66. A company selling air conditioners finds that sales begin to decrease at the end of summer. The company then reduces the price of air conditioners to get rid of the slow-moving merchandise. This is an example of a:  A.  rebate. B.  size discount. C.  markdown. D.  coupon. E.  quantity discount. Markdowns are the reductions retailers' take on the initial selling price of the product or service. An integral component of the high/low pricing strategy, markdowns enable retailers to get rid of slow-moving or obsolete merchandise, sell seasonal items after the appropriate season, and match competitors' prices on specific merchandise.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-20 Consumer Price Reductions   11-34
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 67. A supermarket offers a 1-litre milk carton, a 2-litre milk carton, and a 3-litre milk jug at $3.50, $6.25, and $9.00, respectively. Thus, the larger the quantity bought, the lower the cost. This is an example of a:  A.  rebate. B.  size discount. C.  markdown. D.  coupon. E.  quality discount. A size discount is the most common implementation of a quantity discount at the consumer level. The larger the quantity bought, the less the cost per unit.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-20 Consumer Price Reductions   68. A store advertises a pair of shoes at $79.99 with a cash-back offer of $20. The refund is made by the manufacturer. This is an example of a:  A.  rebate. B.  size discount. C.  markdown. D.  coupon. E.  quality discount. A rebate is a consumer discount in which a portion of the purchase price is returned to the buyer in cash. The manufacturer, not the retailer, issues the refund.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-20 Consumer Price Reductions   11-35
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 69. Which of the following, when presented by a consumer, provides him or her instant savings?  A.  Rebates B.  Size discounts C.  Odd prices D.  Coupons E.  Cumulative quantity discounts Coupons provide a stated discount to consumers on the final selling price of a specific item. By saving the consumer money, firms add value to their products. A coupon provides instant savings when presented.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-20 Consumer Price Reductions   70. A company advertises that winter pullovers and jackets will be sold at half price if they are ordered before September 30. This is an example of a(n):  A.  seasonal discount. B.  advertising allowance. C.  odd pricing. D.  listing allowance. E.  rebates. This is an example of seasonal discount. A seasonal discount is an additional reduction offered as an incentive to retailers to order merchandise in advance of the normal buying season.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-20 Consumer Price Reductions   11-36
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 71. A department store announces 30 percent off the price of Christmas trees if the trees are bought before December 1. This is an example of:  A.  a quantity discount. B.  geographic pricing. C.  an allowance. D.  a seasonal discount. E.  uniform delivered pricing. This is an example of a seasonal discount. A seasonal discount is an additional reduction offered as an incentive to retailers to order merchandise in advance of the normal buying season.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-20 Consumer Price Reductions   72. A dairy farm sells milk to a confectionery company. The dairy offers the company a reduction of 10 percent on the total amount of the invoice if the company settles the amount within a period of 7 days instead of the usual 30 days. This is an example of a(n):  A.  seasonal discount. B.  listing allowance. C.  cumulative quantity discount. D.  rebate. E.  cash discount. A cash discount reduces the invoice cost if the buyer pays the invoice prior to the end of the discount period. Typically, it is expressed in the form of a percentage.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-20 Consumer Price Reductions   11-37
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 73. A confectionery company pays a fee to a retailer to place its products near the checkout counter. By doing so, the confectionery company hopes to tempt customers to make impulse purchases. In this example, the fee paid to the retailer is a(n):  A.  markdown. B.  advertising allowance. C.  odd price. D.  listing allowance. E.  rebate. Listing allowances are fees paid to retailers simply to get new products into stores or to gain more or better shelf space for their products. Some argue that listing allowances are unethical because they put small manufacturers that cannot readily afford allowances at a competitive disadvantage.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-21 Business-to-Business Pricing Tactics   74. Ray Inc., a shoe manufacturer, pays a good amount to a department store to allow it to display its shoes in the store's window where they are likely to attract a lot of attention from customers. The money paid by Ray's to the department store is an example of a(n):  A.  premium price. B.  markdown. C.  listing allowance. D.  rebatable expense. E.  improvement value expense. This example illustrates allowance, which is a pricing tactic that lowers the final cost to channel members. Listing allowances are fees paid to retailers simply to get new products into stores or to gain more or better shelf space for their products.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-21 Business-to-Business Pricing Tactics   11-38
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 75. A clothing line company promises a large price reduction to its wholesalers if they feature the company's goods in their promotional campaigns. This is an example of a(n):  A.  seasonal discount. B.  advertising allowance. C.  odd price. D.  listing allowance. E.  cash discount. This example illustrates allowance, which is a pricing tactic that lowers the final cost to channel members. An advertising allowance offers a price reduction to channel members if they agree to feature the manufacturer's product in their advertising and promotional efforts.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-21 Business-to-Business Pricing Tactics   76. Purple Corp., a retailer selling air conditioners, aims to sell 5,000 air conditioners in a year. If Purple reaches this target, the manufacturer will offer a discount on every air conditioner bought by the retailer during that year. This is an example of a(n):  A.  seasonal discount. B.  quantity discount. C.  odd price. D.  price bundling. E.  markdown. A quantity discount provides a reduced price according to the amount purchased. A cumulative quantity discount uses the amount purchased over a specified time period and usually involves several transactions.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-21 Business-to-Business Pricing Tactics   11-39
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 77. A shoe store gets a 30 percent discount from the manufacturer when it places an order worth $5000. The discount increases when the order worth increases. This is an example of a(n):  A.  seasonal discount. B.  cumulative quantity discount. C.  allowance. D.  noncumulative quantity discount. E.  cash discount. A quantity discount provides a reduced price according to the amount purchased. A noncumulative quantity discount is based only on the amount purchased in a single order. Therefore, it provides the buyer with an incentive to purchase more merchandise immediately.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-21 Business-to-Business Pricing Tactics   78. A furniture manufacturing company in Canada delivers goods to its customers in Europe. The shipping company that delivers the goods to customers charges the same irrespective of the country in which the customer is located. This is an example of:  A.  geographic pricing. B.  price bundling. C.  price lining. D.  leader pricing. E.  uniform delivered pricing. This example illustrates uniform delivered pricing, a pricing tactic specific to shipping, which represents a major cost for many manufacturers. With a uniform delivered pricing tactic, the shipper charges one rate, no matter where the buyer is located, which makes things very simple for both the seller and the buyer.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-21 Business-to-Business Pricing Tactics   11-40
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 79. A home decor company in the United States delivers goods to its customers in Europe. The shipping company that delivers the goods to the customers has divided the continent into five different zones and charges according to the rate prevalent in each of these zones. This is an example of:  A.  geographic pricing. B.  price bundling. C.  price lining. D.  leader pricing. E.  uniform delivered pricing. This example illustrates uniform delivered pricing, a pricing tactic specific to shipping, which represents a major cost for many manufacturers. Geographic pricing, however, sets different prices depending on a geographical division of the delivery areas.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-21 Business-to-Business Pricing Tactics   80. Books Inc. is an online seller of books. It ships its books to different parts of the world. When it delivers its shipments, it charges customers based on the zone in which they are located. This is an example of:  A.  price bundling. B.  geographic pricing. C.  an allowance. D.  leader pricing. E.  premium pricing. This example illustrates geographic pricing. Geographic pricing sets different prices depending on a geographical division of the delivery areas.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-21 Business-to-Business Pricing Tactics   11-41
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 81. Snails Inc., a 10-year-old bookstore situated in New York, recently launched an online store that offers uniform delivered pricing to all its customers across the globe. It also offers all the books from the previous year at a discount. Which of the following statements about Snails and its customers is true in this case?  A.  Customers from Canada are likely to pay a lesser shipping price than those in Asia. B.  Snails uses rebates to wholesalers and retailers that deal with its books. C.  Books from the previous year are offered at a size discount. D.  Snails uses price bundling to offer older goods to customers when it delivers them for at a standard shipping price. E.  Customers from Mexico are likely to pay the same shipping price as those from China. This example illustrates uniform delivered pricing, a pricing tactic specific to shipping, which represents a major cost for many manufacturers. With a uniform delivered pricing tactic, the shipper charges one rate, no matter where the buyer is located. This makes things very simple for both the seller and the buyer.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Moderate Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-21 Business-to-Business Pricing Tactics   11-42
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 82. A computer store advertises to sell a particular laptop model at a discounted price. When a customer visits the store to purchase the discounted model, he is informed that it is out of stock. The salesperson then tries to sell him a different model that is priced higher than the model for which he had come. This action of the salesperson is an example of:  A.  predatory pricing. B.  vertical price fixing. C.  horizontal price fixing. D.  price discrimination. E.  bait and switch. Bait and switch is a deceptive practice of luring customers into the store by advertising a low- priced item (the bait), only to aggressively pressure them into purchasing a higher-priced item (the switch) by disparaging the low-priced item, comparing it unfavourably with the higher- priced model, or professing an inadequate supply of the lower-priced item.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Moderate Learning Objective: 11-05 Summarize the legal and ethical issues involved in pricing. Topic: 11-22 Legal and Ethical Aspects of Pricing   11-43
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 83. A prominent fast-food chain sets a very low price for its burgers with the intent of driving its competition out of business. This is an example of:  A.  predatory pricing. B.  vertical price fixing. C.  horizontal price fixing. D.  price discrimination. E.  bait and switch. When a firm sets a very low price for one or more of its products with the intent to drive its competition out of business, it is using predatory pricing. Predatory pricing is illegal under the Competition Act because it constrains free trade and represents a form of unfair competition.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-05 Summarize the legal and ethical issues involved in pricing. Topic: 11-24 Predatory Pricing   84. A company manufacturing shampoo charges a low price to customers who buy sachets on the premise that these customers belong to lower income groups and are more price sensitive. On the other hand, it charges higher prices to customers who purchase the same shampoo in bottles. This is an example of:  A.  predatory pricing. B.  vertical price fixing. C.  horizontal price fixing. D.  price discrimination. E.  bait and switch. The practice of selling the same product to different resellers (wholesalers, distributors, or retailers) or to the ultimate consumer at different prices is called price discrimination. Some, but not all, forms of price discrimination are illegal.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Moderate Learning Objective: 11-05 Summarize the legal and ethical issues involved in pricing. Topic: 11-25 Price Discrimination   11-44
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 85. Two dairy farms supply milk to a local town. Both of them work together to control the price that the townspeople pay for milk. This is an example of:  A.  predatory pricing. B.  vertical price fixing. C.  horizontal price fixing. D.  price discrimination. E.  bait and switch. Price fixing is the practice of colluding, or working together, with other firms to control prices. Horizontal price fixing occurs when competitors that produce and sell competing products collude, or work together, to control prices, effectively taking price out of the decision process for consumers.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-05 Summarize the legal and ethical issues involved in pricing. Topic: 11-26 Price Fixing   86. A vegetable farm supplies vegetables to a supermarket in Pemberton. The vegetable vendor and the supermarket work together to control the prices passed on to consumers. This is an example of:  A.  predatory pricing. B.  vertical price fixing. C.  horizontal price fixing. D.  price discrimination. E.  bait and switch. Price fixing is the practice of colluding, or working together, with other firms to control prices. Vertical price fixing occurs when parties at different levels of the same marketing channel (e.g., manufacturers and retailers) collude to control the prices passed on to consumers.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-05 Summarize the legal and ethical issues involved in pricing. Topic: 11-26 Price Fixing   11-45
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 87. Ramsons manufactures binoculars. Although the binoculars are priced unreasonably high, Ramsons manages to sell a large number of units each year because Ramsons is the sole supplier of binoculars in the market. This is an example of:  A.  a monopoly. B.  an oligopoly. C.  monopolistic competition. D.  pure competition. E.  more price competition. In a monopoly, only one firm provides the product or service in a particular industry, and as such results in less price competition. A monopoly that restricts competition by controlling an industry can be deemed illegal and broken apart by the government.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-06 Competition   88. Which of the following is reflective of oligopolistic competition?  A.  A large number of companies sell silver in a market where the price of silver is determined by demand and supply. B.  Ramsons is the sole supplier of military binoculars in the market. C.  Hundreds of firms make wristwatches, and the market is highly differentiated. D.  Pure Diamonds Inc. controls the diamond market as it is the only supplier of diamonds. E.  A price war occurs between Comfort Airlines and Air Secure, the only two airlines in the market. When a market is characterized by oligopolistic competition, only a few firms.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Difficult Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-06 Competition   11-46
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value  Lee's, a department store, decides to promote its sales during Christmas. In the clothing section, it offers customized men's T-shirts for $11.99. To every customer who purchases a pair of shoes, the shoe department issues a document promising a discount of $20 on the customer's next shoe purchase. The store also has its air conditioners on sale at a reduced price because the sale of air conditioners is slow during the month of December and the company wants to get rid of its slow-moving merchandise.   89. The price reduction that Lee's offers for its air conditioners is an example of a:  A.  rebate. B.  size discount. C.  markdown. D.  coupon. E.  quantity discount. Markdowns are the reductions retailers take on the initial selling price of the product or service. As an integral component of the high/low pricing strategy, markdowns enable retailers to get rid of slow-moving or obsolete merchandise, sell seasonal items after the appropriate season, and match competitors' prices on specific merchandise.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-20 Consumer Price Reductions   11-47
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 90. The document the shoe department gives to every customer who buys a pair of shoes is a:  A.  rebate. B.  size discount. C.  markdown. D.  coupon. E.  quantity discount. Coupons provide a stated discount to consumers on the final selling price of a specific item. By saving the consumer money, firms add value to their products.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Moderate Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-20 Consumer Price Reductions   91. Price reduction on air conditions in December is an example of a:  A.  Cash discounts B.  Allowances C.  Markdowns D.  Quantity discount E.  Price bundling Markdowns are the reductions retailers take on the initial selling price of the product or service. As an integral component of the high/low pricing strategy, markdowns enable retailers to get rid of slow-moving or obsolete merchandise, sell seasonal items after the appropriate season, and match competitors' prices on specific merchandise.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Moderate Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-20 Consumer Price Reductions   11-48
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 92. Jade's manufactures electronic appliances. Jade's does not have any retail stores of its own and prefers to sell its products through Ramon. Ramon stores are striking in decor, well maintained, and serviced by a polite and well-informed staff that pays great attention to customer service and feedback. Ramon also has a huge promotional budget and launches prominent promotional campaigns on a regular basis. In fact, Jade's offers Ramon a discount on products that are included in these campaigns. This is an example of a(n):  A.  seasonal discount. B.  cash discount. C.  advertising allowance. D.  quantity discount. E.  listing allowance. This example illustrates allowance, which is a pricing tactic that lowers the final cost to channel members. An advertising allowance offers a price reduction to channel members if they agree to feature the manufacturer's product in their advertising and promotional efforts.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-21 Business-to-Business Pricing Tactics   93. Which of the following would a shipping company adopt in order to set a price that would charge its customers based on the actual distance?  A.  Seasonal discounts B.  Cash discounts C.  Geographic pricing D.  Quantity discounts E.  Uniform delivered pricing This example illustrates uniform delivered pricing, a pricing tactic specific to shipping, which represents a major cost for many manufacturers. Geographic pricing sets different prices depending on a geographical division of the delivery areas.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Moderate Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-21 Business-to-Business Pricing Tactics   11-49
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 94. Tangerine, an exclusive retailer of handbags, chooses its suppliers very carefully. It prefers one supplier mainly because it offers great quality and 40 percent discount on any single order of more than $20,000. The supplier is offering a(n):  A.  seasonal discount. B.  cash discount. C.  listing allowance. D.  quantity discount. E.  advertising allowance. A quantity discount provides a reduced price according to the amount purchased. A quantity discount can be either cumulative or noncumulative.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-21 Business-to-Business Pricing Tactics    Clove, a fitness centre, opens a new gym in Boston. Two gyms already exist around the same locality. To attract customers and drive its competitors out of business, Clove, offers a very low enrolment and monthly fee. The owners of the other gyms meet with the director of Clove to negotiate. Finally, all three gyms collude and decide to fix a standard enrolment and monthly fee that customers will have to pay. They also decide to charge a higher fee for men because they spend greater time in the gym.   11-50
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 95. When Clove decided to offer enrolment at a very low price, it was with an intention to drive its competitors out of business. This is an example of:  A.  predatory pricing. B.  vertical price fixing. C.  horizontal price fixing. D.  price discrimination. E.  bait and switch. When a firm sets a very low price for one or more of its products with the intent to drive its competition out of business, it is using predatory pricing. Predatory pricing is illegal under the Competition Act because it constrains free trade and represents a form of unfair competition.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-05 Summarize the legal and ethical issues involved in pricing. Topic: 11-24 Predatory Pricing   96. All three gyms decide to charge a higher fee from men. This is an example of:  A.  predatory pricing. B.  vertical price fixing. C.  external reference allowance. D.  price discrimination. E.  bait and switch. The practice of selling the same product to different resellers (wholesalers, distributors, or retailers) or to the ultimate consumer at different prices is called price discrimination. Some, but not all, forms of price discrimination are illegal.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-05 Summarize the legal and ethical issues involved in pricing. Topic: 11-25 Price Discrimination   11-51
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 97. All the gyms collude and decide to control the enrolment and monthly fee payable by customers. This is an example of:  A.  predatory pricing. B.  vertical price fixing. C.  horizontal price fixing. D.  price discrimination. E.  bait and switch. Price fixing is the practice of colluding with other firms to control prices. Horizontal price fixing occurs when competitors that produce and sell competing products collude, or work together, to control prices, effectively taking price out of the decision process for consumers.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-05 Summarize the legal and ethical issues involved in pricing. Topic: 11-26 Price Fixing     True / False Questions   98. Price is the only element of the marketing mix that generates revenue.  TRUE Price is the only element of the marketing mix that generates revenue. Every other element in the marketing mix may be perfect, but with the wrong price, sales simply will not occur.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-01 Explain what price is and its importance in establishing value in marketing. Topic: 11-01 The Importance of Pricing   11-52
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 99. If a pricing strategy is implemented well, it could last for a long time without changes.  FALSE Even if a pricing strategy implemented well, consumers, economic conditions, markets, competitors, government regulations change constantly. That means a good pricing strategy may not remain an effective strategy tomorrow.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-01 Explain what price is and its importance in establishing value in marketing. Topic: 11-01 The Importance of Pricing   100. Consumers are more likely to judge a product's quality based on its price when they are less knowledgeable about the product category.  TRUE We now know that price is not only a sacrifice but also an information cue as well. That is, consumers use the price of a product or service to judge its quality particularly when they are less knowledgeable about the product category.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-01 Explain what price is and its importance in establishing value in marketing. Topic: 11-01 The Importance of Pricing   11-53
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 101. Firms concerned with the absolute level of profits are most likely to employ target return pricing.  FALSE Target return pricing is a profit-oriented pricing strategy implemented by firms less concerned with the absolute level of profits and more interested in the rate at which their profits are generated relative to their investments.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-03 Company Objectives   11-54
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 102. Target profit pricing is designed to produce a specific return on investment, usually expressed as a percentage of sales.  FALSE Firms usually implement target profit pricing when they have a particular profit goal as their overriding concern. To meet this targeted profit objective, firms use price to stimulate a certain level of sales at a certain profit per unit.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-03 Company Objectives   103. In any given market, the firm that offers the lowest price tends to be the dominant brand.  FALSE Adopting a market share objective does not always imply setting low prices. Rarely is the lowest-price offering the dominant brand in a given market.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-06 Competition   104. Value is only implicitly considered in customer-oriented strategies.  FALSE A customer orientation explicitly invokes the concept of value. In this strategy, offerings are designed to enhance the company's reputation and image and thereby increase the company's value in the minds of consumers.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-03 Company Objectives   11-55
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 105. Demand curves are downward sloping for prestige products.  FALSE For prestige products or services, which consumers purchase for their status rather than their functionality, the higher the price, the greater the status associated with it and greater the exclusivity. In this case, a higher price also leads to a greater quantity sold—up to a certain point.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-04 Customers   106. Cost-based methods recognize the role that consumers or competitors' prices play in the marketplace.  FALSE Cost-based pricing methods determine the final price to charge by starting with the cost. Cost- based methods do not recognize the role that consumers or competitors' prices play in the marketplace.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-10 Cost-based Methods   11-56
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 107. For price skimming to work, the product or service must offer consumers new benefits currently unavailable in alternative products.  TRUE Price skimming is a strategy of selling a new product or service at a high price that innovators and early adopters are willing to pay to obtain it. For price skimming to work, the product or service must offer consumers new benefits currently unavailable in alternative products.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-16 New Product Pricing Strategies   108. When consumers view the sale price and compare it with the provided external reference price, their perceptions of the value of the deal is likely to decrease.  FALSE A reference price is the price against which buyers compare the actual selling price of the product and that facilitates their evaluation process. The seller labels the reference price as the "regular price" or an "original price." When consumers view the "sale price" and compare it with the provided external reference price, their perceptions of the value of the deal is likely to increase.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-17 Consumers' Use of Reference Pricing   11-57
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 109. Generally, a pricing tactic represents a long-term response to a competitive threat.  FALSE Generally, a pricing tactic represents either a short-term response to a competitive threat (e.g., lowering price temporarily to meet a competitor's price reduction) or a broadly accepted method of calculating a final price for the customer that is short term in nature.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-18 Pricing Tactics   110. Leader pricing is an illegal attempt to increase store traffic by pricing a regularly purchased item much higher than the store's cost.  FALSE Leader pricing is a tactic that attempts to build store traffic by aggressively pricing and advertising a regularly purchased item, often priced at or just above the store's cost. The rationale behind this tactic is that, while in the store to get the great deal on one item, the consumer will also probably pick up other items he or she needs.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 11-05 Summarize the legal and ethical issues involved in pricing. Topic: 11-19 Consumer Pricing Tactics   11-58
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 111. Laws against bait and switch practices are difficult to enforce because salespeople, simply as a function of their jobs, are always trying to get customers to trade up to a higher- priced model without necessarily deliberately baiting them.  TRUE The laws against bait and switch practices are difficult to enforce because salespeople, simply as a function of their jobs, are always trying to get customers to trade up to a higher-priced model without necessarily deliberately baiting them. The key to proving deception centres on the intent of the seller, which is also difficult to prove.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-05 Summarize the legal and ethical issues involved in pricing. Topic: 11-23 Deceptive or Illegal Price Advertising   112. Predatory pricing, although representative of a form of unfair competition, promotes free trade.  FALSE When a firm sets a very low price for one or more of its products with the intent to drive its competition out of business, it is using predatory pricing. Predatory pricing is illegal under the Competition Act because it constrains free trade and represents a form of unfair competition.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-05 Summarize the legal and ethical issues involved in pricing. Topic: 11-24 Predatory Pricing   11-59
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 113. It is illegal to charge a different price to a reseller if the firm is attempting to meet a specific competitor's price.  FALSE The Competition Act requires companies to demonstrate only that their price discounts do not restrict competition. While quantity discounts may be a grey area, it is perfectly legitimate to charge a different price to a reseller if the firm is attempting to meet a specific competitor's price.   Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 11-05 Summarize the legal and ethical issues involved in pricing. Topic: 11-25 Price Discrimination     Short Answer Questions   114. Differentiate between an elastic and an inelastic market. Provide one example for each market.  An elastic market refers to a market for a product or service that is price sensitive. It means that relatively small changes in price will generate fairly large changes in the quantity demanded. An inelastic market refers to a market for a product or service that is price insensitive. It means that relatively small changes in price will not generate large changes in the quantity demanded.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-04 Customers   11-60
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 115. Differentiate between complementary products and substitute products. Provide examples to support your answer.  Complementary products are those whose demand curves are positively related, such that they rise or fall together. It means that a percentage increase in demand for one results in a percentage increase in demand for the other. Substitute products are those for which changes in demand are negatively related. It means that a percentage increase in the quantity demanded for Product A results in a percentage decrease in the quantity demanded for Product B.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-04 Customers   116. Explain the limitations associated with a break-even analysis.  The price used in a break-even analysis could probably represent an average price that attempts to account for variances in the price of a product. Second, prices often get reduced as quantity increases because the costs decrease, so firms must perform several break-even analyses at different quantities. Third, a break-even analysis cannot indicate for sure, in the case of products, how many units will sell at a given price. It tells the firm only what its costs, revenues, and profitability will be given a set price and an assumed quantity. To determine how many units the firm actually will sell, it must bring in the demand estimates.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-04 Customers   11-61
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 117. Explain what motivates firms to enter price wars.  New entrants might want to gain market share, whereas established firms may drop their prices to preserve their market share. Other reasons include avoiding the appearance of being insensitive to consumers and simply overreacting to a price decrease offered by competitors.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-06 Competition   118. Explain the drawbacks associated with the market penetration strategy.  A market penetration strategy has drawbacks. First, the firm must have the capacity to satisfy a rapid rise in demand—or at least be able to add that capacity quickly. Second, low price does not signal high quality. Of course, a price below customers' expectations decreases the risk for consumers to purchase the product and test its quality for themselves. Third, firms should avoid a penetration pricing strategy if some segments of the market are willing to pay more for the product; otherwise, the firm is just "leaving money on the table."   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-16 New Product Pricing Strategies   11-62
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 119. Briefly explain reference price and external reference price.  A reference price is the price against which buyers compare the actual selling price of the product and that facilitates their evaluation process. The seller labels the reference price as the "regular price or an original price. When consumers view the "sale price" and compare it with the provided external reference price, their perceptions of the value of the deal will likely increase.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-17 Consumers' Use of Reference Pricing   120. Explain the difference between a cumulative quantity discount and a noncumulative quantity discount.  A cumulative quantity discount uses the amount purchased over a specified time period and usually involves several transactions. This type of discount encourages resellers to maintain their current supplier because the cost to switch must include the loss of the discount. A noncumulative quantity discount, though still a quantity discount, is based only on the amount purchased in a single order. Therefore, it provides the buyer with an incentive to purchase more merchandise immediately. Such larger, less frequent orders can save manufacturers order processing, sales, and transportation expenses.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-21 Business-to-Business Pricing Tactics   11-63
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 121. Explain the difference between predatory pricing and price discrimination. Provide one example for each.  Predatory pricing refers to a firm's practice of setting a very low price for one or more of its products with the intent of driving its competition out of business. On the other hand, price discrimination refers to the practice of selling the same product to different resellers— wholesalers, distributors, or retailers—or to the ultimate consumer at different prices; some, but not all, forms of price discrimination are illegal.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-05 Summarize the legal and ethical issues involved in pricing. Topic: 11-24 Predatory Pricing   122. Differentiate between horizontal price fixing and vertical price fixing. Provide one example for each.  Horizontal price fixing occurs when competitors that produce and sell competing products collude, or work together, to control prices, effectively taking price out of the decision process for consumers. Vertical price fixing occurs when parties at different levels of the same marketing channel (e.g., manufacturers and retailers) collude to control the prices passed on to consumers.   Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Moderate Learning Objective: 11-05 Summarize the legal and ethical issues involved in pricing. Topic: 11-26 Price Fixing   11-64
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 123. Ben wants to open a restaurant in his hometown. What would be the fixed and variable costs that he would need to take care of while setting up the restaurant?  Student answers will vary but must include the following. Variable costs are those costs, primarily labour and materials, which vary with production volume. As each unit of the product produced incurs the same cost, marketers generally express variable costs on a per-unit basis. Fixed costs are those costs that remain essentially at the same level, regardless of any changes in the volume of production.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-05 Costs   124. Meg wants to start a gym in her hometown. Two other gyms already exist in the town. What kind of pricing method could she employ to establish herself?  Student answers will vary. They should reference at least one of the following. · Cost-based methods: As the name implies, cost-based pricing methods determine the final price to charge by starting with the cost. Cost-based methods do not recognize the role that consumers or competitors' prices play in the marketplace. Although relatively simple compared with other methods used to set prices, cost-based pricing requires that all costs can be identified and calculated on a per-unit basis. · Competitor-based methods: Most firms know that consumers compare the prices of their products with the different product/price combinations that competitors offer. Thus, using a competitor-based pricing method, they may set their prices to reflect the way they want consumers to interpret their own prices relative to the competitors' offerings. · Value-based methods: Value-based pricing methods include approaches to setting prices that focus on the overall value of the product offering as perceived by the consumer. Consumers determine value by comparing the benefits they expect the product to deliver with the sacrifice they will need to make to acquire the product.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-09 Pricing Methods   11-65
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 125. Explain the concept of price skimming. In what markets price skimming is recommended?  In many markets, and particularly for new and innovative products or services, innovators and early adopters are willing to pay a higher price to obtain the new product or service. This strategy, known as price skimming, appeals to these segments of consumers who are willing to pay the premium price to have the innovation first. After this high-price market segment becomes saturated and sales begin to slow down, companies generally lower the price to capture (or skim) the next most price-sensitive market segment, which is willing to pay a somewhat lower price. This process can continue until the demand for the product has been satisfied, even at the lowest price points. Luxury products are often an exception. For price skimming to work, the product or service must be perceived as breaking new ground in some way, offering consumers new benefits currently unavailable in alternative products. Firms use skimming strategies for a variety of reasons. Some may start by pricing relatively high to signal high quality to the market. Others may decide to price high at first to limit demand, which gives them time to build their production capacities. Similarly, some firms employ a skimming strategy to try to quickly earn back some of the high R&D investments they made for the new product. Finally, firms employ skimming strategies to test consumers' price sensitivity. A firm that prices too high can always lower the price. But if the price is initially set too low, it is almost impossible to raise it without significant consumer resistance. For a skimming pricing strategy to be successful, competitors should not be able to enter the market easily; otherwise, price competition will likely force lower prices and undermine the whole strategy. Competitors might be prevented from entering the market through patent protections, their inability to copy the innovation (because it is complex to manufacture, its raw materials are hard to get, or the product relies on proprietary technology) or the high costs of entry.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-16 New Product Pricing Strategies   11-66
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 126. Ryan owns a store that sells shoes and clothes. Explain how he could use price lining, price bundling, and leader pricing to attract customers.  Student answers will vary. However, they must include the following concepts: · Price lining: When marketers establish a price floor and a price ceiling for an entire line of similar products and then set a few other price points in between to represent distinct differences in quality, the tactic is called price lining. · Price bundling: When firms are stuck with a slow-moving item, to encourage sales, they sometimes will "bundle" it with a faster-moving item and price the bundle below what the two items would cost separately. · Leader pricing: Leader pricing is a tactic that attempts to build store traffic by aggressively pricing and advertising a regularly purchased item, often priced at or just above the store's cost.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-03 Understand the considerations for setting prices; three pricing methods (e.g.; cost-based methods; competitor- based methods; and value-based methods); and various strategies (e.g.; EDLP; high/low; and new product pricing) used in marketing. Topic: 11-19 Consumer Pricing Tactics   11-67
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 127. A company manufactures tires that are sold to retailers as well as automobile companies. What kind of pricing tactics is likely to be advantageous for different customers?  Student answers will vary. However, they must include the following concepts. The pricing tactics employed in business-to-business settings are seasonal and cash discounts, allowances, quantity discounts, and uniform delivered versus geographic pricing. · Seasonal discounts: A seasonal discount is an additional reduction offered as an incentive to retailers to order merchandise in advance of the normal buying season · Cash discounts: A cash discount reduces the invoice cost if the buyer pays the invoice prior to the end of the discount period · Allowances: Another pricing tactic that lowers the final cost to channel members is allowances, such as advertising or listing allowances, offered in return for specific behaviours · Quantity discounts: A quantity discount provides a reduced price according to the amount purchased · Uniform delivered pricing: The shipper charges one rate, no matter where the buyer is located, which makes things very simple for both the seller and the buyer · Geographic pricing: The setting of different prices depending on a geographical division of the delivery areas.   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-04 Identify pricing tactics targeted to channel members and consumers. Topic: 11-21 Business-to-Business Pricing Tactics   11-68
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Chapter 11 - Pricing Concepts and Strategies: Establishing Value 128. Susan has a children hair salon in Toronto. She pays $70,000 per year rent and utilities. She hires a part time assistant and pay her $35,000 a year. On average, she uses $5 worth of material for each child haircut. Her rate is $20 per child and receives on average 20% tip. A) How many clients per month does she need to have to breakeven? B) If she increases the price to $25 and receives 15% tip, how many client she should have to make $80,000 profit a year?  A) Fixed costs = $70,000 + $35,000 = $105,000/year Contribution per unit = $24 - $5 = $19 BE = $105,000/$19 = 7527 units per year BE per month = 461 She needs to have 461 clients a month to break even at $20. B) Total profit = Total Revenue - Total Costs (Fixed costs + Total variable costs) $80,000 = X * ($25 * 1.15) - ($105,000 + X * 5) 185,000 = 23.85 X => X = 7,790 She needs to have 7,790 clients a year to make $80,000 profit   Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Difficult Learning Objective: 11-02 Illustrate how the five Cs—company objectives; customers; costs; competition; and channel members—influence pricing decisions. Topic: 11-04 Customers   11-69
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