chapter 10

Principles of Marketing, 16e (Kotler)Chapter 10 Pricing: Understanding and Capturing Customer Value

1) ________ refers to the amount of money charged for a product or service.A) ValueB) CostC) PriceD) WageE) SalaryAnswer: CSkill: ConceptObjective: LO 10.1: Answer the question "What is a price?" and discuss the importance of pricing in today's fast-changing environment.Difficulty: Easy

2) ________ is the only element in the marketing mix that produces revenue.A) PriceB) ProductC) PlaceD) Fixed costsE) Variable costsAnswer: ASkill: ConceptObjective: LO 10.1: Answer the question "What is a price?" and discuss the importance of pricing in today's fast-changing environment.Difficulty: Easy

3) Which of the following is true with regard to price?A) Historically, price has had the least perceptible impact on buyer choice.B) Price is the least flexible element in the marketing mix.C) Unlike product features and channel commitments, prices cannot be changed quickly.D) Price is the sum of all the values that customers give up to gain the benefits of having a product.E) Prices only have an indirect impact on a firm's bottom line.Answer: DAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.1: Answer the question "What is a price?" and discuss the importance of pricing in today's fast-changing environment.Difficulty: Moderate

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4) Prices have a direct impact on a firm's bottom line.Answer: TRUEAACSB: Application of knowledgeSkill: ConceptObjective: LO 10.1: Answer the question "What is a price?" and discuss the importance of pricing in today's fast-changing environment.Difficulty: Easy

5) List some important characteristics of price.Answer: Price is the only element in the marketing mix that produces revenue; all other elements represent costs. Price is also one of the most flexible marketing mix elements. Unlike product features and channel commitments, prices can be changed quickly.AACSB: Application of knowledge; Written and oral communicationSkill: ConceptObjective: LO 10.1: Answer the question "What is a price?" and discuss the importance of pricing in today's fast-changing environment.Difficulty: Moderate

6) Why is price considered one of the most flexible elements of the marketing mix?Answer: Unlike product features and channel commitments, prices can be changed quickly.AACSB: Application of knowledgeSkill: ConceptObjective: LO 10.1: Answer the question "What is a price?" and discuss the importance of pricing in today's fast-changing environment.Difficulty: Easy


7) Define price. Discuss its importance.Answer: In the narrowest sense, price is the amount of money charged for a product or a service. More broadly, price is the sum of all the values that customers give up to gain the benefits of having or using a product or service. Historically, price has been the major factor affecting buyer choice. In recent decades, however, nonprice factors have gained increasing importance. Even so, price remains one of the most important elements that determines a firm's market share and profitability.Price is the only element in the marketing mix that produces revenue; all other elements represent costs. Price is also one of the most flexible marketing mix elements. Unlike product features and channel commitments, prices can be changed quickly. At the same time, pricing is the number one problem facing many marketing executives, and many companies do not handle pricing well. Some managers view pricing as a big headache, preferring instead to focus on other marketing mix elements. However, smart managers treat pricing as a key strategic tool for creating and capturing customer value. Prices have a direct impact on a firm's bottom line. A small percentage improvement in price can generate a large percentage increase in profitability. More important, as part of a company's overall value proposition, price plays a key role in creating customer value and building customer relationships.AACSB: Analytical thinking; Written and oral communicationsSkill: ConceptObjective: LO 10.1: Answer the question "What is a price?" and discuss the importance of pricing in today's fast-changing environment.Difficulty: Moderate

8) What sets the ceiling for product prices?A) product manufacturing costsB) sellers' perceptions of the product's valueC) customer perceptions of the product's valueD) variable costsE) break-even volumeAnswer: CAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy


9) What sets the floor for product prices?A) consumer perceptions of the product's valueB) product costsC) competitors' strategiesD) advertising budgetsE) market competitionAnswer: BAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

10) Effective ________ pricing involves understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value.A) competition-orientedB) cost-basedC) time-basedD) customer-orientedE) marketer-orientedAnswer: DAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

11) ________ pricing uses buyers' perceptions of value as the key to pricing.A) Customer value-based B) Cost-based C) Time-based D) Markup E) Target return Answer: ASkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy


12) Which of the following is true of value-based pricing?A) The targeted value and price drive decisions about what costs can be incurred and the resulting product design.B) Value-based pricing is mostly product driven.C) Value-based pricing involves setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for its effort and risk.D) The marketer usually designs a product and marketing program and then sets the price.E) A company using value-based pricing designs what it considers to be a good product, adds up the costs of making the product, and sets a price that covers costs plus a target profit.Answer: AAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

13) Which of the following processes does value-based pricing reverse?A) high-low pricingB) everyday low pricingC) cost-based pricingD) good-value pricingE) value-added pricingAnswer: CAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy


14) A pharmaceutical company in Utah recently released a new and expensive anti-ulcer drug in the market. The company justifies the high price of the drug by claiming that it is highly effective for treating all kinds of ulcers. The company also claims that the new drug will help bring down the need for invasive surgeries, an additional benefit for patients. Which of the following pricing strategies is the pharmaceutical company most likely using in this instance?A) target pricingB) markup pricingC) cost-based pricingD) value-based pricingE) break-even pricingAnswer: DAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Challenging

15) The perceived value of different product offers can be reasonably assessed by ________.A) conducting a SWOT analysisB) preparing demand curvesC) conducting surveys and experimentsD) collecting data about competitors' offersE) setting a benchmark for product qualityAnswer: CAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

16) Underpriced products ________.A) produce less revenue than they would if they were priced at the level of perceived valueB) sell poorly in the global marketplaceC) produce more revenue than they would if they were priced at the level of perceived valueD) mostly offer higher value than those with a high markup priceE) are characterized by rapidly declining demandAnswer: AAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy


17) Which of the following involves introducing less-expensive versions of established, brand name products?A) markup pricingB) good-value pricingC) time-based pricingD) cost-based pricingE) target profit pricingAnswer: BAACSB: Application of knowledgeSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

18) ________ pricing refers to offering just the right combination of quality and gratifying service at a fair price.A) Markup B) Good-value C) Cost-plus D) Target profit E) Break-even Answer: BSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

19) When McDonald's and other fast food restaurants offer "value menu" items at surprisingly low prices, they are most likely using ________ pricing.A) break-evenB) target profit C) good-value D) cost-plus E) target returnAnswer: CAACSB: Application of knowledgeSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy


20) Azure Air, an airline company, offers attractive prices to customers with tighter budgets. A no-frills airline, it charges for all other additional services, such as baggage handling and in-flight refreshments. Which of the following best describes Azure Air's pricing method?A) target profit pricingB) good-value pricingC) cost-based pricingD) break-even pricingE) penetration pricingAnswer: BAACSB: Application of knowledgeSkill: ApplicationObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

21) Retailers such as Costco and Walmart charge a constant, daily low price with few or no temporary price discounts. This is an example of ________ pricing.A) competition-based B) everyday lowC) cost-plus D) break-even E) penetration Answer: BAACSB: Application of knowledgeSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

22) Bon Vivant offers an assortment of exclusive French wines at incredibly low prices. These prices are neither limited-time offers nor special discounts, but represent the daily prices of products sold by Bon Vivant. This reflects Bon Vivant's ________ pricing strategy.A) everyday low B) markup C) penetration D) break-even E) cost-based Answer: AAACSB: Application of knowledgeSkill: ApplicationObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate


23) ________ pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items.A) High-low B) Everyday low C) Cost-plus D) Break-even E) PenetrationAnswer: ASkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

24) Department stores such as Kohl's and Macy's practice high-low pricing by ________.A) charging a constant, everyday low priceB) providing few or no temporary price discountsC) increasing prices temporarily on select productsD) having frequent sale days for store credit-card holdersE) underpricing most consumer itemsAnswer: DAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

25) Companies that adopt value-added pricing ________.A) consider value-added features as a fitting substitute for aggressive cost cuttingB) set incredibly low prices to meet competitionC) attach value-added features and services to differentiate their offers and support their higher pricesD) overprice their products without any apparent justificationE) underprice their products and lower quality to boost demand in the short-runAnswer: CAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy


26) Which of the following is true with regard to value-added pricing?A) Companies that practice value-added pricing typically match the competition by cutting prices.B) Companies practicing value-added pricing differentiate their offers by attaching value-added features to offerings that, in turn, justify higher prices.C) The intrinsic value of products sold by companies practicing value-added pricing is far less than their actual selling price.D) Companies practicing value-added pricing primarily rely on cost differentiation.E) Value-added pricing is the most suitable pricing strategy in pure monopolies.Answer: BAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

27) In an effort to differentiate its offerings from its competitors, Pegasus Computers decided to add an extra USB port in all its laptops besides providing a free pair of Delphi power bass headphones with every Pegasus laptop. Although the additional features increased the price of the laptops by $500, Pegasus was confident that the strategy would help boost demand for its laptops substantially. This is an example of ________.A) good-value pricingB) markup pricingC) break-even pricingD) value-added pricingE) cost-based pricingAnswer: DAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Challenging


28) ________ involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk.A) Value-based pricingB) Competition-based pricingC) Cost-based pricingD) Penetration pricingE) Break-even pricingAnswer: CSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

29) Companies with lower costs ________.A) specialize in selling products with value-added featuresB) usually market products with inferior quality, thereby justifying the low selling priceC) can set lower prices that result in smaller margins but greater sales and profitsD) tend to overprice products owing to their monopolistic advantageE) usually set higher prices that result in higher marginsAnswer: CAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

30) A company must pay each month's bills for rent, heat, interest, and executive salaries regardless of the company's level of output. This exemplifies its ________ costs.A) overhead B) variable C) target D) total E) unit Answer: ASkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate


31) Overhead costs ________ as the number of units produced increases.A) decreaseB) increase steadilyC) fluctuateD) remain the sameE) increase rapidlyAnswer: DSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

32) Which of the following is most likely a fixed cost?A) sales representative commissionsB) product distribution costs C) manufacturing input costsD) temporary worker salariesE) facility rental paymentsAnswer: EAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

33) Fixed costs ________.A) are costs that do not vary with production or sales levelB) vary directly with the level of productionC) decrease with accumulated production experienceD) are the sum of the overhead and variable costs for any given level of productionE) represent the annual costs of inputs incurred by a companyAnswer: ASkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy


34) Costs that change with the level of production are referred to as ________.A) fixed costsB) variable costsC) target costsD) total costsE) overhead costsAnswer: BSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

35) In 2011, the fixed costs of a company were $500,000, and its variable costs equaled $150,000. In 2010, the company made an annual profit of $200,000. It has been predicted that, despite a steady growth, the company's variable costs will likely equal $300,000 by 2013. The total costs of the company in 2011 were ________.A) $350,000B) $450,000C) $650,000D) $800,000E) $950,000Answer: CAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

36) The total production costs at Kellner Machine Works are $87,000 out of which $45,000 represent fixed costs. Which of the following is representative of the variable costs incurred by the company?A) $35,000B) $42,000C) $45,000D) $87,000E) $132,000Answer: BAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate


37) The fixed cost in manufacturing a single LED monitor is $40 and the variable cost is $12. If the company expects to manufacture 5,000 monitors, the total costs would be ________.A) $60,000B) $200,000C) $260,000D) $420,000E) $500,000Answer: CAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

38) As production moves up, the average cost per unit decreases because ________.A) variable costs decreaseB) of increasing diseconomies of scaleC) fixed costs are spread over more unitsD) overhead costs decreaseE) revenue increasesAnswer: CAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate


39) A cell phone manufacturing firm produced 1,000 cell phones a day but believed that it could reasonably step up production to 2,000 cell phones a day. Consequently, it built a larger plant and installed efficient machinery and work arrangements to realize the projected output. Which of the following can most likely be inferred from this information?A) The unit cost of producing 2,000 cell phones per day would be twice that of the unit cost of producing 1,000 units per day.B) A production plant with the capacity of producing 5,000 cell phones a day would be most efficient.C) The unit cost of producing 2,000 cell phones per day would be lower than the unit cost of producing 1,000 units per day.D) A 2,000-capacity production plant would be less efficient because of increasing diseconomies of scale.E) The fixed costs of the firm are more likely to increase with the increase in output.Answer: CAACSB: Reflective thinkingSkill: Critical ThinkingObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Challenging

40) The long-run average cost (LRAC) curve indicates the ________.A) per unit cost of output in the long runB) projected total production costs of competitorsC) variable costs incurred by a firm over timeD) fixed costs incurred by a firm over the long term E) number of units the market will buy in a given time period, at different prices that might be chargedAnswer: ASkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy


41) The learning curve is representative of the ________.A) per unit cost of output in the long runB) drop in the average per-unit production cost that comes with accumulated production experienceC) number of units the market will buy in a given time period, at different prices that might be chargedD) total market demand resulting from different pricesE) per unit cost of output in the short runAnswer: BAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

42) As production workers become better organized and more familiar with equipment, the average cost per unit tends to decrease with the ________.A) increase in the diseconomies of scaleB) accumulated production experienceC) decrease in the economies of scaleD) increase in derived demandE) increase in primary demandAnswer: BAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

43) With accumulated production experience and a higher volume of production, companies not only become more efficient but also ________.A) gain economies of scaleB) incur higher overhead costsC) create derived demand in the marketD) spend more per unit of produced outputE) tend to routinely spend less on inputsAnswer: AAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy


44) The experience curve reveals that ________.A) repetition in production has no visible impact on production costsB) repetition in production enhances efficiencyC) the average cost of production remains the same with accumulated production experienceD) repetition in production adds to the costs and thereby increases the prices of outputsE) the average cost of production increases with accumulated production experienceAnswer: BAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

45) A downward-sloping experience curve is indicative of ________.A) the negative customer perception about a company's productsB) the falling demand for a company's productsC) the falling unit production cost of a companyD) the low quality of a company's productsE) slow and inadequate organizational learningAnswer: CAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

46) Which of the following is most likely a risk associated with experience-curve pricing?A) High-volume production facilities are unable to meet demand.B) New technology often leads to productivity problems.C) Demand for the product fluctuates unpredictably.D) Consumers tend to prefer new brands over established ones.E) Aggressive pricing often gives a product a cheap image.Answer: EAACSB: Application of knowledgeSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy


47) Experience-curve pricing assumes that ________.A) competitors are weak and not willing to match price cutsB) competitors are strong and invincibleC) aggressive pricing adversely affects product imageD) volume-based production slows down organizational learningE) lower-cost technologies are almost always inferiorAnswer: AAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

48) The simplest pricing method is ________ pricing.A) value-based B) fixed cost C) cost-plusD) target return E) competition-based Answer: CSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

49) Cost-plus pricing ________.A) is a complex pricing methodB) involves pricing that accurately reflects production costsC) involves adding a standard markup for profitD) aims at breaking even on the costs of making and marketing a productE) is a value-based pricing methodAnswer: CSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy


50) Lawyers, accountants, and other professionals typically price by adding a standard markup for profit. This exemplifies ________.A) target pricingB) cost-plus pricingC) value-based pricingD) break-even pricingE) penetration pricingAnswer: BSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

51) Herbie Inc., a firm manufacturing sandwich makers, has fixed costs of $250,000, variable costs of $20 per unit of output, and expected unit sales of 50,000 units. What is the unit cost of a sandwich maker manufactured by Herbie?A) $15B) $25C) $30D) $50E) $75Answer: BAACSB: Reflective thinkingSkill: ApplicationObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Challenging

52) Samsung Mobile plans to launch a new phone with a unit cost of $270 and wants to earn a 10 percent markup on its sales. Samsung's markup price is ________.A) $275B) $280C) $295D) $300E) $335Answer: DAACSB: Reflective thinkingSkill: ApplicationObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Challenging


53) Why is markup pricing most likely impractical?A) Calculating costs is complicated due to fluctuations. B) By tying the price to cost, sellers oversimplify pricing.C) When all firms in the industry use this pricing method, prices tend to be similar.D) The method ignores demand and competitor prices.E) With a standard markup, consumers know when they are being overcharged.Answer: DAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

54) Why is markup pricing most likely popular?A) Sellers are more certain about demand than about costs.B) Markup pricing tends to maximize market competition.C) Markup pricing affords buyers greater bargaining power.D) Sellers do not need to make frequent adjustments as demand changes.E) Markup pricing is designed to set prices to break even on the costs of making and marketing a product.Answer: DAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

55) Which of the following is a cost-based approach to pricing? A) value-based pricingB) high-low pricingC) target return pricingD) good value pricingE) EDLPAnswer: CSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy


56) Target return pricing is a variation of which of the following cost-oriented pricing approaches?A) cost-plus pricingB) break-even pricingC) markup pricingD) value-based pricingE) fixed cost pricingAnswer: BSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

57) Target return pricing uses the concept of a(n) ________, which shows the total cost and total revenue expected at different sales volume levels.A) BCG matrixB) break-even chartC) SWOT analysisD) demand curveE) experience curveAnswer: BSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

58) John assured his venture capitalists an earning of 25-percent return on equity when he began his IT startup. In order to achieve this result, he will most likely use which of the following pricing approaches?A) value-based pricingB) markup pricingC) EDLPD) customer-based pricingE) target return pricingAnswer: EAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate


59) The break-even volume is the point at which ________.A) the total revenue and total cost curves intersectB) demand equals supplyC) the production of one more unit will not lead to increase in demandD) the company can pay off all its long-term debtE) a firm exceeds the sales forecastAnswer: AAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

60) Which of the following statements about break-even analysis is true?A) It is used to determine how much production experience a company must have in order to achieve desired efficiencies.B) It is a technique used to calculate fixed costs.C) It determines the amount of retained earnings a company will have during a given accounting period.D) It is a technique marketers use to determine the relationship between supply and demand.E) It is calculated by using variable costs, the unit price, and fixed costs.Answer: EAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

61) A company faces fixed costs of $100,000 and variable costs of $8 per unit. It plans to directly sell its product in the market for $12. How many units must it produce and sell to break even?A) 20,000B) 25,000C) 30,000D) 35,000E) 40,000Answer: BAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Challenging


62) As a manufacturer increases the price, ________. A) efficiency dropsB) the break-even volume dropsC) competition is minimizedD) the total costs increaseE) the profit margin shrinksAnswer: BAACSB: Application of knowledgeSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

63) Mansfield Pharmaceuticals markets Zipro, an antibiotic. The firm has fixed costs of $1,000,000 and variable costs of $2 per bottle of 50 tablets priced at $10 per bottle. What is the break-even volume?A) 25,000B) 55,000C) 100,000D) 115,000E) 125,000Answer: EAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Challenging

64) A manufacturer has fixed costs of $100,000, a variable cost of $10 per unit of output, and break-even volume of 50,000 units. What should the manufacturer's unit cost be in order to break even?A) $10B) $12C) $14D) $16E) $20Answer: BAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Challenging


65) Which of the following involves setting prices based on a rival firm's strategies, costs, prices, and market offerings?A) target return pricingB) good-value pricingC) competitor value-added pricingD) market-based pricingE) competition-based pricingAnswer: EAACSB: Application of knowledgeSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

66) Companies can legitimately charge a higher price if ________.A) consumers perceive that the company's product offers greater valueB) the demand for products manufactured by a firm is highly elasticC) the cost of advertising is minimalD) derived demand remains constantE) consumers de-emphasize qualityAnswer: AAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate


Refer to the scenario below to answer the following question(s).

Alden Manufacturing produces small kitchen appliances—blenders, hand mixers, and electric skillets—under the brand name First Generation. Alden attempts to target newlyweds and first-time home buyers with this brand.

Considering that most young households have limited financial resources, Alden attempts to engage in target costing. "In doing this," says Milt Alden, the co-founder of Alden Electronics, "we have better control over keeping price right in line with customers."

Alden manufactures a three-speed blender, its top seller, along with a five-speed blender. The hand mixers are manufactured in two variants—a small handheld mixer with two rotating beaters and another that comes with an optional stand and an attached mixing bowl. Alden's temperature-controlled skillets are manufactured in a single style with three color options.

"Our product offerings are narrower," Milt Alden added, "but our line workers know each product like the back of their hands. This allows us to produce superior products while holding our prices low.

67) Milt Alden says that his line workers "know each product like the back of their hands," and that this knowledge helps the company keep its prices low. This indicates that Alden Manufacturing most likely benefits from the ________.A) cost-plus pricingB) value-added pricingC) experience curveD) inelastic demand in the marketE) derived demand in the marketAnswer: CAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Challenging

68) Customer perceptions of the product's value set the floor for prices.Answer: FALSESkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy


69) Product costs set the ceiling for prices.Answer: FALSEAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

70) In customer value-based pricing, price is considered along with all other marketing mix variables before the marketing program is set.Answer: TRUEAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

71) Value-based pricing uses the sellers' perception of value as the key to pricing.Answer: FALSESkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

72) Using value-based pricing, a marketer would not design a product and marketing program before setting the price.Answer: TRUEAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

73) Cost-based pricing is often product driven.Answer: TRUESkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy


74) Department stores that practice everyday low pricing typically provide frequent sale days, early-bird savings, and bonus earnings for store credit-card holders.Answer: FALSEAACSB: Application of knowledgeSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

75) Overhead costs are costs that do not vary with production or sales level.Answer: TRUESkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

76) Cost-based pricing involves setting prices based on consumer perception of value.Answer: FALSESkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

77) Average cost tends to increase with accumulated production experience.Answer: FALSESkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

78) A downward-sloping experience curve is indicative of a company's rapidly increasing production costs.Answer: FALSESkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy


79) The simplest pricing method is cost-plus pricing, which involves adding a standard markup to the cost of the product.Answer: TRUESkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

80) Markup pricing is popular because when all firms in the industry use this pricing method, prices tend to be similar, so price competition is minimized.Answer: TRUEAACSB: Application of knowledgeSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

81) Markup pricing is used when a firm tries to determine the price at which it will break even or make the target return it is seeking.Answer: FALSEAACSB: Application of knowledgeSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

82) A break-even chart shows the total cost and total revenue expected at various sales volume levels.Answer: TRUESkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

83) Explain the concept of the price floor.Answer: Price floor represents the price below which there is no profit.AACSB: Written and oral communicationSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy


84) Explain the concept of the price ceiling.Answer: Price ceiling represents the price above which there is no demand.AACSB: Written and oral communicationSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

85) Briefly describe the process of value-based pricing.Answer: The company first assesses customer needs and value perceptions. It then sets its target price based on customer perceptions of value. The targeted value and price drive decisions about what costs can be incurred and the resulting product design. As a result, pricing begins with analyzing consumer needs and value perceptions, and the price is set to match perceived value.AACSB: Written and oral communicationSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

86) What is good-value pricing?Answer: Good-value pricing refers to offering just the right combination of quality and good service at a fair price.AACSB: Written and oral communicationSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

87) What is high-low pricing?Answer: High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items.AACSB: Written and oral communicationSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy


88) Define total costs.Answer: Total costs are the sum of the fixed and variable costs for any given level of production.AACSB: Written and oral communicationSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

89) Explain the significance of a downward-sloping experience curve.Answer: If a downward-sloping experience curve exists, this is highly significant for the company. Not only will the company's unit production cost fall, but it will fall faster if the company makes and sells more during a given time period.AACSB: Written and oral communicationSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

90) A marketer's fixed costs are $400,000. The variable cost is $16 per unit, and the price of the product is $24 per unit. If the company wants to make a profit, how many units must it sell and at what price?Answer: If the company wants to make a profit, it must sell more than 50,000 units at $24 each.AACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Challenging

91) A marketer's fixed costs are $400,000, the variable cost is $16 per unit, and the price of the product is $24 per unit. What is the company's break-even point in dollar sales?Answer: The break-even point in dollar sales is $1,200,000.AACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Challenging


92) What is competition-based pricing?Answer: Competition-based pricing refers to setting prices based on competitors' strategies, prices, costs, and market offerings.AACSB: Written and oral communicationSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Easy

93) Distinguish between value-based pricing and cost-based pricing.Answer: Customer value-based pricing uses buyers' perceptions of value as the key to pricing. Value-based pricing means that the marketer cannot design a product and marketing program and then set the price. Price is considered along with all other marketing mix variables before the marketing program is set.Although costs are an important consideration in setting prices, cost-based pricing is often product driven. The company designs what it considers to be a good product, adds up the costs of making the product, and sets a price that covers costs plus a target profit. Marketing must then convince buyers that the product's value at that price justifies its purchase.AACSB: Application of knowledge; Written and oral communicationSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate

94) Explain break-even pricing.Answer: Break-even pricing (target return pricing) refers to setting price to break even on the costs of making and marketing a product, or setting price to make a target return. Target return pricing uses the concept of a break-even chart, which shows the total cost and total revenue expected at different sales volume levels.AACSB: Application of knowledge; Written and oral communicationSkill: ConceptObjective: LO 10.2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices.Difficulty: Moderate


95) Which of the following is an external factor that affects pricing decisions in a company?A) the company's overall marketing strategyB) the nature of the marketC) the organizational objectives of the companyD) elements of the company's marketing mixE) the annual advertising budget of rival firms Answer: BAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate

96) Which of the following is an internal factor that affects pricing decisions in a company?A) the nature of the marketB) the degree of inflation in the economyC) the overall marketing strategy of the companyD) the forces of demand and supply in the marketE) consumers' perception of valueAnswer: CAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate

97) Companies using target costing ________.A) first design a new product and then determine its costB) tailor their products to be in line with the marketing mixC) routinely neglect customer value considerationsD) avoid determining an ideal selling price until analyzing test market resultsE) start with an ideal selling price and then target costs that will ensure that the price is metAnswer: EAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate


98) Elmo Inc., a global conglomerate, designed the ElBrush, an electric toothbrush. Sensing market demand for the electric toothbrush, Elmo started with an ideal selling price of $3 based on customer value considerations and then targeted costs to ensure that the price was met. This exemplifies ________.A) competition-based pricingB) cost-plus pricingC) target costingD) everyday low pricingE) high-low pricingAnswer: CAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Challenging

99) PoolPak produces climate-control systems for large swimming pools. The company's customers are more concerned about service support for maintaining their systems than the initial price of the product. PoolPak specializes in and differentiates itself through both cutting-edge technologies used to build its high-value climate control systems as well as seamless quality service. PoolPak's prices are very high, but demand for its climate-control systems seems to be forever on the rise. This exemplifies ________.A) target costingB) a pure monopolyC) cost-plus pricingD) a nonprice positionE) break-even pricingAnswer: DAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Challenging


100) DivetheBlue, a company marketing deep-sea diving equipment, charges very high prices for its products. Despite the availability of many low-priced products in the market, customers seem to prefer DivetheBlue, which has earned a reputation for selling high-quality products. This exemplifies ________.A) a pure monopolyB) an oligopolyC) a nonprice positionD) break-even pricingE) target costingAnswer: CAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate

101) A decision to position the product on high-performance quality will mean that the ________.A) seller must charge a higher price to cover higher costsB) seller must charge a lower price to attract more customersC) producer must step down productionD) marketer must boost derived demand in the marketE) break-even volume will be fairly lowAnswer: AAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate

102) Price setting is usually determined by ________ in small companies.A) the top managersB) the marketing departmentC) the sales departmentD) divisional managersE) product managersAnswer: ASkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy


103) Price setting is usually determined by ________ in large companies.A) top managersB) external stakeholdersC) product managersD) non-executive employeesE) the sales departmentAnswer: CSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy

104) In industrial markets, ________ typically has the final say in setting the pricing objectives and policies of a company.A) the sales managerB) top managementC) the production managerD) the HR departmentE) the sales staffAnswer: BSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy

105) In industries in which pricing is a key factor, ________ often set the best prices or help others in setting them.A) sales departmentsB) salespeopleC) production managersD) line managersE) pricing departmentsAnswer: ESkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy


106) Under ________, the market consists of many buyers and sellers trading in a uniform commodity.A) pure competitionB) monopolistic competitionC) oligopolistic competitionD) a pure monopolyE) the dominant firm modelAnswer: ASkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy

107) Which of the following exemplifies a pure competitive market?A) a market where many buyers and sellers trade over a range of prices rather than a single market priceB) a market where a single firm controls the larger fraction of the market shareC) a market where a few powerful firms control the larger fraction of the market shareD) a market characterized by only a few large sellersE) a market where many buyers and sellers trade in a uniform commodityAnswer: EAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate

108) Which of the following is true of a pure competitive market?A) A single seller has a major effect on the current and future market price.B) Companies spend significantly on marketing research and product development.C) The advertising budget of companies is usually huge.D) Sellers try to develop differentiated offers for different customer segments.E) Sellers spend little time on marketing strategy.Answer: EAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate


109) In Viña del Mar, Chile, a large number of shops specialize in selling the same quality of seafood products along the beach frequented by tourists. No individual shop dares charge more than the going price without fearing loss of business to other shops. This exemplifies ________.A) pure competitionB) monopolistic competitionC) oligopolistic competitionD) pure monopolyE) the dominant firm modelAnswer: AAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Challenging

110) Under ________, the market consists of many buyers and sellers who trade over a range of prices rather than a single market price.A) pure competitionB) monopolistic competitionC) oligopolistic competitionD) a pure monopolyE) the dominant firm modelAnswer: BSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy

111) Which of the following is true with regard to pure competition?A) Under pure competition, no single buyer or seller has much effect on the going market price.B) In a purely competitive market, marketing research is of utmost importance.C) In a purely competitive market, product development is the focus of most firms.D) Under pure competition, the market consists of many buyers and sellers who trade over a range of prices rather than a single market price.E) Under pure competition, the market consists of only a few large sellers.Answer: AAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate


112) The movie industry in a country is controlled by six large studios that receive 90 percent of the annual revenues from movies. This is an example of a(n) ________.A) pure competitionB) monopolistic competitionC) oligopolistic competitionD) pure monopolyE) government monopolyAnswer: CAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Challenging

113) In which situation is the market dominated by one seller?A) pure monopolyB) monopolistic competitionC) oligopolistic competitionD) pure competitionE) free marketAnswer: AAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy

114) Under oligopolistic competition ________.A) the market consists of a single dominant sellerB) the market consists of numerous small sellersC) the market consists of many buyers and sellers who trade over a range of prices rather than a single market priceD) sellers are typically unresponsive to competitors' pricing strategies and marketing movesE) the market consists of only a few large sellersAnswer: EAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy


115) Which of the following shows the number of units the market will buy in a given time period, at different prices that might be charged?A) demand curveB) supply curveC) learning curveD) break-even pricingE) target costingAnswer: AAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy

116) Which of the following is true about the demand curve?A) A demand curve indicates the drop in the average per-unit production cost that comes with accumulated production experience.B) A demand curve indicates the cost per unit of output in the long run.C) A demand curve indicates the cost per unit of output in the short run.D) In a monopoly, the demand curve does not indicate the total market demand resulting from different prices.E) A demand curve shows the number of units the market will buy in a given time period at different prices that might be charged.Answer: EAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate

117) Bruno Servers has decided to decrease its prices on its popular higher-range servers. The company can reasonably expect ________ to increase.A) fixed costsB) variable costsC) demandD) additional valueE) overhead costsAnswer: CAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate


118) ________ refers to a measure of the sensitivity of demand to changes in price.A) Price elasticityB) A demand curveC) Price-value equationD) Marginal utilityE) Income elasticity of demandAnswer: AAACSB: Application of knowledgeSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy

119) If demand hardly changes with a small change in price, the demand is ________.A) variableB) inelasticC) highly elasticD) derivedE) negativeAnswer: BAACSB: Application of knowledgeSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy

120) If demand changes greatly with a small change in price, the demand is ________.A) variableB) inelasticC) derivedD) elasticE) negativeAnswer: DAACSB: Application of knowledgeSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy


121) Dips in the economy and the instant price comparisons made possible by the Internet have contributed to ________.A) decreased consumer price sensitivityB) increased consumer price sensitivityC) a less direct relationship between supply and demandD) low brand equity for luxury goodsE) decreased brand loyaltyAnswer: BAACSB: Information technologySkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate

122) In the aftermath of the Great Recession of 2008 to 2009, consumers ________.A) have become more value consciousB) have become less value consciousC) exhibit great interest in prestige pricingD) show no interest in price cuttingE) rarely endorse value-for-money dealsAnswer: ASkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate

123) When companies set prices, the government and social concerns are ________ factors affecting pricing decisions.A) external B) internal C) economic D) cultural E) organizational Answer: ASkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy


Refer to the scenario below to answer the following question(s).

Alden Manufacturing produces small kitchen appliances—blenders, hand mixers, and electric skillets—under the brand name First Generation. Alden attempts to target newlyweds and first-time home buyers with this brand.

Considering that most young households have limited financial resources, Alden attempts to engage in target costing. "In doing this," says Milt Alden, the co-founder of Alden Electronics, "we have better control over keeping price right in line with customers."

Alden manufactures a three-speed blender, its top seller, along with a five-speed blender. The hand mixers are manufactured in two variants—a small handheld mixer with two rotating beaters and another that comes with an optional stand and an attached mixing bowl. Alden's temperature-controlled skillets are manufactured in a single style with three color options.

"Our product offerings are narrower," Milt Alden added, "but our line workers know each product like the back of their hands. This allows us to produce superior products while holding our prices low.

124) Milt Alden uses which of the following strategies for pricing his products?A) basing company price on competitors' pricesB) using everyday low pricingC) initiating an aggressive promotional campaignD) starting with customer-value considerationsE) focusing on overall fixed costs of manufacturingAnswer: DAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Challenging

125) If Milt Alden focuses on overall costs of manufacturing plus profit in setting product prices, which strategy would he employ?A) break-even pricingB) competition-based pricing C) value-added pricingD) cost-plus pricingE) good-value pricingAnswer: DAACSB: Analytical thinkingSkill: ApplicationObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate


126) Internal factors affecting pricing include the company's overall marketing strategy, objectives, and marketing mix.Answer: TRUESkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy

127) Price decisions must be coordinated with product design, distribution, and promotion decisions to form a consistent and effective integrated marketing mix program.Answer: TRUEAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy

128) In a pure monopoly, the market consists of many buyers and sellers who trade over a range of prices rather than a single market price.Answer: FALSEAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy

129) A demand curve shows the number of units the market will buy in a given time period at different prices that could be charged.Answer: TRUEAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy

130) If a company faces competition, its demand at different prices will depend on whether competitors' prices stay constant or change with the company's own prices.Answer: TRUEAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate


131) If demand changes greatly with price, the demand is inelastic.Answer: FALSEAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy

132) The more elastic the demand, the more it pays for the seller to raise the price.Answer: FALSEAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate

133) If demand is elastic rather than inelastic, sellers will consider lowering their prices.Answer: TRUEAACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate

134) Who typically sets prices in large and small companies?Answer: In small companies, prices are often set by top management rather than by the marketing or sales departments. In large companies, pricing is typically handled by divisional or product managers.AACSB: Written and oral communicationSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy

135) What is a pure monopoly?Answer: In a pure monopoly, the market is dominated by one seller. The seller may be a government monopoly, a private regulated monopoly, or a private unregulated monopoly. Pricing is handled differently in each case.AACSB: Written and oral communicationSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Easy


136) What are the different internal factors that affect a firm's pricing decisions?Answer: Beyond customer value perceptions, costs, and competitor strategies, the company must consider several additional internal and external factors. Internal factors affecting pricing include the company's overall marketing strategy, objectives, and marketing mix, as well as other organizational considerations. Price is only one element of the company's broader marketing strategy. If the company has selected its target market and positioning carefully, then its marketing mix strategy, including price, will be fairly straightforward. Some companies position their products on price and then tailor other marketing mix decisions to the prices they want to charge. Other companies deemphasize price and use other marketing mix tools to create nonprice positions.AACSB: Written and oral communicationSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate

137) Compare and contrast pure competition and oligopolistic competition.Answer: Under pure competition, the market consists of many buyers and sellers trading in a uniform commodity, such as wheat, copper, or financial securities. No single buyer or seller has much effect on the going market price. In a purely competitive market, marketing research, product development, pricing, advertising, and sales promotion play little or no role. Thus, sellers in these markets do not spend much time on marketing strategy.On the other hand, under oligopolistic competition, the market consists of only a few large sellers. Because there are few sellers, each seller is alert and responsive to competitors' pricing strategies and marketing moves.AACSB: Application of knowledge; Written and oral communicationSkill: SynthesisObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Challenging

138) Briefly discuss monopolistic competition.Answer: Under monopolistic competition, the market consists of many buyers and sellers who trade over a range of prices rather than a single market price. A range of prices occurs because sellers can differentiate their offers to buyers. Because there are many competitors, each firm is less affected by competitors' pricing strategies than in oligopolistic markets. Sellers try to develop differentiated offers for different customer segments and, in addition to price, freely use branding, advertising, and personal selling to set their offers apart.AACSB: Analytical thinkingSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate


139) What is a demand curve? Explain its importance in the context of pricing decisions. Answer: A demand curve shows the number of units the market will buy in a given time period, at different prices that might be charged. Each price the company might charge will lead to a different level of demand. The relationship between the price charged and the resulting demand level is shown in the demand curve. In the normal case, demand and price are inversely related—that is, the higher the price, the lower the demand. Thus, the company would sell less if it raised its price from P1 to P2. In short, consumers with limited budgets probably will buy less of something if its price is too high. Understanding a brand's price-demand curve is crucial to good pricing decisions. Most companies try to measure their demand curves by estimating demand at different prices. The type of market makes a difference. In a monopoly, the demand curve shows the total market demand resulting from different prices. If the company faces competition, its demand at different prices will depend on whether competitors' prices stay constant or change with the company's own prices.AACSB: Application of knowledge; Written and oral communicationSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate

140) Explain price elasticity. What determines the elasticity of demand?Answer: Price elasticity refers to a measure of the sensitivity of demand to changes in price. If demand hardly changes with a small change in price, the demand is inelastic. If demand changes greatly, it is elastic.If demand is elastic rather than inelastic, sellers will consider lowering their prices. A lower price will produce more total revenue. This practice makes sense as long as the extra costs of producing and selling more do not exceed the extra revenue. At the same time, most firms want to avoid pricing that turns their products into commodities. In recent years, forces such as deregulation and the instant price comparisons afforded by the Internet and other technologies have increased consumer price sensitivity, turning products ranging from telephones and computers to new automobiles into commodities in some consumers' eyes. AACSB: Analytical thinking; Written and oral communicationsSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate


141) Briefly describe how economic conditions impact a firm's pricing strategies.Answer: Economic conditions can have a strong impact on a firm's pricing strategies. Economic factors such as a boom or recession, inflation, and interest rates affect pricing decisions because they affect consumer spending, consumer perceptions of the product's price and value, and the company's costs of producing and selling a product.In the aftermath of the recent Great Recession of 2008 to 2009, many consumers have rethought the price-value equation. They have tightened their belts and become more value conscious. Consumers will likely continue their thriftier ways well beyond any economic recovery. As a result, many marketers have increased their emphasis on value-for-the-money pricing strategies.The most obvious response to the new economic realities is to cut prices and offer discounts. Thousands of companies have done just that. Lower prices make products more affordable and help spur short-term sales. However, such price cuts can have undesirable long-term consequences. Lower prices mean lower margins. Deep discounts may cheapen a brand in consumers' eyes. And once a company cuts prices, it is difficult to raise them again when the economy recovers.AACSB: Application of knowledge; Written and oral communicationSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate

142) "Beyond the market and the economy, the company must consider several other factors in its external environment when setting prices." Explain this statement.Answer: Beyond the market and the economy, the company must consider several other factors in its external environment when setting prices. It must know what impact its prices will have on other parties in its environment. How will resellers react to various prices? The company should set prices that give resellers a fair profit, encourage their support, and help them to sell the product effectively. The government is another important external influence on pricing decisions. Finally, social concerns may need to be taken into account. In setting prices, a company's short-term sales, market share, and profit goals may need to be tempered by broader societal considerations.AACSB: Application of knowledge; Written and oral communicationSkill: ConceptObjective: LO 10.3: Identify and define the other important external and internal factors affecting a firm's pricing decisions.Difficulty: Moderate


chapter 10

Documents

d price

b price

importance of pricing

concept objective

product features

c skill

e prices

flexible elements