marketing management ch 14 Flashcards

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When consumers examine products, they often compare an observed price to an internal price they remember. This is known as a(n) ________ price.

  1. B) reference

Page Ref: 387


2) ________ price refers to what the consumers feel the product should cost.

  1. A) Fair

Page Ref: 387


3) While shopping at the mall, Jane was asked by one of the sales representatives at the cosmetics counter to try out a new lipstick that her company was test marketing. The company representative asks her how much she would be willing to pay for the lipstick. After trying it out, Jane is of the opinion that $5 is just the right price for it. What type of a reference price is Jane using?

  1. B) fair price

Page Ref: 387


4) The reservation price or the maximum that most consumers would pay for a given product is known as the ________ price.

  1. C) upper-bound

Page Ref: 387


5) A company decided to conduct a market survey for its new MP3 player which it had priced at $150. However, in the survey, 95 percent of the participants said that the maximum they would pay for the MP3 player is $100. This is an example of which of the following possible consumer reference prices?

  1. D) upper-bound price

Page Ref: 387


6) The minimum price that most consumers would pay for a given product is known as the ________ price.

  1. E) lower-bound

Page Ref: 387


7) A company has developed the prototype of a mobile phone which it plans to launch in the next few months. The phone comes equipped with the most advanced technological features. As part of its test marketing efforts, it allows customers to examine and use the prototype and also gathers feedback regarding product features and price. The results of this test marketing effort show that customers are willing to pay at least $500, considering the phone's various features. As such, the company has found out about the customers' ________.

  1. C) lower-bound price

Page Ref: 387


8) Many consumers are willing to pay $100 for a perfume that contains $10 worth of scent because the perfume is from a well-known brand. What kind of a pricing is the company depending on?

  1. B) image pricing

Page Ref: 388


9) Pricing cues such as sale signs and prices that end in 9 are more influential ________.

  1. D) when product designs vary over time

Page Ref: 388


10) Which of the following is the first step in setting a pricing policy?

  1. B) selecting the pricing objective

Page Ref: 389


11) After determining its pricing objectives, what is the next logical step a firm should take in setting its pricing policy?

  1. D) It should determine the demand for its product.

Page Ref: 389


12) A firm that is plagued with overcapacity, intense competition, or changing wants would do better if it pursues ________ as its major objective.

  1. C) survival

Page Ref: 389


13) After estimating the demand and costs associated with alternative prices, a company has chosen to price its product in such a way that it gains the highest rate of return on its investment. The company is looking to ________.

  1. E) maximize its current profit

Page Ref: 389


14) Companies who believe that a higher sales volume leads to lower unit costs and higher long-run profits are attempting to ________.

  1. A) maximize their market share

Page Ref: 389


15) A company that is looking to maximize its market share would do well to follow ________ pricing.

  1. B) market-penetration

Page Ref: 389


16) A market-penetration pricing strategy is most suitable when _______.

  1. B) production and distribution costs fall with accumulated production experience

Page Ref: 389


17) When a company introduces a product at a very high price and then gradually drops the price over time, it is pursuing a ________ strategy.

  1. B) market-skimming pricing

Page Ref: 390


18) When Apple introduced its iPhone, it was priced at $599. This allowed Apple to earn the maximum amount of revenue from the various segments of the market. Two months after the introduction, the price has come down to $399. What kind of a pricing did Apple adopt?

  1. C) market-skimming pricing

Page Ref: 390


19) Market skimming pricing makes sense under all the following conditions, EXCEPT ________.

  1. D) if consumers are likely to delay buying the product until its price drops

Page Ref: 390


20) Companies that aim to ________ strive to be affordable luxuries.

  1. E) be product-quality leaders

Page Ref: 390


21) Starbucks, Aveda, and BMW have been able to position themselves within their categories by combining quality, luxury, and premium prices with an intensely loyal customer base. These companies are employing a ________ strategy.

  1. E) product-quality leadership

Page Ref: 390


22) The first step in estimating demand is to ________.

  1. C) understand what affects price sensitivity

Page Ref: 390


23) Consumers are less price sensitive ________.

  1. E) when they do not readily notice higher prices

Page Ref: 390-391


24) Consumers are less price sensitive when ________.

  1. A) price is only a small part of the total cost spent on the product over its lifetime

Page Ref: 391


25) If demand hardly changes with a small change in price, the demand is said to be

  1. C) inelastic

Page Ref: 392


26) If demand changes considerably, with a small change in price, the demand is said to be ________.

  1. B) elastic

Page Ref: 392


27) If consumers were largely indifferent to a $0.5 increase in the price of a gallon of milk, the price rise is said to fall within customers' ________.

  1. A) price indifference band

Page Ref: 392


28) Which of the following is true regarding price elasticity?

  1. B) Within the price indifference band, price changes have little or no effect on demand.

Page Ref: 392


29) Costs that do not vary with production levels or sales revenue are known as ________.

  1. A) overhead costs

Page Ref: 393


30) A company must make payments each month for rent, heat, interest, and salaries. These are ________.

  1. B) fixed costs

Page Ref: 393


31) Costs that differ directly with the level of production are known as ________.

  1. E) variable costs

Page Ref: 393


32) ________ consist of the sum of the fixed and variable costs for any given level of production.

  1. A) Total costs

Page Ref: 393


33) ________ is the cost per unit at that level of production.

  1. B) Average cost

Page Ref: 393


34) The decline in the average cost of production with accumulated production experience is called the ________.

  1. C) learning curve

Page Ref: 393


35) Experience-curve pricing ________.

  1. A) assumes competitors are weak followers

Page Ref: 394


36) Deducting the desired profit margin from the price at which a product will sell, given its appeal and competitors' prices, is known as ________.

  1. B) target costing

Page Ref: 394


37) Competitors are most likely to react to a price change, when ________.

  1. C) there are few competing firms

Page Ref: 395


38) Which of the following is the most elementary pricing method?

  1. C) markup pricing

Page Ref: 396


39) Despite its weaknesses, markup pricing remains popular for which of the following reasons?

  1. E) Many people feel that cost-plus pricing is fairer to both buyers and sellers.

Page Ref: 396-397


40) A manufacturer has invested $750,000 in a new product and wants to set a price to earn a 15 percent ROI. The cost per unit is $18 and the company expects to sell 50,000 units in the first year. Calculate the company's target-return price for this product.

  1. A) $20.25

Page Ref: 397


41) An umbrella manufacturing company's fixed costs are $275,000. The variable cost per unit is $5 and each umbrella is sold at $10. How many units should the firm sell in order to break even?

  1. D) 55000

Page Ref: 397


42) ________ pricing takes into account a host of inputs, such as the buyer's image of the product performance, the channel deliverables, the warranty quality, customer support, and attributes such as the supplier's reputation, trustworthiness, and esteem.

  1. A) Perceived-value

Page Ref: 398


43) The key to perceived-value pricing is to ________.

  1. B) deliver more unique value than competitors

Page Ref: 399


44) ________ pricing is a matter of reengineering the company's operations to become a low-cost producer without sacrificing quality.

  1. A) Value

Page Ref: 400


45) A retailer who holds on to a(n) ________ policy charges a constant low price with little or no price promotions and special sales.

  1. A) everyday low pricing

Page Ref: 400


46) Matt's retail store offers all its products at $2 lesser than its competitors throughout the year. The store never runs any promotional campaigns or offers any additional special discounts. Matt's retail store is following a(n) ________.

  1. C) everyday low pricing policy

Page Ref: 400


47) Everyday low pricing is most suitable if ________.

  1. D) the cost of conducting frequent sales and promotions is high

Page Ref: 401

  1. 48) In ________, the firm bases its price largely on competitor's prices.
  1. A) going-rate pricing

Page Ref: 401


49) Which of the following auctions is characterized by one seller and many buyers?

  1. B) ascending bid auctions

Page Ref: 402


50) In which of the following auctions does the auctioneer first announce a high price for a product and then slowly decreases the price until a bidder accepts?

  1. E) a Dutch auction with one seller and many buyers

Page Ref: 402


51) In a(n) ________, the buyer announces something he or she wants to buy, and potential sellers compete to offer the lowest price.

  1. A) Dutch auction with one buyer and many sellers

Page Ref: 402


52) ________ let would-be suppliers submit only one bid; they cannot know the other bids.

  1. B) Sealed-bid auctions

Page Ref: 402


53) In which of the following forms of countertrade do buyers and sellers directly exchange goods, with no money and no third party is involved?

  1. C) barter

Page Ref: 404

  1. 54) A Japanese firm is ready to sell its recent technological innovation to the U.S. government. But it has asked for 80 percent in cash and the rest in mica. The Japanese firm is looking to enter into a(n) ________ with the U.S. government.
  1. B) compensation deal

Page Ref: 404


55) Armac Ltd., is a sluice-box manufacturer based in China. A sluice-box is used for gold prospecting. Armac is interested in selling a few of its machines to an American mining company, but it wants 95 percent of the machines' price in gold and the rest in ores recovered by using the machines. This is an example of a ________.

  1. A) buyback arrangement

Page Ref: 404


56) ROC Engineering, a Chinese shipbuilding company, agrees to build a fleet of submarines for the Sri Lankan navy, for which it will be paid in the local Sri Lankan currency. As per the agreement, ROC must also spend a substantial amount of the money it generates through this deal within the country. In accordance with the contract, ROC buys Sri Lankan tea at a reduced rate. This is an example of which of the following forms of countertrade?

  1. B) offset

Page Ref: 404


57) ________ are offered by a manufacturer to trade-channel members if they will perform certain functions, such as selling, storing, and record keeping.

  1. C) Functional discounts

Page Ref: 404


58) When hotels, motels, and airlines offer discounts in slow selling periods, they are said to be offering ________.

  1. D) seasonal discounts

Page Ref: 404


59) A(n) ________ is an extra payment designed to gain reseller participation in special programs.

  1. B) allowance

Page Ref: 404


60) ________ are granted for turning in old item when buying a new one

  1. E) Trade-in allowances

Page Ref: 404


61) ________ reward dealers for participating in advertising and sales support programs.

  1. C) Promotional allowances

Page Ref: 404


62) When supermarkets and department stores drop the price on well-known brands to stimulate store traffic, they are said to be following ________.

  1. B) loss-leader pricing


63) When Alan bought his car, the bank gave him 24 months to repay his car loan. But when Alan made a request to increase the time frame to 36 months, the bank granted the extension. The bank was willing to offer Alan a ________.

  1. A) longer payment term

Page Ref: 405


64) In ________, the seller charges a separate price to each customer depending on the intensity of his or her demand.

  1. E) first-degree price discrimination

Page Ref: 406


65) In second-degree price discrimination, the seller charges ________.

  1. A) less to buyers of larger volumes

Page Ref: 406


66) In ________, the seller charges different amounts to different classes of buyers.

  1. B) third-degree price discrimination

Page Ref: 406


67) When museums charge a lower admission fee to students and senior citizens, then this form of price discrimination is known as ________.

  1. C) customer-segment pricing

Page Ref: 406


68) Madame Tussaud's wax museum is a popular tourist attraction in London. The museum charges higher entry rates for tourists compared to locals. This form of price discrimination is known as ________.

  1. A) customer-segment pricing

Page Ref: 406


69) When Coca-Cola carries a different price depending on whether the consumer purchases it in a fine restaurant, a fast-food restaurant, or a vending machine, then this form of price discrimination is known as ________.

  1. D) channel pricing

Page Ref: 406


70) The price of tickets to the opera vary depending on where the person would like to be seated–in the gallery or in the stalls. This is an example of ________.

  1. E) location pricing

Page Ref: 406


71) When hotels drop their rates on the weekends, then this form of price discrimination is known as ________.

  1. D) time pricing

Page Ref: 406


72) The airline and hospitality industries use ________, by which they offer discounted but limited early purchases, higher-priced late purchases, and the lowest rates on unsold inventory just before it expires.

  1. B) yield pricing

Page Ref: 406


73) ________ refers to selling below cost with the intention of destroying competition.

  1. C) Predatory pricing

Page Ref: 407


74) For price discrimination to work ________.

  1. D) the practice must not breed customer resentment and ill will

Page Ref: 407


75) A low price buys market share but not market loyalty. The same customers will shift to any lower-priced product that may come along. This is called the ________.

  1. E) fragile-market-share trap

Page Ref: 408


76) When higher-priced competitors match the lower prices but have longer staying power because of deeper cash reserves, it leads to a(n) ________.

  1. E) shallow-pockets trap

Page Ref: 408


77) A company does not set a final price until the product is finished or delivered. This is known as ________.

  1. A) delayed quotation pricing

Page Ref: 408


78) When a company requires the customers to pay today's price and all or part of any inflation increase that takes place before delivery, it is known as ________.

  1. B) an escalator clause

Page Ref: 408


79) When a company maintains its price but removes or prices separately one or more elements that were part of the former offer, such as free delivery or installation, it is known as ________.

  1. C) unbundling

Page Ref: 408


80) In markets that are characterized by products that are highly homogeneous, how should a firm react to a competitor's reduction in price?

  1. E) augment the product

Page Ref: 409