Marketing Management chapter 16 practice test

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1) When consumers examine products, they often compare an observed price to an internal price they remember. This is known as a(n) ________ price. A) markup B) reference C) market-skimming D) accumulated E) target

B

2

2) ________ price refers to what the consumers feel the product should cost. A) Fair B) Typical C) Usual discounted D) List E) Maximum retail

A

3

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? A) usual discounted price B) fair price C) maximum retail price D) last price paid E) historical competitor price

B

4

4) The reservation price, the maximum that most consumers will pay for a given product, is known as the ________ price. A) expected future B) usual discounted C) upper-bound D) typical E) historical competitor

C

5

5) Which of the following is NOT one of the possible consumer reference prices? A) typical price B) actual future price C) last price paid D) expected future price E) upper-bound price

B

6

6) A company decided to conduct a market survey for its new MP3 player that the company had priced at $150. In the survey, 95 percent of 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? A) historical competitor price B) expected future price C) usual discounted price D) upper-bound price E) last price paid

D

7

7) The minimum price that most consumers would pay for a given product is known as the ________ price. A) everyday low B) usual discounted C) fair D) typical E) lower-bound

E

8

8) A company has developed the prototype of a mobile phone that 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, the company 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 discovered customers' ________. A) last paid price B) expected future price C) lower-bound price D) upper-bound price E) typical price

C

9

9) 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 pricing is the company depending on? A) going-rate pricing B) image pricing C) market-skimming pricing D) target pricing E) markup pricing

B

10

10) Pricing cues such as sale signs and prices that end in 9 are more influential when ________. A) customers have substantial knowledge about prices B) customers purchase the particular item regularly C) product quality is standardized D) product designs vary over time E) prices do not vary from time to time

D

11

11) Price is one of the two elements of the marketing mix that produces revenue.

FALSE

12

12) Traditionally, price was never a major determinant of buyer choice.

FALSE

13

13) Today, consumers are price takers and accept prices at face value or as given.

FALSE

14

14) Pricing cues such as sale signs and prices that end in 9 are more influential when consumers are experienced in the category.

FALSE

15

15) Customers usually have a lower price threshold below which prices signal inferior or unacceptable quality, as well as an upper price threshold above which prices are prohibitive and the product appears not worth the money.

TRUE

16

16) Although consumers may have fairly good knowledge of the range of prices involved, very few can accurately recall specific prices of products.

TRUE

17

17) When examining products, consumers compare an observed price to an internal reference price they remember or an external frame of reference.

TRUE

18

18) Many consumers use price as an indicator of quality and value.

TRUE

19

23) Which of the following is the first step in setting a pricing policy? A) selecting a pricing method B) selecting the pricing objective C) determining demand D) estimating cost E) analyzing competitors' costs, prices, and offers

B

20

24) After determining its pricing objectives, what is the next logical step a firm should take in setting its pricing policy? A) It should analyze its competitors' costs, prices, and offers. B) It should select its pricing method. C) It should select its final price. D) It should determine the demand for its product. E) It should estimate the cost of its product.

D

21

25) A firm that is plagued with overcapacity, intense competition, or changing consumer desires would do better if it pursues ________ as its major objective. A) market skimming B) product-quality leadership C) survival D) profit maximization E) market penetration

C

22

26) 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 ________. A) maximize market share B) skim the market C) become a product-quality leader D) survive in the market E) maximize current profit

E

23

27) Companies who believe that higher sales volume leads to lower unit costs and higher long-run profits are attempting to ________. A) maximize their market share B) skim the market C) become a product-quality leader D) merely survive in the market E) maximize their current profits

A

24

28) A company that is looking to maximize its market share would do well to follow ________ pricing. A) markup B) market-penetration C) market-skimming D) survival E) target-return

B

25

29) A market-penetration pricing strategy is most suitable when ________. A) a low price slows down market growth B) production and distribution costs fall with accumulated production experience C) a high price dissuades potential competitors from entering the market D) the market is characterized by inelastic demand E) a low price encourages actual competition

B

26

30) When a company introduces a product at a high price and then gradually drops the price over time, it is pursuing a ________ strategy. A) market-penetration pricing B) market-skimming pricing C) value-pricing D) switching cost E) loss-leader pricing

B

27

31) 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 had come down to $399. What kind of a pricing did Apple adopt? A) loss-leader pricing B) market-penetration pricing C) market-skimming pricing D) target-return pricing E) value pricing

C

28

32) Market skimming pricing makes sense under all the following conditions, EXCEPT if ________. A) a sufficient number of buyers have a high current demand B) the unit costs of producing a small volume are high enough to cancel the advantage of charging what the traffic will bear C) the high initial price does not attract more competitors to the market D) consumers are likely to delay buying the product until its price drops E) the high price communicates the image of a superior product

D

29

33) Companies that aim to ________ strive to be affordable luxuries. A) survive in the market B) partially recover their costs C) maximize their market share D) pursue value pricing E) be product-quality leaders

E

30

34) 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. A) market-skimming B) market-penetration C) survival D) market share maximization E) product-quality leadership

E

31

35) The first step in estimating demand is to ________. A) analyze competitors' cost B) select a pricing method C) understand what affects price sensitivity D) calculate fixed costs E) decipher the experience curve

C

32

36) Consumers are less price sensitive ________. A) to high cost items B) when they frequently change their buying habits C) when there are more substitutes D) when there are more competitors E) when they do not readily notice higher prices

E

33

37) Consumers are less price sensitive when ________. A) price is only a small part of the total cost spent on the product over its lifetime B) they perceive the higher prices to be unjustified C) they change their buying habits regularly D) there are many substitutes and competitors in the market E) they are buying high-cost items

A

34

38) If demand hardly changes with a small change in price, the demand is said to be ________. A) strained B) marginal C) inelastic D) flexible E) unit elastic

C

35

39) If demand changes considerably, with a small change in price, the demand is said to be ________. A) unit elastic B) elastic C) inelastic D) marginal E) strained

B

36

40) If consumers were largely indifferent to a $0.05 increase in the price of a gallon of milk, the price rise is said to fall within customers' ________. A) price indifference band B) experience curve C) arm's-length price D) learning curve E) net price index

A

37

41) JJ pays overhead each month, including his company's bills for rent, heat, interest, and salaries, which are examples of ________ costs. A) total B) average C) activity-based D) variable E) fixed

E

38

42) Which of the following is true regarding price elasticity? A) The higher the elasticity, the lesser is the volume growth resulting from a 1 percent price reduction. B) Within the price indifference band, price changes have little or no effect on demand. C) If demand is elastic, sellers will consider increasing the price. D) Price elasticity does not depend on magnitude and direction of the contemplated price change. E) When demand is inelastic, sellers should lower prices in order to increase total revenue.

B

39

43) Costs that do not vary with production levels or sales revenue are known as ________ costs. A) overhead B) variable C) average D) opportunity E) total

A

40

44) Costs that differ directly with the level of production are known as ________ costs. A) fixed B) overhead C) opportunity D) target E) variable

E

41

45) When ConAgra foods decided to cut $250 million in costs to return to a $1 price point (after sales dropped as a result of raising prices $0.25 to cover higher commodity costs), it was using ________. A) target costing B) experience-curve pricing C) ceiling pricing D) the learning curve E) promotional price elasticities

A

42

46) ________ cost is the cost per unit at that level of production; it equals total costs divided by production. A) Target B) Average C) Marginal D) Opportunity E) Fixed

B

43

47) The decline in the average cost of production with accumulated production experience is called the ________. A) demand curve B) supply chain C) learning curve D) value chain E) indifference curve

C

44

48) Experience-curve pricing ________. A) assumes competitors are weak followers B) allows products to project a high quality image C) is applicable only to manufacturing costs D) focuses on reducing fixed costs E) is generally risk-free

A

45

49) Deducting the desired profit margin from the price at which a product will sell, given its appeal and competitors' prices, is known as ________. A) overhead costing B) target costing C) activity-based costing D) benefit analysis E) estimate costing

B

46

50) Competitors are most likely to react to a price change when ________. A) the firm has a weak value proposition B) the firm enjoys a monopoly C) there are few competing firms D) the product is heterogeneous E) buyers have limited information

C

47

51) Which of the following is the most elementary pricing method? A) value pricing B) going-rate pricing C) markup pricing D) target-return pricing E) perceived-value pricing

C

48

52) Despite its weaknesses, markup pricing remains popular for which of the following reasons? A) Sellers can determine demand much more easily than they can estimate costs. B) By tying the price to cost, the pricing task becomes more sophisticated. C) When all firms in the industry use markup pricing, price competition flourishes. D) Sellers take advantage of buyers when the latter's demand becomes acute. E) Many people feel that cost-plus pricing is fairer to both buyers and sellers.

E

49

53) 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. A) $18.10 B) $18.23 C) $20.25 D) $20.70 E) $25.50

C

50

54) 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? A) 1,819 B) 5,500 C) 18,000 D) 27,500 E) 55,000

E

51

55) ________ 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. A) Perceived-value B) Value C) Going-rate D) Auction-type E) Markup

A

52

56) The key to perceived-value pricing is to ________. A) reengineer the company's operations B) deliver more unique value than competitors C) adopt subtle marketing tactics compared to competitors D) deliver more value but at a lower cost E) invest heavily in advertising in order to convey superior value

B

53

57) ________ pricing is a matter of reengineering the company's operations to become a low-cost producer without sacrificing quality. A) Value B) Going-rate C) Auction-type D) Markup E) Perceived-value

A

54

58) A retailer who utilizes a(n) ________ policy charges a constant low price with little or no price promotions and special sales. A) everyday low pricing B) high-low pricing C) low cost D) going-rate pricing E) auction-type pricing

A

55

59) Matt's retail store offers all products at $2 less than its competitors. The store never runs promotional campaigns or offers special discounts. Matt's retail store is following a(n) ________ pricing policy. A) auction-type B) target-plus C) everyday low D) high-low E) going-rate

C

56

60) Everyday low pricing is most suitable if ________. A) consumers are willing to perform activities such as clip coupons to avail of discounts B) consumers tend to associate price with quality C) customers are insensitive to changes in price D) the cost of conducting frequent sales and promotions is high E) consumers have sufficient time to find the best prices

D

57

61) In ________ pricing, the firm bases its price largely on competitor's prices. A) going-rate B) auction-type C) markup D) target-return E) perceived-value

A

58

62) Which of the following auctions is characterized by one seller and many buyers? A) Walrasian auctions B) ascending bid auctions C) closed auctions D) sealed-bid auctions E) reverse auctions

B

59

63) 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? A) a Dutch auction with one buyer and many sellers B) an English auction with one seller and many buyers C) an ascending bid auction D) a sealed-bid auction E) a Dutch auction with one seller and many buyers

E

60

64) In a(n) ________, the buyer announces something he or she wants to buy, and potential sellers compete to offer the lowest price. A) Dutch auction with one buyer and many sellers B) English auction with one buyer and many sellers C) English auction with one seller and many buyers D) sealed-bid auction E) ascending auction

A

61

65) ________ auctions let would-be suppliers submit only one bid; they cannot know the other bids. A) Descending bid B) Sealed-bid C) English D) Dutch E) Reverse

B

62

66) Companies strive to maximize their current profits if they are plagued with overcapacity, intense competition, or changing consumer wants.

FALSE

63

67) In reality, it is very easy for firms to estimate their demand and cost functions.

FALSE

64

68) When Sony introduced the first high-definition television to the Japanese market in 1990, it was priced at $43,000, which is an example of partial-cost recovery pricing.

FALSE

65

69) If firms wish to maximize their market share, they should opt for market-skimming pricing.

FALSE

66

70) In the case of prestige goods, the demand curve sometimes slopes upward.

TRUE

67

71) Companies prefer customers who are less price sensitive.

TRUE

68

72) A marketer who has unit costs of $16 and wants to earn a 20 percent markup on sales would charge a markup price of $20.

TRUE

69

73) Caterpillar uses target-return pricing to set prices on its construction equipment, and justifies a higher price by showing lower lifetime operating costs.

FALSE

70

74) Price elasticity depends upon the magnitude and direction of the contemplated price change.

TRUE

71

75) When a product is more distinctive, it leads to less price sensitivity.

TRUE

72

76) Total costs consist of the sum of the fixed and the variable costs for any given level of production.

TRUE

73

77) In target-return pricing, the firm adds a standard markup to the product's cost.

FALSE

74

78) One of the weaknesses of using surveys to estimate the demand curve is that consumers exaggerate their willingness to pay for new products and services.

TRUE

75

79) Value pricing requires a company to reengineer its operations to become a low-cost producer.

TRUE

76

80) Price elasticity magnitudes are lower for durable goods than for other goods.

FALSE

77

81) In high-low pricing, retailers charge low prices on an everyday basis with occasional price increases.

FALSE

78

82) The US government often uses Dutch auctions to procure supplies.

FALSE

79

83) If a calculator company produces 100,000 hand calculators at a cost of $10, but the cost drops to $9 when it produces 200,000 and $8 when it produces 400,000 hand calculators, the decline in average cost with accumulated product experience is called the price elasticity of demand.

FALSE

80

96) In which of the following forms of countertrade do buyers and sellers directly exchange goods, with no money and no third party is involved? A) buyback arrangements B) offsets C) barter D) sealed bids E) compensation deals

C

81

97) A Japanese firm is ready to sell its recent technological innovation to the US 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 US government. A) functional discount B) compensation deal C) buyback arrangement D) offset agreement E) barter deal

B

82

98) 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 ________. A) buyback arrangement B) functional discount C) barter deal D) compensation deal E) sealed bid

A

83

99) 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? A) descending bid B) offset C) barter D) compensation deal E) buyback arrangement

B

84

100) ________ are offered by a manufacturer to trade-channel members if they will perform certain functions, such as selling, storing, and recordkeeping. A) Consumer promotions B) Quantity discounts C) Functional discounts D) Seasonal discounts E) Trade-in allowances

C

85

101) When hotels, motels, and airlines offer discounts in slow selling periods, they are said to be offering ________. A) trade discounts B) quantity discounts C) functional discounts D) seasonal discounts E) trade-in allowances

D

86

102) A(n) ________ is an extra payment designed to gain reseller participation in special programs. A) seasonal discount B) allowance C) discount D) quantity discount E) functional discount

B

87

103) ________ reward dealers for participating in advertising and sales support programs. A) Functional discounts B) Trade discounts C) Promotional allowances D) Rebates E) Quantity discounts

C

88

104) When supermarkets and department stores drop the price on well-known brands to stimulate store traffic, they are said to be following ________ pricing. A) value B) loss-leader C) special event D) high-low E) everyday low

B

89

105) In ________, the seller charges a separate price to each customer depending on the intensity of his or her demand. A) second-degree price discrimination B) third-degree price discrimination C) psychological discounting D) special-customer pricing E) first-degree price discrimination

E

90

106) In second-degree price discrimination, the seller charges ________. A) less to buyers of larger volumes B) different prices depending on the season, day, or hour C) a separate price to each customer depending on the intensity of his or her demand D) different prices for different versions of the same product E) different prices for the same product depending on the channel through which it is sold

A

91

107) In ________, the seller charges different amounts to different classes of buyers. A) perceived value pricing B) third-degree price discrimination C) first-degree price discrimination D) second-degree price discrimination E) psychological discounting

B

92

108) When museums charge a lower admission fee to students and senior citizens, this form of price discrimination is known as ________ pricing. A) location B) channel C) customer-segment D) special-customer E) loss-leader

C

93

109) 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 ________ pricing. A) customer-segment B) image C) location D) special customer E) special event

A

94

110) 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 ________ pricing. A) product-form B) loss-leader C) special event D) channel E) location

D

95

111) The prices 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 ________ pricing. A) channel B) time C) image D) product-form E) location

E

96

112) When hotels drop their rates on the weekends, this form of price discrimination is known as ________ pricing. A) channel B) image C) product-form D) time E) location

D

97

113) 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. A) special-customer pricing B) yield pricing C) cash rebates D) location pricing E) customer-segment pricing

B

98

114) ________ refers to selling below cost with the intention of destroying competition. A) Bid rigging B) Loss-leader pricing C) Predatory pricing D) Price discrimination E) Price penetration

C

99

115) For price discrimination to work ________. A) the market must be segmentable and the segments must show similar intensities of demand B) members in the lower-price segment must be able to resell the product to the higher-price segment C) competitors must be able to undersell the firm in the higher-price segment D) the practice must not breed customer resentment and ill will E) the extra revenue derived from price discrimination must not exceed the cost of segmenting and policing the market

D

100

116) When a movie theater charges a lower ticket fee for children and senior citizens, it is engaging in ________ pricing. A) product-form B) image C) customer-segment D) location E) time

C

101

117) In a compensation deal, the seller sells a plant, equipment, or technology to another country and agrees to accept as partial payment products manufactured with the supplied equipment.

FALSE

102

118) Psychological discounting involves setting an artificially high price and then offering the product at substantial savings.

TRUE

103

119) Loss leader pricing dilutes a company's brand image.

TRUE

104

120) In first-degree price discrimination, the seller charges less to buyers who purchase in larger volumes.

FALSE

105

121) When firms charge different prices to different customer groups for the same product or service, it is a case of second-degree price discrimination.

FALSE

106

122) The airline industries implement yield pricing by offering discounted but limited early purchases, higher-priced late purchases, and the lowest rates on unsold inventory just before it expires.

TRUE

107

123) Price discrimination in all forms is illegal in the United States.

FALSE

108

124) When PepsiCo sold its cola syrup to Russia for rubles and agreed to buy Russian vodka at a certain rate for sale in the United States, it was engaged in the form of countertrade known as an offset.

TRUE

109

135) 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 ________ trap. A) low-price B) relative-market-share C) shallow-pockets D) target-market-share E) fragile-market-share

E

110

136) When higher-priced competitors match lower prices of their competitors but have longer staying power because of deeper cash reserves, it leads to a(n) ________ trap. A) low-quality B) fragile-market-share C) price war D) escalator E) shallow-pockets

E

111

137) A company does not set a final price until the product is finished or delivered. This is known as ________. A) delayed quotation pricing B) an escalator clause C) special-event pricing D) time pricing E) the shallow-pockets trap

A

112

138) Companies sometimes initiate price cuts in an attempt to dominate the market through lower costs.

TRUE

113

139) In a price-war trap, higher-priced competitors match the firm's lower prices but have longer staying power because of deeper cash reserves.

FALSE

114

140) Escalator clauses are found in contracts for major industrial projects, such as aircraft construction and bridge building.

TRUE

115

141) Generally, consumers prefer small price increases on a regular basis to sudden, sharp increases.

TRUE

116

142) Shrinking the amount of product instead of raising the price is a good way to counteract consumer resistance to price increases.

TRUE

117

147) When a company requires customers to pay today's price and all or part of any inflation increase that takes place before delivery, it is known as ________. A) special-customer pricing B) an escalator clause C) delayed quotation pricing D) unbundling E) time pricing

B

118

148) 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 ________. A) escalating B) differentiation C) unbundling D) reverse discounting E) delayed quotation pricing

C

119

149) In markets that are characterized by products that are highly homogeneous, how should a firm react to a competitor's reduction in price? A) shrink the amount of the product available B) substitute expensive materials or ingredients C) reduce product features D) reduce product services E) augment the product

E

120

150) A company must consider the product's stage in the life cycle and its importance in the company's portfolio before responding to a competitor's price cut.

TRUE

121

151) A firm in a homogeneous market that has the ability to augment its product is more likely to need to meet a competitive price reduction than one that does not have the ability to augment its product.

FALSE