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marketing management ch 14

front 1 When consumers examine products, they often compare an observed price to an internal price they remember. This is known as a(n) ________ price.	back 1 B) reference Page Ref: 387
front 2 2) ________ price refers to what the consumers feel the product should cost.	back 2 A) Fair Page Ref: 387
front 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?	back 3 B) fair price Page Ref: 387
front 4 4) The reservation price or the maximum that most consumers would pay for a given product is known as the ________ price.	back 4 C) upper-bound Page Ref: 387

front 5 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?	back 5 D) upper-bound price Page Ref: 387
front 6 6) The minimum price that most consumers would pay for a given product is known as the ________ price.	back 6 E) lower-bound Page Ref: 387
front 7 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' ________.	back 7 C) lower-bound price Page Ref: 387
front 8 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?	back 8 B) image pricing Page Ref: 388

front 9 9) Pricing cues such as sale signs and prices that end in 9 are more influential ________.	back 9 D) when product designs vary over time Page Ref: 388
front 10 10) Which of the following is the first step in setting a pricing policy?	back 10 B) selecting the pricing objective Page Ref: 389
front 11 11) After determining its pricing objectives, what is the next logical step a firm should take in setting its pricing policy?	back 11 D) It should determine the demand for its product. Page Ref: 389
front 12 12) A firm that is plagued with overcapacity, intense competition, or changing wants would do better if it pursues ________ as its major objective.	back 12 C) survival Page Ref: 389

front 13 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 ________.	back 13 E) maximize its current profit Page Ref: 389
front 14 14) Companies who believe that a higher sales volume leads to lower unit costs and higher long-run profits are attempting to ________.	back 14 A) maximize their market share Page Ref: 389
front 15 15) A company that is looking to maximize its market share would do well to follow ________ pricing.	back 15 B) market-penetration Page Ref: 389
front 16 16) A market-penetration pricing strategy is most suitable when _______.	back 16 B) production and distribution costs fall with accumulated production experience Page Ref: 389

front 17 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.	back 17 B) market-skimming pricing Page Ref: 390
front 18 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?	back 18 C) market-skimming pricing Page Ref: 390
front 19 19) Market skimming pricing makes sense under all the following conditions, EXCEPT ________.	back 19 D) if consumers are likely to delay buying the product until its price drops Page Ref: 390
front 20 20) Companies that aim to ________ strive to be affordable luxuries.	back 20 E) be product-quality leaders Page Ref: 390

front 21 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.	back 21 E) product-quality leadership Page Ref: 390
front 22 22) The first step in estimating demand is to ________.	back 22 C) understand what affects price sensitivity Page Ref: 390
front 23 23) Consumers are less price sensitive ________.	back 23 E) when they do not readily notice higher prices Page Ref: 390-391
front 24 24) Consumers are less price sensitive when ________.	back 24 A) price is only a small part of the total cost spent on the product over its lifetime Page Ref: 391

front 25 25) If demand hardly changes with a small change in price, the demand is said to be	back 25 C) inelastic Page Ref: 392
front 26 26) If demand changes considerably, with a small change in price, the demand is said to be ________.	back 26 B) elastic Page Ref: 392
front 27 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' ________.	back 27 A) price indifference band Page Ref: 392
front 28 28) Which of the following is true regarding price elasticity?	back 28 B) Within the price indifference band, price changes have little or no effect on demand. Page Ref: 392

front 29 29) Costs that do not vary with production levels or sales revenue are known as ________.	back 29 A) overhead costs Page Ref: 393
front 30 30) A company must make payments each month for rent, heat, interest, and salaries. These are ________.	back 30 B) fixed costs Page Ref: 393
front 31 31) Costs that differ directly with the level of production are known as ________.	back 31 E) variable costs Page Ref: 393
front 32 32) ________ consist of the sum of the fixed and variable costs for any given level of production.	back 32 A) Total costs Page Ref: 393

front 33 33) ________ is the cost per unit at that level of production.	back 33 B) Average cost Page Ref: 393
front 34 34) The decline in the average cost of production with accumulated production experience is called the ________.	back 34 C) learning curve Page Ref: 393
front 35 35) Experience-curve pricing ________.	back 35 A) assumes competitors are weak followers Page Ref: 394
front 36 36) Deducting the desired profit margin from the price at which a product will sell, given its appeal and competitors' prices, is known as ________.	back 36 B) target costing Page Ref: 394

front 37 37) Competitors are most likely to react to a price change, when ________.	back 37 C) there are few competing firms Page Ref: 395
front 38 38) Which of the following is the most elementary pricing method?	back 38 C) markup pricing Page Ref: 396
front 39 39) Despite its weaknesses, markup pricing remains popular for which of the following reasons?	back 39 E) Many people feel that cost-plus pricing is fairer to both buyers and sellers. Page Ref: 396-397
front 40 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.	back 40 A) $20.25 Page Ref: 397

front 41 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?	back 41 D) 55000 Page Ref: 397
front 42 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.	back 42 A) Perceived-value Page Ref: 398
front 43 43) The key to perceived-value pricing is to ________.	back 43 B) deliver more unique value than competitors Page Ref: 399
front 44 44) ________ pricing is a matter of reengineering the company's operations to become a low-cost producer without sacrificing quality.	back 44 A) Value Page Ref: 400

front 45 45) A retailer who holds on to a(n) ________ policy charges a constant low price with little or no price promotions and special sales.	back 45 A) everyday low pricing Page Ref: 400
front 46 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) ________.	back 46 C) everyday low pricing policy Page Ref: 400
front 47 47) Everyday low pricing is most suitable if ________.	back 47 D) the cost of conducting frequent sales and promotions is high Page Ref: 401
front 48 48) In ________, the firm bases its price largely on competitor's prices.	back 48 A) going-rate pricing Page Ref: 401

front 49 49) Which of the following auctions is characterized by one seller and many buyers?	back 49 B) ascending bid auctions Page Ref: 402
front 50 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?	back 50 E) a Dutch auction with one seller and many buyers Page Ref: 402
front 51 51) In a(n) ________, the buyer announces something he or she wants to buy, and potential sellers compete to offer the lowest price.	back 51 A) Dutch auction with one buyer and many sellers Page Ref: 402
front 52 52) ________ let would-be suppliers submit only one bid; they cannot know the other bids.	back 52 B) Sealed-bid auctions Page Ref: 402

front 53 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?	back 53 C) barter Page Ref: 404
front 54 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.	back 54 B) compensation deal Page Ref: 404
front 55 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 ________.	back 55 A) buyback arrangement Page Ref: 404
front 56 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?	back 56 B) offset Page Ref: 404

front 57 57) ________ are offered by a manufacturer to trade-channel members if they will perform certain functions, such as selling, storing, and record keeping.	back 57 C) Functional discounts Page Ref: 404
front 58 58) When hotels, motels, and airlines offer discounts in slow selling periods, they are said to be offering ________.	back 58 D) seasonal discounts Page Ref: 404
front 59 59) A(n) ________ is an extra payment designed to gain reseller participation in special programs.	back 59 B) allowance Page Ref: 404
front 60 60) ________ are granted for turning in old item when buying a new one	back 60 E) Trade-in allowances Page Ref: 404

front 61 61) ________ reward dealers for participating in advertising and sales support programs.	back 61 C) Promotional allowances Page Ref: 404
front 62 62) When supermarkets and department stores drop the price on well-known brands to stimulate store traffic, they are said to be following ________.	back 62 B) loss-leader pricing
front 63 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 ________.	back 63 A) longer payment term Page Ref: 405
front 64 64) In ________, the seller charges a separate price to each customer depending on the intensity of his or her demand.	back 64 E) first-degree price discrimination Page Ref: 406

front 65 65) In second-degree price discrimination, the seller charges ________.	back 65 A) less to buyers of larger volumes Page Ref: 406
front 66 66) In ________, the seller charges different amounts to different classes of buyers.	back 66 B) third-degree price discrimination Page Ref: 406
front 67 67) When museums charge a lower admission fee to students and senior citizens, then this form of price discrimination is known as ________.	back 67 C) customer-segment pricing Page Ref: 406
front 68 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 ________.	back 68 A) customer-segment pricing Page Ref: 406

front 69 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 ________.	back 69 D) channel pricing Page Ref: 406
front 70 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 ________.	back 70 E) location pricing Page Ref: 406
front 71 71) When hotels drop their rates on the weekends, then this form of price discrimination is known as ________.	back 71 D) time pricing Page Ref: 406
front 72 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.	back 72 B) yield pricing Page Ref: 406

front 73 73) ________ refers to selling below cost with the intention of destroying competition.	back 73 C) Predatory pricing Page Ref: 407
front 74 74) For price discrimination to work ________.	back 74 D) the practice must not breed customer resentment and ill will Page Ref: 407
front 75 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 ________.	back 75 E) fragile-market-share trap Page Ref: 408
front 76 76) When higher-priced competitors match the lower prices but have longer staying power because of deeper cash reserves, it leads to a(n) ________.	back 76 E) shallow-pockets trap Page Ref: 408

front 77 77) A company does not set a final price until the product is finished or delivered. This is known as ________.	back 77 A) delayed quotation pricing Page Ref: 408
front 78 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 ________.	back 78 B) an escalator clause Page Ref: 408
front 79 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 ________.	back 79 C) unbundling Page Ref: 408
front 80 80) In markets that are characterized by products that are highly homogeneous, how should a firm react to a competitor's reduction in price?	back 80 E) augment the product Page Ref: 409