Manage Pricing Decisions Ch11 Complete Test Bank

Marketing Management, 3e (Marshall)

Chapter 11 Manage Pricing Decisions

1) Regardless of whether the setting is B2C or B2B, most costs are associated with the purchase price.

2) For the marketing manager, pricing is merely an economic break-even point or a cost-plus accounting calculation.

3) Since a product's price tends to be invisible, customers rarely have trouble moving past price to consider other critical benefits the product affords.

4) Price objectives are the desired or expected result associated with a pricing strategy and must be consistent with other marketing-related objectives, such as positioning or branding.

5) A competitor's price is one of the most visible elements of its marketing strategy; analyzing historical and current pricing patterns may allow firms to determine the competitor's pricing objective.

6) Effectively communicating a product's differential advantages is at the heart of positioning strategy, and exposure to these elements spurs the customer to develop perceptions of value and a subsequent understanding of the value proposition.

7) Firms that have an objective of utilizing pricing to communicate positioning use a stability pricing strategy.

8) Firms and brands that continually attempt to operate in the high-price/low-benefits environment do not survive over the long run as customer trust is damaged.

9) Firms frequently rely on combinations of pricing tactics in the marketplace rather than putting all their eggs in one basket.

10) In product line pricing, the escalation of product prices up the product line does not depend on prices competitors are charging for similar products.

11) Captive pricing entails gaining a commitment from a customer to a basic product or system that requires continual purchase of peripherals to operate.

12) With prestige pricing, some of the traditional price/demand curves cannot properly predict sales or market response because it violates the common assumption that increasing price decreases volume.

13) Odd pricing can backfire if misapplied, especially with respect to service industries.

14) A variable pricing strategy makes planning and forecasting much easier than a one-price strategy.

15) Due to its use of an everyday low pricing tactic, Walmart has historically needed to make heavy investment in promotional activities.

16) To set an exact price for goods or service, marketing managers should consider more than one method of calculation to arrive at the optimal price.

17) Average-cost pricing is a method for determining the price of an offering by adding a standardized markup on top of the costs for the offering.

18) A promotional allowance offers retailers the opportunity to receive some compensation from product marketers for the costs of successful product promotions.

19) Zone, uniform delivered, and free on board are examples of geographically-driven pricing options that can be implemented within a distribution channel.

20) Among the marketing mix variables, price is the easiest and quickest to alter, so sometimes firms overuse price changes to stimulate additional sales or gain market share.

21) The just noticeable difference in a price is the amount of price increase that can be taken without affecting customer demand.

22) When formulating a response to a competitor's price reduction, firms should consider their offering from the perspective of its overall value proposition to customers.

23) Deceptive pricing refers to the collusion among companies to set mutually beneficial high prices and limit competition.

24) The Robinson-Patman Act addressed price discrimination by prohibiting a seller's ability to offer different prices to different customers without a substantive basis.

25) The internal processes at Southwest Airlines are highly efficient, giving it a competitive advantage over other airlines. Southwest has a very efficient maintenance process and also has a very simple process of booking passengers. Because of these efficiencies, the company is able to offer customers an appealing mileage-driven pricing structure while also increasing the airline's profit margin. In this scenario, Southwest's competitive advantage is based on ________.

A) price perception

B) cost leadership

C) value ratio

D) service

E) quality

26) Michael Porter has consistently advocated that firms that are able to compete based on some extraordinary efficiency in one or more internal processes bring to the market a competitive advantage based on ________.

A) price perception

B) cost leadership

C) value ratio

D) service

E) quality

27) A company's core cost advantages translate directly to an edge over its competitors based on much more flexibility in its ________ as well as its ability to translate some of the cost savings to the bottom line.

A) pricing strategies

B) cost leadership

C) value ratio

D) service

E) quality

28) ________ is a critical component that plays into a customer's assessment of the value afforded by a firm and its offerings.

A) Price

B) Cost

C) ROI

D) Markup

E) Skimming

29) In markets where customers are sensitive to price and where internal efficiencies lead to cost advantages allowing for acceptable margins even with aggressive pricing, a ________ strategy can create a powerful barrier to market entry for other firms.

A) penetration pricing

B) target ROI

C) price skimming

D) competitor-based pricing

E) value pricing

30) When a firm's objective is to gain as much market share as possible, a likely pricing strategy is ________, sometimes also referred to as pricing for maximum marketing share.

A) penetration pricing

B) price skimming

C) target ROI

D) competitor-based pricing

E) value pricing

31) Firms should be careful with a ________ strategy, as price is a cue for developing customer perceptions of product quality. The value proposition may be reduced if a low price belies the product's actual quality attributes.

A) penetration pricing

B) price skimming

C) target ROI

D) competitor-based pricing

E) value pricing

32) Amelia is the marketing manager at a cafe in Charleston, and is responsible for deciding the price of dishes included on the cafe's menu. The chef of the cafe introduced a new dish, which was initially priced at $20 by Amelia, but she increased its price slowly over a period of 6 months. In this scenario, Amelia utilized a ________ strategy.

A) penetration pricing

B) price skimming

C) target ROI

D) competitor-based pricing

E) value pricing

33) A strategy of ________ addresses the objective of entering a market at a relatively high price point.

A) penetration pricing

B) price skimming

C) target ROI

D) competitor-based pricing

E) value pricing

34) In proposing a ________ strategy, the marketing manager usually is convinced that a strong price-quality relationship exists for the product.

A) penetration pricing

B) price skimming

C) target ROI

D) competitor-based pricing

E) value pricing

35) Jean Claude has just completed a new line of designer handbags. He wants the price to communicate to the customer that the handbags are high quality and exclusive, so he sets the price high. He knows that after this season, the price may need to decrease as the market evolves. Jean Claude is using a ________ strategy.

A) penetration pricing

B) price skimming

C) target ROI

D) competitor-based pricing

E) value pricing

36) Pricing objectives very frequently are designed to maximize profit, which necessitates a ________ pricing strategy.

A) penetration

B) price skimming

C) target return on investment (ROI)

D) price war

E) value

37) Hector is opening an appliance store. He has estimated a monthly profit goal based on his anticipated expenses and earning goals and uses it to set product prices. Hector is implementing a ________ pricing strategy.

A) penetration

B) price skimming

C) target return on investment (ROI)

D) competitor-based

E) value

38) ________ could lead the marketing manager to decide to price at some market average price, or perhaps above or below it in the context of penetration or skimming objectives.

A) Penetration pricing

B) Price skimming

C) Target ROI

D) Competitor-based pricing

E) Value pricing

39) Mark owns a driving range in New York City. He has taken notice of the three competitors who are located very close to his business. Mark decides to look at his competitors' pricing and then determine his best pricing strategy based on all of the information. In this scenario, Mark is utilizing ________.

A) penetration pricing

B) price skimming

C) target ROI

D) competitor-based pricing

E) value pricing

40) ________ can occur when a company purposefully makes pricing decisions to undercut one or more competitors and gain sales and net market share.

A) Cost leadership

B) A price war

C) Price skimming

D) Price discrimination

E) Price elasticity of demand

41) A firm attempts to find a neutral set point for price that is neither low enough to raise the ire of competition nor high enough to put the value proposition at risk with customers. The firm is adopting a(n) ________ pricing strategy.

A) stability

B) target ROI

C) value

D) average-cost

E) product line

42) Firms that have an objective of utilizing pricing to communicate positioning use a ________ strategy.

A) penetration pricing

B) price skimming

C) target ROI

D) competitor-based pricing

E) value pricing

43) Marco wants to buy a new car that is of good quality and available at an affordable price. After exploring the available options, Marco decides to purchase a car made by a popular car manufacturer, which has a high retail price but offers very low operating and maintenance costs. In this scenario, the pricing strategy employed by the car manufacturer is ________.

A) penetration pricing

B) price skimming

C) target ROI

D) competitor-based pricing

E) value pricing

44) In markets where customers typically witness rapidly changing prices, ________ can provide a source of competitive advantage.

A) price elasticity of demand

B) stability pricing

C) price bundling

D) auction pricing

E) variable pricing

45) For most products, as long as the customer perceives the ratio of price and benefit to be at least equal, perceptions of ________ will likely be favorable.

A) market share

B) quality

C) value

D) cost

E) brand image

46) Firms and brands that continually attempt to operate in the ________ quadrant do not survive over the long run as customer trust is damaged. Some firms use price skimming strategies, especially on product introductions, even when all the bugs have yet to be worked out of the product.

A) high price, high benefits

B) high price, low benefits

C) low price, high benefits

D) low price, low benefits

E) low price, no benefits

47) ________ affords the marketing manager an opportunity to develop a rational pricing strategy across a complete line of related items.

A) Product line pricing

B) Captive pricing

C) Price bundling

D) Reference pricing

E) Prestige pricing

48) Yoko is trying to explain to one of her ticket counter associates the differences in price associated with concert tickets. She explains that the lowest-priced tickets are for the least desirable seats and the highest-priced tickets are for the most desirable seats, with the rest of the ticket prices falling somewhere in between. Yoko is describing ________ pricing.

A) product line

B) captive

C) odd/even

D) reference

E) prestige

49) Marriott has branded its entire family of accommodations based on different value propositions, supported by clearly delineated pricing strategies. Its offerings include Ritz-Carlton and JW Marriott for the most discriminating patron, Marriott and Renaissance at the next level of full service, and an array of differentially positioned brands such Courtyard and Residence Inn. This is an example where ________ can occur at a level much broader in scope than individual products.

A) captive pricing

B) auction pricing

C) price lining

D) reference pricing

E) variable pricing

50) HP sells an inexpensive printer for an entry-level user, but the printer cartridges that need continual replacement are fairly expensive. This demonstrates the concept of ________.

A) product line pricing

B) captive pricing

C) price bundling

D) reference pricing

E) prestige pricing

51) Krista goes to a store to buy a new liquid soap dispenser. When she purchases a new dispenser from the store she gets two liquid soap refill packets for free, as part of a promotional offer, but she will need to purchase refills later. In this scenario, the pricing strategy used for the soap dispenser is ________ pricing.

A) product line

B) captive

C) variable

D) reference

E) prestige

52) When Claire purchased her new cell phone, she was offered an opportunity to purchase a car charger and a cover together at a reduced price. The cell phone provider was using a ________ strategy.

A) product line pricing

B) captive pricing

C) price bundling

D) reference pricing

E) prestige pricing

53) Bright House wants Madhukar to buy the full gamut of entertainment products, and the more he buys—digital television, premium channels, downloadable movies, local and long-distance phone service, cellular service, high-speed Internet—the better the deal becomes compared to the total of the individual prices of each product. Bright House is using a ________ strategy.

A) product line pricing

B) captive pricing

C) price bundling

D) reference pricing

E) prestige pricing

54) It can be useful for customers to have some type of comparative price when considering a product purchase. Such a comparison is referred to as ________ pricing, which in the case of price bundling is the total price of the components of the bundle if purchased separately versus the bundled price.

A) product line

B) captive

C) odd/even

D) reference

E) prestige

55) Bella is a discount furniture store. Most of the items in the store are overstock and hence tend to be more inexpensive than other furniture. Recently Bella started to display the manufacturers' suggested retail price next to the price it charges to show the savings. Bella is using a ________ strategy.

A) product line pricing

B) captive pricing

C) price bundling

D) reference pricing

E) prestige pricing

56) One rationale for establishing a price skimming objective is that ________ lends status to a product or brand by virtue of a price relatively higher than the competition.

A) product line pricing

B) captive pricing

C) price bundling

D) reference pricing

E) prestige pricing

57) Edvard works at a ski shop. He has just gotten a shipment of new snowboards and realizes that the company has priced its snowboards higher than the rest of the boards in his shop. Since Edvard took a marketing class in college, he knows that the company is most likely using ________.

A) product line pricing

B) captive pricing

C) price bundling

D) reference pricing

E) prestige pricing

58) Creating a perception about price merely from the image the numbers provide the customer demonstrates ________ pricing.

A) psychological

B) stability

C) variable

D) everyday low

E) high/low

59) Dag runs a hardware store. He learned that customers process the price of $9.99 as significantly lower than the price of $10.00 because of the reduced digit count in the price point. Accordingly, he follows this rule to set up the prices for all products. Dag uses a ________ strategy.

A) psychological pricing

B) one-price strategy

C) variable pricing

D) everyday low pricing (EDLP)

E) high/low pricing

60) With ________ pricing, customers are allowed—even encouraged—to haggle about prices.

A) psychological

B) captive

C) variable

D) odd/even

E) high/low

61) The fundamental philosophy behind ________ is to reduce investment in promotion and transfer part of the savings to lower price.

A) price bundling

B) target return on investment pricing

C) variable pricing

D) everyday low pricing

E) reverse auctions

62) The rise of Walmart as one of the world's largest corporations has brought the concept of ________ to the forefront of global consumer consciousness.

A) reverse auctions

B) target return on investment pricing

C) price points

D) everyday low pricing

E) high/low pricing

63) ________ is used by firms that rely on periodic heavy promotional pricing, primarily communicated through advertising and sales promotion, to build traffic and sales volume.

A) Psychological pricing

B) One-price strategy

C) Variable pricing

D) Everyday low pricing (EDLP)

E) High/low pricing

64) Dyani runs Cute Cakes, a gourmet cupcake bakery. To set prices for her cupcakes, Dyani looks at the cost of making each cupcake and then adds an additional amount on top of that to arrive at her price. Dyani is using ________.

A) cost-plus pricing

B) high/low pricing

C) markup on sales price

D) average-cost pricing

E) target return pricing

65) The Internet created a rise in ________ as more and more people decided to meet online to sell products to the highest bidder.

A) price elasticity of demand

B) stability pricing

C) prestige pricing

D) auction pricing

E) trade discounts

66) Besides the standard auction approach where buyers bid for a seller's offering, it is now very common for sellers to utilize ________ to bid prices to capture a buyer's business.

A) price elasticity of demand

B) stability pricing

C) online promotion

D) channel discounts

E) reverse auctions

67) Priceline.com is a firm that serves as a clearinghouse for extra capacity from airlines, hotels, and cruise lines. It is an example of a firm that uses a(n) ________ strategy.

A) cost-plus pricing

B) price war

C) reverse auction

D) average-cost pricing

E) target return pricing

68) You should be careful when using ________ pricing, as it is always possible that the quantity demanded will not match the marketing manager's forecast.

A) cost-plus

B) psychological

C) value

D) average-cost

E) prestige

69) James is trying to determine the best price for his new fishing poles and thus uses the sales price as a basis of calculating the markup percentage. He is using a ________ approach.

A) markup on cost

B) value price

C) average-cost pricing

D) markup on sales price

E) cost-plus

70) To better take into account the differential impact of fixed and variable costs, marketing managers can use ________ pricing.

A) cost-plus

B) psychological

C) odd/even

D) average-cost

E) target return

71) As with average-cost pricing, the effectiveness of ________ pricing is highly dependent on the accuracy of the forecast.

A) cost-plus

B) psychological

C) reference

D) average-cost

E) target return

72) ________ costs are incurred over time, regardless of volume, whereas ________ costs fluctuate with volume.

A) Fixed; variable

B) Variable; fixed

C) Total; variable

D) Variable; total

E) Marginal; total

73) ________ costs are the sum of the fixed and variable costs.

A) Marginal

B) Total

C) Average

D) Minimum

E) Reduced

74) To use target return pricing, one must first calculate total ________ costs.

A) fixed

B) variable

C) marginal

D) minimum

E) average

75) ________ are direct, immediate reductions in price provided to purchasers.

A) Allotments

B) Rebates

C) Offers

D) Discounts

E) Allowances

76) ________ remit monies to purchasers after the fact.

A) Allotments

B) Coupons

C) Offers

D) Discounts

E) Allowances

77) Solid Surface, a countertop store, will give customers a 10 percent discount if they pay their bills in full in 20 days; however, after 20 days they do not receive a discount. This is an example of a ________.

A) cash discount

B) trade discount

C) quantity discount

D) seasonal discount

E) promotional allowance

78) ________ provide an incentive to a channel member for performing some function in the channel that benefits the seller, such as stocking a product or performing a product service.

A) Cash discounts

B) Quantity discounts

C) Trade discounts

D) Seasonal discounts

E) Promotional allowances

79) ________ are typically expressed as greatly extended invoice due dates.

A) Cash discounts

B) Trade discounts

C) Quantity discounts

D) Seasonal discounts

E) Promotional allowances

80) Veggie Vitality will send retailers a check if the retailer successfully includes its vegetable-based smoothies in promotional efforts. Veggie Vitality uses ________ to incentivize retailers.

A) cash discounts

B) trade discounts

C) quantity discounts

D) seasonal discounts

E) promotional allowances

81) Which of the following free on board (FOB) pricings indicates that until the goods arrive at the purchaser's location, title doesn't change hands and freight charges are the responsibility of the seller?

A) FOB-destination

B) FOB-origin

C) FOB-factory

D) FOB-zone

E) FOB-market

82) Giovanni's Gems is a high-quality Italian leather goods store in Manhattan. Giovanni also runs an Internet site where people can buy his products and he will charge the same delivery fee to any location within the 48 contiguous states. Giovanni utilizes ________ pricing.

A) free on board (FOB)

B) uniform delivered

C) zone

D) psychological

E) product line

83) When shipping prices are dependent on geographic areas based on the distance from the shipping location, it is considered ________ pricing.

A) free on board (FOB)

B) uniform delivered

C) zone

D) target return

E) psychological

84) ________ is the amount of price increase that can be taken without affecting customer demand.

A) Just noticeable difference (JND)

B) Price skimming

C) Return on investment (ROI)

D) Reference pricing

E) Free on board (FOB)

85) ________ could result in overall higher prices for consumers since various competitors are all pricing the same to maximize their profits.

A) Price-fixing

B) Price discrimination

C) Deceptive pricing

D) Reference pricing

E) Predatory pricing

86) Jameson purchased an alarm system for his car during a promotion. He considered the price after the promotion to be very attractive. However, he later learned that the firm set an artificially high reference price for the alarm system just before the promotion to make the advertised sale price more attractive. Jameson just experienced ________.

A) price fixing

B) price discrimination

C) deceptive pricing

D) bait and switch

E) predatory pricing

87) When a seller advertises an item at an unbelievably low price to lure customers into a store, and then refuses to sell the advertised item and instead pushes a similar item with a much higher price and higher margin, the seller is participating in the illegal practice of ________.

A) price fixing

B) price discrimination

C) psychological pricing

D) bait and switch

E) predatory pricing

88) Companies that collude to set prices at a mutually beneficial high level are engaged in ________.

A) price discrimination

B) deceptive pricing

C) predatory pricing

D) price-fixing

E) bait and switch

89) A strategy to intentionally sell below cost to push a competitor out of a market, then raise prices to new highs, is called ________.

A) price-fixing

B) price discrimination

C) deceptive pricing

D) bait and switch

E) predatory pricing

90) In the past, ________ allowed manufacturers to establish artificially high prices by limiting the ability of wholesalers and retailers to offer reduced or discounted prices.

A) fair trade laws

B) minimum markup laws

C) the Robinson-Patman Act

D) the Consumer Goods Pricing Act

E) price discrimination

91) ________ require that a certain percentage markup be applied to all products.

A) Fair trade laws

B) Minimum markup laws

C) Partnership laws

D) State fair trade laws

E) Criminal laws

92) ________ refers to products sold at prices below cost to attract shoppers to a store.

A) Free on board (FOB)

B) Bait and switch

C) Price bundling

D) Loss leader

E) Prestige

93) Define the concept of cost leadership. Explain how a company might achieve cost leadership and the primary benefits to be gained.

94) Define and discuss the pros and cons of three of the following pricing strategies: penetration pricing, price skimming, target return on investment (ROI) pricing, competitor-based pricing, and value pricing.

95) Explain the tactic of product line pricing and provide three examples of this strategy in the marketplace today.

96) Explain step-by-step how average-cost pricing would be used to set the exact price of a product. What is the primary risk associated with average-cost pricing?

Step 1: Calculate the total costs expected to produce the product.

Step 2: Forecast the number of units expected to be sold.

Step 3: Divide the total cost by the number of units to determine the average cost per unit.

Step 4: Add the desired profit margin to the average cost per unit to determine the average price per unit.

97) Define the four types of channel discounts and provide an example of each.

98) You are a marketing manager and have determined that to meet your company's financial objectives, you will need to increase the bottom line contribution of your product. What are three creative approaches you might take beyond just considering a price increase?

99) Define price-fixing and differentiate horizontal price-fixing from vertical price-fixing. Give an example of how price-fixing might manifest in the market.