Exam 18: Price Setting in the Business World

Regarding break-even analysis,a good marketing manager knows that

Retailers who earn high profits generally use higher markups than retailers who have low profits.

Total fixed costs do not change when output increases.

Wilson sells a basketball to a wholesaler for $16,and the wholesaler applies a 20 percent markup.A retailer then applies a 33.3 percent markup.The final selling price is

Use this information for questions that refer to the Sporting Products,Inc.(SPI)case. Randy Todd,marketing manager for Sporting Products,Inc.(SPI),is thinking about how changes taking place among retailers in his channel might impact his strategy. SPI sells the products it produces through wholesalers and retailers.For example,SPI sells basketballs to Wholesale Supply for $8.00.Wholesale Supply uses a 20 percent markup,and most of its "sport shop" retailer customers,like Robinson's Sporting Goods,use a 33 percent markup to arrive at the price they charge final consumers.However,one fast-growing retail chain,Sports Depot,uses only a 20 percent markup for basketballs,even though it pays Wholesale Supply the same price as other retailers.Furthermore,Sports Depot occasionally lowers the price of basketballs and sells them at cost,to draw customers into its stores and stimulate sales of its pricey basketball shoes. Sports Depot is also using other pricing approaches that are different from the sports shops that usually handle SPI products.For example,Sports Depot prices all its baseball gloves at $20,$40,or $60-with no prices in between.There are three big bins,one for each price point. Randy is also curious about how Sports Depot's new strategy to increase sales of tennis balls will work out.The basic idea is to sell tennis balls in large quantities to nonprofit groups,who resell the balls to raise money.For example,a service organization at a local college bought 2,000 tennis balls printed with the college logo.Sports Depot charged $.50 each for the tennis balls,plus a $500 one-time charge for the stamp to print the logo.The service group plans to resell the tennis balls for $2.50 each and contribute the profits to a shelter for the homeless. Randy is not certain if Sports Depot's ideas will affect SPI's plans.For example,SPI is considering adding tennis racquets to the lines it produces.This would require a $500,000 addition to its factory,as well as the purchase of new equipment that costs $1,000,000.The variable cost to produce a tennis racquet would be $20,but Todd thinks that SPI could sell the racquet at a wholesale price of $40 each.That would allow most retailers to add their normal markup and make a profit.However,Sports Depot may sells the racquet at a lower than normal price. If SPI uses average-cost pricing,one big problem will be that

TopKnotch Mfg.Co.has a production cost of $280.It sells its product to a wholesaler for $400.The wholesaler then sells the item to retailers for $500 and the retailers sell the item for $1,000.Which of the following is true about this markup chain?

Total variable cost

Alex's Knot Shop prices its ties at $5 intervals from $10 to $25 because most customers find these prices appealing and easier to compare.This is

With complementary product pricing,different price levels are set on different products because the products are targeted at different market segments.

Switching costs refers to costs that a customer faces when buying a product that is different from what has been purchased or used in the past.

Items with lower markups may be more profitable if the stockturn rate is higher.

Which of the following observations is true?

Average fixed costs

Which of the following is an example of subscription pricing?

The total fixed costs are $10,000,and the average variable cost per unit is $3.For a production volume of 10,000 units,the average cost per unit is

The number of times an intermediary's average inventory is sold in a year is called the

The sole objective of leader pricing is to sell large quantities of the leader items.

A typical break-even analysis assumes that

With the expectation that some customers will pay later,firms sometimes use "free" as a price.

Some retailers feel that their potential customers find certain prices appealing but that prices within certain ranges are seen as roughly the same,and thus price cuts within a given range will not increase the quantity sold (i.e.,the demand curve is vertical within these "same price" ranges).These retailers would probably use ________ if they want to maximize profit.