Deck 13: Pricing Concepts

Question 1

A cost that remains stable at any production level within a certain range is called a(n) _____ cost.

A) variable
B) fixed
C) average total
D) marginal

Answer 1

B

Question 2

Many firms attempt to promote stable prices by meeting competitors' prices to maintain pricing parity.

Answer 2

True

Question 3

Prestige pricing establishes a relatively high price to develop and maintain an image of quality and exclusiveness that appeals to status-conscious consumers.

Answer 3

True

Question 4

A price is the amount of funds required to purchase a good or service.

Question 5

A cost that changes with the level of production is called a(n) _____ cost.

A) variable
B) fixed
C) average total
D) marginal

Question 6

Breakeven analysis is an effective tool for marketers in assessing the sales required for covering costs and achieving specified profit levels.

Question 7

The price of products only includes the costs incurred by the manufacturer for procuring the raw material and for processing the products.

Question 8

The pricing technique used to determine the number of products that must be sold at a specified price to generate enough revenue to cover total cost is known as _____ analysis.

A) cost-plus
B) marginal
C) breakeven
D) incremental-cost

Question 9

A shortcoming of the breakeven model is that it assumes that per-unit variable costs change at different levels of operation.

Question 10

A value pricing strategy emphasizes the benefits a product provides in comparion to the price and quality levels of competing offerings.

Question 11

Which of the following pricing objectives reflects marketers' recognition of the role of price in creating an overall image of the firm and its product offerings as being high quality or exclusive?

A) A value objective
B) A volume or sales objective
C) A competition objective
D) A prestige objective

Question 12

Prestige pricing objectives emphasize:

A) quality and exclusivity.
B) revenue or sales maximization.
C) competitive parity.
D) market share minimization.

Question 13

Prestige objectives reflect marketers' recognition of the role of price in creating an overall image of the firm and its product offerings.

Question 14

The basic breakeven model addresses the question of whether customers will actually purchase the product at the specified price in the quantity required to break even or make a profit.

Question 15

Breakeven analysis is an effective tool to determine the level of sales required to cover costs.

Question 16

Which of the following actions is most likely to be taken by a company in order to implement the value pricing objective?

A) Distributing free samples of the product to create awareness about the product among the consumers
B) Convincing consumers that the quality of their lower-priced product is the same as that of a comparatively higher-priced product sold by a competitor
C) Convincing consumers of the prestige associated with the product
D) Distributing free gifts along with the product during its introductory stage

Question 17

A pricing strategy that emphasizes benefits of a product in comparison to the price and quality levels of competing offerings is called _____ pricing.

A) prestige
B) image
C) volume
D) value

Question 18

Which of the following is an example of a volume pricing objective?

A) Setting price in line or on parity with competition
B) Emphasizing the benefits or value a product provides
C) Reducing price to gain a higher share of the market
D) Establishing a relatively high price to create a high quality image

Question 19

Overall organizational objectives and more specific marketing objectives guide the development of pricing objectives, which in turn lead to the development and implementation of more specific pricing policies and procedures.

Question 20

Analysis has shown that ingredients account for less than 5 percent of a perfume's cost. So if a perfume costs $135 or more per ounce, it reflects the marketer's adoption of a pricing objective that focuses on:

A) expanding market share.
B) creating image or prestige.
C) meeting competitors' prices.
D) maximizing sales.

Question 21

Define price. Explain why setting prices can be a difficult process.

Question 22

Deena operates a coffee shop located near the university campus. Her major competitor is Kaprice's Coffee on the corner across the street from Deena's Café. Recently, Deena decided to raise the price of all the products she sells. Since they are close competitors with Deena's Café, Kaprice's can most likely experience:

A) an increase in sales.
B) a decrease in sales.
C) an operating loss.
D) an operating profit.

Question 23

Mignon d'Armitage manufactures jewelry. This firm is planning to introduce a new necklace and is trying to determine how many units it must sell in order to break even. Fixed costs are $100,000 and variable costs for each unit will be $20. At the price of $45 each, the number of units that must be sold in order to break even is:

A) 2,500.
B) 4,000.
C) 5,000.
D) 7,500.

Question 24

When a company sells its goods or services at a price less than the overall costs, the company incurs a:

A) loss.
B) profit.
C) contribution margin.
D) negative transaction.

Question 25

Which of the following is a limitation of breakeven analysis?

A) Consumer demand for products or services is not considered.
B) The analysis fails to separate fixed costs from variable costs.
C) The calculations assume that per-unit variable costs will change as different amounts are produced.
D) It is difficult to understand and apply.

Question 26

The breakeven point is the point at which:

A) revenue from sales equals the variable cost of the product.
B) the supply curve intersects the demand curve.
C) total revenue from sales equals total cost.
D) marginal cost runs above the marginal revenue curve.

Question 27

Krizia is excited about her bakery that she just started. As a marketing major, Krizia knows that setting the correct price will be critical to the success of her bakery. In particular, Krizia wants to get a very good grip on costs, as she knows costs establish the ___________ for her prices.

A) floor
B) competitive positioning
C) ceiling
D) profits

Question 28

What are the major weaknesses of traditional breakeven analysis?

Question 29

Explain the concept of value pricing.

Question 30

​You would like to apply breakeven analysis to know when your startup tutoring venture will turn a profit. Which of the following considerations must you take into account?

A) ​The hourly wage you pay your tutors.
B) ​The rent you pay your office landlord.
C) ​The hourly price you intend to charge for tutoring.
D) ​The demand for tutoring services in your market.
E) ​All of the above must be considered.

Question 31

The Acme Flashlight Company breaks even at 20,000 flashlights at $6 each, with the average variable cost per flashlight of $4. The amount of its fixed costs is:

A) $20,000
B) $40,000
C) $60,000
D) $80,000

Question 32

Krizia is excited about her bakery that she just started. In her bakery, rent, utilities, and salaries of non-production staff will all be elements of:

A) fixed costs.
B) variable costs.
C) profit margin.
D) sales price.

Question 33

Jennifer is looking for a wedding present for her fiancé and is considering buying him a watch. She likes luxury items and is willing to spend between $4,000 and $10,000 on the gift. She visits several jewelry stores and realizes that the prices are the same for Rolex and Philippe Patek brand watches and each store tells her these brands are never discounted. What type of pricing objective is utilized by Rolex and Philippe Patek?

A) Prestige
B) Profit
C) Volume
D) Meeting competitors

Question 34

A company incurs fixed costs of $35,000 and average variable costs of $7 per item. This company sells 10,000 units and just breaks even. The unit selling price for the product is:

A) $10.00
B) $7.35
C) $17.00
D) $10.50

Question 35

A product is priced to sell for $12 with average variable costs of $8. The company's total fixed costs are $120,000. The minimum number of units that must be sold in order to the breakeven point with zero profits are:

A) 40,000
B) 30,000
C) 15,000
D) 10,000

Question 36

Deena operates a coffee shop located near the university campus. Recently, Deena decided to raise the price of all the products she sells. According to the law of demand, Deena can expect:

A) sales to decrease.
B) sales to increase.
C) to incur an operating loss.
D) to incur an operating profit.

Question 37

A five-pound bag of roasted peanuts sells for $8, and the average variable cost is $4 per bag. If the total fixed cost for the roasted peanuts is $80,000, the breakeven point in bags is:

A) 20,000
B) 40,000
C) 80,000
D) 120,000

Question 38

Several factors influence the best price. In particular three core issues influence the correct price. Which of the following is NOT one of the three foundations of pricing?

A) Supply
B) Costs
C) Potential demand
D) Competition

Question 39

You are head of sales and marketing for your cowboy boots manufacturing firm. It has been a chaotic product year, with a great deal of input from many stakeholders: consumer advocacy groups, employees, competitors, and shareholders. You are meeting with the CEO to establish pricing objectives for the upcoming product year. ​
Required:
Which of the following factors will you consider as you establish your firm's pricing objectives?

A) Consumer advocacy groups' concerns
B) Sales reps' compensation packages
C) Competitors' complaints
D) The firm's survival
E) dissident shareholders' complaints

Question 40

You are asked by a non-marketing executive of your hip-hop music company to clarify some financial language she heard at a recent annual presentation to investors. She asks you to give her a simple one-sentence definition of "breakeven analysis." ​
Required:
Which of the following definitions meets her request for a simple one-sentence definition of "breakeven analysis?"

A) "We have been cutting records for years, so our customers are used to paying a certain amount for our albums. We keep our price constant to get repeat business."
B) "We first do our research to find out what price our competitors are selling their records for. Then we use that number to figure out how many records we need to cut to make a larger profit than our competitors."
C) "We first figure out the number of records we need to sell at a set price minus records returned for refunds. That amount of money must be enough to cover the total costs of our producing the records."
D) "We use all our information from the previous year's sales, then we add 10 percent to the production and 10 percent to the price."
E) "We want to make sure that we sell all the albums that we produce, so we start out at a full price, and make discount adjustments along the way."

Question 41

Jayce is searching for a ticket home from college for semester break. While he has checked several websites and all the airlines that fly the route he will take, it seems like every airline is charging the same price. It appears that the airlines are using:

A) competitive parity pricing.
B) value pricing.
C) market-based pricing.
D) cost-plus pricing.

Question 42

In most economies, _______refers to the amount of funds required to purchase a product.

A) price
B) cost
C) profit
D) demand

Question 43

It is interesting that gasoline stations near one another normally have the very same price - down to the tenth of a cent a gallon! From a strategic pricing perspective, we can conclude gasoline stations tend to use a:

A) competition objective.
B) sales volume objective.
C) prestige objective.
D) loss avoidance objective.

Question 44

Champagne is a product with considerable mystic. There is rarely a James Bond movie where he does not drink some Champagne with a beautiful woman! Champagne is typically associated with the "finer things in life." However, even among Champagnes, some are special - often just by the pricing strategy taken. For example, Dom Pérignon Rose Gold in the 6-liter bottle is priced at nearly $50,000, assuring this Champagne is perceived as "the finest thing in life." Dom Pérignon is using:

A) prestige pricing.
B) high line pricing.
C) ultra pricing.
D) market-based pricing.

Question 45

Nakamichi introduced a set of true high-fidelity headphones at a price of $2,000. However, the product simply did not find a market. Most likely, this was due to:

A) The price exceeded the consumer price ceiling.
B) The price was below the consumer price floor.
C) Fixed costs were too high.
D) Competitors' prices were too high.

Question 46

Pricing is a highly visible component of a firm's marketing mix and an easy tool for obtaining a differential advantage over competitors. However, when competitors continually undercut each other to gain that advantage, it can lead to a price war that damages all companies involved. When firms have identical or very similar products and price information is readily available - for example, Coca-Cola and Pepsi - a common pricing approach to avoid price wars is:

A) competitive-parity pricing.
B) market-based pricing.
C) commodity pricing.
D) bargain pricing.

Question 47

Azature introduced the "world's most expensive nail polish." The Black Diamond nail polish contains 267 carats of crushed black diamond powder and a price of a whopping $250,000 a bottle. Azature is using a(n) _______ approach.

A) prestige pricing
B) price-line pricing
C) ultra-pricing
D) competitive parity pricing

Question 48

Designer companies such as Prada, Chanel, and Cartier tend to price their product very high to infer quality and exclusivity to potential customers. Strategically, this approach is known as a:

A) prestige objective.
B) sales volume objective.
C) competition objective.
D) loss avoidance objective.

Question 49

Almost all fast-food restaurants offering a short menu with low prices to compete with the other restaurants. These are intended to attract very price conscious consumers and are usually a "dollar menu" or offered at prices such as $.99 and $1.49. This approach is referred to as:

A) value pricing.
B) deep discounting.
C) cost-plus pricing.
D) basic pricing.

Question 50

Brands which can differentiate themselves from competitors by features, quality, or service are able to:

A) charge a higher price than competitors.
B) reduce fixed costs.
C) reduce variable costs.
D) increase the breakeven volume.

Question 51

A firm can price its items at the same price as competitors, or try to sell its products at a price higher than its competitors. To sell at a price higher than the competition, a firm would need to:

A) enhance features or otherwise differentiate its product and justify the higher price.
B) reduce the production costs so the profit margin would be higher.
C) make sure its price end in a ".99."
D) be willing to lose money on that product line.

Question 52

Which of the following is NOT one of the three foundations of pricing?

A) Production efficiency
B) Costs
C) Potential demand
D) Competition

Question 53

Customer demand is an important consideration in establishing prices. Demand, or at least potential demand, actually establishes the ___________ for a firm's prices.

A) ceiling
B) losses
C) profits
D) floor

Question 54

A company might sell a product below the production costs for short-term promotional purposes.

Question 55

A company will never sell a product below the production costs.

Question 56

Prices are related to the other elements of the marketing mix and to virtually all marketing outcomes. If a firm has a strong desire to increase its market share, it is likely it will:

A) decrease the price of the product.
B) increase the price of the product.
C) use a prestige pricing approach.
D) match the competitors price.

Question 57

Mitch and Jill were visiting the Eiffel Tower when there was a downpour. They were willing to pay 25 euros for a poorly made umbrella that would usually sell for 10 euros or less. This illustrates the fact that:

A) The relationship between price and potential demand can be driven by many factors.
B) That cost plays no role in pricing decisions.
C) Consumers act in irrational manner.
D) Travelers do not understand exchange rates.

Question 58

Firms with a volume or sales objective are most likely to:

A) reduce prices to maximize sales or gain a specific market share.
B) charge a higher price than most competitors to increase revenue.
C) raise prices to maintain prestige.
D) match competitors' prices.

Question 59

Firms expect each of their products to:

A) cover the direct costs of production and help contribute to the regular fixed costs.
B) cover the direct costs of production, but not contribute to the fixed costs.
C) cover the organizations complete fixed costs.
D) cover the regular fixed costs of the organization and contribute to the costs of production.

Question 60

There are a variety of pricing strategies available to firms. For example, firms selling perishable goods - such as a produce shop - might want to make sure all the inventory is sold. This firm would likely have a

A) sales volume objective.
B) competition objective.
C) prestige objective.
D) loss avoidance objective.

Question 61

Temporary price cuts are the only tactic available for increasing a product's market share.

Question 62

Vandelay Industries manufactures a range of latex products. To set the price of its products, George, the CEO of Vandelay, calculates the total cost associated with the manufacturing of each product, then multiples that by 1.5 to get the sales price. Therefore, a product that cost $10 manufacture would sell for $15. Vandelay is using:

A) cost-based pricing.
B) invoice pricing.
C) discount pricing.
D) sales volume pricing.

Question 63

Mayra works at a jewelry store on the weekends. Roman, the store manager, asked her to help him with putting price tags on some new jewelry for display. Mayra was surprised that there was not much thought to the pricing process - all they did was look on the invoice for the price they paid, double that amount, and put that figure on the price tag. Therefore, an item that they paid $125 was priced at $250. The jewelry store's margin percentage on that item when sold would be:

A) 50%.
B) 100%.
C) 200%.
D) 25%.

Question 64

A firm that uses the product cost plus a target markup percentage to calculate the sales price is using:

A) cost-based pricing.
B) expense pricing.
C) discount pricing.
D) fixed expense pricing.

Question 65

The bookstore on your college campus uses a cost-based pricing approach with a 50% markup percentage. A new textbook has a wholesale price of $200. What will you be charged for the textbook?

A) $300
B) $100
C) $250
D) $50

Question 66

Mayra works at a jewelry store on the weekends. Roman, the store manager, asked her to help him with putting price tags on some new jewelry for display. Mayra was surprised that there was not much thought to the pricing process - all they did was look on the invoice for the price they paid, double that amount, and put that figure on the price tag. The jewelry store was using:

A) cost-based pricing.
B) invoice pricing.
C) discount pricing.
D) sales volume pricing.

Question 67

Firms with a prestige pricing objective are most likely to:

A) charge a higher price than most competitors to enhance their perceived quality.
B) reduce prices to maximize sales or gain a specific market share.
C) charge a lower price than most competitors to increase revenue.
D) match competitors' prices.

Question 68

MycroFiber is a producer of microfiber material for the auto detailing industry. Jamal, the owner of MycroFiber is highly skilled in the technical and manufacturing areas, but does not understand pricing. Jamal knows he wants to cover the cost of production when selling his material and needs revenue to cover his overhead costs and to make a profit. To be sure he meets these goals, Jamal decides to calculate the cost of production and add a percentage to that. Jamal is using:

A) cost-based pricing.
B) value pricing.
C) total view pricing.
D) overhead pricing.

Question 69

Prestige pricing is a common approach for fast food restaurants.

Question 70

Vandelay Industries manufactures a range of latex products. To set the price of its products, George, the CEO of Vandelay, calculates the total cost associated with the manufacturing of each product, then multiples that by 1.5 to get the sales price. Therefore, a product that cost $10 manufacture would sell for $15. Vandelay's markup percentage is:

A) 50%
B) 150%
C) 25%
D) You cannot calculate Vandelay's markup from the information provided

Question 71

Nakamichi introduced a set of true high-fidelity headphones at a price of $2,000. Most likely, Nakamichi was attempting to:

A) take a prestige pricing approach.
B) take a sales volume approach.
C) take a pricing parity approach.
D) take a market share maximization approach.

Question 72

Vandelay Industries manufactures a range of latex products. To set the price of its products, George, the CEO of Vandelay, calculates the total cost associated with the manufacturing of each product, then multiples that by 1.5 to get the sales price. Therefore, a product that cost $10 for Vandelay to manufacture would sell for $15. Vandelay's margin percentage on the sale is:

A) 33.3%.
B) 50%.
C) 150%.
D) 25%.

Question 73

Vandelay Industries manufactures a range of latex products. To set the price of its products, George, the CEO of Vandelay, calculates the total cost associated with the manufacturing of each product, then multiples that by 1.5 to get the sales price. Therefore, a product that cost $10 for Vandelay to manufacture would sell for $15. Vandelay's margin on the sale is:

A) $5.
B) $10.
C) $15.
D) $20.

Question 74

While both use a mathematical calculation, there is an important different between "markup" and "margin." Which of the following is correct?

A) Markup is a percentage added to the cost of the product and margin is a percentage of the sales price left over after paying for the cost of the product.
B) Margin is a percentage added to the cost of the product and markup is a percentage of the sales price left over after paying for the cost of the product.
C) Markup can only be calculated based on selling price, while margin is only calculated based on wholesale price.
D) Margin is calculated based on variable costs while markup is based on fixed costs.

Question 75

Mayra works at a jewelry store on the weekends. Roman, the store manager, asked her to help him with putting price tags on some new jewelry for display. Mayra was surprised that there was not much thought to the pricing process - all they did was look on the invoice for the price they paid, double that amount, and put that figure on the price tag. Therefore, an item that they paid $125 was priced at $250. The jewelry store's markup percentage is:

A) 100%
B) 150%
C) 200%
D) 50%

Question 76

Taylor recently went shopping for the first time at Farm to Home, a whole foods grocery store that emphasizes natural, hormone-free products. Taylor usually shops at Walmart and pays $.88 for a gallon of milk. At Farm to Home, a gallon of milk was $9.00. It seems that Farm to Home is using a:

A) prestige pricing approach.
B) sales volume approach.
C) pricing parity approach.
D) market share maximization approach.

Question 77

Value pricing is a common approach for fast food restaurants.

Question 78

When Josh stopped at the convenience store for a drink, he noticed that in both the cooler and the fountain drinks the prices of all the soft drinks were identical. You could choose Coke, Pepsi, Dr. Pepper, Mountain Dew, or many others, but they were all the same price. This is an example of:

A) competitive parity pricing.
B) discount pricing.
C) prestige pricing.
D) market share pricing.

Question 79

A retailer that uses a cost-based pricing approach would base its price on:

A) the wholesale cost of the item.
B) the competitor's price of the item.
C) the retailer's overall fixed costs.
D) customer demand.

Question 80

When firms have identical or very similar products and price information readily available - for example, cigarettes or soft drinks - a common pricing approach to avoid price wars is utilizing a competitive parity pricing strategy.