Deck 21: Developing and Applying a Pricing Strategy

Question 1

Which of these is NOT an indication that a pricing strategy may be performing poorly?

A) A firm attracts customers more concerned with service than with price.
B) Prices are changed frequently.
C) Salespersons spend a large portion of their time negotiating with clients.
D) Channel members complain about terms and discounts.

Answer 1

A firm attracts customers more concerned with service than with price.

Question 2

A firm that is oriented toward high sales volume or high market share should seek ___-based pricing objectives.

A) status quo
B) broad
C) sales
D) profit

Answer 2

sales

Question 3

Penetration pricing is best used with which pricing objective?

A) Status quo-based
B) Sales-based
C) Broad-based
D) Profit-based

Answer 3

Sales-based

Question 4

A firm believes it can reduce costs by increasing its market share (due to high bargaining power and opportunities for mechanization and automation). It should use ___ pricing.

A) flexible
B) customary
C) skimming
D) penetration

Question 5

A firm discovers that customer demand is very price elastic and that a large consumer market exists. Which pricing technique should the firm utilize?

A) Penetration pricing
B) A one-price policy
C) Skimming pricing
D) Broad price policy

Question 6

An early-recovery-of-cash objective is a type of what broader pricing objective?

A) Status quo-based
B) Broad-based
C) Profit-based
D) Sales-based

Question 7

A firm with inelastic consumer demand and patent protection should utilize

A) a penetration price strategy.
B) a skimmimg price strategy.
C) subjective pricing.
D) market-driven pricing.

Question 8

After the innovator segment of the marketplace is saturated, a low price can be used to appeal to the mass market. This strategy illustrates

A) flexible pricing.
B) skimming pricing followed by penetration pricing.
C) a broad price policy.
D) penetration pricing followed by skimming pricing.

Question 9

A wholesaler wanting to minimize the impact of a discounter selling gray market goods should use ___-based pricing objectives.

A) profit
B) status quo
C) sales
D) return-on-investment

Question 10

A firm's meeting the lower price of a competitor (but being careful not to start a price war) illustrates the use of ___-based pricing objectives.

A) status quo
B) profit
C) sales
D) early-recovery-of-cash

Question 11

A firm's overall pricing strategy is coordinated with its target market, image, and marketing mix through a

A) broad price policy.
B) competition-based price strategy.
C) demand-based price strategy.
D) cost-based price strategy.

Question 12

A firm sets prices by computing merchandise, service, and overhead costs, and then adds an amount to cover its profit goals. This illustrates a

A) demand-based price strategy.
B) competition-based price strategy.
C) broad price policy.
D) cost-based price strategy.

Question 13

The lowest price a firm can charge and still attain its profit goal becomes its

A) customary price.
B) flexible price.
C) price ceiling.
D) price floor.

Question 14

Which of these is a major limitation of cost-based pricing?

A) It does not consider competitive prices.
B) Excessive profits are usually sought.
C) It is hard to implement.
D) Costs are more difficult to estimate than consumer demand at various price levels.

Question 15

Which statement concerning cost concepts is correct?

A) Average total costs usually decline over the entire range of production.
B) Total fixed costs usually rise over the entire range of production.
C) Average fixed costs are usually constant over the entire range of production.
D) Total variable costs are usually constant over the entire range of production.

Question 16

Markup percentages are usually expressed in terms of an item's selling price, not its cost, because

A) profitability appears higher.
B) trade discounts are generally stated as percentages of costs.
C) selling prices to channel members represent those channel members' costs.
D) expenses, markdowns, and profits are computed as percentages of sales.

Question 17

Differences in personal selling costs among products are reflected in a

A) price-floor pricing policy.
B) markup pricing policy.
C) variable markup pricing policy.
D) traditional break-even analysis.

Question 18

For target pricing to operate properly, a firm needs to

A) reach its break-even volume.
B) produce at its full production capacity.
C) receive approval from government regulatory agencies.
D) sell its entire standard volume at specified prices.

Question 19

Target pricing is most commonly used by

A) high labor-intensive firms.
B) firms with high excess capacity.
C) capital-intensive firms.
D) leveraged buyouts.

Question 20

The lowest price at which it is worthwhile for a company to increase the amount of goods and services it makes available for sale can be determined via

A) price-floor pricing.
B) cost-plus pricing.
C) markup pricing.
D) target pricing.

Question 21

Price-floor pricing is most likely to be used when a firm has

A) high capital costs.
B) high levels of overall competition.
C) a nondifferentiated good or service.
D) excess (unused) capacity.

Question 22

An unrealistic assumption made in traditional break-even analysis is that

A) a firm will profit at all sales amounts above the break-even point.
B) greater quantities can be sold at lower prices.
C) excess capacity exists.
D) wide variations in quantity can be sold at the same price.

Question 23

A firm sets its prices after studying consumer desires and the range of prices that are acceptable to its target market. This approach illustrates ___ pricing.

A) cost-based
B) competition-based
C) price-floor
D) demand-based

Question 24

If a firm exceeds its target market's price ceiling for a product, consumers will most likely

A) purchase all the firm's products at the specified price.
B) purchase some of the firm's products at the specific price.
C) not make any purchases at this price level.
D) bargain with the firm for lower prices.

Question 25

The first step in demand-minus pricing is to determine

A) return-on-investment requirements.
B) production and marketing costs.
C) markup requirements for all channel members.
D) final selling price.

Question 26

With which pricing technique are the maximum acceptable costs for each channel member computed?

A) Target pricing
B) Modified break-even analysis
C) Chain-markup pricing
D) Price lining

Question 27

A firm with a long direct channel of distribution should use which pricing technique to set prices?

A) Chain-markup pricing
B) Modified break-even analysis
C) Competitive bidding
D) Demand-minus pricing

Question 28

Which of these pricing techniques examines total fixed costs, variable costs per unit, and selling price, as well as demand at various price levels?

A) Traditional break-even analysis
B) Target pricing
C) Modified break-even analysis
D) Price discrimination

Question 29

Two or more distinct prices are set for a product so as to appeal to different final consumer or organizational consumer segments in

A) chain-markup pricing.
B) demand-minus pricing.
C) price discrimination.
D) target pricing.

Question 30

In product-based price discrimination, price differentials for each good or service should be

A) equal to cost differentials.
B) greater than cost differentials.
C) less than cost differentials.
D) based on modified break-even analysis.

Question 31

The mix of price-quantity combinations that produces the highest level of revenues for a given time is determined through

A) price-floor pricing.
B) the expected value concept.
C) yield management pricing.
D) cost-plus pricing.

Question 32

The proper role of a price leader is to

A) set prices that reflect the firm's cost advantages.
B) set prices to reflect market conditions, without disrupting the marketplace.
C) set long-term industry prices that require a minimum of change in the future.
D) establish industry prices that maximize the leader's long-term sales and profits.

Question 33

Which mathematical theory states that as a bid price increases, the profit to a firm increases, but the probability of its winning a contract decreases?

A) Marginal return
B) Expected profit concept
C) Competitive bidding
D) Cost-plus pricing

Question 34

A channel member sets its prices and seeks to maintain them over an extended time period with ___ pricing.

A) customary
B) competition
C) demand-based
D) cost-based

Question 35

Through ___, a firm alters prices frequently in response to changes in cost or demand.

A) an odd-pricing strategy
B) variable pricing
C) price lining
D) customary pricing

Question 36

A publisher charges the same prices to all its wholesale customers, including applicable quantity and cash discounts. This policy illustrates

A) price lining.
B) a one-price policy.
C) customary pricing.
D) price guarantees.

Question 37

No bargaining with customers over price is permitted with

A) a one-price policy.
B) price-floor pricing.
C) leader pricing.
D) customary pricing.

Question 38

Selling prices are set at levels below full-dollar values (such as 98 cents) in

A) odd pricing.
B) pricing below the market.
C) price-floor pricing.
D) flexible pricing.

Question 39

According to the price-quality association,

A) consumers have price floors but not price ceilings.
B) subjective prices do not influence purchase behavior.
C) consumers may believe that high prices represent high quality and that low prices represent low quality.
D) using loss leaders will increase store traffic and sales.

Question 40

Which of these concepts suggests that consumers may not buy goods or services when prices are considered too low?

A) Price lining
B) Prestige pricing
C) Leader pricing
D) Price bundling

Question 41

The concept of prestige pricing is drawn from

A) leader pricing.
B) the price-quality association.
C) multiple-unit pricing.
D) price lining.

Question 42

A firm sells key items in its product assortment at less than their usual profit margins. This illustrates the use of

A) price lining.
B) leader pricing.
C) multiple-unit pricing.
D) variable pricing.

Question 43

The major objective of leader pricing is to

A) increase a firm's profit margins.
B) increase customer traffic.
C) develop a favorable company image.
D) increase the purchase of multiple units of an item.

Question 44

A firm offers several models of a product, with each model representing a distinct level of quality or features. This illustrates

A) multiple-unit pricing.
B) price lining.
C) geographic pricing.
D) leader pricing.

Question 45

An advantage of price lining is that it

A) is not affected by markdowns and special sales.
B) minimizes consumer confusion.
C) increases the product assortment.
D) can computerize its inventory management system.

Question 46

A firm offers a basic product, options, and customer service for one total price with

A) a one-price policy.
B) price lining.
C) unbundled pricing.
D) bundled pricing.

Question 47

With which form of geographic pricing does the buyer select the transportation form and pay all freight charges?

A) FOB mill (factory) pricing
B) Uniform delivered pricing
C) Base-point pricing
D) Zone pricing

Question 48

The seller is responsible for paying all shipping costs in which form of geographic pricing?

A) Zone pricing
B) FOB mill (factory) pricing
C) Uniform delivered pricing
D) Base-point pricing

Question 49

Discounts, timing of payments, and credit arrangements are all examples of

A) price lining.
B) variable pricing.
C) flexible pricing.
D) purchase terms.

Question 50

A firm is contractually able to raise an item's price to reflect its rising costs in those items' essential ingredients without changing printed list prices with a(n) ___ clause.

A) surcharge
B) escalator
C) markup
D) price-ceiling

Question 51

Which of these is an indication that a pricing strategy may be performing poorly?

A) A firm is unable to match a competitor's price due to its high overall cost structure.
B) A manufacturer has to frequently change its prices to match those of competitors.
C) Consumers appear to be overwhelmed by the number of products offered and the differences among them.
D) Foreign currency fluctuations increase the economic uncertainty for an importer of electronics goods.

Question 52

A regulated utility often cites the need for a minimum return on investment when making rate-increase requests. This illustrates the use of

A) profit-based objectives.
B) sales-based objectives.
C) status quo-based objectives.
D) skimming pricing.

Question 53

A research study indicates a large market segment exists for a new product, but that this segment is highly price elastic. An appropriate pricing strategy is

A) penetration pricing.
B) skimming pricing.
C) price lining.
D) a broad price policy.

Question 54

A firm has introduced a new microwave oven that also serves as a convection oven. The oven has been acclaimed by food critics, has received much publicity, and has no direct competition. What is the most appropriate pricing strategy for the firm?

A) Penetration
B) Skimming
C) One-price policy
D) Price lining

Question 55

A firm requires funds for further expansion and has excellent patent protection. A suitable new-product pricing strategy is

A) price lining.
B) flexible pricing.
C) penetration pricing.
D) skimming pricing.

Question 56

Many firms first use skimming prices and then apply penetration pricing. An advantage of this strategy is that

A) a high initial price discourages competitors from entering the market.
B) innovators are usually price elastic.
C) after the initial upscale market is saturated, lower prices effectively appeal to the mass market.
D) skimming prices seek to maximize sales.

Question 57

A blender manufacturer with excess capacity has analyzed its costs and found that the lowest price it can accept for a major order (and still attain its profit goal) is $10 per unit. This illustrates

A) a price ceiling.
B) penetration pricing.
C) a price floor.
D) variable pricing.

Question 58

A key potential difficulty with cost-based pricing is that

A) different ways of assigning costs will yield varying results.
B) it may be unable to include profit projections.
C) Magnuson-Moss Act violations may occur.
D) modified break-even analysis may be hard to compute.

Question 59

A firm's contract calls for it to receive 15 percent of total costs as a profit (using the cost-plus pricing technique). If total costs are $300,000 and the firm sells 10,000 units, its price is

A) $23.00.
B) $30.00.
C) $34.50.
D) $45.00.

Question 60

A wholesaler buys a coat for $75 and requires a 25 percent markup at wholesale. The wholesale selling price should be

A) $92.50.
B) $100.00.
C) $115.00.
D) $125.00.

Question 61

A retailer purchases a camera for $200 and requires a 20 percent markup at retail. The retail selling price should be

A) $160.
B) $220.
C) $240.
D) $250.

Question 62

A carpet retailer requires a 40 percent markup at retail on wall-to-wall carpeting and a 25 percent markup at retail on area rugs. The differences in markup are due to larger minimum purchase quantities and installation costs of wall-to-wall carpeting. This firm is using

A) target pricing.
B) a variable markup policy.
C) price discrimination.
D) price-floor pricing.

Question 63

A firm sets its standard volume at 10,000 units. Investment costs are $4 million; and the target return on investment equals 15 percent. If the firm's average total costs at its standard volume equal $20, what is its target price?

A) $23
B) $35
C) $67
D) $80

Question 64

A firm using price-floor pricing is able to sell an extra 1,000 units of its excess capacity. Its price-floor price exceeds its marginal cost per unit by $4. The firm's additional profit

A) is zero.
B) is $1,000.
C) is $4,000.
D) cannot be determined from the data supplied.

Question 65

A firm has total fixed costs of $2 million; its price is $20 per unit above its variable costs. Its break-even point in units

A) is 75,000.
B) is 100,000.
C) is 20,000,000.
D) cannot be determined based on the data provided.

Question 66

A firm has total fixed costs of $500,000. Its variable costs per unit are 30 percent of its selling price. Its break-even point in sales dollars

A) is $650,000.
B) is $714,286.
C) is $800,000.
D) cannot be determined based on the data provided.

Question 67

In traditional break-even analysis, the price elasticity of demand is considered to be

A) positive.
B) unitary.
C) elastic.
D) inelastic.

Question 68

What type of marketing research information is most important to a firm using a demand-based pricing strategy?

A) Data on competitors' manufacturing costs and general overhead
B) An analysis of competitors' reactions to price changes made by the firm in the past three years
C) An analysis of a proposed federal tax on imported components
D) An analysis of the price elasticity of the target market

Question 69

Which of these pricing techniques is most appropriate for a firm with a differentiated product, inelastic demand, and strong patent protection?

A) A one-price policy
B) A competition-based price strategy
C) A cost-based price strategy
D) A demand-based price strategy

Question 70

The Following Questions are linked to this scenario: A firm wishes to calculate its maximum acceptable costs under two scenarios: direct or indirect distribution.

-Under the direct distribution option, the firm would sell its shoes directly via the Internet. The firm's selling price cannot exceed $159 for its line of quality men's shoes. If it requires a 40 percent markup (at retail), its maximum acceptable merchandise costs

A) are $63.60.
B) are $95.40.
C) are $119.00.
D) cannot be determined based on the data provided.

Question 71

The Following Questions are linked to this scenario: A firm wishes to calculate its maximum acceptable costs under two scenarios: direct or indirect distribution.

-Under the indirect distribution alternative, the shoe manufacturer sells its products via independent wholesalers and retailers. Each of the three parties requires a 30 percent markup. If consumers are willing to pay $159 for the product, the manufacturer's maximum acceptable cost

A) is $46.75.
B) is $54.54.
C) is $59.00.
D) cannot be determined based on the data provided.

Question 72

Modified break-even analysis differs from traditional break-even analysis in that it

A) assumes multiple channels are involved in the sale of a good or service.
B) evaluates consumers' price elasticity when computing total revenue at different price levels.
C) neatly divides all expenses into fixed and variables costs.
D) considers channel members' profit requirements and costs.

Question 73

In modified break-even analysis, a firm's net profit does NOT necessarily rise if sales revenues increase because

A) marginal costs may increase.
B) excess capacity may exist.
C) demand may be highly elastic at lower price levels.
D) fixed costs may be constant.

Question 74

Customer-based price discrimination is most compatible with

A) flexible pricing.
B) a one-price policy.
C) markup pricing.
D) customary pricing.

Question 75

Product-based price discrimination could be used as long as

A) each market segment has the same elasticities.
B) lower prices are established for inelastic (versus elastic) consumers.
C) price differentials are greater than cost differentials.
D) each segment has the same price ceiling.

Question 76

A firm needs to be careful to avoid oversegmenting its markets when it uses

A) target pricing.
B) cost-based pricing.
C) price leadership.
D) price discrimination.

Question 77

As applied to airlines, yield management pricing needs to carefully evaluate the tradeoff of additional revenues from low-priced seats that would otherwise be vacant with the

A) potential loss in revenues if the low-priced seats could be sold at full fare.
B) drop in the number of flights per day from a given airport.
C) drop in customer service associated with a high volume of customers.
D) added costs of filling otherwise vacant seats.

Question 78

Price leadership is most common in which competitive situation?

A) Oligopoly
B) Monopoly
C) Monopolistic competition
D) Pure competition

Question 79

In setting prices, a computer manufacturer considers questions such as these: "What profit margin does a price level allow for each channel member, including our firm? Can we charge 10 percent above the market due to our excellent service department and reputation? Is our market price sensitive?" This firm is using

A) demand-based pricing.
B) cost-based pricing. .
C) demand- and cost-based pricing.
D) combination pricing

Question 80

The use of price adjustments such as surcharges, additional markups, and markdowns illustrates

A) price lining
B) leader pricing.
C) odd pricing
D) variable pricing.