Deck 11: Pricing Decisions: Objectives, Strategies and Tactics

Question 1

Price is defined as the exchange value of a good or service; value is defined solely by the tangible benefits the purchaser derives.

Answer 1

False

Question 2

Walmart relies on price to establish and maintain its image.

Answer 2

True

Question 3

The basic law of supply and demand contends that an abundant supply and a low demand lead to a high price, while high demand and limited supply lead to a low price.

Answer 3

False

Question 4

The effects of a price change on volume demanded must be factored into a pricing strategy.

Question 5

The purchase of automobile fuel is an example of elastic demand.

Question 6

A price increase for a Rolex watch is an example of inelastic demand.

Question 7

If prices increased 10% and demand remained stable, demand would be inelastic.

Question 8

Reducing the size of a bag of chips is an example of the cost reduction principle.

Question 9

In a rising cost environment, rather than increase price the organization could search for and implement cost reductions.

Question 10

A firm that uses "equal to competition"position in the marketplace adopts a conservative position because it does not want to be caught in a price war.

Question 11

Increasing sales volume and market share are objectives of profit maximization.

Question 12

"To increase market share from 5% to 8%"is an example of a profit maximization objective.

Question 13

The objective of sales volume maximization is to increase the volume of sales each year.

Question 14

A company's board of directors is concerned about the ROI. A profit maximization pricing strategy will be seriously considered.

Question 15

Walmart is involved in "equal to competition"pricing.

Question 16

Breakeven analysis is only useful for determining the worst-case scenario. It cannot help with pricing for profit.

Question 17

Raw materials costs are variable costs.

Question 18

A firm that uses backward pricing first determines the price consumers are willing to accept.

Question 19

Light, heat, and power are examples of variable costs.

Question 20

A not-for-profit organization will use a full-cost pricing strategy.

Question 21

A manufacturer of electronics bases its costs on the price customers are willing to pay. This is an example of demand-based pricing.

Question 22

The breakeven point in units for a company with fixed costs of $500,000, variable cost per unit of $25, and a selling price of $45 is 25,000.

Question 23

If sales for ketchup are below the breakeven point, the firm is profiting from the efficiencies of being below that point.

Question 24

The breakeven point in dollars for a company with fixed costs of $400,000, variable costs per unit of $25, and a price of $45 is $900,000.

Question 25

A price-fixing strategy is required to maximize ROI.

Question 26

Price scanning at the point of sale has done little to solve the problems created by double ticketing.

Question 27

The federal government oversees price activity in Canada through the Competition Act.

Question 28

When more than one price tag appears on an item in a retail store, the store has the option of charging either price.

Question 29

You have selected an electric drill from a hardware store for purchase and notice that there are two price tags on it. The hardware store must charge the lower of the two prices.

Question 30

A manufacturer agrees to allow a retailer to be the exclusive vendor to carry its line under the condition that it sells at the MSLP. This is illegal.

Question 31

Penetration pricing is used in a market characterized by elastic demand.

Question 32

Price skimming sets a low entry price to discourage competitors from entering the market.

Question 33

BMW would use a penetration pricing strategy when introducing a new model.

Question 34

Apple uses a skimming strategy because it relies on product innovation to justify a premium price.

Question 35

A firm that has realized production efficiencies through economies of scale could successfully launch a new product using a price penetration strategy.

Question 36

A price skimming strategy would be inappropriate for a generic pharmaceutical product.

Question 37

Price lining is when retailers mark up their costs to arrive at a selling price.

Question 38

Unit pricing makes it easier to shop for similar goods with varying prices and pack sizes.

Question 39

Loss leaders are products that are a continual drain on a company's profits.

Question 40

"Two for one"sales are examples of multiple-unit pricing.

Question 41

If a price is quoted as FOB origin, the seller pays the freight.

Question 42

A uniformed delivered price means that all buyers pay the same freight charge.

Question 43

A uniform delivered price penalizes a nearby customer in terms of the total price paid for a product.

Question 44

Service firms that offer two-part pricing consisting of a fixed fee plus a variable usage fee are using product bundling pricing.

Question 45

Charging $99 or $499 instead of $100 or $500, respectively, is an example of psychological pricing.

Question 46

Establishing price ranges of $100, $300, and $400 is an example of unit pricing.

Question 47

Price lining is consistent with a product line that offers "good, better, and best"options.

Question 48

A supplier pays a retailer a shelving allowance for the purpose of securing shelf space.

Question 49

A manufacturer that keeps a record of customer volume and issues cheques at a later date to cover allowances earned over the term of the offer is allowing a discount on the basis of a bill back.

Question 50

"3/10, net 30"means that a customer whose payment is received 3 to 10 days after reception of the invoice will get a 30% discount.

Question 51

In a business environment, the primary goal of the organization is to produce the highest possible rate of return for the owner, but not for the shareholders.

Question 52

There are three basic options when it comes to pricing objectives: maximizing profit, increasing ROI, and maximizing sales volume.

Question 53

Bob's Automotive sets out a goal of achieving a profit contribution of $200,000 in fiscal year 2019. This is an example of return on investment.

Question 54

Sarah's boss tells her that their division would like to increase market share from 20% to 21% in 2019. This represents a sales volume maximization goal.

Question 55

"The exchange value of a good or service in the marketplace"is a description of

A) demand.
B) utility.
C) value.
D) supply.
E) price.

Question 56

That aspect of a good or service that is derived from its tangible and intangible benefits is its

A) utility.
B) value.
C) price.
D) supply.
E) demand.

Question 57

From a marketing perspective, ________ contributes to profits and revenues.

A) utility
B) price
C) value
D) supply
E) demand

Question 58

Which of the following is an intangible benefit of a pair of Adidas basketball shoes?

A) the support of the inner sole
B) comfortable fit
C) easy-off laces
D) the best materials
E) the style and image

Question 59

The basic law of supply and demand contends that a limited supply and high demand for a given product will lead to a ________ price.

A) oligopolistic
B) elastic
C) high
D) low
E) pure

Question 60

The price elasticity of demand refers to

A) how quickly demand rebounds when a price changes.
B) the willingness of consumers to purchase a product in times of high supply.
C) the effect of a price change on the volume purchased.
D) the range of prices in a product line.
E) the fact that consumers purchase greater quantities at higher prices.

Question 61

In a situation where a price change does not have a significant impact on the quantity sold, demand is said to be

A) elastic.
B) marginal.
C) complementary.
D) inelastic.
E) cross-elastic.

Question 62

Consider this situation: Molson raises the price of a case of beer by $2.00 and Labatt follows suit. Consumers tolerate such an increase and purchase the same quantities of beer as before. In this case, demand is

A) complementary.
B) marginal.
C) elastic.
D) inelastic.
E) cross-elastic.

Question 63

When Frito-Lay reduced the size of a bag of chips, it was practising

A) product line stretching.
B) cost reduction.
C) feature reduction.
D) product line contraction.
E) content reduction.

Question 64

When faced with rising costs and declining margins, companies can increase the price or

A) institute zone pricing.
B) implement cost reductions.
C) lower the price.
D) increase the supply.
E) abandon the brand.

Question 65

For a product positioned as superior quality, ________ strategy is appropriate.

A) an equal-to-competition
B) a below-competition
C) a breakeven
D) an above-competition
E) a predatory

Question 66

As the product manager for a cereal line, you have been told that maximizing ROI is to be your primary objective when setting prices. Which of the following will you apply?

A) profit maximization
B) backward pricing
C) sales volume maximization
D) price fixing
E) competitive pricing

Question 67

The objective of sales volume maximization is to

A) pay off accumulated debts.
B) maximize return on investment.
C) recover initial capital invested.
D) secure high profits.
E) increase market share.

Question 68

Establishing a price that is above, equal to, or below that of the competition is known as

A) competitive pricing.
B) price fixing.
C) variable pricing.
D) flexible pricing.
E) price lining.

Question 69

"To achieve a net profit contribution of $500,000 in the year 2017"is an example of what type of pricing objective?

A) sales volume maximization
B) maintaining the status quo
C) profit maximization
D) establishing a competitive position
E) fixed return

Question 70

"To increase market share from 30% to 35% in one year"is an example of what type of pricing objective?

A) brand dominance
B) achieving a target return
C) sales volume maximization
D) establishing a competitive position
E) profit maximization

Question 71

Olivia has calculated the total cost of the product she manages. She has reviewed the company's marketing plan and determined the required level of profit that must be earned on the sale of each item. Olivia is using which pricing method?

A) demand-based pricing
B) backward pricing
C) competition-based pricing
D) cost-based pricing
E) breakeven pricing

Question 72

If Farmer Brown has a total cost of $1 for a dozen eggs and he chooses to charge a 20% markup as profit, then he is said to have a ________ pricing strategy.

A) backward pricing
B) cost-based
C) uniform delivered
D) fixed cost
E) rigid

Question 73

Costs that change according to the level of output are ________ costs.

A) unit
B) variable
C) full
D) marginal
E) fixed

Question 74

Fixed costs

A) do not change when production quantities change.
B) are production costs that change with output.
C) change within certain guidelines when production quantities change.
D) change when production quantities change.
E) never change.

Question 75

When a firm buys greater quantities of raw materials and parts,

A) fixed costs will decrease at the same rate as variable costs.
B) variable costs should be lower.
C) neither variable nor fixed costs will be affected.
D) variable costs will be higher.
E) fixed costs will increase.

Question 76

Target pricing is a pricing method that

A) aims to increase market share by accepting a lower profit margin.
B) focuses on the economic conditions of the target market segment.
C) is designed to generate a desirable rate of return on investment.
D) maximizes cost reduction techniques to respond to market demand.
E) keeps prices in a moderate range by increasing the rate of return.

Question 77

"The sales in units or dollars that are necessary for total revenue to equal total costs at a certain price"is known as

A) profit maximization.
B) status quo pricing.
C) target pricing.
D) breakeven analysis
E) cost-plus pricing.

Question 78

When an organization determines the optimum retail selling price consumers are willing to accept, it is using

A) chain markup pricing.
B) channel pricing.
C) backward pricing.
D) optimum return pricing.
E) target pricing.

Question 79

Forward pricing

A) requires a standard markup for all retail outlets in a chain.
B) allows retail outlets in a chain to set markups independently.
C) uses a graduated scale of markups based on the product's strength in the market.
D) links the ultimate selling price in different geographic zones.
E) considers the profit margin of channel members.

Question 80

A manufacturer of athletic footwear has determined its total costs are $25 per pair of shoes. The company sells the footwear through wholesalers who in turn sell to retailers. The required wholesaler markup is 20% on cost while the required retailer markup is 50% on cost. The footwear manufacturer needs a markup of 25% on cost. What is the retail selling price?

A) $56.25
B) $60.00
C) $55.25
D) $65.00
E) $48.75