Chapter 20

Chapter 20 - Chapter 20Setting the Right Price TRUE/FALSE...

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Chapter 20—Setting the Right Price TRUE/FALSE 1. The first step in setting the right price for a new product is to estimate demand, costs, and profits. ANS: F The first step in setting the right price for a new product is to derive pricing goals from the firm's over- all objectives. PTS: 1 REF: 313 OBJ: 20-1 TYPE: Def TOP: 2. All pricing objectives have trade-offs that managers must weigh. ANS: T PTS: 1 REF: 313 OBJ: 20-1 TYPE: Comp TOP: 3. Once he compiles information on pricing objectives, market demand, quantity supplied, and the price elasticity of demand, the owner/operator of a home cleaning service will be ready to determine the op- timal price for a new service offering. ANS: F He must also collect information or estimates about costs and total revenue at a variety of prices. Only then can he make reasonable estimates about profits and market share. PTS: 1 REF: 314 OBJ: 20-1 TYPE: App TOP: 4. The manufacturer of Trek Natural sports drink would like to introduce a Trek Natural brand energy drink in the already crowded energy drink category. This company would have a great amount of free- dom in choosing a price for its new energy drink. ANS: F If a firm brings out a new item similar to a number of others already on the market, its pricing freedom will be restricted. PTS: 1 REF: 314 OBJ: 20-1 TYPE: App TOP: 5. It makes the most sense to use price skimming as a pricing policy when supply is greater than demand. ANS: F It makes the most sense to use price skimming as a pricing policy when demand is greater than supply. PTS: 1 REF: 315 OBJ: 20-1 TYPE: Comp TOP: 6. Penetration pricing is sometimes referred to as a "market-plus" approach to pricing. ANS: F Price skimming is sometimes referred to as a "market-plus" approach to pricing.
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PTS: 1 REF: 314 OBJ: 20-1 TYPE: Comp TOP: 7. Procter & Gamble entered the electric toothbrush market with the Crest SpinBrush at a price consider- ably lower than lesser-known competitors. It used penetration to gain market share. ANS: T PTS: 1 REF: 315 OBJ: 20-1 TYPE: App TOP: 8. One disadvantage of using a penetration pricing policy is that the high unit profit margins will attract potential competitors into production of similar products. ANS: F Penetration pricing has low profit margins on each unit sold. This is seen as an advantage because it discourages potential customers from entering the market.
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Chapter 20 - Chapter 20Setting the Right Price TRUE/FALSE...

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