228fenton has always used standard markups to

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228.Fenton has always used standard markups to determine the prices for his clothing products. You are advising him to change his pricing strategy. What advice would you give Fenton? 229.Brandon is conducting an experiment, charging different prices for the same products at different stores and measuring sales. With this information, he will construct a demand curve. How can Brandon use this information? 230.Karen initially charged $80 for an hour-long massage and averaged 20 clients per week. When she raised her price to $100, the number of massages decreased to 15 per week. What is the price elasticity of demand for her service? 231.If consumers are more sensitive to price increases than price decreases, what does that say
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about price elasticity of demand? 232.How can brand loyalty affect the price elasticity of demand for a firm's products? 233.Raymond estimates the fixed costs associated with opening a new bank branch are $500,000. He estimates the branch will attract 1,000 new customers who will cost $50/year to service each of their accounts. He also expects to generate $100,000 in fees annually from these accounts. What will be the total cost of opening the new branch and remaining open for one year? 234.Why are price wars more common in oligopolies than in pure competition markets? 235.What is cross-shopping and what does it mean for marketers' pricing strategy?
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236.What does an everyday low prices strategy say to consumers? 237.What is the experience curve effect? What pricing strategy is it associated with?
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Chapter 13 Pricing Concepts for Establishing Value Answer Key True / False Questions 1. (p. 268) Price is the cash expenditure plus taxes that consumers have to pay for a good or service. FALSE Price is the overall sacrifice a consumer is willing to make to acquire a specific product or service. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-01 List the four pricing orientations. Topic: Pricing Concepts 2. (p. 268) The key to successful pricing is to match the product with the consumer's perception of value. TRUE Successful pricing considers consumers' perceived value, since to ignore this might result in a price that is too high or too low. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-01 List the four pricing orientations. Topic: Pricing Concepts 3. (p. 269) Price is the only part of the marketing mix that does not generate costs. TRUE Product, Place, and Promotion all generate costs; Price generates revenue. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-01 List the four pricing orientations. Topic: Pricing Concepts 4. (p. 269) If Brandon buys hats for his store for $5 each and sells them for $15 each, he is using a keystoning pricing strategy. FALSE A keystoning strategy involves selling a product for twice the price paid for it. In this case, a
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keystoning strategy would call for Brandon to sell the hats for $10 each. AACSB: Analytic Blooms: Remember Difficulty: 2 Medium Learning Objective: 13-01 List the four pricing orientations. Topic: Pricing Concepts 5. (p. 271) Rarely is the lowest-price product offering the dominant brand in a given market. TRUE Market leaders are often able to charge a premium due to brand equity. AACSB: Analytic Blooms: Remember Difficulty: 2 Medium Learning Objective: 13-01 List the four pricing orientations. Topic: 5 Cs of Pricing 6. (p. 273) A demand curve shows the relationship between income and demand. FALSE A demand curve shows the relationship between price and demand. AACSB: Analytic Blooms: Remember Difficulty: 2 Medium Learning Objective: 13-02 Explain the relationship between price and quantity sold. Topic: 5 Cs of Pricing 7. (p. 275) Because consumers are generally more sensitive to price increases than to price decreases, it is easier to lose current customers with a price increase than it is to gain new customers with a price decrease. TRUE Consumers show more sensitivity to price increases than to price decreases. This means that a price increase will generally lose more customers than an equivalent price decrease will gain. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-03 Explain price elasticity. Topic: 5 Cs of Pricing 8. (p. 276) Brands that have developed loyal customers have a higher price elasticity of demand. FALSE Brands with loyal customers have lower price elasticity of demand--in other words, demand
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will decrease more slowly as price goes up. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-03 Explain price elasticity. Topic: 5 Cs of Pricing 9. (p. 275) In U.S. markets, there are many substitute products for Fruit Loops cereal, suggesting the price elasticity of demand for Fruit Loops is elastic. TRUE The substitution effect is one of the factors that increases price elasticity. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-03 Explain price elasticity. Topic: 5 Cs of Pricing 10. (p. 276) In general, prices should not be based on costs because consumers make their purchase decisions based on perceived value, not the cost of production. TRUE Although cost is a consideration when setting prices, it should not be the only consideration. Prices set without considering perceived value are likely to be set too high or too low to match consumers' value perceptions. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-01 List the four pricing orientations. Topic: 5 Cs of Pricing 11. (p. 278) At the break-even point, profits are maximized. FALSE Breakeven analysis determines the point at which revenues and expenses are equal--in other words, the quantity of a product that must be sold in order to have a $0 profit. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-04 Describe how to calculate a product's break-even point. Topic: 5 Cs of Pricing 12. (p. 280- 282) In addition to the product-specific and firm-specific factors that affect pricing, there are two broader factors - the Internet and sociocultural factors. FALSE
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The two broader factors are the Internet and economic factors. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-01 List the four pricing orientations. Topic: Macro Influences on Pricing 13. (p. 280) A gray market employs irregular but not necessarily illegal methods of distributing products. TRUE One example of a gray market is the sale of goods at prices lower than intended by the manufacturer due to a retailer legally circumventing channels of distribution. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-01 List the four pricing orientations. Topic: 5 Cs of Pricing 14. (p. 282) Economic trends that affect pricing decisions include increases in disposable income and status consciousness, a trend for customers to shop cheap, global economic conditions, and local economic conditions. TRUE These are all economic trends that affect pricing. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-01 List the four pricing orientations. Topic: Macro Influences on Pricing 15. (p. 281) The Internet has decreased consumers' price sensitivity. FALSE The Internet has increased consumers' price sensitivity by making it easier to perform price comparisons across multiple suppliers. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-03 Explain price elasticity. Topic: Macro Influences on Pricing 16. (p. 278) Diana owns a boutique specializing in ball gowns. Sales are stable and Diana feels it is time she had a 20% increase in her salary. If Diana takes this increase in compensation, it will decrease the breakeven quantity of gowns she needs to sell on a monthly basis. FALSE
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The breakeven quantity would increase, not decrease, because Diana's salary increase would raise fixed costs. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-04 Describe how to calculate a product's break-even point. Topic: The Five Cs of Pricing 17. (p. 280) If a firm is engaged in monopolistic competition, it should seek a way to differentiate itself. TRUE Monopolistic competition occurs when there are many firms competing for customers in a given market but their products are differentiated. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-05 Indicate the four types of competition. Topic: The Five Cs of Pricing 18. (p. 284) When Sony released their PlayStation 3 game machines, they charged a high price, attracting the most avid game players. This was a market penetration pricing strategy. FALSE This was a skimming pricing strategy, which starts with a high price and then gradually lowers it. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-07 Explain the difference between a market penetration pricing strategy and a price skimming pricing strategy. Topic: Pricing Strategies 19. (p. 283) Cheryl wants to quickly establish a dominant market share for her new line of ergonomic pens. To do this, she will likely use a market penetration pricing strategy. TRUE A market penetration pricing strategy starts with a low price in order to capture market share. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-07 Explain the difference between a market penetration pricing strategy and a price skimming pricing strategy. Topic: Pricing Strategies 20. (p. 286) Proving that a company has engaged in the deceptive bait and switch practice is easy. FALSE
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Bait and switch is a tactic in which a retailer advertises items for a very low price with no intention of actually selling any of them. Once a customer is in the store, sales personnel push the customer toward more expensive items. Salespeople always try to get customers to upgrade, and it is difficult to separate this behavior from actual bait and switch. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-08 List pricing strategies that have the potential to deceive customers. Topic: Legal and Ethical Aspects of Pricing 21. (p. 286) The Robinson-Patman Act does NOT apply to end consumers, at which point many forms of price discrimination occur. TRUE The Robinson-Patman Act applies to business-to-business transactions. Price discrimination refers to selling the same product to different customers at different prices. With a few exceptions, this is legal in sales to consumers, but is illegal under certain circumstances when selling to businesses. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-08 List pricing strategies that have the potential to deceive customers. Topic: Legal and Ethical Aspects of Pricing 22. (p. 283) If a furniture store sets reasonable prices but rarely offers special discounts or sales, this is an example of an "everyday low pricing" strategy. TRUE With an EDLP strategy, companies stress the continuity of their retail prices at a level somewhere between the regular, non-sale prices and deep discount sale prices their competitors may offer. AACSB: Analytic Blooms: Remember Difficulty: 2 Medium Learning Objective: 13-06 Describe the difference between an everyday low price strategy (EDLP) and a high/low pricing strategy. Topic: Pricing Strategies Multiple Choice Questions 23. (p. 268) Price is the __________ a consumer is willing to make to acquire a specific product or service. A. amount of money
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B. overall sacrifice C. fixed cost D. target return E. variable cost
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