Chapter 10 Price: What Is the Value Proposition Worth? 1) ________ is the assignment of value, or the amount a consumer must give to receive a product. A) Profit B) Exchange C) Price D) Demand E) Yield Answer: C 2) Which of the following statements about price is true? A) Pricing is the least important marketing mix element. B) Price is always a monetary value. C) Price can mean exchange of nonmonetary goods or services. D) Most consumers believe price has little influence on their purchase decisions. E) Pricing is unaffected by changes in the business cycle. Answer: C 3) The value of something we give up in order to obtain something else is referred to as a(n) ________. A) transformation cost B) opportunity cost C) exchange D) variable cost E) marginal cost Answer: B 4) Which of the following is NOT a type of pricing objective? A) elasticity B) market share C) profit D) competitive effect E) image enhancement Answer: A 5) In price planning, a firm would be most likely to set a profit objective for which of the following products? A) a commodity such as coal B) toothpaste C) a fad such as Beanie Babies D) lightbulbs E) construction materials Answer: C 6) A company that intends to maintain low-end pricing policies to make the market unattractive for its competitors is using which of the following pricing objectives in its price planning? A) sales B) profit C) break-even D) competitive effect E) customer satisfaction Answer: D 7) When setting prices, a leading manufacturer of nutritional supplements decided to institute a pricing strategy that would support a five percent increase in sales over the next three years. What type of pricing objective has the company set? A) profit B) sales C) competitive effect D) cost-plus E) value Answer: B 8) When Home Depot stores entered the Canadian market, there were already stores providing similar services and products. To get people to try Home Depot, the chain deliberately sold merchandise below the price that the Canadians were used to. What type of pricing objective did Home Depot use? A) market share B) profit C) competitive effect D) customer satisfaction E) image enhancement Answer: C 9) Exchanges of nonmonetary value do not involve a price. Answer: False 10) The first step in planning how to price a product is to develop pricing objectives. Answer: True 11) Unlike other currencies, bitcoin is not controlled by a single government entity, such as the U.S. Treasury. Answer: True 12) Application fees, tuition, and fines are all examples of prices. Answer: True 13) Explain the concept of opportunity cost, giving at least one example from your life. Answer: Opportunity cost is the value of something that is given up to obtain something else. For example, the cost of going to college includes more than tuition. It also includes the income that a student could have earned by working instead of going to classes. 14) Saturn car company started a trend with its value pricing strategy of giving customers one price and one price only. The Saturn website gave detailed price information without the need for or involvement of a salesperson. What pricing objective did Saturn use? Answer: Saturn used the customer satisfaction pricing objective. Saturn recognized that many people hate to buy new cars because they may feel the dealers are untrustworthy. The objective was not only to satisfy customers but also to generate a new breed of car salespeople who used low-pressure sales tactics and promised customer satisfaction and long-term service. 15) Explain how prestige products may relate to some customers' feelings of self-worth. What is an example of a prestige product? Answer: The image enhancement function of pricing is particularly important with prestige products that have a high price and appeal to status-conscious consumers. People are often willing to pay a premium price for a luxury product like a watch because they believe that it makes a statement about their own worth. 16) Which of the following is true about the demand curve? A) It is used to illustrate the effect of price on the quantity supplied. B) It is always graphically depicted by a straight line. C) It shows the quantity of product customers will buy in a market during a period of time even if other factors change. D) It usually slopes upward and to the right. E) It shows the relationship between product demand and product price. Answer: E 17) According to the law of demand, which of the following is true? A) If prices decrease, customers will buy more. B) Customers are not aware of small price changes. C) The effect on demand from changes in price cannot be accurately predicted. D) Demand equals supply. E) If prices increase, customers will buy more. Answer: A 18) Why are prestige products often an exception to the law of demand? A) The demand curve for prestige products slopes downward and to the right. B) Increasing the price of prestige products can make them seem more desirable. C) Demand for prestige products often is greater than supply. D) Prestige products such as diamonds, sapphires, and emeralds are nonrenewable resources. E) Customers are more aware of any price changes to prestige products. Answer: B 19) What is the first step a marketer should take to estimate a product's potential sales? A) determine maximum production levels B) conduct a survey of buyers' intentions C) estimate total demand for the product in the market D) determine how to expand market share E) predict the company's market share Answer: C 20) Which of the following is a measure of customers' sensitivity to changes in price? A) liquidity ratio B) demand sensitivity C) price elasticity of demand D) marginal analysis E) basing-point Answer: C 21) How is the price elasticity of demand calculated? A) averaging previous demand levels with new demand levels B) dividing percentage change in quantity demanded by percentage change in price C) dividing the new quantity demanded by the percentage change in price times 100 D) multiplying the percentage change in quantity demanded by the percentage change in price E) dividing the percentage change in price by the percentage change in quantity demanded Answer: B 22) Which of the following occurs when price is inelastic? A) Price and revenue change in the same direction. B) Revenues decrease when price increases. C) Revenue is unaffected by price changes. D) Quantity demanded increases when price increases. E) The demand curve is more horizontal. Answer: A 23) Demand would most likely be inelastic for which of the following? A) lamb chops and t-bone steaks B) gourmet cheese C) symphony tickets D) luxury watches E) basic necessities Answer: E 24) When demand is ________, increases in price result in increases in total revenues, while decreases in price result in decreases in total revenue. A) elastic B) inelastic C) flexible D) supply-driven E) cross-elastic Answer: B 25) The changes in prices of other products affect the demand for an item. This is a phenomenon called ________. A) cross-elasticity of demand B) complementary elasticity C) interdependent elasticity D) parallel elasticity E) variable demand Answer: A 26) ________ are the per-unit costs of production that will fluctuate depending on how many units or individual products a firm produces. A) Fixed costs B) Variable costs C) Average fixed costs D) Marginal costs E) Everyday costs Answer: B 27) ________ do not vary with the number of units produced. A) Liquidity costs B) Fixed costs C) Variable costs D) Marginal costs E) Everyday costs Answer: B 28) Break-even analysis is used to examine the relationship between ________. A) fixed costs and variable costs B) costs and contributions C) costs and price D) demand and costs E) demand and profits Answer: C 29) Which of the following statements about the break-even point is true? A) It is used to determine how many more units need to be sold to increase market share by a specific amount. B) It is a technique used to calculate fixed costs. C) It determines the amount of retained earnings a company will have during an accounting period. D) It is a technique marketers use to examine the relationship between supply and demand. E) It is calculated using contribution per unit costs and total fixed costs. Answer: E 30) The break-even point is the point at which ________. A) the total revenue and total costs lines intersect B) demand equals supply C) the production of one more unit will not increase profit D) the company can pay all of its long-term debt E) a firm's profit goal is reached Answer: A 31) To determine the break-even point, a firm needs to first do which of the following? A) determine what percentage of the market it wants B) determine the point at which supply equals demand C) calculate the contribution per unit D) conduct an environmental audit E) determine total market share Answer: C 32) The manufacturer's suggested retail price is also referred to as the ________. A) break-even price B) marginal price C) list price D) markup E) markdown Answer: C 33) Each member of a channel of distribution adds a ________ to create the price at which they will sell the product. A) break-even point B) percentage of sales C) list price D) markup E) contribution per unit Answer: D 34) Which of the following is an external influence that affects pricing decisions? A) the salaries of production management B) competition C) the salaries of finance management D) overall pricing objectives E) the company's overall marketing strategy Answer: B 35) When setting prices, a company must consider factors in its pricing environment. ________ such as the business cycle, economic growth, and consumer confidence can have a significant impact on the firm's pricing strategies. A) Consumer trends B) Economic trends C) Competitors' responses D) Regulations E) Market structures Answer: B 36) In a market with ________, there are many sellers, each offering a slightly different product. Firms can differentiate products and focus on nonprice competition. A) pure competition B) monopolistic competition C) oligopolistic competition D) a pure monopoly E) socialism Answer: B 37) In a market with ________, the market consists of many buyers and a few sellers who are likely to have similar pricing. A) pure competition B) monopolistic competition C) oligopolistic competition D) a pure monopoly E) socialism Answer: C 38) Many people rely on a prescription drug to control their cholesterol. An increase in the price of the drug would have little effect on the quantity demanded because there are no substitutes for the drug and because people who take it have no choice but to continue taking it if they wish to stay healthy. The demand for the cholesterol drug is ________. A) elastic B) inelastic C) cross-elastic D) supply-driven E) asymmetrical Answer: B 39) When Joe's Coffee Nook raised the price of a latte, Joe noticed a substantial change in his daily latte sales. A price reduction caused his sales to increase. From this information, you can assume the demand for lattes is ________. A) static B) supply-driven C) asymmetrical D) elastic E) inelastic Answer: D 40) Sellers should know that the less elastic the demand for their product, the more advantageous it is for them to ________. A) drop the price B) raise the price C) maintain the price D) discontinue the item E) bundle the item with another product Answer: B 41) Which of the following is an example of a variable cost for an amusement park? A) salary of the park manager B) food cart supplies C) liability insurance D) interest on the property's mortgage E) property taxes Answer: B 42) For a company that manufactures plastic signs, the printing press to make the signs, the manager's salary, and the utilities are all examples of ________. A) fixed costs B) average fixed costs C) variable costs D) marginal costs E) everyday costs Answer: A 43) As a manufacturer increases price, the ________ drops. A) target B) break-even point C) marginal revenue D) total cost E) variable cost Answer: B 44) A demand curve never appears on a graph as a straight line. Answer: False 45) A break-even analysis helps marketers understand the relationship between price and demand. Answer: False 46) Inflation may cause marketers to decide to either raise or decrease their prices. Answer: True 47) A company in an industry characterized by monopolistic competition is most likely to adopt status quo pricing objectives. Answer: False 48) Businesses within a purely competitive market have few opportunities to raise or lower their prices. Answer: True 49) Variable costs for producing textbooks include the price of paper. Answer: True 50) Describe what a demand curve is and explain how it helps marketers make decisions. Answer: The demand curve estimates consumer demand at different prices. A demand curve doesn't account for changes in the company's external environment, but it is a useful tool marketers can use to determine how much of a product customers will buy at different price points. This information can help marketers decide on the price position for their product. 51) When setting prices, the company must consider its external pricing environment. Describe three components of the pricing environment and how they affect businesses. Answer: Economic conditions affect both the costs of producing a product and consumer perceptions of the product's price and value. The business cycle, inflation, economic growth, and consumer confidence all influence the type of pricing strategy that will succeed. The competition is another major influence in the pricing environment. Depending on the type of industry, a company may charge a similar price as its competitors or set prices on the basis of its own costs. Consumer trends can also greatly affect prices. As demographics change, consumers' tastes change, affecting their purchasing habits. Change in government regulation is an environmental factor that can change a company's production costs or directly address how an industry sets prices. 52) Explain the difference between elastic demand and inelastic demand. Answer: Elastic demand occurs when a change in price results in a substantial change in the quantity demanded. When a change in price has little effect on the quantity demanded, then demand is said to be inelastic. 53) If demand is elastic, will sellers consider lowering their prices? Explain your answer. Answer: Yes. A lower price will produce more revenue, as consumers will respond to the change in price and buy more. 54) To determine the break-even point, a firm first needs to calculate the contribution per unit. What does this mean? Answer: The contribution per unit is the difference between the price the firm charges for a product and the variable costs. This figure is the amount the firm has after paying for fixed costs of production. 55) The most common cost-based approach to pricing is ________. A) demand-based pricing B) psychological pricing C) yield management pricing D) cost-plus pricing E) cost-minus pricing Answer: D 56) The method of setting prices in which marketers total all the costs for the product and then add an amount to arrive at the selling price is called ________. A) supply-based pricing B) target costing C) cost-plus pricing D) yield management pricing E) demand-based pricing Answer: C 57) Which of the following is an advantage of using cost-based pricing methods? A) They consider external factors such as competition. B) They include consideration of the effects of demand. C) They are relatively simple to calculate. D) They make accurate cost estimating a simple process. E) They take the product life cycle into consideration. Answer: C 58) In which type of pricing is the selling price based on an estimate of volume or quantity a firm can sell in different markets at different prices? A) capacity management B) target costing C) demand-based D) penetration E) distribution-based Answer: C 59) With target costing, marketers first ________ and then ________. A) build the marketing mix; identify the target market B) identify target markets; set different prices for each market C) design the product; determine its cost D) use skimming pricing; use penetration pricing E) determine a reasonable selling price; target costs to ensure that the price is met Answer: E 60) Two forms of demand-based pricing are ________. A) price bundling and captive pricing B) price skimming and penetration pricing C) fixed pricing and variable pricing D) target costing and yield management pricing E) price leadership and everyday low pricing Answer: D 61) Which of the following is an example of a pricing strategy that focuses on customers' needs? A) price leadership B) everyday low pricing C) distribution-based pricing D) cost-plus pricing E) skimming Answer: B 62) A firm is using ________ when it charges a high, premium price for a new product with the intention of reducing the price in the future. A) a skimming price B) trial pricing C) value pricing D) penetration pricing E) prestige pricing Answer: A 63) Which of the following should be true for a skimming price to be successful? A) Target consumers should be price sensitive. B) Supply should exceed demand. C) Demand must be stabilizing. D) The producer should use intensive distribution. E) There should be little chance that competitors can quickly enter the market. Answer: E 64) A firm is using a(n) ________ strategy when it introduces a product at a very low price to gain market share early on. A) skimming pricing B) trial pricing C) intensive pricing D) penetration pricing E) price bundling Answer: D 65) Which of the following is a reason that a marketer would choose a penetration pricing strategy? A) to ensure the company has the ability to increase prices once demand decreases B) to focus on the rapid achievement of profit objectives C) to appeal to different consumer segments with different levels of price sensitivity D) to create markets for highly technical products E) to discourage competition from entering the market Answer: E 66) A new product carries a low price for a limited period of time to attract customers in what type of pricing strategy? A) price skimming B) trial pricing C) penetration pricing D) specialty pricing E) price bundling Answer: B 67) ________ refers to the sale of two or more goods or services as a single package for one price. A) Two-part pricing B) Captive pricing C) Price bundling D) List pricing E) Everyday low pricing Answer: C 68) ________ is a pricing tactic a firm uses for two products that work only when used together. The firm sells one item at a very low price and then makes its profit on the second high-margin item. A) Two-part pricing B) Price bundling C) Captive pricing D) Penetration pricing E) Skim pricing Answer: C 69) Another name for F.O.B. factory pricing is ________ pricing. A) captive B) F.O.B destination C) F.O.B. origin D) F.O.B. delivered E) basing-point Answer: C 70) With ________, the seller pays both the cost of loading and transporting the product to the customer. A) uniform delivered pricing B) basing-point pricing C) F.O.B. origin pricing D) F.O.B. delivered pricing E) F.O.B. factory pricing Answer: D 71) When a company charges the same rate to ship a product anywhere in the United States, it is using which form of pricing? A) freight absorption B) F.O.B. factory C) F.O.B. origin D) uniform delivered E) basing-point Answer: D 72) When the seller takes on part or all of the cost of shipping, it is called ________. A) freight absorption B) F.O.B. factory C) F.O.B. origin D) uniform delivered E) basing-point Answer: A 73) A list price is also referred to as a ________. A) captive price B) bundled price C) channel price D) suggested retail price E) basing-point price Answer: D 74) Trade or functional discounts are offered by manufacturers to which of the following? A) channel intermediaries who perform wholesaling tasks that the manufacturer would otherwise have to perform B) consumers who earn a price reduction for buying in bulk C) intermediaries who pay their bills before they are due D) manufacturers that agree to exclusive distribution contracts E) the government market and other organizations that require bid proposals Answer: A 75) Which of the following is true about noncumulative quantity discounts? A) They encourage large single orders. B) They encourage a strong relationship between buyer and seller. C) They are based on a total quantity purchased within a set time period. D) They typically involve giving the buyer a credit to use against future orders. E) They encourage small, regularly spaced orders. Answer: A 76) A quantity discount is a price reduction to buyers who purchase ________. A) frequently B) large volumes C) close outs D) bundled products E) seasonal products Answer: B 77) When a snow blower shop offers a price reduction to customers who buy during the spring and summer, the shop is giving a(n) ________ discount. A) functional B) seasonal C) annual D) trade E) allowance Answer: B 78) Joe Bergerson makes and sells maple racks for cooling cakes and cookies. Joe knows that it costs $15 to make one rack, and he wants to earn a 25 percent profit on each rack. Which approach to pricing is Joe most likely to use? A) demand-based pricing B) target costing C) cost-plus pricing D) yield management pricing E) value pricing Answer: C 79) Swatch surveyed the market and identified an unserved segment of watch buyers. Using these results, Swatch created a watch at a price consumers were willing to pay. The unorthodox order of this marketing mix decision is an example of ________. A) competition-based pricing B) cost-plus pricing C) target costing D) value pricing E) penetration pricing Answer: C 80) The average price Xerox charged when it introduced the first stand-alone fax machine was $12,700. This premium price was a way for Xerox to recoup some of the research and development costs that went into production. Xerox used ________. A) a skimming price B) a trial price C) penetration pricing D) prestige pricing E) target costing Answer: A 81) Valeo Fashions has just introduced a new line of fashion dresses for teens. The line will initially enter the market at high prices in a ________ strategy. A) penetration pricing B) skimming pricing C) price leadership D) yield management pricing E) value pricing Answer: B 82) When a beverage maker came out with a new drink and priced it at half price for a month to attract buyers, the company was using a(n) ________ strategy. A) penetration pricing B) skim pricing C) everyday low price D) trial pricing E) price leadership Answer: D 83) Johnson Boats wants to introduce a new model of boat into mature markets in highly developed countries with the goal of quickly gaining mass-market share. As a consultant, you should recommend a ________ pricing strategy. A) skim B) penetration C) price leadership D) cost-plus E) captive Answer: B 84) Mach 3 razor blades must be used in the Mach 3 razor. Which type of pricing is most likely used for the razor blades? A) penetration B) value C) captive D) two-part E) basing-point Answer: C 85) Manufacturers of which of the following would be most likely to use freight absorption pricing? A) chocolate candy B) laptop computers C) furniture polish D) feline flea collars E) repair parts for vacuum cleaners Answer: B 86) Cost-based pricing considers factors such as the nature of the target market, demand, competition, and the product life cycle. Answer: False 87) The simplest pricing method is break-even pricing: adding a standard markup to the cost of the product. Answer: False 88) Consumer surveys are often important to marketers using demand-based pricing. Answer: True 89) Value pricing is the opposite of cost-based pricing. Answer: False 90) Market-skimming is a more popular strategy for pricing new products, while market-penetration is a more popular strategy for pricing products that are more advanced in the product life cycle. Answer: False 91) A skimming price is typically used when the company introducing a new product anticipates other competitors will enter the market quickly. Answer: False 92) Penetration pricing is the opposite of skimming pricing. Answer: True 93) The Value Meal Deal at a fast food restaurant in which you get a sandwich, fries, and a drink for one price is an example of price bundling. Answer: True 94) Captive pricing is illegal. Answer: False 95) When a major moving van company sells accessory products (boxes, bubble wrap, etc.) that must be used in moving a household's furniture, the company is practicing captive pricing. Answer: True 96) What are the advantages and disadvantages of using demand-based pricing? Answer: Demand-based pricing assures a firm that it should be able to sell what it produces at the determined price because the price is based on market research findings about customer demand rather than on the seller's costs. Disadvantages include the difficulty in estimating demand accurately and that there is no assurance the price will be profitable (or even cover costs). 97) Companies bringing out a new product can choose between three broad strategies: a skimming price, penetration pricing, and trial pricing. Distinguish among the three. Answer: A skimming price is used to skim revenues from the market by entering with high initial prices. The product's quality and image must support its higher price, and enough buyers must want the product at that price. Competitors should not be able to enter the market easily and undercut the high price. Penetration pricing is the opposite of a skimming price. It is used to penetrate the market quickly and deeply to attract a large number of buyers and win a large market share by setting a low price upon entering the market. The low price should help keep out competition and be maintained over time. Trial pricing also offers a low price for a new product, but unlike penetration pricing it only offers the low price for a limited time. 98) Explain the concept of price bundling. Why would a retailer implement this pricing strategy? Give one example of this strategy being implemented. Answer: Price bundling means selling two or more goods or services as a single package for one price. A retailer would implement this strategy so that consumers will buy all instead of some products associated with a main product. Charging one price will make the customer feel as if the total cost is the entire set of items instead of charging for each item separately. Examples given will vary. The textbook gives the example of a PC, which is typically bundled with a monitor, a keyboard, and software. 99) How does the airline industry implement the yield management pricing strategy? Answer: Using yield management pricing, firms charge different prices to different customers in order to manage capacity while maximizing revenues. The airline industry recognizes that some customers will pay top dollar for an airline ticket while others will travel only if there is a discount fare; the airlines' pricing structure reflects this. 100) When Top-Flite introduced its Strata golf balls with a new dimple design and more solid core for better flight with metal clubs, the price was three times that of regular balls. Pro shops still could not keep them in stock. What is the pricing strategy implemented by Top-Flite, and why did the company choose this strategy? Answer: Top-Flite implemented the skimming price strategy, charging a high, premium price for its new product with the intention of reducing the price in the future. Top-Flite may have been able to recoup the cost of research and development. 101) Explain the concept of trial pricing. Why would a retailer implement this pricing strategy? Answer: Trial pricing is used when a new product carries a low price for a limited period of time to attract customers. The idea is to win customer acceptance first and make profits later. 102) Cellular phone service providers typically offer customers a set number of minutes for a monthly fee plus a per-minute rate for extra phone usage. What is the pricing strategy being implemented by these cellular phone service providers? Answer: Cellular phone service providers are implementing the two-part pricing strategy, which requires two separate types of payments to purchase the product. The cellular phone customer must pay a monthly fee plus an additional fee for the minutes used. 103) Compare F.O.B. origin pricing and F.O.B. delivered pricing. Answer: F.O.B. origin pricing means that the cost of transporting the product from the factory to the customer's location is the responsibility of the customer. The seller takes on more responsibility in F.O.B. delivered pricing, which means that the seller pays both the cost of loading and the cost of transporting to the customer, which is included in the selling price. 104) How do consumers benefit from price bundling? Give an example of price bundling. Answer: Several products are sold together at a reduced rate; vacation packages that include air and hotel, or value meals in the fast-food industry are examples. 105) On the Internet, price can easily be adjusted to meet changes in the marketplace. This is called ________. A) captive pricing B) dynamic pricing C) basing-point pricing D) price bundling E) freemiums Answer: B 106) Which of the following allow shoppers to bid on everything from bobble heads to health-and-fitness equipment? A) freemiums B) shop bots C) reverse auctions D) online auctions E) list prices Answer: D 107) In a(n) ________, all of the buyers know the highest price bid at any point in time. A) reverse auction B) dynamic auction C) open auction D) reserve auction E) price-lining auction Answer: C 108) In a(n) ________, sellers compete for the right to provide a product to a buyer. A) reverse auction B) dynamic auction C) open auction D) reserve auction E) price-lining auction Answer: A 109) ________ is a new business strategy of offering a basic version of a product free of charge and then charging for upgraded versions of the product. A) Price discrimination B) Freemium C) Crowdsourcing D) Reverse marketing E) Dynamic marketing Answer: B 110) Pricing based on supply and demand is not a part of dynamic pricing. Answer: False 111) How has the Internet made it easier for companies to use dynamic pricing strategies? Use an example in your explanation. Answer: A dynamic pricing strategy involves easily adjusting prices to meet changes in the marketplace. The cost of changing prices in a brick-and-mortar retail store involves labor, advertising, and materials; the cost of changing prices online is minimal and can also be instant. For example, with the Internet the marketers of rock concert tickets can adjust concert ticket prices on the basis of supply and demand so that a ticket for a certain seat might cost more or less depending on which day the customer logs on to the Internet to make the purchase. 112) What are some of the potential consumer benefits to purchasing items online? Answer: Consumers can potentially save on the actual cost of the purchased product by shopping online. With more information about competing prices and the actual costs of producing products available through the Internet, customers have more negotiating power for big-ticket items. Savings can be realized in the customer's expenses in the gasoline not used when driving to a store. Also, there are time management advantages and stress reduction for the customer who does not have to physically travel to a store. 113) Which of the following is a set price or price range in consumers' minds that they refer to in evaluating a product's price? A) dynamic price B) internal reference price C) suggested retail price D) captive price E) value price Answer: B 114) Often consumers base their perception of price on what they perceive to be the customary or ________. A) dynamic price B) fair price C) target price D) list price E) assimilated price Answer: B 115) A(n) ________ occurs when customers decide that two different brands of pain reliever have the same product quality because they have basically the same product characteristics and similar prices. A) clouding effect B) assimilation effect C) bundling effect D) contrast effect E) price-placebo effect Answer: B 116) A(n) ________ strategy is implemented when a store places two similar items next to each other, highlighting the fact that the price of one item is slightly lower than that of the other item. A) assimilation effect B) contrast effect C) price-placebo effect D) penetration pricing E) skimming price Answer: A 117) When consumers are unable to judge the quality of a product through examination or prior experience, they usually do which of the following? A) Make a price-quality inference. B) Depend on an internal reference price. C) Assess the fair price. D) Experience an assimilation effect. E) Experience a price-placebo effect. Answer: A 118) Consumers usually perceive higher-priced products as ________. A) out of reach for all but the wealthy B) having high quality C) having low profit margins D) having cost-based prices E) being in the introductory stage of the product life cycle Answer: B 119) A business using price lining is doing which of the following? A) trying to avoid the use of psychological pricing, which may be negatively received by customers B) trying to recoup its research and development costs for a new product C) attempting to attain a large market share before any competitors can enter the marketplace D) selling items in a product line at different prices E) engaging in potentially unethical pricing Answer: D 120) From a marketer's point of view, price lining is a way to do which of the following? A) control supply B) maximize profits C) make the business more socially responsible D) pass shipping costs on to consumers E) eliminate price elasticity concerns Answer: B 121) Which of the following is a pricing strategy that turns the typical assumption about price-demand relationships on its head? A) penetration pricing B) price bundling C) assimilation effect pricing D) placebo effect pricing E) prestige pricing Answer: E 122) Enforcing laws against ________ is complicated because such practices are similar to the legal practice of "trading up." A) price bundling B) captive pricing C) bait-and-switch tactics D) prestige pricing E) placebo effect pricing Answer: C 123) Some retailers advertise items at very low prices or even below cost just to get customers into the store. The rationale for implementing this ________ strategy is the belief that once a customer is in the store she will buy the advertised item as well as other items at regular prices. A) bait-and-switch B) price lining C) predatory pricing D) loss leader pricing E) dynamic pricing Answer: D 124) In some states, unfair trade practices acts are designed to ________. A) regulate the markups used by various industries B) control the sale of agricultural products and raw materials C) regulate all forms of psychological pricing D) prohibit the selling of products below cost E) ban the use of price lining Answer: D 125) The Robinson-Patman Act does NOT include regulations that ________. A) apply to resellers B) protect final consumers C) prohibit selling the same product to different retailers at different prices D) prohibit offering such "extras" as discounts, rebates, premiums, and coupons to some but not all customers E) prohibit price discrimination in interstate commerce Answer: B 126) Price fixing occurs when two or more companies conspire to ________. A) keep prices at a certain level B) use predatory pricing C) use loss-leader pricing D) use bait-and-switch tactics E) prohibit competitors from entering a market Answer: A 127) Which of the following occurs when competitors making the same product jointly determine what price each will charge customers for the item? A) horizontal price fixing B) vertical price fixing C) predatory pricing D) internal reference pricing E) assimilation pricing Answer: A 128) Which of the following occurs when manufacturers or wholesalers attempt to force retailers to charge a certain price for their products? A) horizontal price fixing B) vertical price fixing C) predatory pricing D) internal reference pricing E) assimilation pricing Answer: B 129) Federal legislation on price-fixing requires that sellers set their prices ________. A) based on their fixed and variable costs B) without communication with competitors C) to achieve a specified profit margin D) consistently with all customers E) consistently throughout a region Answer: B 130) By using ________, a company deliberately sets a low price with the intention of driving its competition out of business. A) price-fixing B) price lining C) surge pricing D) predatory pricing E) loss leader pricing Answer: D 131) As a result of the ________, Rick decided the candy priced at $2.50 per pound could not be nearly as good as the candy priced at $9.50 per pound. A) assimilation effect B) contrast effect C) fair price effect D) reference effect E) clouding effect Answer: B 132) A local restaurant sells lunch entrees for $7.95, $9.95, and $11.95. From this information, you can infer the restaurant uses which of the following? A) price discrimination B) odd-even pricing and price lining C) dynamic pricing and price lining D) reference pricing and value pricing E) dynamic pricing and loss leader pricing Answer: B 133) A hamburger stand near the local mall sells hamburgers for $3.99, drinks for $1.99, and fries for $1.49, while a gourmet restaurant nearby sells entrees for $20, $30, and $45. Both of these restaurants are using ________. A) demand-based pricing B) cost-based pricing C) psychological pricing D) prestige pricing E) penetration pricing Answer: C 134) After looking at the ads in her Sunday paper, Ruby decided to visit a local nursery and buy potting soil at $1.99 a bag. The regular price is $4.99 a bag. While Ruby was there she also purchased three bushes, six flowering plants, and a bird bath. You can infer from this information that the nursery used the bags of potting soil as a ________. A) loss leader B) freemium C) bait-and-switch D) price line E) reference price Answer: A 135) When Circuit Town Electronics sets its televisions at three price levels of $699, $899, and $1,099, it is most likely using ________. A) price fixing B) price lining C) penetration pricing D) skimming pricing E) loss leader pricing Answer: B 136) A number of top fashion-modeling agencies were charged with ________ because they were jointly determining what commissions they would charge for models. A) prestige pricing B) horizontal price lining C) vertical price lining D) vertical price-fixing E) horizontal price-fixing Answer: E 137) Bayer AG agreed to pay $46 million as part of a law settlement for conspiring with Archer-Daniels-Midland (ADM) to keep prices of citric acid at a certain level. These two international companies were guilty of ________. A) price lining B) skimming pricing C) predatory pricing D) price-fixing E) placebo pricing Answer: D 138) Savings for You, a discount retail chain, is highly competitive. When entering a new market, Savings for You often cuts prices so deeply that it sells below costs, effectively pushing smaller companies with less purchasing power out of the market. Savings for You is most at risk of being accused of ________. A) skimming prices B) price-fixing C) predatory pricing D) deceptive pricing E) loss leader pricing Answer: C 139) All 50 U.S. states consider loss leader practices to be wrong and have passed legislation called "unfair sales acts," also called "unfair trade practices acts." Answer: False 140) Surge pricing occurs when a company raises the price of its product when demand for the product goes up and lowers the price of its product when demand goes down. Answer: True 141) Mark believes he should pay more than $49.95 for a motel room; this price is his internal reference price. Answer: True 142) To encourage customers to buy the $799 dining room suite, the furniture store set a much cheaper and shoddily made set next to the more expensive furniture, thereby using the contrast effect. Answer: True 143) Explain the pricing strategy being implemented when a retail store places the store's generic brand items next to the national brand items when the national brand items have a slightly higher price than the generic brand item. Why would a retailer do this? Answer: The store is relying on the assimilation effect. A retailer may do this in an attempt to show the consumer that the products are very similar, and then consumers will feel as if they are saving money by purchasing the generic versus the national brand item. Sales of the generic items will likely increase because of their positive association with the brand items and their somewhat lower prices. 144) Why is price lining a good practice for retailers? Answer: Price lining is a way to maximize profits. Price lining uses a limited number of prices, or price points, that generally fall at the top of the range that different types of customers find acceptable. Ideally, companies would charge each customer a different price—the highest price she was willing to pay. Since this isn't possible, price lining is a more workable alternative. 145) A local appliance store is advertising the sale of a 27-inch color TV for only $199. The ad states that this price will apply only to TVs that are in stock and no rain checks will be given. Fifteen minutes after the store opens on the day of the sale of the TV, a customer is told by a sales clerk that all of the TVs selling for $199 have been sold. However, the sales clerk is very happy to show the customer a similar TV for only $399. What pricing strategy is the store implementing and why? Answer: The store is using the bait-and-switch tactic. One item is used as the bait to get customers into the store. Then, for whatever the reason, the customer cannot buy the advertised sale item, so a salesperson shows the customer another item, the switch, usually selling for a higher price. The store was successful in getting the customer into the store. Now, the store is striving to get the customer to spend more money. 146) What is the rationale for a store advertising the sale of one item at a price that may be potentially lower than the cost of the item to the store? Answer: The store is using this one sale item as a loss leader item in its pricing strategy. Some retailers advertise items at very low prices or even below cost and are glad to sell them at that price because they know that once in the store, customers may buy other items at regular prices. 147) What are the two types of price fixing? Briefly define each. Answer: Horizontal price fixing occurs when competitors making the same products jointly determine what price they will charge. Vertical price fixing occurs when manufacturers and wholesalers force retailers to charge a certain price for their products. 148) What is predatory pricing? Answer: Predatory pricing is an illegal pricing strategy in which a company sets a very low price for the purpose of driving competitors out of business. Test Bank for Marketing: Real People, Real Choices Michael R. Solomon, Greg W. Marshall, Elnora W. Stuart 9780132948937, 9780135199893, 9780134292663, 9780135209929
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