Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) When consumers examine products, they often compare an observed price to an internal price they
remember. This is known as a(n) ________ price.
A) markup
B) reference
C) market-skimming
D) accumulated
E) target
Answer: B

2) ________ price refers to what the consumers feel the product should cost.
A) Fair
B) Typical
C) Usual discounted
D) List
E) Maximum retail
Answer: A

3) While shopping at the mall, Jane was asked by one of the sales representatives at the cosmetics counter to try
out a new lipstick that her company was test marketing. The company representative asks her how much she
would be willing to pay for the lipstick. After trying it out, Jane is of the opinion that $5 is just the right price
for it. What type of a reference price is Jane using?
A) usual discounted price
B) fair price
C) maximum retail price
D) last price paid
E) historical competitor price
Answer: B

4) The reservation price or the maximum that most consumers would pay for a given product is known as the
________ price.
A) expected future
B) usual discounted
C) upper-bound
D) typical
E) historical competitor
Answer: C

5) A company decided to conduct a market survey for its new MP3 player which it had priced at $150.
However, in the survey, 95 percent of the participants said that the maximum they would pay for the MP3
player is $100. This is an example of which of the following possible consumer reference prices?
A) historical competitor price
B) expected future price
C) usual discounted price
D) upper-bound price
E) last price paid
Answer: D

6) The minimum price that most consumers would pay for a given product is known as the ________ price.
A) everyday low
B) usual discounted
C) fair
D) typical
 E) lower-bound
Answer: E

7) A company has developed the prototype of a mobile phone which it plans to launch in the next few months.
The phone comes equipped with the most advanced technological features. As part of its test marketing
efforts, it allows customers to examine and use the prototype and also gathers feedback regarding product
features and price. The results of this test marketing effort show that customers are willing to pay at least
$500, considering the phone's various features. As such, the company has found out about the customers'
________.
A) last paid price
B) expected future price
C) lower-bound price
D) upper-bound price
E) typical price
Answer: C

9) Pricing cues such as sale signs and prices that end in 9 are more influential ________.
A) when customers have substantial knowledge about prices
B) when customers purchase the particular item regularly
C) when product quality is standardized
D) when product designs vary over time
E) when prices do not vary from time to time
Answer: D

10) Which of the following is the first step in setting a pricing policy?
A) selecting a pricing method
B) selecting the pricing objective
C) determining demand
D) estimating cost
E) analyzing competitors' costs, prices, and offers
Answer: B

11) After determining its pricing objectives, what is the next logical step a firm should take in setting its pricing
policy?
A) It should analyze its competitors' costs, prices, and offers.
B) It should select its pricing method.
C) It should select its final price.
D) It should determine the demand for its product.
E) It should estimate the cost of its product.
Answer: D

12) A firm that is plagued with overcapacity, intense competition, or changing wants would do better if it
pursues ________ as its major objective.
A) market skimming
B) product-quality leadership
C) survival
D) profit maximization
E) market penetration
Answer: C

13) After estimating the demand and costs associated with alternative prices, a company has chosen to price its
product in such a way that it gains the highest rate of return on its investment. The company is looking to
________.
A) maximize its market share
B) skim the market
C) become a product-quality leader
 D) survive in the market
E) maximize its current profit
Answer: E

14) Companies who believe that a higher sales volume leads to lower unit costs and higher long-run profits are
attempting to ________.
A) maximize their market share
B) skim the market
C) become a product-quality leader
D) merely survive in the market
E) maximize their current profits
Answer: A

15) A company that is looking to maximize its market share would do well to follow ________ pricing.
A) markup
B) market-penetration
C) market-skimming
D) survival
E) target-return
Answer: B

16) A market-penetration pricing strategy is most suitable when _______.

A) a low price slows down market growth
B) production and distribution costs fall with accumulated production experience
C) a high price dissuades potential competitors from entering the market
D) the market is characterized by inelastic demand
E) a low price encourages actual competition
Answer: B

17) When a company introduces a product at a very high price and then gradually drops the price over time, it is
pursuing a ________ strategy.
A) market-penetration pricing
B) market-skimming pricing
C) value-pricing
D) switching cost
E) loss-leader pricing
Answer: B

18) When Apple introduced its iPhone, it was priced at $599. This allowed Apple to earn the maximum amount
of revenue from the various segments of the market. Two months after the introduction, the price has come
down to $399. What kind of a pricing did Apple adopt?
A) loss-leader pricing
B) market-penetration pricing
C) market-skimming pricing
D) target-return pricing
E) value pricing
Answer: C

19) Market skimming pricing makes sense under all the following conditions, EXCEPT ________.
A) if a sufficient number of buyers have a high current demand
B) if the unit costs of producing a small volume are high enough to cancel the advantage of charging what
the traffic will bear
C) if the high initial price does not attract more competitors to the market
D) if consumers are likely to delay buying the product until its price drops
E) if the high price communicates the image of a superior product
Answer: D
20) Companies that aim to ________ strive to be affordable luxuries.
A) survive in the market
B) partially recover their costs
C) maximize their market share
D) pursue value pricing
E) be product-quality leaders
Answer: E

21) Starbucks, Aveda, and BMW have been able to position themselves within their categories by combining
quality, luxury, and premium prices with an intensely loyal customer base. These companies are employing
a ________ strategy.
A) market-skimming
B) market-penetration
C) survival
D) market share maximization
E) product-quality leadership
Answer: E

22) The first step in estimating demand is to ________.

A) analyze competitors' cost
B) select a pricing method
C) understand what affects price sensitivity
D) calculate fixed costs
E) decipher the experience curve
Answer: C

23) Consumers are less price sensitive ________.

A) to high cost items
B) when they frequently change their buying habits
C) when there are more substitutes
D) when there are more competitors
E) when they do not readily notice higher prices
Answer: E

24) Consumers are less price sensitive when ________.

A) price is only a small part of the total cost spent on the product over its lifetime
B) they perceive the higher prices to be unjustified
C) they change their buying habits regularly
D) there are many substitutes and competitors in the market
E) they are buying high-cost items
Answer: A

25) If demand hardly changes with a small change in price, the demand is said to be ________.
A) strained
B) marginal
C) inelastic
D) flexible
E) unit elastic
Answer: C

26) If demand changes considerably, with a small change in price, the demand is said to be ________.
A) unit elastic
B) elastic
C) inelastic
D) marginal
E) strained
 Answer: B

27) If consumers were largely indifferent to a $0.5 increase in the price of a gallon of milk, the price rise is said to
fall within customers' ________.
A) price indifference band
B) experience curve
C) arm's-length price
D) learning curve
E) net price index
Answer: A

28) Which of the following is true regarding price elasticity?

A) The higher the elasticity, the lesser is the volume growth resulting from a 1 percent price reduction.
B) Within the price indifference band, price changes have little or no effect on demand.
C) If demand is elastic, sellers will consider increasing the price.
D) Price elasticity does not depend on magnitude and direction of the contemplated price change.
E) When demand is inelastic, sellers should lower prices in order to increase total revenue.
Answer: B

29) Costs that do not vary with production levels or sales revenue are known as ________.
A) overhead costs
B) variable costs
C) average costs
D) opportunity costs
E) total costs
Answer: A

30) A company must make payments each month for rent, heat, interest, and salaries. These are ________.
A) total costs
B) fixed costs
C) variable costs
D) opportunity costs
E) target costs
Answer: B

31) Costs that differ directly with the level of production are known as ________.
A) fixed costs
B) overhead costs
C) opportunity costs
D) target costs
E) variable costs
Answer: E

32) ________ consist of the sum of the fixed and variable costs for any given level of production.
A) Total costs
B) Average costs
C) Opportunity costs
D) Learning costs
E) Target costs
Answer: A

33) ________ is the cost per unit at that level of production.

A) Target cost
B) Average cost
C) Marginal cost
D) Opportunity cost
 E) Fixed cost
Answer: B

36) Deducting the desired profit margin from the price at which a product will sell, given its appeal and
competitors' prices, is known as ________.
A) overhead costing
B) target costing
C) activity based costing
D) benefit analysis
E) estimate costing
Answer: B

37) Competitors are most likely to react to a price change, when ________.
A) the firm has a weak value proposition
B) the firm enjoys a monopoly
C) there are few competing firms
D) the product is heterogeneous
E) buyers have limited information
Answer: C

38) Which of the following is the most elementary pricing method?

A) value pricing
B) going-rate pricing
C) markup pricing
D) target-return pricing
E) perceived-value pricing
Answer: C

39) Despite its weaknesses, markup pricing remains popular for which of the following reasons?
A) Sellers can determine demand much more easily than they can estimate costs.
B) By tying the price to cost, the pricing task becomes more sophisticated.
C) When all firms in the industry use markup pricing, price competition flourishes.
D) Sellers take advantage of buyers when the latter's demand becomes acute.
E) Many people feel that cost-plus pricing is fairer to both buyers and sellers.
Answer: E

42) ________ pricing takes into account a host of inputs, such as the buyer's image of the product performance,
the channel deliverables, the warranty quality, customer support, and attributes such as the supplier's
reputation, trustworthiness, and esteem.
A) Perceived-value
B) Value
C) Going-rate
D) Auction-type
E) Markup
Answer: A

43) The key to perceived-value pricing is to ________.

A) reengineer the company's operations
B) deliver more unique value than competitors
C) adopt subtle marketing tactics compared to competitors
D) deliver more value but at a lower cost
E) invest heavily in advertising in order to convey superior value
Answer: B

44) ________ pricing is a matter of reengineering the company's operations to become a low-cost producer
without sacrificing quality.
 A) Value
B) Going-rate
C) Auction-type
D) Markup
E) Perceived-value
Answer: A

48) In ________, the firm bases its price largely on competitor's prices.
A) going-rate pricing
B) auction-type pricing
C) markup pricing
D) target-return pricing
E) perceived-value pricing
Answer: A

52) ________ let would-be suppliers submit only one bid; they cannot know the other bids.
A) Descending bid auctions
B) Sealed-bid auctions
C) English auctions
D) Dutch auctions
E) Reverse auctions
Answer: B

53) In which of the following forms of countertrade do buyers and sellers directly exchange goods, with no
money and no third party is involved?
A) buyback arrangements
B) offsets
C) barter
D) sealed bids
E) compensation deals
Answer: C

57) ________ are offered by a manufacturer to trade-channel members if they will perform certain functions,
such as selling, storing, and record keeping.
A) Consumer promotions
B) Quantity discounts
C) Functional discounts
D) Seasonal discounts
E) Trade-in allowances
Answer: C

58) When hotels, motels, and airlines offer discounts in slow selling periods, they are said to be offering
________.
A) trade discounts
B) quantity discounts
C) functional discounts
D) seasonal discounts
E) trade-in allowances
Answer: D

59) A(n) ________ is an extra payment designed to gain reseller participation in special programs.
A) seasonal discount
B) allowance
C) discount
D) quantity discount
E) functional discount
 Answer: B

61) ________ reward dealers for participating in advertising and sales support programs.
A) Functional discounts
B) Trade discounts
C) Promotional allowances
D) Rebates
E) Quantity discounts
Answer: C

62) When supermarkets and department stores drop the price on well-known brands to stimulate store traffic,
they are said to be following ________.
A) value pricing
B) loss-leader pricing
C) special event pricing
D) high-low pricing
E) everyday low pricing
Answer: B

63) When Alan bought his car, the bank gave him 24 months to repay his car loan. But when Alan made a
request to increase the time frame to 36 months, the bank granted the extension. The bank was willing to
offer Alan a ________.
A) longer payment term
B) warranty contract
C) service contract
D) special customer price
E) special event price
Answer: A

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
81) Price is one of the two elements of the marketing mix that produces revenue.
Answer: True False

82) Traditionally, price was never a major determinant of buyer choice.

Answer: True False

83) Today, consumers are price takers and accept prices at face value or as given.
Answer: True False

84) Purchase decisions are based on how consumers perceive prices and what they consider the current actual
price to be–not the marketer's stated price.
Answer: True False

85) Customers usually have a lower price threshold below which prices signal inferior or unacceptable
quality, as well as an upper price threshold above which prices are prohibitive and the product appears not
worth the money.
Answer: True False

86) Although consumers may have fairly good knowledge of the range of prices involved, very few can
accurately recall specific prices of products.
Answer: True False

87) When examining products, consumers compare an observed price to an internal reference price they
remember or an external frame of reference.
Answer: True False
 88) Many consumers use price as an indicator of quality and value.
Answer: True False

89) Companies strive to maximize their current profits if they are plagued with overcapacity, intense
competition, or changing consumer wants.
Answer: True False

90) In reality, it is very easy for firms to estimate their demand and cost functions.
Answer: True False

91) If firms wish to maximize their market share, they should opt for market-skimming pricing.
Answer: True False

92) A firm is said to be following a market-skimming pricing strategy, if it introduces a product into the market
at a high price and slowly drops the price over time.
Answer: True False

93) In the case of prestige goods, the demand curve sometimes slopes upward.
Answer: True False

94) Companies prefer customers who are less price sensitive.

Answer: True False

96) A small change in price of a product within the price indifference band causes a substantial change in the
demand of that product.
Answer: True False

97) Total costs consist of the sum of the fixed and variable costs for any given level of production.
Answer: True False

98) In target-return pricing, the firm adds a standard markup to the product's cost.
Answer: True False

99) The key to effectively using perceived-value pricing is to deliver value that is on par with your competitors.
Answer: True False

100) Value pricing requires a company to reengineer its operations to become a low-cost producer.
Answer: True False

105) A quantity discount is a price reduction given to those who pay their bills promptly.
Answer: True False

106) Trade-in allowances reward dealers for participating in advertising and sales support programs.
Answer: True False

107) Psychological discounting involves setting an artificially high price and then offering the product at
substantial savings.
Answer: True False

108) Loss leader pricing dilutes a company's brand image.

Answer: True False

114) Companies sometimes initiate price cuts in an attempt to dominate the market through lower costs.
Answer: True False