MKG 300 Exam 6 (Ch. 16-18)

Which of the following best defines the goal of a sales-oriented pricing objective?
seeks some level of unit sales, dollar sales, or share of market— without referring to profit.

They think sales growth always leads to more profits; makes sense over the short term.

Some nonprofit organizations set prices to increase market share—precisely because they are not trying to earn a profit.

Which of the following is LEAST LIKELY to be in the “Something of Value” part of the “price equation” for CHANNEL MEMBERS?

A. Repair facilities
B. Rebates
C. Price-level guarantees
D. Promotion aimed at customers
E. Convenient packaging for handling

C. Price-level guarantees
A pricing objective that seeks a specific level of profit is a:

A. profit maximization objective.
B. value objective.
C. sales-oriented objective.
D. target return objective.
E. status-quo objective

B. value objective.
Fidelity Corp. earned a 6 percent return on investment last year and wants to increase it to 10 percent this year. Which of the
following pricing objectives is Fidelity seeking?

A. Target return
B. Growth in sales
C. Growth in market share
D. Maximize profits
E. Nonprice competition

A. Target return
Target return pricing objectives:

A. usually are very high for firms facing heavy competition.
B. aren’t used by industry leaders because they can maximize profits.
C. would never make sense for a nonprofit organization.
D. may simplify the management of large producers with many divisions or departments.
E. All of the above.

A. usually are very high for firms facing heavy competition.
Profit maximization pricing objectives:

A. almost always lead to high prices.
B. are generally not in the public interest.
C. seek to get as much profit as possible.
D. may be stated as a desire to achieve rapid sales growth.
E. All of the above

C. seek to get as much profit as possible.
Sales-oriented pricing objectives:

A. may include market share targets as well as dollar or unit sales targets.
B. might be achieved and still result in losses.
C. are especially risky during times when a firm’s costs are rising rapidly.
D. All of the above are true.
E. None of the above is true.

D. All of the above are true.
Some nonprofit organizations set prices to increase market share because

A. it is a regulatory requirement.
B. they would never do any business otherwise.
C. they are trying improve their image.
D. they wish to monopolize the market.
E. they are not trying to earn a profit.

E. they are not trying to earn a profit.
The problem with sales-oriented pricing objectives is that:

A. many managers are evaluated by their level of sales.
B. larger sales don’t necessarily lead to higher profits.
C. the number of units sold does not consider possible growth in the market.
D. sales growth usually leads to declining profits.
E. All of the above.

B. larger sales don’t necessarily lead to higher profits.
Which of the following is a status quo oriented pricing objective?

A. Target return
B. Unit sales growth
C. Profit maximization
D. Growth in market share
E. Non price competition

E. Non price competition
Which of the following statements would be most likely to be made by a manager with a status-quo pricing objective?

A. “A price of $10.00 will penetrate the market.”
B. “A price of $10.00 will not start a price war with our competitors.”
C. “A price of $10.00 should maximize profits.”
D. “A price of $10.00 will provide a 30% return on investment.”
E. “A price of $10.00 should result in a 9% increase in sales.”

B. “A price of $10.00 will not start a price war with our competitors.”
“Don’t-rock-the-boat” thinking is most common when

A. a product is in the introduction stage.
B. the total market is not growing.
C. there is threat of intense competition.
D. a firm moves into international markets for the first time.
E. a product is in the growth stage

B. the total market is not growing.
Faced with many “me-too” competitors, Sonic Burgers, Inc. has set its price level to “meet competition”—while emphasizing
nonprice competition. Sonic Burgers’ pricing objective seems to be a ______________ objective.

A. status quo
B. sales-oriented.
C. profit-oriented
D. satisfactory profits
E. maintaining market share

A. status quo
A one-price policy means:

A. offering the same price to all customers who purchase products under essentially the same conditions and in the same quantities.
B. never using temporary sales or rebates.
C. selling to different customers at different prices.
D. setting a price at the “right” level from the start and never changing it.
E. None of the above.

A. offering the same price to all customers who purchase products under essentially the same conditions and in the same quantities.
The majority of U.S. firms use a one-price policy

A. to broadcast a single price to competitors.
B. for administrative convenience.
C. to increase pricing flexibility.
D. to undercut competition.
E. to ward off competition from imports.

B. for administrative convenience.
White Sands Heavy Equipment Co. produces industrial equipment that it sells through its national sales force. Its sales reps often
must negotiate with customers to match the low prices of foreign competitors. Apparently, the firm has

A. an “F.O.B.-Seller’s Factory” price policy.
B. been violating the Robinson-Patman act.
C. a skimming price policy.
D. a status quo pricing objective.
E. a flexible-price policy.

E. a flexible-price policy.
Which pricing policy would probably be best for a profit-oriented producer introducing a really new product with a very inelastic
demand curve?

A. Skimming pricing
B. Meeting competition pricing
C. Below-the-market pricing
D. Penetration pricing
E. Introductory price dealing

A. Skimming pricing
When Apple first introduced its iPhone in the U.S. market, it priced it at $600. Several months later, Apple reduced the price to $400. And several months after that, it reduced the price again to $200. What pricing policy was Apple using in its initial price strategy?

A. introductory price
B. skimming price
C. cash discount price
D. penetration price
E. everyday low price

B. skimming price
A “penetration pricing policy”:

A. is the same as a “meeting competition” price-level policy.
B. is wise when demand is fairly inelastic—offering an “elite” market.
C. involves temporary price cuts to speed new products into market.
D. involves a series of step-by-step price reductions along an inelastic demand curve.
E. may be wise if a firm expects strong competition very soon after its product introduction

E. may be wise if a firm expects strong competition very soon after its product introduction
Which pricing policy is probably “best” for a profit-oriented, low-cost producer who is introducing a new product into a market with
elastic demand and is expecting strong competition very soon after product introduction?

A. Skimming pricing
B. Introductory price dealing
C. Meeting competition pricing
D. Penetration pricing
E. Status-quo pricing

D. Penetration pricing
Some developers of apps for the Apple iPhone price their apps low at launch to encourage
sales and get attention so they can move into the prestigious “Top 25” list. Then, they frequently raise prices to get a higher profit margin on later sales. The initial low price is a(n):

A. noncumulative quantity discount
B. temporary sale
C. introductory price deal
D. skimming price
E. cumulative quantity discount

C. introductory price deal
Which of the following observations concerning introductory price dealing is true?

A. Established competitors usually choose to meet introductory price dealing.
B. They are temporary price cuts to speed new products into a market.
C. They have the same effect as price skimming.
D. They are the same as low penetration prices.
E. The plan is to sustain the price cut for an extended period of time.

B. They are temporary price cuts to speed new products into a market.
When setting a price level policy, a good marketing manager knows that:

A. introductory price dealing usually does not increase sales.
B. a penetration price makes the most sense when there is a large “elite” market.
C. a “skimming” price may lead to low profits if demand is very elastic.
D. it’s easy to raise prices if the initial price is too low.
E. none of the above is true.

E. none of the above is true.
It is not uncommon for sales personnel at The Electronics Showroom to use aggressive sales tactics to encourage customers to buy Giant-Size brand televisions. Giant-Size has encouraged this behavior by using:

A. advertising allowances.
B. push money allowances.
C. stocking allowances.
D. trade-in allowances.
E. slotting allowances

B. push money allowances.
Offering a NONCUMULATIVE quantity discount seeks to:

A. reduce the seller’s shipping costs.
B. encourage bigger orders.
C. discourage small orders.
D. shift some of the storing function to the buyer.
E. All of the above.

E. All of the above.
A marketing manager might offer a cash discount to channel members to:

A. increase sales during a slow period.
B. encourage buyers to pay their bills quickly.
C. reduce shipping or selling costs.
D. encourage them to buy in larger quantities.
E. All of the above.

B. encourage buyers to pay their bills quickly.
A firm has just received an invoice for $1,000 with the following terms: 3/10, net 30. In this case, the firm:

A. should not worry about earning the cash discount because the amount is small.
B. can take a 10 percent discount if it pays within 3 days, and otherwise the full amount is due in 30 days.
C. can take a 3 percent discount if it pays the invoice on the 30th day.
D. in effect, will be borrowing at an annual rate of 54 percent if it pays the invoice in 30 days.
E. should pay $900 if it pays within 10 days.

D. in effect, will be borrowing at an annual rate of 54 percent if it pays the invoice in 30 days.
To get the sale price, customers

A. buy when they have to buy.
B. buy when the seller wants to sell.
C. have to buy things that they never need.
D. have to give up all consumer surplus.
E. buy when they have a necessity.

B. buy when the seller wants to sell.
A seller’s invoice reads: “Seller pays the cost of loading said merchandise onto a common carrier. At the point of loading, title to such products passes to the buyer, who assumes responsibility for damage in transit, except as covered by the transportation agency.” This shipment has been shipped:

A. F.O.B. delivered.
B. F.O.B. shipping point.
C. F.O.B. mill, freight absorbed.
D. F.O.B. buyer’s factory.
E. F.O.B. seller’s factory—freight prepaid.

B. F.O.B. shipping point.
A producer in Philadelphia uses “zone pricing.” It’s selling widgets for $150/ton in the Eastern Zone—which includes Richmond and
Baltimore. The actual freight cost from its plant to Baltimore is $70/ton and from its plant to Richmond is $80/ton. In this situation:

A. one ton of widgets costs a Baltimore buyer the same as an Richmond buyer.
B. both buyers would pay $225 for one ton of widgets.
C. one ton of widgets delivered to Richmond would cost the buyer $230.
D. one ton of widgets delivered to Baltimore would cost the buyer $220.
E. Both C and D.

A. one ton of widgets costs a Baltimore buyer the same as an Richmond buyer.
Freight absorption pricing:

A. amounts to cutting list price to appeal to new geographic markets.
B. forces all buyers to pay higher shipping costs.
C. tends to restrict firms from competing in distant markets.
D. tends to decrease competition.
E. Both B and C.

A. amounts to cutting list price to appeal to new geographic markets.
Which of the following statements concerning “value pricing” is FALSE?

A. Value pricing tries to build customer loyalty.
B. Companies using value pricing guarantee what they offer.
C. Value pricing involves setting a fair price level for a marketing mix that meets customers’ needs.
D. Value pricing means using “budget” or “cheap” prices.
E. The focus of value pricing is on the customer’s requirements—and the whole strategy.

D. Value pricing means using “budget” or “cheap” prices.
Honda Motor Co. prices its whole line (from the $15,000 Honda Fit economy sedan to the
$40,000 Pilot SUV) so that it offers high quality at reasonable prices. What pricing policy is Honda using?

A. cumulative quantity discount
B. value pricing
C. bundle pricing
D. introductory price deal
E. skimming price

B. value pricing
In an oligopoly situation, a wise marketing manager will probably set the firm’s price level:

A. at the competitive level.
B. on a negotiated basis—that is, customer by customer.
C. above competitors’ prices.
D. at least 10 percent below the price leader’s price.
E. below competitors’ prices.

A. at the competitive level.
Which of the following may be the only sensible pricing policy in oligopoly situations?

A. Maximizing profits
B. Pricing way below market
C. Meeting competition
D. Pricing way above market
E. Price leadership

C. Meeting competition
Antidumping laws:

A. protect consumers from the high prices charged by monopolistic foreign producers.
B. set the maximum price a foreign producer can charge.
C. are used in an effort to control the minimum price of imported products.
D. make it illegal for a foreign producer to sell a product at a price level lower than domestic producers.
E. force foreign producers to sell below cost if they want to compete with a nation’s domestic producers.

C. are used in an effort to control the minimum price of imported products.
Recently, some executives for highway construction companies agreed to stop competing with each other on price and to meet
every three months to decide their price for the next quarter. In this situation:

A. the Sherman Act has been violated.
B. the Robinson-Patman Act has been violated by price discrimination.
C. the executives are exercising their right to free trade.
D. the unfair trade practice acts have been violated.
E. as long as prices don’t increase—the executives have done nothing wrong.

A. the Sherman Act has been violated.
Which of the following laws specifically makes illegal any price discrimination which injures competition?

A. Magnuson-Moss Act
B. Robinson-Patman Act
C. Wheeler-Lea Act
D. FTC Act
E. Sherman Act

B. Robinson-Patman Act
Which of the following laws focuses specifically on price discrimination?

A. Robinson-Patman Act
B. Magnuson-Moss Act
C. Sherman Act
D. Wheeler-Lea Act
E. Federal Trade Commission Act

A. Robinson-Patman Act
The Robinson-Patman Act does permit some price differences—but they must be based on

A. cost differences.
B. the need to make profits.
C. accounting practices.
D. cartel requirements.
E. conscious parallel action

A. cost differences.
A large producer who offers no discounts and the same prices to all customers in the U.S.:

A. does not have pricing objectives.
B. ignores the benefits of administered pricing.
C. probably ignores nonprice competition too.
D. may be “playing it safe” because of concern about the Robinson-Patman Act.
E. is probably violating the antidumping laws.

D. may be “playing it safe” because of concern about the Robinson-Patman Act.
Price discrimination:

A. by firms selling to final consumers is illegal, but it is usually legal in selling to intermediaries.
B. is not covered by Federal laws, but in some states it is illegal.
C. is always illegal.
D. may be legal if the firm can prove that different prices were set based on different costs.
E. None of the above is true.

D. may be legal if the firm can prove that different prices were set based on different costs.
Advertising allowances offered by producers can be ILLEGAL unless they are made available:

A. for products of “like grade and quality.”
B. to all customers on proportionately equal terms.
C. to all buyers in equal dollar amounts.
D. on all products sold by the producer.
E. within an FTC approved agreement.

B. to all customers on proportionately equal terms.
Noncumulative quantity discounts

A. apply only to individual orders.
B. are designed to primarily encourage repeat buying.
C. reduce the customer’s cost for additional purchases.
D. tie a buyer to the seller after a single purchase.
E. are never attractive to buyers.

A. apply only to individual orders.
Regarding geographic pricing policies:

A. uniform delivered pricing tends to decrease the size of a firm’s market.
B. F.O.B. pricing tends to increase the size of a firm’s market.
C. freight absorption pricing tends to increase the size of a firm’s market.
D. zone pricing encourages large orders.
E. All of the above.

C. freight absorption pricing tends to increase the size of a firm’s market.
At Travelocity’s website, visitors are likely to find several airlines that have the identical sameday
price for a flight from Atlanta to San Francisco. What pricing objective are these airlines
pursuing?

A. status quo
B. price flexibility
C. quantity discount
D. introductory price deal
E. bundling

A. status quo
The number of times an intermediary’s average inventory is sold in a year is called the: A. stockturn rate. B. asset factor. C. inventory ratio. D. markup ratio. E. ROI (return on inventory)
A. stockturn rate
The basic problem with the average-cost approach is that it

A. does not consider cost variations at different levels of output.
B. does not consider historical values.
C. does not add a reasonable markup to the average cost of a product.
D. is not commonly used.
E. is a complex method

A. does not consider cost variations at different levels of output.
Which of the following is an example of a fixed cost?
the sum of those costs that are fixed in total—no matter how much is produced.

Among these fixed costs are rent, depreciation, managers’ salaries, property taxes, and insurance.

Such costs stay the same even if production stops temporarily.

Which of the following would NOT be included in a firm’s total variable cost?
Variable costs is: the sum of those changing expenses that are closely related to output—expenses for parts, wages, packaging materials, outgoing freight, and sales commissions.
When a firm’s average variable cost is constant—no matter how much is produced—then the firm’s:

A. average cost will increase as the quantity produced increases.
B. fixed cost must be zero.
C. average cost will also be constant.
D. average fixed cost will also be constant.
E. average cost will decrease as the quantity produced increase

E. average cost will decrease as the quantity produced increase
At break-even point (BEP),

A. the firm’s total revenue will equal its variable costs.
B. the firm’s total sales will equal its total production.
C. the firm’s total cost will equal its total revenue.
D. the firm’s total profits will equal its total cost.
E. the firm’s total variable costs equal its total fixed cost.

C. the firm’s total cost will equal its total revenue.
Customers are likely to be less price sensitive when:

A. the greater the total expenditure.
B. the greater their share of the cost.
C. the greater the significance of the end benefit.
D. the easier it is to compare prices.
E. None of the above.

C. the greater the significance of the end benefit.
_____ are costs that a customer faces by buying a product that is different from what has been
purchased or used in the past.

A. marginal costs
B. first-mover costs
C. switching costs
D. pioneering costs
E. opportunity costs

C. switching costs
Alex’s Knot Shop prices its ties at $5 intervals from $10 to $25 because most customers find these prices appealing and easier to compare. This is:

A. prestige pricing.
B. penetration pricing.
C. price lining.
D. odd-even pricing.
E. value in use pricing.

C. price lining.
“Demand-backward” pricing:
Method in which costs are deducted from what consumers are willing to pay
Which of the following pricing approaches should be used by a profit-oriented retailer if its demand curve is down-sloping to the right
for awhile—but then actually bends back to the left at lower prices?

A. Psychological pricing
B. Prestige pricing
C. Average-cost pricing
D. Bait pricing
E. Penetration pricing

B. Prestige pricing
The typical markup (percent) is the:

A. cost of an item divided by its selling price—times 100.
B. selling price minus the cost of the item, divided by the cost of the item—times 100.
C. selling price of an item, divided by its cost—times 100.
D. selling price minus the cost of the item, divided by the selling price—times 100.
E. selling price minus the cost of the item, divided by the average fixed cost—times 100.

D. selling price minus the cost of the item, divided by the selling price—times 100.
A standard markup is often set close to the firm’s

A. gross margin.
B. net profits.
C. overheads.
D. operating costs.
E. competitors’ costs.

A. gross margin.
Gross margin is expressed as

A. gross sales minus accounts receivable.
B. net sales minus contribution margin.
C. net margin minus sales and operating expenses.
D. net sales minus administrative expenses.
E. net sales minus cost of goods sold.

E. net sales minus cost of goods sold.
“Stockturn rate” means:

A. the number of days required to sell a given output of products.
B. the amount of time needed to sell every item in a retailer’s inventory.
C. the number of times the average inventory is sold in a year.
D. the rate at which products enter and leave an intermediary’s establishment.
E. All of the above.

C. the number of times the average inventory is sold in a year.
Best Buy sets its prices below other electronics stores in its service area and generally attracts more customers than the others.
Best Buy apparently hopes to earn a profit by

A. achieving status quo pricing objectives.
B. setting prices based on “value in use.”
C. relying on a high margin percent.
D. being the price leader in an oligopoly market.
E. achieving a high stockturn rate.

E. achieving a high stockturn rate.
Regarding markups and turnover:

A. supermarket operators have found that high-margin products are generally more profitable that low-margin products.
B. higher markups do not always lead to higher profits.
C. low stockturn rates increase costs by tying up working capital in inventory.
D. to earn higher profits, all firms should lower their markups and seek faster turnover.
E. Both B and C.

E. Both B and C.
A disadvantage of average-cost pricing is that it

A. does not consider historical values.
B. is a highly complicated method of pricing.
C. is rarely a useful input to pricing decisions.
D. is easy to lose money with average-cost pricing.
E. does not help understand how costs operate at different levels of output.

D. is easy to lose money with average-cost pricing.
The basic problem with the average-cost approach is that it

A. does not consider cost variations at different levels of output.
B. does not consider historical values.
C. does not add a reasonable markup to the average cost of a product.
D. is not commonly used.
E. is a complex method.

A. does not consider cost variations at different levels of output.
Which of the following would NOT be included in a producer’s total fixed cost?

A. Rent
B. Property taxes
C. Insurance
D. Depreciation
E. Component parts

E. Component parts
The big problem with average-cost pricing is that:

A. fixed costs are hard to estimate.
B. it ignores the firm’s demand curve.
C. it doesn’t consider the effect of variable costs.
D. there is no way to include a desired profit per unit.
E. None of the above is true.

B. it ignores the firm’s demand curve.
The major weakness of “average-cost pricing” is that:

A. it ignores likely customer demand at different prices.
B. it usually leads to losses instead of profits.
C. average fixed cost changes at different levels of output.
D. it is too hard for most managers to use.
E. Both A and C.

E. Both A and C.
Identify a weakness of the average-cost approach.

A. It ignores competitors’ costs and prices.
B. It does not consider historical values.
C. It does not add a reasonable markup to the average cost of a product.
D. It is not commonly used.
E. It is a complex method.

A. It ignores competitors’ costs and prices.
The BEP, in units, can be found by dividing

A. total fixed costs by the fixed cost contribution per unit.
B. total variable costs by the variable cost contribution per unit.
C. total variable costs by the fixed cost contribution per unit.
D. the assumed selling price per unit by the variable cost per unit.
E. total variable costs by target return.

A. total fixed costs by the fixed cost contribution per unit.
Break-even analysis can be useful for:

A. estimating future sales.
B. setting the most profitable price.
C. comparing pricing alternatives.
D. relating assumed prices to demand estimates.
E. All of the above.

C. comparing pricing alternatives.
Break-even analysis usually:

A. makes it appear that any quantity can be sold at the assumed price.
B. suggests that profits will grow rapidly as sales volume increases beyond the break-even point.
C. is quite accurate in maximizing profit.
D. assumes a U-shaped average variable cost curve.
E. Both A and B.

E. Both A and B.
Break-even charts usually assume that:

A. total cost and total revenue curves are straight lines.
B. average variable cost is constant per unit.
C. the break-even point is reached when total cost just equals total revenue.
D. any quantity can be sold at the assumed price.
E. All of the above.

E. All of the above.
A typical break-even analysis assumes that:

A. the total revenue curve is a straight line.
B. the demand curve faced by the firm is horizontal.
C. the average variable cost is the same at different levels of output.
D. All of the above.
E. None of the above

D. All of the above.
Which of the following pricing approaches specifically considers the concept of elasticity of demand?

A. break-even pricing.
B. average-cost pricing.
C. markup pricing.
D. target return pricing.
E. None of the above.

E. None of the above.
If a profit-oriented marketing manager doesn’t know the exact shape of the firm’s demand curve, marginal analysis:

A. is useless.
B. may be useful anyway—because a profitable region usually surrounds the best price.
C. will suggest the same price as break-even analysis.
D. suggests that the only sensible approach is to follow the price leader.
E. None of the above is true.

B. may be useful anyway—because a profitable region usually surrounds the best price.
A marketing manager has just estimated that her firm’s marginal revenue will become negative if a proposed price cut is made.
This means that:

A. demand must be very elastic.
B. marginal cost must be negative already.
C. the firm is in pure competition.
D. more units may be sold—but total revenue will be less than it would be at the higher price.
E. None of the above—a firm’s marginal revenue can’t be negative.

D. more units may be sold—but total revenue will be less than it would be at the higher price.
The change in a company’s total cost from producing one more unit is called:
marginal costs
According to the rule for maximizing profit, the highest profit is earned at the price where

A. average cost is just less than or equal to marginal revenue.
B. average cost is just less than or equal to average revenue.
C. total revenue is just greater than total costs.
D. marginal cost is just less than or equal to marginal revenue.
E. total revenue is equal to total costs.

D. marginal cost is just less than or equal to marginal revenue.
To maximize its profit, a producer should set a price (and produce that related output) where:

A. marginal cost is just less than or equal to marginal revenue.
B. marginal cost is at its minimum.
C. price is as high as possible.
D. total revenue equals total cost.
E. marginal revenue is zero.

A. marginal cost is just less than or equal to marginal revenue.
Customers are likely to be less price sensitive when:

A. it is easy to compare prices.
B. someone else pays the bill.
C. the total expenditure is high.
D. there are substitutes available.
E. their share of the cost is high.

B. someone else pays the bill.
Customers are likely to be more price sensitive when:

A. the total expenditure is great.
B. they have to pay the bill themselves.
C. the end benefit isn’t very significant.
D. they haven’t yet spent any money related to the purchase.
E. All of the above.

E. All of the above.
Which of the following applies to “value in use pricing?”

A. How much profit will the firm make?
B. How much will the customer save?
C. What does a competitor offer?
D. How much can the customer afford?
E. What is break-even pricing?

B. How much will the customer save?
A retail store advertises an SLR digital camera for $350. Once bargain hunters come to the store, salespeople point out the
disadvantages of the low-priced camera and try to convince them to trade up to a better, and more expensive, unit. This is an example of

A. price following.
B. bait pricing.
C. odd-even pricing.
D. low pricing.
E. everyday low pricing.

B. bait pricing.
Gabriella Sax believes that customers in her dress shop find certain prices very appealing. Between these price levels, all prices are seen as roughly the same—and price cuts in these ranges generally do not increase the quantity sold (i.e., the demand curve tends to drop vertically within these price ranges). Therefore, Sax prices her items as close as possible to the top of each such price range. This is:

A. bait pricing.
B. prestige pricing.
C. leader pricing.
D. psychological pricing.
E. odd-even pricing.

D. psychological pricing.
Some retailers commonly use prices that end in certain numbers. They seem to assume that their customers see prices with these
numbers as substantially lower. This is:

A. odd-even pricing.
B. demand-backward pricing.
C. leader pricing.
D. prestige pricing.
E. psychological pricing.

A. odd-even pricing.
The idea that people will pay extra for “quality” and status is the idea behind

A. price lining.
B. average cost approaches to pricing.
C. penetration skimming.
D. prestige pricing.
E. psychological pricing

D. prestige pricing.
When Nintendo sets a relatively low price on its game units to stimulate more demand for its game cartridges, it is using

A. complementary product pricing.
B. product-bundle pricing.
C. price lining.
D. bait pricing.
E. cost plus pricing.

A. complementary product pricing.
A firm is looking to construct a new office. It puts out a request for proposals from contractors
inviting their price quotations given certain defined specifications. This is an example of:

A. bid pricing.
B. odd-even pricing.
C. psychological pricing.
D. leader pricing.
E. price lining.

A. bid pricing.
With regard to bid pricing, a marketing manager should be aware that:

A. the same overhead charges and profit rates usually apply to all bids.
B. bids are usually based on inspection.
C. a big problem is estimating all the costs—including the variable and fixed costs that apply to a particular job.
D. e-commerce is of little use in bid pricing.
E. all of the above are correct.

C. a big problem is estimating all the costs—including the variable and fixed costs that apply to a particular job.
To improve the effectiveness of the marketing control process, the marketing manager should

A . realize that most errors are made because managers react to detailed information too quickly–instead of waiting to see what patterns show up in summary reports.
B. be the supervisor for the data-processing manager.
C. have all necessary data captured as it comes in and in a form that can be quickly sorted and analyzed by computer.
D. be certain that all cost records are kept in a central location controlled by the marketing department.
E. All of the above

C. have all necessary data captured as it comes in and in a form that can be quickly sorted and analyzed by computer.
Which of the following statements about customer complaints is FALSE?

A. customer complaints that are handled well by the company usually help it win new customers
B. in business markets, customer complaints are usually handled by the sales force
C. in consumer markets, customer complaints are usually handled by toll-free telephone lines, web sites, and email customer service reps
D. customer complaints that are handled well by the company usually help it keep its customers
E. none of the above are false

A. customer complaints that are handled well by the company usually help it win new customers
Studies have shown that customers who weren’t satisfied with response to their complaints

A. on average told one person about their experience.
B. on average told ten people about their experience.
C. usually never spoke about it. D. will make at least two more complaints.
E. spoke about their experience only when prodded by researchers

B. on average told ten people about their experience.
Whistler’s Camping Supplies wants to identify its most frequent customers and offer them quantity discounts to increase their purchases and loyalty. Which of the following implementation approaches might address that problem?

A. Put a toll-free telephone number and Web site address on the product label.
B. Use bar code scanners, RFID tags, EDI, and inventory reorder software.
C. Create a “favored customer” club with an ID card.
D. Set different prices in similar markets and track sales, including sales of competing products.
E. Set up a televideo conference.

c. Create a “favored customer” club with an ID card.
Sam Reuter, marketing manager for Herbal Shampoo Company, has to choose one of three
different proposed labels for a new herbal shampoo. How might Sam pretest consumer response to the labels?

A. put a toll free telephone number and web site address on the product label
B. check the labels of competitors
C. launch the product with new labels and evaluate the response
D. prepare sample labels with graphics software and test them on the internet
E. set up a televideo conference

D. prepare sample labels with graphics software and test them on the internet
Which of the following statements is NOT TRUE?
Regarding controlling marketing programs:

A. “sales analysis” and “performance analysis” mean the same thing
B. traditional accounting reports are very useful for controlling marketing programs
C. sales analysis is so revealing that there is no such thing as having TOO MUCH data
D. the control process helps marketing managers learn how ongoing plans are working
E. all of the above are true

D. the control process helps marketing managers learn how ongoing plans are working
Sales analysis is a:
report that shows what goods and services have and haven’t sold well. The analysis is used to determine how to stock inventory, how to measure the effectiveness of a sales force, how to set manufacturing capacity and to see how the company is performing against its goals.
Marketing sales analysis:
Detailed sales analysis is:
Sales analysis:
is a detailed breakdown of a company’s sales records.

is easy to do, and usually it’s inexpensive because the data for the analysis can easily be obtained as a by-product of basic billing and accounts receivable procedures.

Compared with sales analysis, PERFORMANCE ANALYSIS:

A. shows which customers should be dropped.
B. looks for exceptions or variations from planned performance.
C. does not do as much comparing against standards.
D. shows how to improve performance.
E. All of the above.

B. looks for exceptions or variations from planned performance.
Which of the following observations concerning performance analysis is true?

A. it doesn’t help identify what data is most relevant
B. it merely lists figures, but doesn’t compare them against standards
C. it doesn’t look for differences or exceptions
D. it doesn’t have to be limited to sales
E. none of the above is true

D. it doesn’t have to be limited to sales
Doug Selkirk is a sales manager for IBM. He has asked his assistant to prepare an analysis
that shows what percent over or under quota each sales rep was during the last year. This is an
example of

A. using natural accounts.
B.the contribution-margin approach.
C. sales analysis.
D. target market analysis.
E. performance analysis.

E. performance analysis.
Performance analysis:
Avon, Inc., has analyzed the market potential in its territories and set sales quotas for its
salespeople. It is now in a good position to develop ______________ indexes at the end of the year.

A. MIS
B. performance
C. PERT
D. sales
E. contribution

B. performance
If Salesperson A has a performance index of 80 and Salesperson B has a performance index
of 120:

A. salesperson A’s performance should be used as a model to improve everyone’s performance
B. salesperson B’s performance should be improved to bring it up to “average”
C. salesperson A may be having some problems
D. salesperson B should be fired
E. the two average out to 100 and “all is well”

C. salesperson A may be having some problems
According to the _____, much good information is hidden in summary data.

A. iceberg principle
B. sales paradox
C. 80/20 rule
D. summary definition
E. fishbone rule

A. iceberg principle
The iceberg principle suggests that:
mostly, managers are aware of just a small portion of the true problem; this small
portion is generally the visible symptoms of the bigger underlying problem.
Which of the following statements best explains the “iceberg principle”?

A. several salespeople in a sales force usually meet their quotas while many other don’t
B. many salespeople don’t make their quotas because they only try to sell to large customers
C. most consumer decisions are at the 90 percent pre-conscious level
D. ten percent of a firm’s customers usually account for 90 percent of its sales
E. good performance in some areas may hide poor performance in other areas if only averages are evaluated

E. good performance in some areas may hide poor performance in other areas if only averages are evaluated
A sales manager is trying to determine why the company’s sales are down compared to a year ago. He starts with sales data summaries but quickly decides to break down sales further by territory,
then salesperson, then store, and finally product. His actions suggest the:

A. Contribution-margin approach.
B. Marketing audit.
C. Gross profit approach.
D. Iceberg principle.
E. Full-cost approach

D. Iceberg principle.
General summaries of overall marketing cost data

A. may hide problems rather than highlighting them
B. are usually the key to identifying how to improve the marketing plan
C. should not be too detailed since they require allocating costs that are actually fixed
D. are usually enough to reveal areas where changes are needed
E. all of the above are true

A. may hide problems rather than highlighting them
Marketing cost analysis shows that one of Buildco, Inc.’s customers is unprofitable, so Buildco should:

A. refuse to sell to that customer
B. try to determine why this customer is unprofitable
C. drop the customer and shift all fixed costs to the other customers
D. assign a new salesperson to that account
E. immediately develop a plan to sell more to that customer

B. try to determine why this customer is unprofitable
Using cost analysis to analyze the money being spent by a firm is analogous to using
____________ to analyze the money coming into the firm.

A. sales analysis
B. traditional accounting reports
C. performance analysis
D. the iceberg principle
E. TQM methods

A. sales analysis
_________ are the two basic approaches to handling marketing cost allocation problems.

A. The average-cost approach and the break-even approach
B. The performance-analysis approach and the sales-analysis approach
C. The revenues approach and the expenses approach
D. The gross margin approach and the net margin approach
E. The full-cost approach and the contribution-margin approach

E. The full-cost approach and the contribution-margin approach
A contribution-margin income statement shows:
The “contribution-margin approach” to marketing cost analysis:

A. considers only those costs which are directly related to particular alternatives.
B. is especially useful for estimating the long-run profit of a proposed strategy
C. allocates variable costs which are hard to measure overhead
D. is especially useful for determining if there should be more controls on fixed costs
E. all of the above

or

A. allocates all costs to products or customers
B. should always be used instead of full-cost approach so that fixed costs are fully considered
C. focuses management’s attention on variable costs rather than total costs
D. assumes that all costs must be allocated
E. none of the above

A. considers only those costs which are directly related to particular alternatives.

or

C. focuses management’s attention on variable costs rather than total costs

The contribution-margin approach focuses attention on _____ rather than on ______.

A. fixed costs; variable costs
B. gross margins; net margins
C. total costs; fixed costs
D. overheads; fixed costs
E. variable costs; total costs

E. variable costs; total costs
A marketing auditor for a firm will most likely:
An outsider can help the firm see whether it really focuses on some unsatisfied needs and offers appropriate marketing mixes.
A ________ requires a detailed look at the company’s current marketing plans to see if they are still the best plans the firm can offer
marketing audit
A marketing audit:
is a systematic, critical, and unbiased review and appraisal of the basic objectives and policies of the marketing function and of the organization, methods, procedures, and people employed to implement the policies.
A marketing audit is necessary because:
A marketing audit takes a big view of the business—and it evaluates the whole marketing program.

Ideally, a marketing audit should not be necessary. Good managers do their best in planning, implementing, and controlling—and they should continually evaluate the effectiveness of the operation.

A good reason for using performance indexes is to:

A. convert sales data to profit data.
B. make it easier to compare situations.
C. find territories where actual sales are very high or low.
D. direct management attention to territories where the market potential is greatest.
E. None of these is true.

B. make it easier to compare situations.
Which of the following observations concerning the full-cost approach is NOT TRUE?

A. All costs are not allocated in all situations.
B. It requires that difficult-to-allocate costs be split on some basis.
C. Fixed costs are also allocated in some way.
D. It could lead to a different decision than the one suggested by the contribution margin approach.
E. Common costs are also allocated in some way.

A. All costs are not allocated in all situations.
Which of the following observations is true?

A. Market share objectives and straight sales growth objectives have similar limitations.
B. A larger market share, gained at whatever price, leads to sustainable competitive advantage.
C. Market share objectives are not popular among modern managers.
D. Sales growth essentially means bigger profits.
E. A sales-oriented objective does not refer to profit.

or

A. Variable costs are irrelevant in the contribution-margin approach.
B.Both the full-cost approach and the contribution-margin approach yield similar decisions.
C. The contribution-margin approach ignores some costs to get results.
D. Top management always prefers the contribution-margin approach.
E. In the contribution-margin approach, all costs are allocated to products, customers, or other categories.

A. Market share objectives and straight sales growth objectives have similar limitations.

or

C. The contribution-margin approach ignores some costs to get results.

Lori Winters, a regional sales manager, is interested in the profitability of the different sales reps in her region. She has used a variety of different approaches for allocating fixed sales expenses to the different sales reps, but she reaches very different conclusions depending on which allocation approach is used. In this case, it would be wise for Ms. Winters to supplement her other analyses with an analysis based on

A. the contribution-margin approach.
B. the full-cost approach.
C. the marketing audit approach.
D. none of the above.
E. all of the above

A. the contribution-margin approach.
Regarding the “contribution-margin approach” to marketing cost analysis, which of the following statements is TRUE

A. The total net profit obtained with this approach is different from that obtained using the “full-cost approach.”
B. It is concerned with the amount contributed by a product or customer toward covering variable costs–after fixed costs have been covered. C. This approach stresses the need for evaluating fixed costs. D. This approach may suggest a different action than the “full-cost approach.”
E. All of the above are true

D. This approach may suggest a different action than the “full-cost approach.”
When deciding how to evaluate costs, a marketing manager should realize that

A. the best method for dealing with fixed costs depends on the objectives of the analysis
B. according to the iceberg principle too much detail in cost analysis obscures the big problems by calling attention to the superficial problems
C. the full cost approach is misleading and should not be used
D. the contribution-margin approach ignores necessary fixed costs and should not be used
E. none of the above

A. the best method for dealing with fixed costs depends on the objectives of the analysis
When the “full-cost approach” to marketing cost analysis is used, allocating fixed costs on the
basis of sales:

A. may make low-volume customers appear more profitable than they are.
B. increases each customer’s contribution margin.
C. decreases the profitability of the whole business.
D. makes large-volume customers appear more profitable that they are.
E. increases the profitability of the whole business.

A. may make low-volume customers appear more profitable than they are.
Which of the following would be the BEST reason to use the “full-cost approach” when comparing the performance of several product managers?

A. unlike the “contribution-margin approach”, it charges managers only for the expenses which are directly related to their operations
B. this approach is required by Federal tax laws
C. it charges each product manager only for those expenses which he controls
D. it allows management to consider only the variable costs related to different products
E. it makes each manager bear a share of the overhead expenses which were made for everyone’s benefit

E. it makes each manager bear a share of the overhead expenses which were made for everyone’s benefit
The ____ approach shows operating managers and salespeople what they’ve actually contributed to covering general overhead and profit.

A. net margin
B. full-cost
C. marketing overhead
D. contribution margin
E. net profit

D. contribution margin