MKT 210 Midterm #2

Price is the sum of all the values that customers give up to gain the benefits of having a products.
1. Which of the following is true with regard to price?
a) Historically, price has had the least perceptible impact on buyer choice.
b) Price is the least flexible element in the marketing mix.
c) Unlike product features and channel commitments, prices cannot be changed quickly.
d) Price is the sum of all the values that customers give up to gain the benefits of having a product.
e) Prices only have an indirect impact on a firm’s bottom line.
Product Costs
What sets the floor for prices?
involves adding a standard markup for profit
3. Cost-plus pricing ________.
a) is a complex pricing method
b) involves pricing that accurately reflects production costs
c) involves adding a standard markup for profit
d) aims at breaking even on the costs of making and marketing a product
e) is a value-based pricing method
$25
4. Herbie Inc., a firm manufacturing sandwich makers, has fixed costs of $250,000, variable costs of $20 per unit of output, and expected unit sales of 50,000 units. What is the unit cost of a sandwich maker manufactured by Herbie?
break-even pricing
Target return pricing is a variation of which of the cost-oriented pricing approaches?
the total revenue and total cost curves intersect
The break-even volume is the point at which ______.
125,000
Mansfield Pharmaceuticals markets Zipro, an antibiotic. The firm has fixed costs of $1,000,000 and variable costs of $2 per bottle of 50 tablets priced at $10 per bottle. What is the break-even volume?
$12
A manufacturer has fixed costs of $100,000, a variable cost of $10 per unit of output, and break-even volume of 50,000 units. What should the manufacturer’s unit cost be in order to break even
the overall marketing strategy of the company
Which of the following is an internal factor that affects pricing decisions in a company?
a) the nature of the market
b) the degree of inflation in the economy
c) the overall marketing strategy of the company
d) the forces of demand and supply in the market
e) consumers’ perception of value
inelastic
If demand hardly changes with a small change in price, the demand is ____.
the product they are buying is unique.
Buyers are less price sensitive when _____.
-2.5
There was a 35 percent increase in demand for a product after the seller decreased its price by 14 percent. Therefore, the price elasticity of demand is ________.
percentage change in quantity demanded; percent change in price
Price elasticity of demand is represented by ____ divided by ____.
Under market competition, no single buyer or seller has much effect on the going market price.
Which of the following is true with regard to pure competition?
a) Under pure competition, no single buyer or seller has much effect on the going market price.
b) In a purely competitive market, marketing research is of utmost importance.
c) In a purely competitive market, product development is the focus of most firms.
d) Under pure competition, the market consists of many buyers and sellers who trade over a range of prices rather than a single market price.
e) Under pure competition, the market consists of only a few large sellers.
monopolistic competition
Under _____, the market consists of many buyers and sellers who trade over a range of prices rather than a single market price.
market-penetration pricing
Companies which set a low price for a new product in order to attract a large number of buyers and a large market share are using the _____ strategy.
market-penetration pricing
Whizz Corp. wishes to introduce a new hybrid car into mature markets in developed countries with the goal of gaining mass-market share quickly. Which pricing strategies would help the firm meet its goal?
The price steps take cost differences between products in the line into account.
Which of the following is true of product line pricing?
a) The price steps take cost differences between products in the line into account.
b) The pricing strategy cannot be availed of by companies in developed countries.
c) The price steps do not account for the prices of similar products from competitors.
d) The pricing strategy involves overpricing products so that they appeal to the elite.
e) The customer’s perception of the value of different features is considered irrelevant
Mobile Point, which launched a range of cell phone models, each priced according to its features.
Which of the following companies uses product line pricing?
a) Photo Genie, which sells inexpensive cameras that run only on their own expensive batteries
b) Mobile Point, which launched a range of cell phone models, each priced according to its features
c) Penguin’s Parlor, which offers customers a 20% discount on their birthdays and certain holidays
d) Green Thumb, which gives away free watering cans with the purchase of certain potted plants
e) Panizza, whose combo meals are priced lower than the individual components sold together
It involves pricing accessory products sold with the main product.
Which of the following is true of optional product pricing?
a) It involves capitalizing on low value by-products.
b) It involves pricing accessory products sold with the main product
c) It is used to price a company’s main product.
d) It involves setting geographically-specific prices.
e) It is used to price products that must be used with the company’s main product.
captive product pricing
Multiprint, a printer manufacturing firm, sells ink cartridges for each of its specific models. Only Multiprint cartridges are compatible with Multiprint printers, and no tow of the firm’s models share the same spefifications. What type of pricing does Multipring use?
by-product
Using ____ pricing, companies are able to turn their trash into cash, allowing them to make the price of their main product more competitive.
Product bundle pricing
Which product mix pricing strategy involves pricing multiple products to be sold together?
discount and allowance pricing
Which of the following is a price adjustment strategy?
a) product bundle pricing
b) by-product pricing
c) product line pricing
d) optional product pricing
e) discount and allowance pricing
cash discount
Which of the following price adjustment strategies offers a price reduction to buyers who pay their bills promptly?
a) cash discount
b) season discount
c) quantity discount
d) trade discount
e) functional discount
allowance
A(n) _____ refers to promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer’s products in some way.
Promotional
______ allowances are payments or price reductions that reward dealers for participating in advertising and sales support programs.
reference prices
Which term refers to prices that buyers carry in their minds and check with when they look at a given product?
promotional pricing
What type of pricing is being used when a company temporarily prices its products below the list price to create buying excitement and urgency?
dynamic pricing
The internet offers ____, where the price can easily be adjusted to meet changes in demand.
It is an expensive alternative for customers in distant locations.
Which of the following is true of FOB-origin pricing?
a) It is a strategy in which the company charges the same price plus freight to all customers.
b) It is a costly option for customers who are located near the company.
c) It charges all customers the freight cost from a base city to the customer location.
d) It is an expensive alternative for customers in distant locations.
e) It is a strategy in which the seller absorbs all or part of the freight charges.
maintain its current prices and profit margin
When a competitor cuts its price, a company should _____ if it believes it will not lose much market share or would lose too much profit by cutting its own prices.
price fixing
When sellers set prices after talking to competitors and engaging in collusion, they are involved in _______.
predatory pricing
If a large retailer sold numerous items below cost with the intention of punishing small competitors and gaining higher long-run profits by putting those competitors out of business, the retailer would be guilty of ________.
Deceptive pricing
_______ occurs when a seller states price savings that are not actually available to consumers.
False
T or F: Thinking Cap Corp. prices its various cap designs at different price levels, ranging from $2.05 to $5.95. This is an example of optional product pricing.
True
T or F: Consumers who have no past experience with a product are especially likely to judge it by its price.
False
T or F: In segmented pricing, the difference in prices is based on difference in costs.
marketing channel
A _____ is a set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user.
Intermediaries
________ play an important role in matching supply and demand by providing consumers with a broad assortment of products in small quantities.
direct
Lifebelt Insurance sells insurance only through its door-to-door salespeople. What type of marketing channel does Lifebelt use?
an indirect marketing channel
Plasticine Palace supplies its products exclusively to Arts & Crafts, a chain of stationary stores across the country. The chain then makes the plasticine available to end-consumers. This is an example of _____.
greater the channel complexity
The greater the number of channel levels in a marketing channel, the ______.
horizontal
Conflict with which occurs among firms at the same level of the marketing channel is known as ______ conflict.
horizontal
Managers at the Imperial Hotel-Chicago complained that the chain’s overall image was hurt because Imperial Hotel-Dallas was overcharging and providing poor service. The Imperial Hotel was experiencing ____ conflict.
verticle
When KFC came into conflict with its franchisees over the brand’s “Unthink KFC” repositioning, which emphasized grilled chicken over its traditional Kentucky fried chicken, KFC experienced _____ conflict.
Channel members seek to maximize their own profits.
Which of the following is true of conventional distribution channels?
a) Channel members have complete control over each other.
b) Channel members seek to maximize their own profits.
c) Channel conflict is governed by formal mechanisms.
d) Channel members are assigned roles according to a clearly defined framework.
e) Channel members work exclusively for the good of the organization.
verticle
A(n) _______ marketing system consists of producers, wholesalers, and retailers acting as a unified system.
multichannel
Movie Giants offers DVD rentals through its Web site. It also offers DVD rentals via Star City stores. This is an example of a(n) ________ distribution system.
decreasing control over the system
Which of the following is a disadvantage of adding new channels in a multichannel distribution system?
a) decreasing complexity of markets
b) decreasing control over the system
c) reducing opportunities for franchising
d) lowering sales and market coverage
e) minimizing publicity needs
Disintermediation
__________ occurs when product or service producers cut out intermediaries and go directly to final buyers or when radically new types of channel intermediaries displace traditional ones.
disintermediation
The Bookworm began delivering books directly to customers through mail instead of selling “brick-and-mortar” companies. This is an example of _______.
Intensive
_______ distribution is a strategy in which producers of convenience products and raw materials stock their products in as many outlets as possible.
intensive
Whitelight stocks its toothpastes in all convenience stores across the country. This is an example of _______ distribution.
Exclusive distribution
Which strategy would a company give only a limited number of dealers the right to distribute its products in their territories?
luxury cars
For which of the following would a company use an exclusive distribution strategy?
a) luxury cars
b) newspapers
c) chewing gum
d) dairy products
e) soft drinks
exclusive dealing
When a seller requires its dealers to abstain from handling competitors’ products, it is called ________.
Supply chain
_________ management refers ti the management of upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers.
product designing
Which of the following is NOT a major logistics function?
a) inventory management
b) product designing
c) warehousing
d) transportation
e) packaging
True
T or F: Producers use intermediaries because they create greater efficiency in making goods available to target markets.
Price
The amount of money charged for a product or service, or the sum of the values that customers exchange for the benefits of having or using the product or service
Customer value-based pricing
Setting price based on buyers’ perception of value rather than on the sellers’ cost
Good-value pricing
Offering just the right combination of quality and good service at a fair price
Value-added pricing
Attaching value-added features and services to differentiate a company’s offers and charging higher prices
Cost-based pricing
Setting prices based on the cost of producing, distributing, and selling the product plus a fair rate of return for the effort and risk
Fixed cost (overhead)
Costs that do not vary with production or sales level
Variable costs
Costs that vary directly with the level of production
Total costs
The sum of the fixed and variable costs for any given level of production.
Experience curve (learning curve)
The drop in the average per-unit production cost that comes with accumulated production experience.
Cost-plus pricing (markup pricing)
Adding a standard markup to the cost of the product.
Break-even pricing (target return pricing)
Setting price to break even on the costs of making and marketing a product, or setting price to make a target return.
Competition-based pricing
Setting prices based on competitors’ strategies, prices, costs, and market offerings
Target costing
Pricing that starts with the ideal selling price, then targets costs that will ensure that the price is met.
Demand curve
A curve that shows the number of units the market will buy in a given time period, at different prices that might be changed
Price elasticity
A measure of the sensitivity of demand to changes in price
Market-skimming pricing (price skimming)
Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales
Market-penetration pricing
Setting a low price for a new product in order to attract a large number of buyers and a large market share
Product line pricing
Setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors’ prices.
Optional-product pricing
The pricing of optional or accessory products along with a main product
Captive-product pricing
Setting a price for products that must be used along with a main product, such as blades for a razor and games for a video-game console
By-product pricing
Setting a price for by-products in order to make the main product’s price more competitive.
Product bundle pricing
Combining several products and offering the bundle at a reduced price
Discount
A straight reduction in price on purchases during a stated period of time or in larger quantities
Allowance
Promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer’s products in some way
Segmented pricing
Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs.
Psychological pricing
Pricing that considers the psychology of prices and not simply the economics; the price is used to say something about the product
Reference prices
Prices that buyers carry in their minds and refer to when they look at a given product.
Promotional pricing
Temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales
Geographical pricing
Setting prices for customers located in different parts of the country or world.
FOB-origin pricing
A geographical pricing strategy in which goods are placed free on board a carrier; the customer pays the freight from the factory to the destination
Uniform-delivered pricing
A geographical pricing strategy in which the company charges the same price plus freight to all customers, regardless of their location
Zone pricing
A geographical pricing strategy in which the company sets up two or more zones. All customers within a zone pay the same total price; the more distant the zone, the higher the price.
Basing-point pricing
A geographical pricing strategy in which the seller designates some city as a basing point and charges all customers the freight cost from that city to the customer.
Freight-absorption pricing
A geographical pricing strategy in which the seller absorbs all or part of the freight charges in order to get the desired business.
Dynamic pricing
Adjusting prices continually to meet the characteristics and needs of individual customers and situations.
Value delivery network
A network composed of the company, suppliers distributors, and, ultimately, customers who partner with each other to improve the performance of the entire system in delivering customer value.
Marketing channel (or distribution channel)
A set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user.
Channel level
A layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer.
Direct marketing channel
A marketing channel that has no intermediary levels.
Indirect marketing channel
A marketing channel containing one or more intermediary levels.
Channel conflict
Disagreements among marketing channel members on goals, roles, and rewards–who should do what and for what rewards
Conventional distribution channel
A channel consisting of one or more independent producers, wholesalers, and retailers, each a separate business seeking to maximize its own profits, perhaps even at the expense of profits for the system as a whole
Vertical marketing system (VMS)
A channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate.
Corporate VMS
A vertical marketing system that combines successive stages of production and distribution under single ownership–channel leadership is established through common ownership
Contractual VMS
A vertical marketing system in which independent firms at different levels of production and distribution join together through contracts.
Franchise organiztion
A contractual vertical marketing system in which a channel member, called a franchisor, links several stages in the production-distribution process.
Administered VMS
A vertical marketing system that coordinates successive stages of production and distribution through the size and power of one of the parties.
Horizontal marketing system
A channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity
Multichannel distribution system
A distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments
Disintermediation
The cutting out of marketing channel intermediaries by product or service producers or the displacement of traditional resellers by radical new types of intermediaries.
Marketing channel design
Designing effective marketing channels by analyzing customer needs, setting channel objectives, identifying major channel alternatives, and evaluating those alternatives.
Intensive distribution
Stocking the product in as many outlets as possible
Exclusive distribution
Giving a limited number of dealers the exclusive right to distribute the company’s products in their territories.
Selective distribution
The use of more than one but fewer than all of the intermediaries who are willing to carry the company’s products.
Marketing channel management
Selecting, managing, and motivating individual channel members and evaluating their performance over time
Marketing logistics (or physical distribution)
Planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit.
Supply chain management
Managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers.
Distribution center
A large, highly automated warehouse designed to receive goods from various plants and suppliers, take orders, fill them efficiently, and deliver goods to customers as quickly as possible.
Intermodal transportation
Combining two or more modes of transportation
Integrated logistics management
The logistics concept that emphasized teamwork–both inside the company and among all the marketing channel organizations–to maximize the performance of the entire distribution system.
Third-party logistics (3PL) provider
An independent logistics provider that performs any or all of the functions required to get a client’s product to market.
They use it to create customer value
How do most savvy marketers approach price?
True
T or F: Price is the only element in the marketing mix that produces revenue
small; large
A _____ percentage improvement in price can generate a/an _________ percentage increase in profitability.
good-value pricing
Walmart’s promise of everyday low prices is an example of which pricing method?
target return pricing
Which term refers to setting a price based on a planned profit sought by the firm?
It focuses on attaining the right combination of quality and service at a fair price.
What is the definition of good-value pricing?
fixed
A firm’s accountant is analyzing how much money the company spends on its lease, equipment rentals, and executive salaries. The accountant is reviewing the firm’s ______ costs.