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Chapter 14 - Developing and Pricing Goods and Services
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160. A penetration strategy calls for a firm to charge low prices with the intent of attracting
a large number of customers and discouraging competition.
161. Firms utilizing an everyday low pricing (EDLP) strategy establish a policy of special
sales on a regular basis.
162. A high-low pricing strategy may condition consumers to avoid paying the regular
prices by waiting for sale prices.
163. As the Internet grows in popularity, it is likely that more firms will adopt a high-low
pricing strategy.
164.
Chapter 14 - Developing and Pricing Goods and Services
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Psychological pricing utilizes high prices to create the image of a high quality product.
165. Ultimately, the price of a good is determined by the interaction of supply and demand
in the marketplace.
166. The key to demand-oriented pricing is the recognition that not all producers face the
same costs of production.
167. Despite the fact that microeconomic theory places a great deal of emphasis on price,
marketers often try to find ways to compete on product attributes other than price.
168.
Chapter 14 - Developing and Pricing Goods and Services
For most firms, price competition is the most important way to gain a competitive
advantage over rivals.
169. Small firms often rely on non-price competition when competing against larger firms.
170. One way firms can gain a competitive advantage without relying on low prices is by
developing close, friendly relationships with their customers.
171. The pricing objectives of a firm should be set independently of the other elements of
their marketing mix.
Feedback: Pricing objectives should be influenced by other marketing decisions regarding
product design, packaging, branding, and promotion.
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178. Webster Industries is one of the first producers of a unique consumer product. The
company has chosen a low price strategy, hoping this will enable them to quickly attract
many customers while discouraging potential competitors from entering the market.
Webster's approach to pricing is a classic example of the skimming strategy.
Feedback: Webster Industries is actually using a penetration pricing strategy designed to
attract more customers and discourage competition. Price skimming refers to a strategy in
which a firm offering a new product initially charges a high price while there is little
competition.
179. Admiral Motors is the dominant firm in the auto market. When Admiral announces an
increase in the prices of its automobiles, Chord and Frysler, the smaller firms in the
market, usually quickly announce similar price increases for their own cars. This situation
is an example of demand-oriented pricing.
Feedback: This "follow the leader" strategy of matching the pricing practices of one or more
dominating firms is referred to as price leadership.
180.
Chapter 14 - Developing and Pricing Goods and Services
Budd's Floral Shoppe is located in a large town that has several other florists. The owner,
Rose Budd, is likely to find that the presence of many larger competitors means that the
only way she can survive is to charge rock bottom prices.
Feedback: Firms often try to avoid competing on prices because price changes usually are
easy for competitors to match. In fact, cutting prices may set off a price war. Moreover,
keeping prices very low is likely to hurt profit margins. Thus, instead of using a low price
strategy, many firms try to compete on non-price factors such as fast delivery, friendly
service, personalized treatment, quality, creativity, or other factors.
181. Community Catering Services, Inc. advertises that they are the "friendliest caterers in
town." Their prices are no lower than the rates charged by competing caterers, but they
put a lot of emphasis on getting to know the needs of their customers. They tailor their
efforts to meet these needs, providing a unique dining experience that exactly matches the
customer's expectations. Community Catering is likely to find that this approach is more
effective in achieving its goals than the use of aggressive price-cutting.
Feedback: In many markets, cutting prices is not an effective competitive strategy since it is
easy for other firms to respond by cutting prices as well. Many firms rely on non-price
strategies that focus on high quality, outstanding service, fast delivery or similar factors to
differentiate their products and achieve a high level of customer loyalty.
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182. When consumers calculate the value of a product, they:
A. subtract the cost of production from the market price.
B. eliminate all nontangible elements that might affect their perception of the product.
C. look at the benefits the product provides then subtract the cost.
D. identify the variable and the fixed components of the product's benefits.
183. Whether a consumer thinks a product provides the best value depends upon:
A. the actual product benefits.
B. the consumer's perceptions.
C. the global situation.
D. the laws covering the product's manufacture.
184. Restaurants, like other businesses, often find that the best way to succeed in the
market is to:
A. listen to customers and adapt products to their needs.
B. create a product for which he could charge an exceptionally high price.
C. create a winning combination of advertising and personal selling for all of the stores in
the chain.
D. open more stores in a single year than other foodservice operators.
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188. The combination of product lines offered by a manufacturer is called the firm's:
A. product matrix.
B. product mix.
C. total product offer.
D. product portfolio.
189. The best product development strategy for most firms is to:
A. develop a small number of products that achieve market success and stick with them,
because constantly changing old products (or introducing new ones) can confuse and
frustrate customers.
B. maintain one product line while adding regularly to that product line over time to
sustain customer interest.
C. constantly monitor consumer wants and needs and be willing to develop new products
and adapt policies and services as those consumer needs begin to change.
D. focus on the actual product or service and don't worry too much about factors such as
image, price, and service.
Feedback: There must be a constant monitoring of consumer wants and needs because
consumer and business needs change over time.
190.
Chapter 14 - Developing and Pricing Goods and Services
LoRider Wheels sells high quality bicycles and accessories. The store is known for a
pleasant environment, friendly salespeople and an excellent service department. All of
these elements are part of the ___________ offered by LoRider.
A. total product offer
B. product line
C. competitive environment
D. marginal utility package
Feedback: A total product offer consists of everything that consumers evaluate when deciding
whether to buy something.
191. When consumers decide to purchase a particular product, they:
A. will search for the retailer that offers the lowest price.
B. consider the total collection of benefits that the product offers.
C. base their decision on a brand name nearly all of the time.
D. initially evaluate the product's package.
Feedback: When people buy a product, they evaluate all the benefits that the product offers.
This combination of benefits is called the product's total product offer.
