Entrepreneurship and Effective Small Business Management, 11e (Scarborough)
Chapter 11 Pricing and Credit Strategies
1) Tom is working on a pricing strategy for his company’s new product line. In order to
determine the price ceiling for these products, Tom needs to know:
A) what price range will work best.
B) what his company’s cost structures are.
C) what his customers are willing to pay.
D) what his competitors are charging.
Topic: Introduction
AACSB: Reflective Thinking
2) When pricing products, it is important to remember that:
A) there is an ideal price that customers will pay for a given product or service.
B) once the acceptable price range is found, prices should not be changed again.
C) pricing is more an intuitive than a quantitative process.
D) a customer orientation in price setting is most important.
Topic: Introduction
AACSB: Analytic Skills
3) Small business owners get into trouble when determining their price floor when they:
A) focus on what the customer will pay.
B) assume their costs are the same as their competitors’.
C) begin to track financial ratios to determine what they are doing.
D) use the price floor as the minimum price in their acceptable price range.
Topic: Competition and Prices
AACSB: Analytic Skills
4) The final price set by the entrepreneur for the products depends on:
A) the desired image for the products.
B) the cost structure.
C) what customer will pay.
D) what competitors are charging.
Topic: Introduction
AACSB: Analytic Skills
1
5) When small manufacturing companies face rapidly increasing raw material costs, they can
adopt a number of strategies including:
A) pass the increasing costs along to their customers without comment.
B) absorb costs for the short term and plan for double price increases in the next pricing cycle.
C) reconsider their competitive strategy and seek a niche they can service.
D) emphasize the value their company provides customers.
Topic: Introduction
AACSB: Analytic Skills
6) ________ pricing strategy introduces a new product at a low price to gain quick acceptance
and extensive distribution in a mass market.
A) Penetration
B) Skimming
C) Discount
D) Sliding-down-the-demand-curve
Topic: Pricing Strategies and Tactics
AACSB: Analytic Skills
7) ________ pricing policy is used to introduce a relatively low-priced good into a market where
no “elite segment” exists.
A) Penetration
B) Skimming
C) Discount
D) Sliding-down-the-demand-curve
Topic: Pricing Strategies and Tactics
AACSB: Analytic Skills
8) The basic objective of a penetration pricing policy is to:
A) recover start-up costs as quickly as possible.
B) transform the small firm into a discount outlet.
C) gain quick access into a market to realize high sales volume quickly.
D) discourage competition and gradually become a high volume producer.
Topic: Pricing Strategies and Tactics
AACSB: Analytic Skills
2
9) A new product ________ pricing strategy is often used in markets with little competition and
when the company seeks to recover start-up costs quickly.
A) penetration
B) skimming
C) discount
D) sliding-down-the-demand-curve
Topic: Pricing Strategies and Tactics
AACSB: Analytic Skills
10) When using a skimming price strategy, small business owners should remember that:
A) it is difficult to correct pricing mistakes with this strategy.
B) it is a long-term policy and it will take time to see appropriate results.
C) if a price is set too low initially, it can be very hard to raise it later.
D) it is an excellent strategy for discouraging competitors from entering the market.
Topic: Pricing Strategies and Tactics
AACSB: Analytic Skills
11) The ________ pricing strategy often reinforces the unique, prestigious image of a company.
A) penetration
B) introductory
C) discount
D) skimming
Topic: Pricing Strategies and Tactics
AACSB: Analytic Skills
12) A ________ strategy works well when a company has a mature product, loyal customers, a
reputation for quality, and few competitors.
A) penetration
B) skimming
C) discount
D) price lining
Topic: Pricing Strategies and Tactics
AACSB: Analytic Skills
3
13) The Omega Company introduces products with a higher-than-normal price in an effort to
quickly recover the initial developmental and promotional costs of the product. The Omega
Company is pursuing a ________ pricing strategy.
A) fixed-price
B) skimming
C) penetration
D) loss leader
Topic: Pricing Strategies and Tactics
AACSB: Reflective Thinking
14) When a retailer routinely prices goods at $9.97 and $7.36 rather than $10.00 and $7.50, the
retailer is using:
A) variable pricing.
B) penetration pricing.
C) odd pricing.
D) price skimming.
Topic: Pricing Techniques for Established Products and Services
AACSB: Reflective Thinking
15) ________ is a technique which greatly simplifies the pricing function by setting the same
price for items with similar characteristics.
A) Odd pricing
B) Leader pricing
C) Price lining
D) Geographical pricing
Topic: Pricing Techniques for Established Products and Services
AACSB: Analytic Skills
16) When a small business practices price lining, it most commonly carries lined merchandise in
sets of ________ different ranges.
A) 2
B) 3
C) 4
D) 5
Topic: Pricing Techniques for Established Products and Services
AACSB: Analytic Skills
4
17) Jerry is developing a pricing strategy for an established line of home care products. His
premium products are priced over $4000, his best products are in the $2540 range, and his good
products are $1015 range. Jerry is using a ________ strategy.
A) penetration pricing
B) leader pricing
C) price lining
D) geographic pricing
Topic: Pricing Techniques for Established Products and Services
AACSB: Reflective Thinking
18) ________ is a technique in which a small firm marks down the price of a popular item below
its normal price in an effort to increase customer traffic and to boost sales of other items.
A) Odd pricing
B) Leader pricing
C) Price lining
D) Suggested retail pricing
Topic: Pricing Techniques for Established Products and Services
AACSB: Analytic Skills
19) In ________ pricing, a type of geographical pricing, a small firm charges customers located
in different territories different prices for the same products.
A) FOB factory
B) uniform delivered
C) zone
D) price lining
Topic: Pricing Techniques for Established Products and Services
AACSB: Analytic Skills
20) Geographical pricing includes numerous techniques, such as:
A) uniform delivered pricing.
B) loss-leader pricing.
C) markdowns.
D) multiple pricing.
Topic: Pricing Techniques for Established Products and Services
AACSB: Analytic Skills
5
21) ________ is a pricing strategy under which local customers “subsidize” the shipping charges
the firm incurs when transporting merchandise to distant customers.
A) FOB factory pricing
B) Uniform delivered pricing
C) Zone pricing
D) Opportunistic pricing
Topic: Pricing Techniques for Established Products and Services
AACSB: Analytic Skills
22) Many small business owners use a ________ strategy to move stale, damaged, or slow
moving goods or to encourage shoppers to purchase merchandise before an upcoming season.
A) multiple pricing
B) opportunistic pricing
C) discount pricing
D) price lining
Topic: Pricing Techniques for Established Products and Services
AACSB: Reflective Thinking
23) The Pastry Shop normally sells cheese Danishes for 60 cents each. On Mondays and
Tuesdays, its slowest days, The Pastry Shop offers cheese Danishes at “4 for $2.00.” This is:
A) price lining.
B) leader pricing.
C) multiple unit pricing.
D) odd pricing.
Topic: Pricing Techniques for Established Products and Services
AACSB: Reflective Thinking
24) Baseball cards usually sell for 10 cents each. The Card Shop advertises them at “12 for
$1.00.” This is:
A) price lining.
B) leader pricing.
C) odd pricing.
D) multiple unit pricing.
Topic: Pricing Techniques for Established Products and Services
AACSB: Reflective Thinking
6
25) When a computer manufacturer offers its computer with software pre-installed, a printer, and
Internet service, as all part of one price, the manufacturer is using a:
A) bundling strategy.
B) multiple pricing strategy.
C) suggested retail price strategy.
D) skimming pricing strategy.
Topic: Pricing Techniques for Established Products and Services
AACSB: Analytic Skills
26) When a small business owner doesn’t want to make a pricing decision, he/she can use a(n)
________ pricing strategy.
A) price lining
B) suggested retail
C) opportunistic
D) multiple unit
Topic: Pricing Techniques for Established Products and Services
AACSB: Analytic Skills
27) Probably the most important consideration a manufacturer has when setting the final price of
its new exclusive perfume is:
A) the perfume’s production cost.
B) competitor’s prices.
C) the image the company wants to create for the scent in the customer’s mind.
D) choosing between odd pricing and price lining.
Topic: Competition and Prices
AACSB: Analytic Skills
28) Dotty has her competitors’ price information. Her most effective use of that information
would be to:
A) seek to match her competitors.
B) undercut competitors’ prices.
C) create a premium image by setting her prices higher than competitors.
D) use it as one variable in her pricing mix.
Topic: Competition and Prices
AACSB: Reflective Thinking
7
29) When considering the competition in price setting, the small business owner should:
A) consider the competitors’ location.
B) consider the competitors’ motives for their prices.
C) consider the nature of the goods being sold.
D) consider all of these.
Topic: Competition and Prices
AACSB: Analytic Skills
30) Which of the following factors is vital to determining the effects of competition on the small
firm’s pricing policies?
A) The competitor’s location
B) The availability of capital for production
C) The form of ownership of the small business
D) The type of outlet the business is
Topic: Competition and Prices
AACSB: Analytic Skills
31) When a small business is faced with price competition from a much larger competitor, it
should consider:
A) going head-to-head on prices by lowering its cost structure.
B) using non-price competition by offering value added service.
C) make rapid, continual price changes to keep the competition off balance.
D) move to a premium price strategy by offering higher scale goods and services.
Topic: Competition and Prices
AACSB: Analytic Skills
32) If a haberdasher purchases a tie for $12 and plans to sell it for $18, the percentage of retail
price markup would be:
A) 33%.
B) 50%.
C) 175%.
D) 100%.
Topic: Markup
AACSB: Reflective Thinking
8
33) ________ is the average markup required on all merchandise to cover the cost of items,
incidental expenses, and a profit.
A) Initial markup
B) Cost plus markup
C) Direct markup
D) Contributing margin
Topic: Markup
AACSB: Analytic Skills
34) If an item costs a small business owner $15, and the desired markup on it is 60%, its retail
price would be:
A) $24.00.
B) $25.00.
C) $37.50.
D) $43.25.
Topic: Markup
AACSB: Reflective Thinking
35) A common “me-too” pricing policy by which the small business owner establishes his/her
prices by monitoring competitor’s prices and then matching them is called:
A) follow-the-leader pricing.
B) below-market pricing.
C) price lining.
D) variable pricing.
Topic: Follow-the-Leader Pricing
AACSB: Analytic Skills
36) The most commonly used pricing technique for manufacturers is:
A) direct pricing.
B) margin pricing.
C) cost-plus.
D) absorption pricing.
Topic: Pricing Techniques for Manufacturers
AACSB: Analytic Skills
9
37) Absorption costing:
A) is complete pricing in that it takes into consideration all manufacturing and overhead costs.
B) guarantees the manufacturer a desired profit margin.
C) does not encourage a manufacturer to operate efficiently.
D) clouds the true relationship of price, volume, and costs.
Topic: Pricing Techniques for Manufacturers
AACSB: Analytic Skills
38) Cost-plus pricing has several disadvantages, including:
A) it clouds the relationships among price, volume, and costs.
B) it fails to consider the competition sufficiently.
C) a mentality of “I-can-do-it-cheaper,” leading to price competition with larger companies.
D) it tends to be reactive rather than proactive in relation to competition and market forces.
Topic: Pricing Techniques for Manufacturers
AACSB: Analytic Skills
39) A reliable cost accounting system is necessary for accurate pricing. The traditional method of
product costing, where the costs of direct materials, direct labor, and factory overhead are
included, is called ________ costing.
A) absorption
B) break-even
C) direct
D) variable
Topic: Pricing Techniques for Manufacturers
AACSB: Analytic Skills
40) ________ include(s) the unit cost of a manufacturer’s product under an absorption costing
system.
A) Opportunity costs
B) Depreciation
C) Insurance
D) Variable costs
Topic: Pricing Techniques for Manufacturers
AACSB: Analytic Skills
10