M: Marketing, 6e (Grewal)
Chapter 14 Pricing Concepts for Establishing Value
1) Price is the cash expenditure plus taxes that consumers have to pay for a good or service.
2) The key to successful pricing is to match the product with the consumer’s perception of value.
3) Price is the only part of the marketing mix that does not generate costs.
4) Pricing strategies should be aligned with a firm’s overall goals and objectives.
5) When a firm has a particular profit goal as its overriding concern, it will use target return
pricing to meet the profit objective.
6) Rarely is the lowest-price product offering the dominant brand in a given market.
7) American Airlines just reduced its fares for summer flights by $100. Delta Airlines changes its
pricing structure and reduces its flights by $100 as well. Delta is employing status quo pricing.
8) A demand curve shows the relationship between income and demand.
9) The demand curve for prestige products generally slopes downward due to higher prices.
10) Because consumers are generally more sensitive to price increases than to price decreases, it
is easier to lose current customers with a price increase than it is to gain new customers with a
price decrease.
11) When the price of milk goes up, demand does not fall significantly, because people still need
to buy milk. However, if the price of T-bone steaks rises beyond a certain point, people will buy
fewer of them because they can turn to the many substitutes for this cut of meat. This refers to
price elasticity of demand.
12) Dynamic pricing is also referred to as individualized pricing.
13) Brands that have developed loyal customers have a higher price elasticity of demand.
14) In U.S. markets, there are many substitute products for Fruit Loops cereal, suggesting the
price elasticity of demand for Fruit Loops is high.
15) Costs related to supply and costs related to demand are the two primary cost categories.
16) At the break-even point, profits are maximized.
17) Diana owns a boutique specializing in ball gowns. Sales are stable and Diana feels it is time
she had a 20 percent increase in her salary. If Diana takes this increase in compensation, it will
decrease the break-even quantity of gowns she needs to sell on a monthly basis.
18) Pure competition occurs when there are many firms competing for customers in a given
market but their products are differentiated.
19) An example of an objective set by a sales-oriented company is to institute a company-wide
policy that all products must provide for at least an 18 percent profit margin to reach a particular
profit goal for the firm.
20) If a firm is engaged in monopolistic competition, it should seek a way to differentiate itself.
21) When a retail store rarely sells deeply discounted or sale products, it is known as “everyday
low pricing.“
22) Firm A has set very low prices for its products in an attempt to drive its competitor, Firm B,
out of business. This is known as monopolistic pricing.
23) For market penetration pricing to work, the product or service must be perceived as breaking
new ground in some way.
24) Sellers using an EDLP pricing strategy often communicate their strategy through the creative
use of a reference price.
25) A high/low pricing strategy relies on the promotion of sales, during which prices are
temporarily reduced to encourage purchases.
26) When CarMax promises a “no-haggle” pricing structure, it exhibits ________ because it
provides additional value to potential used car buyers by making the process simple and easy.
A) a customer orientation
B) a status-quo pricing structure
C) competitive parity
D) a competitor orientation
E) consumer parity
27) Earl was known for driving 30 miles just to save a dollar on the price of his favorite
beverage. Earl perceived price as ________ for a good or service, while most consumers
recognize price as the ________ made to acquire a good or service.
A) the money paid; overall sacrifice
B) a variable cost; fixed cost
C) a fixed cost; variable payment
D) the overall sacrifice; monetary payment
E) the break-even amount; total cost
28) All of the following are included in the full price of a product or service except
A) taxes.
B) shipping.
C) travel costs.
D) the price of alternative products and services.
E) value of the consumer’s time.
29) Consumers generally believe that ________ is one of the most important factors in their
purchase decisions.
A) promotion
B) place
C) product
D) perception
E) price
30) Unlike product, promotion, or place, price is the only part of the marketing mix
A) that offers the opportunity for an oligopoly.
B) that is subject to gray market manipulation.
C) that leads to competition.
D) that generates revenue.
E) that is determined by the consumer.
31) In developing marketing strategies, why is price often the most challenging of the four Ps to
manage?
A) because most managers feel it is the least important element of the marketing mix
B) because it is the least understood element of the marketing mix
C) because it has to be based on the promotion budget for the product
D) because it is difficult to calculate markups for products
E) because managers don’t understand the relationship between benefits and costs
32) Historically, prices were
A) the center of attention in almost all marketing strategies.
B) analyzed and changed constantly.
C) calculated to minimize contribution per unit.
D) allowed to vary seasonally as cross-shopping tendencies fluctuated.
E) rarely changed except in response to radical shifts in market conditions.
33) Margaret has been invited to a fancy dinner party and wants to bring a good bottle of wine as
a gift for the host. Since she does not know much about wine, she will likely use the price of the
wines as
A) an indicator of quality.
B) a reflection of status quo pricing.
C) an indicator of the variety.
D) a measure of scarcity.
E) a measure of the income effect.
34) All of the following are included in the five Cs of pricing except
A) customers.
B) channel members.
C) cost.
D) collaboration.
E) company objectives.
35) Tess is the marketing manager for a fast-food restaurant chain. She uses a target return
pricing strategy because her firm’s primary objective is to
A) increase profits.
B) increase sales.
C) decrease competition.
D) build customer satisfaction.
E) broaden the product line.
36) Gary is the marketing manager for an automobile dealership. His boss tells him the firm’s
primary goal is to increase its local market share from 15 to 30 percent. His firm is using a
________ orientation.
A) profit
B) sales
C) competitive
D) customer satisfaction
E) product development
37) When Delta increases its average fares, American Airlines and United often follow with
similar increases. This is an example of
A) competitor orientation.
B) customer orientation.
C) status quo pricing.
D) adding value.
38) Bernard’s firm has set corporate direction to become one of the leaders in each of its
significant market segments. It was Bernard’s job to examine the firm’s pricing strategy to
determine how to maximize market share, even at the expense of profits in the short run. What
kind of company objective would guide Bernard’s effort?
A) industry-oriented
B) sales-oriented
C) competitor-oriented
D) innovation-oriented
E) customer-oriented
39) Naomi tells her sales representatives the goal is to generate at least a 20 percent return on
investment for all of the industrial building supplies they sell. Naomi is using a ________ pricing
strategy.
A) sales orientation
B) target profit
C) target return
D) status quo
E) competitive parity
40) A ________ strategy involves accurately measuring all the factors needed to predict sales
and profits at various price levels, so that the price level that produces the highest return can be
chosen.
A) sales orientation
B) target profit
C) target return
D) status quo
E) maximizing profits
41) Health clubs often use a low introductory offer price to get people to join their club. These
low prices represent a ________ pricing strategy.
A) maximizing profits
B) target profit
C) target return
D) status quo
E) sales orientation
42) Many years ago, Honda’s Accord and Ford’s Taurus were the two top-selling cars in the
United States. As the year was coming to an end, Ford cut the price of the Taurus, hoping to
outsell the Accord and allow Ford to claim that “Taurus is the best-selling car in America.” Ford
was using a ________ pricing strategy.
A) maximizing profits
B) target profit
C) sales orientation
D) status quo
E) target return
43) Julia wants her firm’s gourmet snacks to be the leading brand in the U.S. market. When
adopting a pricing strategy designed to gain market share, she should remember that
A) rarely is the lowest-price offering the dominant brand in a market.
B) prestige products need to be competitively priced.
C) companies can gain market share by offering low-quality products at a high price.
D) total value equals total cost minus variable costs leading to price escalation.
E) price wars are the way to become the dominant brand.
44) Sharon knew that her established customers liked her product much better than her
competitor’s. She was planning to expand into new markets, and she was considering pricing.
She was leaning toward charging a higher price than competitors to help demonstrate that hers
was a high-quality product. Sharon was considering
A) a top of market strategy.
B) the value of quality.
C) advantageous pricing.
D) premium pricing.
E) differential pricing.
45) When Ursula decides how to price new products in her gift store, she measures the value of
her product offerings against those of the other stores in her area. Ursula uses a ________ pricing
strategy.
A) maximizing profits
B) target profit
C) target return
D) competitor-oriented
E) sales oriented
46) Ryan gave the manager of his convenience store a set of binoculars so she could see the
gasoline prices charged by the other convenience store at that intersection. Ryan told the
manager to always match the gasoline prices of the other store. Ryan is using a ________ pricing
strategy.
A) maximizing profits
B) target profit
C) target return
D) status quo
E) sales
47) When firms set prices similar to those of competitors, they are following a strategy of
A) me-too pricing.
B) copycat pricing.
C) competitive parity.
D) market-broadening pricing.
E) industry-standard pricing.
48) In many high-end resort markets, Westin hotels compete directly with Crown Plaza hotels.
When it comes to pricing, Westin tends to charge its guests similar rates to what the Crown Plaza
hotels charge. Westin is using a ________ pricing strategy.
A) maximizing profits
B) target profit
C) target return
D) competitive parity
E) sales oriented