65) Businesses faced with rapidly rising raw materials costs should consider the following
strategies:
A) Communicate with customers and focus on improving efficiency everywhere in the company.
B) Emphasize the value your company provides to customers.
C) Anticipate rising materials costs and try to lock in prices early.
D) All of the above
66) Most often, small business owners ________ their goods and services, believing that
________ prices are the only way they can achieve a competitive advantage.
A) over price; high
B) under price; low
C) over price; low
D) under price; high
67) Two factors are vital to studying the effects of competition on a small firm’s pricing policies:
A) the location of the competitors and the nature of the competing goods.
B) the pricing.
C) the location of the competitors and their marketing efforts.
D) Both A and B
68) Three objectives of new product pricing are:
A) get the product accepted, maintain market share as competition grows, and earn a profit.
B) get the product accepted, avoid price wars, and earn a profit.
C) maintain market share as competition grows, earn profits, and increase sales.
D) None of the above
69) Judith started her business in 1995. During the years, she sold different products she
purchased from distributors and manufacturers. One day, she came up with a new product. She
patented the product and got started to sell the product. What should be the objectives of her
pricing strategies?
A) Get the product accepted
B) Maintain market share as competition grows
C) Earn a profit
D) All of the above
70) A ________ pricing strategy often is used when a company introduces a new product into a
market with little or no competition.
A) price war
B) competitive
C) skimming
D) price floor
71) As sales volume increases with the broad acceptance of the new products, the firm can lower
its price. This is a characteristic of:
A) price wars.
B) competitive pricing.
C) skimming.
D) penetration.
72) Small businesses whose pricing decisions are greatly affected by the costs of shipping
merchandise to customers across a wide range of geographic regions frequently employ one of
the ________ techniques.
A) opportunistic pricing
B) geographic pricing
C) leader pricing
D) price lining
73) ________ is grouping together several products or services, or both, into a package that
offers customers extra value at a special price.
A) Leader pricing
B) Price lining
C) Discount pricing
D) Bundling
74) ________ pricing is when the base product is not functional without the appropriate
accessory.
A) Captive-product
B) Optional-product
C) By-product
D) None of the above
75) Price is the monetary value of a good or service in the marketplace.
76) Price is a measure of what the customer must exchange to obtain goods and services and is
an indicator of value to the customer.
77) For most products, there is an ideal price.
78) The price floor of a product or service is set by the company’s cost structure.
79) All firms within an industry have the same price floor.
80) Proper pricing is a balancing act, walking between a high enough price to cover profit
margins and convey the right image and low enough to attract customers.
81) If a company wants quick acceptance and extensive distribution, when introducing a new
product into a highly competitive market with a large number of similar products, penetration
pricing is the best strategy.
82) Penetration pricing is a short-term pricing strategy and achieves tremendous profit.
83) A penetration pricing strategy is designed to recover a company’s developmental and
promotional cost of a new product very quickly.
84) A skimming pricing strategy sets a relatively high price for a product to appeal to the
segment of the market which is not sensitive to price.
85) The skimming pricing strategy is used when there is a lot of competition in the market.
86) A skimming pricing strategy permits a small business owner to correct pricing mistakes more
quickly and easily than a penetration pricing strategy.
87) A penetration pricing strategy allows the business to build market share quickly.
88) A skimming price strategy is best for quickly building market share.
89) Odd pricing is a form of psychological pricing.
90) Price lining occurs when a small company raises the price of all of its goods by the same
percentage to cover operating expenses.
91) Price lining, leader pricing, and odd pricing are three geographic pricing strategies that can
be used for established products.
92) Under uniform delivered pricing, a company charges all of its customers the same price,
even though the cost of selling or transporting the merchandise varies.
93) Under FOB Factory terms, the customer pays all shipping costs.
94) Multiple unit pricing is a technique used to simplify the pricing decision by setting the same
price for items in the same line.
95) Most small business managers follow the manufacturer’s suggested retail price when it is
available.
96) The manufacturer’s suggested price takes into account the small firm’s cost structure and its
competitive situation.
97) Even if a small business cannot differentiate its product by creating a distinctive image in the
consumer’s mind, it can afford its own line of prices.
98) The prices a small business charges influence its image in the marketplace.
99) Two factors that determine the effects of competitors’ prices on a small business owner’s
pricing decisions are the location of the competitors and the nature of the competing goods.
100) Although competitor’s prices can have a dramatic effect on a small business’s own prices,
monitoring competitor prices is illegal in many states.
101) If a firm lacks a unique business image, it must match its competitor’s prices or risk losing
customers.
102) Non-price competition is using personal service, free delivery, and other extras to attract
and keep customers without changing prices.
103) The underlying forces that dictate price are generally the same across industries, so that all
businesses in that industry have the same underlying cost factors.
104) A firm’s initial markup is the average markup required on all merchandise to cover the cost
of items, incidental expenses, and a profit.
105) The costs of merchandise used in computing markup include wholesale price, incidental
costs, and profit minus any discounts.
106) A retailer who buys a product for $19.75 and has a desired markup of retail price of 55%
should establish a retail price of $43.89.
107) The initial markup on a product is the total markup on all merchandise to cover the cost of
the items and a reasonable profit.
108) Most stores use a standard markup across all products due to the heavy labor costs involved
in individual pricing.
109) The most effective pricing strategy for small businesses is follow-the-leader pricing due to
its simplicity and its ability to keep price parity for the small business.
110) The main advantage of cost-plus pricing is its simplicity.
111) Even though cost-plus pricing is simple, it does not encourage a small business to use its
resources efficiently.
112) The traditional method of product costing, absorption costing, is extremely useful in
helping the manufacturer determine prices or the effect of price changes.
113) The problem with using full absorption cost information when setting prices is that it clouds
the true relationships among price, volume, and costs by including fixed expenses in unit cost.
114) Contribution margin is the portion of sales revenue left after covering fixed expenses and a
profit.
115) The break-even selling price is calculated by dividing the profit desired plus the variable
cost per unit times the quantity produced plus the total fixed cost by the quantity produced.
116) The formula for calculating the break-even is:
Break-even selling price =
117) Because service firms have no quantitative pricing techniques available to them, they must
charge the “going rate” for their services.
118) For a service firm, labor and materials comprise the largest portion of the cost of the service
provided.
119) The use of credit cards increases the probability, speed, and magnitude of customer
spending.
120) The use of a credit card by small business customers costs the small business from 10 to 15
percent of the price of the product.
121) One advantage of installment loans for a small business is that the business owner retains a
security interest in the item sold as collateral on the loan.
122) Because installment credit is so profitable for the small business, most small businesses
finance themselves.
123) Trade accounts are the equivalent of a credit card that is issued by the business.
124) Qualifying for merchant status is relatively easy for most small businesses.
125) Merchant status permits a small business to accept credit card payments and enhances the
reputation of the small business.
126) Before deciding to use credit as a competitive weapon, small business owners must make
sure that the firm’s cash position is strong enough to support additional pressure.
127) Today’s business environment requires firms to separate their pricing strategy with their
credit strategy.
128) Fixed expenses fluctuate according to production levels.
129) For manufacturers, the pricing decision requires the support of accurate sales records.
130) When developing a marketing approach to pricing, business owners must establish prices
that are compatible with what their customers expect and are willing to pay.
131) When setting prices, business owners should automatically match or beat the competitors.
132) Two factors are vital to studying the effects of competition on a small firm’s pricing
policies: the location of the competitors and the nature of the competing goods.
133) The nature of competitors’ goods does not influence the small firm’s pricing policies.
134) In general, entrepreneurs should avoid head-to-head price competition with other firms that
can more easily achieve lower prices through lower cost structures.
135) Price wars can eradicate companies’ profit margins and scar an entire industry for years.
136) Penetration refers to if a business introduces a product into a highly competitive market in
which a large number of similar products are competing for acceptance.
137) In cases in which development costs are extremely high, as in new high technology
products, the skimming technique helps the firm recoup its research and development costs in a
shorter time span.
138) Geographic pricing is a technique that greatly simplifies the pricing function.
139) A seasonal discount is a price reduction designed to encourage shoppers to purchase
merchandise before an upcoming season.
140) Captive-product pricing is when the base product is not functional without the appropriate
accessory.
141) Define and explain the terms: price, price range, price ceiling, and price floor. Why is it
important to keep these terms distinct in the entrepreneur’s thinking?
142) Name and explain the three basic pricing strategies a small business owner has in
establishing a new product’s price.
143) There are at least eight different pricing strategies for established goods and services.
Explain four of those strategies and why you’d use them.
144) How does price convey an image for the product or service?
145) Explain the impact of competition on pricing strategy and what an entrepreneur should do
about competitors’ prices.
146) Retailers have three pricing techniques available to them. Describe each technique, explain
why a retailer would use it, and offer advantages or disadvantages that exist for each technique.
147) What pricing strategies are available to manufacturers? Explain each, why it is used, and
what it does for the manufacturer.
148) Discuss pricing strategies for service firms.
149) Explain the different kinds of credit a small business can offer its customers and the impact
each has on pricing.
150) What are debit cards?