11-1
Chapter 11—Pricing Issues in Channel Management
MULTIPLE CHOICE
1. Pricing in the marketing channel can be thought of as analogous to:
a.
Family eating last.
b.
Who gets what “piece of the pie”.
c.
Having fair-weather friends.
d.
Giving out life jackets on the Titanic.
e.
He or she who laughs last laughs best.
2. If a product has a list price of $25 and offers a wholesale trade discount of 59% and a retail
trade discount of 40%, the cost to the wholesaler is:
a.
$14.75.
b.
$4.75.
c.
$10.25.
d.
$10.00.
e.
$3.75.
3. If a wholesaler can buy an item for $38 that has a list price of $95, the trade discount
percentage available to the wholesaler is:
a.
40%.
b.
60%.
c.
66%.
d.
34%.
e.
Cannot be determined from the above data.
4. If an item that had cost the retailer $7 sold at retail for $12.50, the gross margin percentage on
selling price is:
a.
78.6%.
b.
56%.
c.
44%.
d.
21.4%.
e.
100%.
11-2
5. A product cost a wholesaler $6.80. The wholesaler sold the product to a retailer for $10.00.
The percentage gross profit on the wholesaler’s cost is:
a.
32%.
b.
49.3%.
c.
52.4%.
d.
16.8%.
e.
47%.
6. An item cost a manufacturer $4 to produce. It has a wholesale trade discount of 66% and a
retail trade discount of 50%. The list price of the item is $15. Assuming the retailer sold the
item for $12, the dollar gross margins received by the manufacturer, wholesaler, and retailer
are respectively:
a.
$5.90, $2.40, $4.50.
b.
$4.50, $1.10, $2.40.
c.
$1.10, $2.40, $4.50.
d.
$1.40, $2.50, $7.50.
e.
$2.64, $2.40, $6.96.
7. An item cost $20 to produce. The retailer sold the product for $79. It had cost the retailer $50.
The wholesaler had paid $34 for the product. The list price of the product was $100. The total
of the dollar gross margins received by the manufacturer, wholesaler, and retailer amounts to:
a.
$50.
b.
$63.
c.
$59.
d.
$80.
e.
$29.
8. As a general rule, each channel participant wants a price that provides a __________
sufficient to cover its __________ and provide a contribution to __________.
a.
net profit; costs; sales
b.
gross margin; expenses; profit
c.
sales level; net profits; costs
d.
contribution; gross margin; sales
e.
sales; gross profit margin; net profit
11-3
9. Gross margins for retailers of __________ are on the average lower than for retailers of
___________.
a.
Vending machines; liquor
b.
Furniture; fuel oil
c.
Gasoline service stations; furniture
d.
Household appliances; liquor
e.
Groceries: fuel oil
10. Which of the following is most likely to have the effect of moving price points downward for
a product category?
a.
Inflation
b.
Monopoly conditions
c.
Shortages
d.
Lack of new products
e.
Advancing technology
11. Gross margins of wholesalers range approximately from:
a.
7% to 34%.
b.
2% to 5%.
c.
6% to 10%.
d.
30% to 50%.
e.
15% to 40%.
12. Which of the following is not a potential reaction by channel managers to a manufacturer’s
cut in price?
a.
The price cut may decrease sales volume and profits.
b.
The price cut may affect the product’s quality image, so channel managers may
become reluctant to deal with the product.
c.
Channel managers may be concerned about the image of their own firms.
d.
They may be concerned about a loss of inventory value.
e.
Channel managers may be concerned about future pricing policies.
11-4
13. Which of the following is not a factor that should normally be included in developing pricing
strategies?
a.
Internal cost considerations
b.
The target markets
c.
Competition
d.
Needs of channel members
e.
Consumer income
14. Trade discounts:
a.
Are offered at every level of the channel: wholesalers, retailers and final
customers.
b.
Are virtually standard across all industries in the U.S.
c.
Are reductions from list price.
d.
Reduce the cost of the product if the firm pays the bill within 20 days.
e.
Are seldom used.
15. The “golden rule” of channel pricing advises channel managers to:
a.
Ensure channel members receive the highest margins the manufacturer can afford.
b.
Give explicit consideration to the effect of pricing decisions on channel member
behavior.
c.
Control resale pricing at all levels in the channel.
d.
Ignore competitors
e.
Ensure that costs exceed price.
16. Which of the following is a possible channel member reaction to a manufacturer-initiated
price cut?
a.
They will expect price cuts to reduce sales volume.
b.
They may resent the reduction in their margins that may result from the price cut.
c.
They will discontinue carrying the product.
d.
They may have to cut the prices of other products they carry.
e.
They may be concerned about complaints from customers.
11-5
17. The concept of “buying distribution” refers to:
a.
The various prices charged by agent intermediaries.
b.
A manufacturer’s competitive pricing strategy that allows its channel members
extra-high margins.
c.
Searching for channel members who are willing to perform for the price that the
manufacturer is willing to pay.
d.
Paying channel members for services through the margins offered by the
manufacturer.
e.
Offering lower margins to channel members.
18. When channel members load up on discounted products featured in the manufacturer’s
promotion but pass on the lower price for just a portion of the amount purchased to their
customers, they are most likely to be engaged in:
a.
the gray market.
b.
Price fixing.
c.
Forward buying.
d.
Price pointing.
e.
Free riding.
19. The “price” paid to gain channel member support must emphasize:
a.
The job performed by the channel members.
b.
What the manufacturer believes to be fair and reasonable.
c.
A fair price as perceived by the channel member.
d.
Trade discounts.
e.
The value of the product.
20. Ideally, the channel manager should set the margins offered the channel members:
a.
So that margins would vary in direct proportion to the functions performed by the
different classes of channel members.
b.
So that margins would vary in inverse proportion to the functions performed by the
different classes of channel members.
c.
At a level at which the manufacturer can earn a reasonable profit.
d.
At a level that covers all the costs of all channel members.
e.
So that they entice channel members to promote the product.
11-6
21. Which of the following is true regarding manufacturers’ attempt to uncover channel members’
views on the manufacturer’s pricing strategies?
a.
There are several methods that can be used to obtain this information.
b.
It is the channel member’s job to find out about channel member views.
c.
Channel managers should pay particular attention to channel member views about
pricing strategy.
d.
Research done by outside companies can assist manufacturers obtain the needed
data.
e.
All of the above
22. Which of the following is a false statement about Oxenfeldt’s set of eight classic guidelines
for developing pricing strategies?
a.
They help channel managers focus on the channel implications of their pricing
decisions.
b.
They offer some general prescriptions on how to formulate pricing policies to
foster cooperation and minimize conflict.
c.
They sometimes are irrelevant.
d.
They set a framework for pricing decisions.
e.
They guarantee results.
23. If a powerful manufacturer, an industry leader with exceptionally strong brand loyalty from
final customers, offers channel members margins they perceive to be inadequate, the channel
members are likely to do all of the following except:
a.
Immediately drop the product from their product line.
b.
Promote their own private-label brands.
c.
Seek out other suppliers.
d.
Establish a private label brand.
e.
Tolerate the situation, but only in the short run.
24. When reviewing the margins offered to different classes of channel members, the channel
manager should consider all of the following functions except:
a.
Does the channel member hold inventories?
b.
Does the channel member make purchases in large or small quantities?
c.
Does the channel member provide repair services?
d.
Does the channel member provide delivery?
e.
Does the channel member offer guarantees and repair warranties?
11-7
25. Giant retail chains such as Home Depot and Lowe’s, demand lower prices from manufacturers
because:
a.
They place orders for future purchases.
b.
They have a large volume of customers demanding low prices.
c.
They perform many wholesaler functions.
d.
They have more control in the channel market than the manufacturers.
e.
They only sell highly discounted products.
26. Household appliance retailers earn an average 33.5% gross margin. These retailers might be
willing to accept a lower margin on promotional products if:
a.
The turnover rate is extraordinarily high.
b.
The lower margins are only temporary.
c.
The channel members are convinced that the promotional products will help build
customer patronage.
d.
The promotional products are of high quality.
e.
The promotional products are heavily advertised on national media.
27. Which of the following statement pertaining to “special pricing deals” is false?
a.
Special pricing deals include discounts, enhanced quantity discounts, and free
goods.
b.
Generally special pricing deals enhance brand equity.
c.
Many consumers have been conditioned to expect special pricing deals.
d.
The purpose of special pricing deals is to stimulate sales of the manufacturer’s
products.
e.
Often retailers come to view price deals as the normal state of affairs.
28. ___________ are products that usually have the lowest price in the product line and yield low
margins.
a.
Price jumpers
b.
Price points
c.
Lures
d.
Door openers
e.
Cost leaders
11-8
29. For some product categories, customers simply have come to expect finding products priced
at customary levels. The “expected” prices for such products are referred to as:
a.
Price lines.
b.
Price points.
c.
Standard prices.
d.
Promotional prices.
e.
Psychological prices.
30. A producer may offer a margin different from that offered by competitive brands if:
a.
If the customers associate superior benefits with the product.
b.
The product is imported.
c.
Manufacturing cost differences jeopardize the manufacturer’s profits.
d.
All of the above.
e.
Producers should not deviate from the margin offered by competitive brands.
31. In attempting to gain price control in the channel, the manufacturer should use:
a.
“Friendly persuasion.”
b.
Coercive power.
c.
Fair trade laws.
d.
Incentives.
e.
Threats to change to another channel member.
32. A manufacturer may feel it needs to control resale price for all of the following reasons
except:
a.
Its strategy uses price to convey a high-quality product image.
b.
It believes price wars will lead to unstable conditions for the whole channel.
c.
It needs to ensure adequate margins so channel members will provide a high level
of service.
d.
It needs all channel members to perform in a specific manner in order to meet
strategic objectives.
e.
Stable prices are in the best long-run interest of the firm.
11-9
33. Generally, when manufacturers make major changes in their pricing structure, channel
members usually are __________ when manufacturers make major changes in their terms of
sale.
a.
less uneasy than
b.
more uneasy than
c.
as uneasy as
d.
unconcerned because changes in terms of sale rarely cause negative reaction from
channel members, even
e.
as threatening as
34. Before automatically passing price increases through the channel, the manufacturer should:
a.
Analyze customer reactions.
b.
Offer rebates for the same amount as the price increase.
c.
Do whatever it can do to mitigate the negative effects of the increase on channel
members.
d.
Offer increased trade discounts.
e.
Provide special promotional material.
35. Differing perceptions of price incentives between the consumers and channel members’
viewpoints stem from:
a.
Small advertising allowances.
b.
Differing marketing philosophies.
c.
Differing price elasticities.
d.
Differing cross elasticities.
e.
Differing promotional displays.
36. Of all the elements in the marketing mix, channel members at the wholesale and retail levels
view __________ as being most in their domain.
a.
advertising
b.
sales promotion
c.
physical distribution
d.
product development
e.
pricing
Pricing Issues in Channel Management
11–10
37. The __________ often causes a problem with price promotions.
a.
delivery of enough inventory
b.
indifference of consumers
c.
lack of a good promotional campaign
d.
differing price elasticities of consumers and retailers
e.
seasonality of a product
38. The sale of well-known brand products by unauthorized dealers, usually at very low prices, is
referred to as:
a.
Off-price selling.
b.
The black market.
c.
The gray market.
d.
Counterfeiting.
e.
Specialty discount retailing.
39. Distributors and dealers who offer extremely low prices but little if any service to customers
are engaging in a practice called:
a.
Segmented marketing.
b.
Specialty retail discounting.
c.
Vertical marketing.
d.
Franchise discounting.
e.
Free riding.
40. A customer buying a branded product from a low-priced distributor likely is:
a.
Getting a counterfeit product.
b.
Buying in the gray market.
c.
From an authorized dealer with high-volume and operating economies.
d.
Purchasing from a free rider.
e.
There is no way to tell from the information given.
41. Manufacturers are often concerned about their products being involved in the gray market for
all of the following reasons except:
a.
It disrupts the manager’s ability to manage the market channel.
b.
Authorized channel members are unhappy.
c.
Channel members may drop the product.
d.
Channel members may retaliate by making disparaging remarks about the product.
e.
Consumers may stop buying the product because of a perceived decrease in value.
11–11
42. When a channel member makes disparaging remarks about a product in order to sell a
competitor’s product, the channel member is engaging in:
a.
The gray market.
b.
Footballing.
c.
Free riding.
d.
Undercutting.
e.
Unethical behavior.