A Framework for Marketing Management, 5e (Kotler)
Chapter 12 Developing Pricing Strategies and Programs
1) When consumers examine products, they often compare an observed price to an internal price
they remember. This is known as a(n) ________ price.
A) markup
B) reference
C) market-skimming
D) accumulated
E) target
2) Many consumers are willing to pay $100 for a perfume that contains $10 worth of scent
because the perfume is from a well-known brand. What kind of a pricing is the company
depending on?
A) going-rate pricing
B) image pricing
C) market-skimming pricing
D) target pricing
E) markup pricing
3) Pricing cues such as sale signs and prices that end in 9 are more influential ________.
A) when customers have substantial knowledge about prices
B) when customers purchase the particular item regularly
C) when product quality is standardized
D) when product designs vary over time
E) when prices do not vary from time to time
4) Which of the following is the first step in setting a pricing policy?
A) selecting a pricing method
B) selecting the pricing objective
C) determining demand
D) estimating cost
E) analyzing competitors’ costs, prices, and offers
5) After determining its pricing objectives, what is the next logical step a firm should take in
setting its pricing policy?
A) It should analyze its competitors’ costs, prices, and offers.
B) It should select its pricing method.
C) It should select its final price.
D) It should determine the demand for its product.
E) It should estimate the cost of its product.
6) After estimating the demand and costs associated with alternative prices, a company has
chosen to price its product in such a way that it gains the highest rate of return on its investment.
The company is looking to ________.
A) maximize its market share
B) skim the market
C) become a product-quality leader
D) survive in the market
E) maximize its current profit
7) Companies who believe that a higher sales volume leads to lower unit costs and higher long-
run profits are attempting to ________.
A) maximize their market share
B) skim the market
C) become a product-quality leader
D) merely survive in the market
E) maximize their current profits
8) A company that is looking to maximize its market share would do well to follow ________
pricing.
A) markup
B) market-penetration
C) market-skimming
D) survival
E) target-return
9) When a company introduces a product at a very high price and then gradually drops the price
over time, it is pursuing a ________ strategy.
A) market-penetration pricing
B) market-skimming pricing
C) value-pricing
D) switching cost
E) loss-leader pricing
10) When Apple introduced its iPhone, it was priced at $599. This allowed Apple to earn the
maximum amount of revenue from the various segments of the market. Two months after the
introduction, the price has come down to $399. What kind of a pricing did Apple adopt?
A) loss-leader pricing
B) market-penetration pricing
C) market-skimming pricing
D) target-return pricing
E) value pricing
11) Market skimming pricing makes sense under all the following conditions, EXCEPT
________.
A) if a sufficient number of buyers have a high current demand
B) if the unit costs of producing a small volume are high enough to cancel the advantage of
charging what the traffic will bear
C) if the high initial price does not attract more competitors to the market
D) if consumers are likely to delay buying the product until its price drops
E) if the high price communicates the image of a superior product
12) Companies that aim to ________ strive to be affordable luxuries.
A) survive in the market
B) partially recover their costs
C) maximize their market share
D) pursue value pricing
E) be product-quality leaders
13) Starbucks, Aveda, and BMW have been able to position themselves within their categories
by combining quality, luxury, and premium prices with an intensely loyal customer base. These
companies are employing a ________ strategy.
A) market-skimming
B) market-penetration
C) survival
D) market share maximization
E) product-quality leadership
14) Consumers are less price sensitive ________.
A) to high cost items
B) when they frequently change their buying habits
C) when there are more substitutes
D) when there are more competitors
E) when they do not readily notice higher prices
15) Consumers are less price sensitive when ________.
A) price is only a small part of the total cost spent on the product over its lifetime
B) they perceive the higher prices to be unjustified
C) they change their buying habits regularly
D) there are many substitutes and competitors in the market
E) they are buying high-cost items
16) If demand hardly changes with a small change in price, the demand is said to be ________.
A) strained
B) marginal
C) inelastic
D) flexible
E) unit elastic
17) Costs that do not vary with production levels or sales revenue are known as ________.
A) overhead costs
B) variable costs
C) average costs
D) opportunity costs
E) total costs
18) A company must make payments each month for rent, heat, interest, and salaries. These are
________.
A) total costs
B) fixed costs
C) variable costs
D) opportunity costs
E) target costs
19) Costs that differ directly with the level of production are known as ________.
A) fixed costs
B) overhead costs
C) opportunity costs
D) target costs
E) variable costs
20) ________ consist of the sum of the fixed and variable costs for any given level of
production.
A) Total costs
B) Average costs
C) Opportunity costs
D) Learning costs
E) Target costs
21) ________ is the cost per unit at that level of production.
A) Target cost
B) Average cost
C) Marginal cost
D) Opportunity cost
E) Fixed cost
22) The decline in the average cost of production with accumulated production experience is
called the ________.
A) demand curve
B) supply chain
C) learning curve
D) value chain
E) indifference curve
23) Experience-curve pricing ________.
A) assumes competitors are weak followers
B) allows products to project a high quality image
C) is applicable only to manufacturing costs
D) focuses on reducing fixed costs
E) is generally risk-free
24) Deducting the desired profit margin from the price at which a product will sell, given its
appeal and competitors’ prices, is known as ________.
A) overhead costing
B) target costing
C) activity based costing
D) benefit analysis
E) estimate costing
25) Which of the following is the most elementary pricing method?
A) value pricing
B) going-rate pricing
C) markup pricing
D) target-return pricing
E) perceived-value pricing
26) Despite its weaknesses, markup pricing remains popular for which of the following reasons?
A) Sellers can determine demand much more easily than they can estimate costs.
B) By tying the price to cost, the pricing task becomes more sophisticated.
C) When all firms in the industry use markup pricing, price competition flourishes.
D) Sellers take advantage of buyers when the latter’s demand becomes acute.
E) Many people feel that cost-plus pricing is fairer to both buyers and sellers.
27) A manufacturer has invested $750,000 in a new product and wants to set a price to earn a 15
percent ROI. The cost per unit is $18 and the company expects to sell 50,000 units in the first
year. Calculate the company’s target-return price for this product.
A) $20.25
B) $18.23
C) $18.10
D) $20.70
E) $25.50
28) ________ pricing takes into account a host of inputs, such as the buyer’s image of the
product performance, the channel deliverables, the warranty quality, customer support, and
attributes such as the supplier’s reputation, trustworthiness, and esteem.
A) Perceived-value
B) Value
C) Going-rate
D) Auction-type
E) Markup
29) The key to perceived-value pricing is to ________.
A) reengineer the company’s operations
B) deliver more unique value than competitors
C) adopt subtle marketing tactics compared to competitors
D) deliver more value but at a lower cost
E) invest heavily in advertising in order to convey superior value
30) ________ pricing is a matter of reengineering the company’s operations to become a low-
cost producer without sacrificing quality.
A) Value
B) Going-rate
C) Auction-type
D) Markup
E) Perceived-value
31) Matt’s retail store offers all its products at $2 less than its competitors throughout the year.
The store never runs any promotional campaigns or offers any additional special discounts.
Matt’s retail store is following a(n) ________.
A) auction-type pricing policy
B) target-plus pricing policy
C) everyday low pricing policy
D) high-low pricing policy
E) going-rate pricing policy
32) Every day low pricing is most suitable if ________.
A) consumers are willing to perform activities such as clip coupons to avail of discounts
B) consumers tend to associate price with quality
C) customers are insensitive to changes in price
D) the cost of conducting frequent sales and promotions is high
E) consumers have sufficient time to find the best prices
33) In ________, the firm bases its price largely on competitor’s prices.
A) going-rate pricing
B) auction-type pricing
C) markup pricing
D) target-return pricing
E) perceived-value pricing
34) In which of the following auctions does the auctioneer first announce a high price for a
product and then slowly decreases the price until a bidder accepts?
A) a Dutch auction with one buyer and many sellers
B) an English auction with one seller and many buyers
C) an ascending bid auction
D) a sealed-bid auction
E) a Dutch auction with one seller and many buyers
35) In a(n) ________, the buyer announces something he or she wants to buy, and potential
sellers compete to offer the lowest price.
A) Dutch auction with one buyer and many sellers
B) English auction with one buyer and many sellers
C) English auction with one seller and many buyers
D) sealed-bid auction
E) ascending auction
36) ________ let would-be suppliers submit only one bid; they cannot know the other bids.
A) Descending bid auctions
B) Sealed-bid auctions
C) English auctions
D) Dutch auctions
E) Reverse auctions
37) In which of the following forms of countertrade do buyers and sellers directly exchange
goods, when no money and no third party is involved?
A) buyback arrangements
B) offsets
C) barter
D) sealed bids
E) compensation deals
38) A Japanese firm is ready to sell its recent technological innovation to the U.S. government.
But it has asked for 80 percent in cash and the rest in mica. The Japanese firm is looking to enter
into a(n) ________ with the U.S. government.
A) functional discount
B) compensation deal
C) buyback arrangement
D) offset agreement
E) barter deal
39) Armac Ltd. is a sluice-box manufacturer based in China. A sluice-box is used for gold
prospecting. Armac is interested in selling a few of its machines to an American mining
company, but it wants 95 percent of the machines’ price in gold and the rest in ores recovered by
using the machines. This is an example of a ________.
A) buyback arrangement
B) functional discount
C) barter deal
D) compensation deal
E) sealed bid
40) ROC Engineering, a Chinese shipbuilding company, agrees to build a fleet of submarines for
the Sri Lankan navy, for which it will be paid in the local Sri Lankan currency. As per the
agreement, ROC must also spend a substantial amount of the money it generates through this
deal within the country. In accordance with the contract, ROC buys Sri Lankan tea at a reduced
rate. This is an example of which of the following forms of countertrade?
A) descending bid
B) offset
C) barter
D) compensation deal
E) buyback arrangement