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c. People won’t be able to find a close substitute to your apartments, so they’ll have to absorb the price
increase when you implement it.
d. Housing is perceived as a necessity, so a change in price will have relatively little effect on demand.
Raising the rent will have no repercussions.
102. The Noble GM car dealership has been in your family for three generations. Your biggest competitor is the
massive Royal Honda/Toyota/Kia/Mazda dealership across town. For each of the past eight weeks, you’ve
noticed that the team at Royal has been advertising a couple of brand-new vehicles for about half of their retail
sticker prices, a tactic that’s attracting all of your potential customers to Royal. What can you do about it?
a. Match their prices, even though you can’t afford to lose this much money on even a few vehicles each
week
b. Report Royal to the state since their loss-leader pricing tactic may be violating the state’s unfair trade
laws
c. Counter their pricing tactic by competing on other elements in the marketing mix, such as customer
service
d. Report Royal to the state since their price discrimination tactic may be violating federal fair trade laws
103. Which of the following is true of promotional pricing?
a. It promotes goods and services at specific price ranges based on the belief that certain prices are more
appealing to consumers.
b. It uses lower-than-normal price as a temporary component in the selling strategy.
c. It sets a high price for products that offer unique potential ability.
d. It uses extensive promotional allowances to get channel members to promote the product.
104. You’re the marketing manager for Streamline Technology, a company that makes ergonomically designed
home office equipment. Six months ago, your firm introduced a new paper shredder that was faster, easier, and
more comfortable to use. You priced the paper shredder at $350, which is double and even triple some other
models, to reflect its many superior product features. However, sales have been poor. What is the most likely
explanation for this situation?
a. You underestimated demand for a product like yours.
b. You relied too heavily on in-store promotions and did not create an effective promotional campaign.
c. Consumers do not perceive real value in the extra features of your product and therefore are not willing
to pay a premium price for it.
d. Staples is your primary distribution partner, and you’re competing against the Staples private-label
product.
105. At a meeting with your fellow executives at KFC, you’re discussing introducing a new low-fat grilled
chicken nugget option, which is significantly different from the company’s usual menu items. The CEO wants
to get an accurate sales forecast for the product before giving it the green light. Of the following arguments in
favor of using various techniques, which one makes the most sense to you?
a. Alex suggests surveying potential buyers since the company has access to so many consumers.
b. Bruce points out that using data from other similar products to conduct a trend analysis would be the
least expensive choice.
c. Taylor recommends getting sales forecasts from store managers, a form of sales force composite, since
they’re so familiar with KFC customer preferences.
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d. Anya claims that test marketing in a few select cities will provide the most realistic information on
actual purchases.
106. The owner of BargainSmartphones.com is determined to drive competitors such as CheapPhones.com out
of business. He has plenty of money to invest in building his business, so he has instructed his marketing
manager to slash prices by 25% to 50% on nearly every product until there aren’t any other online cell phone
retailers left. Which of the following statements is true about this situation?
a. This business owner is probably guilty of tax evasion.
b. This business owner could be using illegal loss-leader pricing tactics.
c. This business owner is most likely guilty of price discrimination.
d. This business owner is probably violating the Robinson–Patman Act.
107. As the marketing director for a chain of mid-priced hotels, you’ve been directly involved in the
development of a new hotel in the organization. This new Boston location will be quite different, with more
amenities, better furnishings, and bigger rooms. Your boss, the CEO, has asked you to review several different
pricing options and pick the one that sends a clear message to consumers. Which one do you choose?
a. A skimming strategy to communicate the prestigious, high-end image of the hotel
b. A penetration strategy to convince consumers to try the new hotel
c. A competitive strategy that is comparable to similar high-end hotels in the area
d. A penetration strategy to attract attention, followed by a competitive strategy with comparable hotels
108. As the chief marketing officer for one of the most successful candy manufacturers in the country, you know
how important Valentine’s Day sales are to your organization. You are somewhat concerned about next year’s
sales, however, because one of your major competitors launched a new candy last year that’s been tremendously
popular, and you suspect they’re going to roll out a bite-size version just in time for this candy lover‘s holiday. Is
trend analysis still a good technique for you to use in forecasting sales for next year?
a. Yes, because at this point there’s no reason to assume that next year’s sales will be affected by the
competition.
b. Yes, but you should be prepared for your forecast to be inaccurate because a major change in the
marketplace could occur.
c. No, because it’s a given that your competitor is going to take a huge bite out of your sales, making it
impossible to accurately forecast using trend analysis.
d. No, because this has always been a deeply flawed technique that produces inaccurate results.
109. Your friend Claire has just shared that she dreams of owning a world-famous Hermes Birkin handbag
someday. When you inform her that there is a waiting list for these exclusive handbags, which usually sell for
$12,000 and up, she says she’s waiting for them to go on sale. What do you know about pricing that would
influence how you respond?
a. High-end, exclusive brands are always expensive, even when they’re on sale, so you would discourage
her from spending that much money on a handbag.
b. The high price of this product indicates exceptional quality and prestige, so you would encourage Claire
to pay full price for the handbag.
c. Prices usually drop when demand drops, so you should encourage Claire to wait for those conditions.
d. Manufacturers of high-end, exclusive brands usually do not allow discounting to protect the prestige of
the brand, so you should tell Claire that she probably won’t ever see a sale.
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110. The practice of marketing merchandise at a limited number of prices is called _____ pricing.
a. product-line
b. odd
c. one-price
d. unit
111. Consumers today perceive that, within price limits, there is:
a. a need for discounts and incentives.
b. obvious opportunity for psychological pricing.
c. a direct relationship between the quality and price of a product.
d. no perceivable difference in major product brands.
112. At Brody’s Department Store, you’re in charge of buying women’s clothing. You’ve noticed a lot of berry-,
wine-, and rose-colored items available from several different manufacturers and you’re thinking about making
these colors the theme for next season’s offerings. Would using a jury of executive opinion be a good way to
gather some quick feedback on the sales prospects for your idea?
a. No, the jury of executive opinion approach relies on the opinions of administrators, who don’t know
anything about fashion.
b. Yes, it would be good to have backup in case your idea fails and you need to share the blame.
c. No, other people within the store do not share your same insights, expertise, and sensibilities so their
opinions are not helpful.
d. Yes, it would be helpful to know if buyers for menswear, furniture, bedding, and other departments are
seeing the same trends.
113. A _____ pricing strategy helps manufacturers to distinguish their high-end products from similar products
of their competitors.
a. skimming
b. market share
c. competitive
d. penetration
114. A car manufacturer has developed different models of a car to suit the pricing needs of different classes of
customers. It offers a low-end version for price conscious customers and luxury cars for high-end customers.
This is an example of _____ pricing.
a. promotional
b. psychological
c. leader
d. product-line
115. Which of the following statements is true about the forecasting technique known as the “Delphi
Technique”?
a. It is the best technique to use when the organization is seeking to make a technological breakthrough.
b. It involves gathering input from experts outside of the organization, such as academic researchers.
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c. It is a quantitative technique.
d. Although it is very quick to implement, it is generally very expensive.
116. You are a staunch environmentalist. When hybrid vehicles were introduced, the supply was very limited.
Buyers were paying a premium over the listed manufacturer’s suggested retail price (MSRP). At that time, your
budget could not stretch that far, but you still wanted to own a car that does not depend on petroleum products.
By waiting, you find that the automobile dealers have announced that their shipments of new hybrid cars have
increased by 10 percent. Meanwhile, the average price of regular gasoline rose from $3.30 to $3.63 per gallon.
Required:
If the price elasticity of demand for new hybrid cars is 1.25 and for gasoline is 1.0, what was the effect on the
prices of a new hybrid car and on gasoline?
a. The price of the hybrid car fell by 2.5 percent and the price of gasoline increased by 1.1 percent.
b. The price of the hybrid car rose by 12.5 percent and the price of gasoline increased by 11.1 percent.
c. The price of the hybrid car fell by 10 percent as did the price of gasoline.
d. The price of the hybrid car rose by 8 percent, and the price of gasoline increased by 10 percent.
e. The price of the hybrid car fell by 8 percent, and the price of gasoline increased by 10 percent.
117. Many food producers and restaurants believe that the best way to predict sales of a new product is to make
it available to a subset of the people who are most likely to buy it. That’s why General Mills would most likely
use ___ to forecast sales of a new whole grain cereal.
a. a jury of executive opinion
b. test marketing
c. the Delphi Technique
d. trend analysis
118. Oscar Mayer has recently developed a new snack product that’s targeted to kids and young adults as a
healthy, protein-based after-school or pre-dinner snack. They expect the product to complement their
Lunchables product line and appeal to teen-age or college-age consumers who think of Lunchables as just for
younger kids. In order to promote product trial and subsequent adoption, the company plans to use a relatively
low entry price compared to the competition. What type of pricing strategy does Oscar Mayer plan to utilize?
a. Penetration
b. Everyday low pricing
c. Skimming
d. Competitive pricing
119. Long before the invention of iPhones, iPads, and iWatches, Apple was charging a premium for its personal
desktop computers, which performed the same functions as other PC brands. Of the following, which is the least
likely motivation for this pricing strategy?
a. Apple wanted to project a prestigious, exclusive brand image.
b. Apple was able to earn higher gross profit margins on its computers.
c. Apple was comfortable creating a smaller supply for a lower demand.
d. Apple needed to recoup its research and design investments faster.
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120. A manufacturer of tablet computers has designed a unique new product that can network with satellites to
access streaming video and television channels. This device does not need a Wi–Fi connection and can be
accessed anywhere in the world by logging onto the site. Besides serving as a portable computer, this device
bypasses the need for a consumer to purchase cable or personal satellite dish access. Which approach to pricing
makes the most sense for the company to use first?
a. Set the price extremely high until competing products are developed
b. Set the price to match the manufacturing of the device under a private label
c. Set the price extremely low in order to capture more of the current market share
d. Set the price to match other computer and television devices sold by competitors
e. Set the price extremely low in order for consumers to purchase it without needing a coupon
121. Charged with preventing anticompetitive, deceptive, or unfair business practices, the ______ oversees
enforcement of more than 70 laws, many of which influence pricing practices.
a. Fair Packaging and Labeling Commission
b. Federal Trade Commission
c. Fair Trade Bureau
d. Federal Trade & Commerce Administration
122. Personal training is your life, but you haven’t increased your hourly rate since you started six years ago.
You’re still charging $50 an hour, when you really should be charging $80, given the excellent results you get.
Based on what you know about the various factors that influence elasticity of demand, you:
a. decide people think of your services as a necessity, which means that demand is fairly inelastic and it
would be safe to increase your rate to $65 an hour.
b. decide people think of your services as a luxury, which means that demand is elastic and you can only
raise your rate to $55 an hour.
c. aren’t sure how elastic demand is, which means it would be best to raise your prices incrementally over
the next year.
d. realize that elasticity is irrelevant, and that people will agree you’re worth the $80 an hour.
123. You are a sales representative for Caterpillar, Inc. You’ve got two customers who both want to purchase
hydraulic shovels, which weigh in at just over 1,000 tons. One of these customers is located in Houston, Texas,
not far from the manufacturing plant where the shovels will be made. The other is located in Rockport, Maine.
What does the Robinson–Patman Act dictate about the prices you can ask for these two hydraulic shovels?
a. You are allowed to charge the Maine-based company more due to the higher cost of delivering the
1,000-ton shovel to its location.
b. You must charge the Texas-based company more because you are manufacturing and delivering the
product within the same state.
c. You must charge the Maine-based company an additional tax due to interstate transportation.
d. It would be illegal price discrimination to charge either company more or less than the other.
124. Retailers such as Home Depot and Lowe’s, who offer to meet and beat the best price offered by their
competitors, use the strategy of _____ pricing.
a. skimming
b. penetration
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c. competitive
d. cost-plus
125. That guy! Your brother-in-law is finally fulfilling his dream – opening Giordini’s Italiano Ristorante – and
he’s put you in charge of marketing. He says he wants to use something called penetration pricing to launch his
business. Of all the penetration pricing ideas you come up with, which one are you least likely to use?
a. Pricing entrees exactly the same as the other two Italian restaurants in town
b. Inserting two-for-one dinner coupons in a local mailer
c. Offering a 50% discount off the first pizza when you set up an online account
d. Creating a local radio commercial advertising free desserts for first-time visitors
126. The company you work for as a marketing director makes smartphones. About a year ago, the company’s
design team rolled out a new model that was comparable in every way to other brands retailing for $300 to
$400, except that the phone could be manufactured for far less money. You decided to use a penetration strategy
and set a retail price of $199, but sales have fallen well below your forecast. What is the most likely explanation
for the shortfall?
a. There must be a problem in your distribution channel, and retailers are not promoting your product as
much as they promote other brands.
b. Consumers in the market for a smartphone in the $300 to $400 range do not perceive your smartphone
as having the same kind of quality and durability as other similar brands.
c. Your forecasting must have been extremely inaccurate and did not account for changes in the
marketplace.
d. Your advertising campaign is not resonating with consumers.
127. Since it involves the use of a high price relative to prices of competing products or services, the skimming
pricing strategy is sometimes referred to as _____ pricing.
a. penetration
b. competitive
c. market-plus
d. functional
128. A pricing policy that assumes that some prices are more appealing than others is known as _____ pricing.
a. leader
b. product-line
c. psychological
d. prestige
129. A newly opened seafood restaurant advertises various deals on meal packages and special prices on dinner
packages to attract customers. This is an example of _____ pricing.
a. leader
b. promotional
c. competitive
d. list
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130. When you launched ImagineIt five years ago, you knew your revolutionary mini 3D printers would be
wildly popular with home users, so a skimming pricing strategy was the obvious choice. Since then, a couple of
competitors have entered the market, and supply has pretty much caught up with demand. Where do you go
from here?
a. Add more bells and whistles to your printers so you can continue to justify the higher prices
b. Maintain your pricing strategy, which has been very successful
c. Switch to a penetration pricing strategy to undercut your competitors
d. Lower your prices to be competitive with others on the market
131. Thanks to a couple of high-profile celebrities wearing your company’s products at highly publicized events,
your exclusive, high-end, faux-fur coats are taking off! Fashion-forward consumers want your coats, and they’re
willing to pay top dollar for them. Now Nordstrom, the higher-end department store chain, wants to distribute
your faux-fur coats. How do you respond to Nordstrom in a way that protects your brand’s prestige?
a. You decline Nordstrom’s offer and pursue other distribution channels, such as small boutiques.
b. You accept Nordstrom’s offer, but only on a six-month trial basis.
c. You accept Nordstrom’s offer, but only on the condition that the store never discounts your product.
d. You accept Nordstrom’s offer without any hesitations.
132. A demand is said to be inelastic when the:
a. demand curve and the supply curve do not intersect.
b. total cost and total revenue are equal at all levels of demand.
c. elasticity of demand is less than 1.
d. elasticity of demand is greater than 1.
133. As the marketing director for a company that produces home office equipment, you’ve been asked to weigh
in on a suggested price for the company’s new all-in-one printer. Similar products retail for $200 to $600, with
most of them falling in the $350 to $400 range. You’d like to position your company’s product where there is
less competition, so you suggest pricing yours:
a. at $150 because the higher the price, the more likely you are to have to discount the product later on.
b. at $150 because the lower the price, the less supply already on the market.
c. at $200 because the lower the price, the higher the sales volume and the greater the profits.
d. at $250 because the lower the price, the more likely you’ll be to hit market equilibrium.
134. A skimming pricing strategy is more commonly used by firms to:
a. reduce the raised prices of products to the original level.
b. set a market-entry price for distinctive goods or services with little or no initial competition.
c. set a relatively low price for a product when they enter new markets characterized by dozens of
competing brands.
d. set stable wholesale prices that undercut offers competitors make to retailers.
135. Neither Logan Home Builders nor any other developers in your region has ever built a housing
development this nice! These homes are quite large on expansive lots with plenty of high-end detailing. As
Logan’s marketing director, you want to add an air of prestige and exclusivity to your marketing plans for the
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development. You’ve already established that you’ll use a skimming pricing strategy to start, so which pricing
tactic makes the most sense to use?
a. An advertising campaign that plays up the development’s luxurious quality and high prices
b. A promotional campaign that emphasizes a tiered approach with homes in three different price ranges
c. Advertisements for three particular homes in the development that are designated to be sold at
significantly lower prices
d. Signage that notes home prices starting at $499,999
136. Psychological pricing is based on the premise that:
a. certain prices or price ranges make products more appealing to buyers than others.
b. one-price policies appeal to most people and suit mass-marketing programs.
c. setting a limited number of prices for a selection of merchandise has a certain appeal.
d. lower-than-normal prices as part of recurring marketing initiatives creates demand.
137. Your invention is a hit! Your investment in TV informercials has really paid off, and you’ve already
ordered another 10,000 units to be manufactured. What do you anticipate will happen next?
a. Your supply will exceed your demand, and you’ll be forced to lower your price.
b. Demand will skyrocket, allowing you to increase your price.
c. Supply will increase due to copycat products appearing on the market.
d. Your supply will temporarily equal your demand, allowing you to identify the perfect price point.
138. As the marketing manager for Learning4Fun.com, you know you’re going to be competing against other,
well-established online educators when you initially launch your library of educational videos. Given that you’ll
be using a penetration pricing strategy, which pricing tactic seems like the best fit for you?
a. Offering a subscription rate of $19.99 a month
b. Setting two tiers of pricing: $18 a month for those who use the service less than 10 hours a month, and
$24 for those who use the service more than 10 hours a month
c. Promising a reduced subscription rate of $21 a month, as opposed to the official rate of $25 a month, to
the first 500 subscribers
d. Clarifying that your $29 monthly rate is based on having the largest educational video collection
Indicate one or more answer choices that best complete the statement or answer the question.
139. Don intends to use promotional pricing as an ongoing part of the marketing strategy for his automotive supply store.
Because you are his friend – and have years of experience in retail marketing – you feel obligated to tell Don that he
should rethink this plan. What point(s) do you make?
a. Overuse of promotional pricing can get customers hooked on lower-than-normal prices.
b. Promotional pricing will require Don to use popular products like motor oil as loss leaders.
c. Promotional pricing only works when implemented together with psychological pricing techniques.
d. Promotional pricing is seldom used by retailers.
140. Jim plans to rent a car during an upcoming business trip to Dallas. He expects to pay a rental rate similar to what he
was charged last year in the same city. However, he could be persuaded to pay more under certain conditions. Which of
the following conditions might influence Jim to pay more?
a. He is not required to fill the gas tank before returning the car.
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b. He is offered a Range Rover or other top quality car at only a small premium.
c. He is offered the same car he drove last year.
d. He is offered the option of paying in installments.
141. Explain psychological pricing and give three examples of this concept.
142. Choose any product or service you’re familiar with, and determine which one of the six sales forecasting
techniques would be best suited to forecasting demand for your product or service. Explain why you’ve selected
the technique, and briefly describe how you would implement it.
143. What is market-plus pricing? Why do companies practice a skimming strategy?
144. What are the problems associated with product-line pricing?
145. Compare and contrast the three pricing strategies: skimming, penetration, and competitive. How does each
strategy help an organization achieve certain objectives?
146. Explain the concept of elasticity of demand.
147. Discuss the relationship between price and consumer perceptions of quality.
148. Identify and briefly describe two legal constraints placed on pricing.
149. Define the terms supply and demand. Then, choose any product or service and describe what you have
observed about supply and demand for this product. Specifically, does supply exceed demand or vice versa, and
how have you arrived at this conclusion?
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Answer Key
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