Marketing Management, 15e (Kotler)
Chapter 16 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) ________ price refers to what the consumers feel the product should cost.
A) Fair
B) Typical
C) Usual discounted
D) List
E) Maximum retail
3) While shopping at the mall, Jane was asked by one of the sales representatives at the
cosmetics counter to try out a new lipstick that her company was test marketing. The company
representative asks her how much she would be willing to pay for the lipstick. After trying it out,
Jane is of the opinion that $5 is just the right price for it. What type of a reference price is Jane
using?
A) usual discounted price
B) fair price
C) maximum retail price
D) last price paid
E) historical competitor price
4) The reservation price, the maximum that most consumers will pay for a given product, is
known as the ________ price.
A) expected future
B) usual discounted
C) upper-bound
D) typical
E) historical competitor
5) Which of the following is NOT one of the possible consumer reference prices?
A) typical price
B) actual future price
C) last price paid
D) expected future price
E) upper-bound price
6) A company decided to conduct a market survey for its new MP3 player that the company had
priced at $150. In the survey, 95 percent of participants said that the maximum they would pay
for the MP3 player is $100. This is an example of which of the following possible consumer
reference prices?
A) historical competitor price
B) expected future price
C) usual discounted price
D) upper-bound price
E) last price paid
7) The minimum price that most consumers would pay for a given product is known as the
________ price.
A) everyday low
B) usual discounted
C) fair
D) typical
E) lower-bound
8) A company has developed the prototype of a mobile phone that it plans to launch in the next
few months. The phone comes equipped with the most advanced technological features. As part
of its test marketing efforts, the company allows customers to examine and use the prototype and
also gathers feedback regarding product features and price. The results of this test marketing
effort show that customers are willing to pay at least $500, considering the phone’s various
features. As such, the company has discovered customers’ ________.
A) last paid price
B) expected future price
C) lower-bound price
D) upper-bound price
E) typical price
9) 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 pricing is the company
depending on?
A) going-rate pricing
B) image pricing
C) market-skimming pricing
D) target pricing
E) markup pricing
10) Pricing cues such as sale signs and prices that end in 9 are more influential when ________.
A) customers have substantial knowledge about prices
B) customers purchase the particular item regularly
C) product quality is standardized
D) product designs vary over time
E) prices do not vary from time to time
11) Price is one of the two elements of the marketing mix that produces revenue.
12) Traditionally, price was never a major determinant of buyer choice.
13) Today, consumers are price takers and accept prices at face value or as given.
14) Pricing cues such as sale signs and prices that end in 9 are more influential when consumers
are experienced in the category.
15) Customers usually have a lower price threshold below which prices signal inferior or
unacceptable quality, as well as an upper price threshold above which prices are prohibitive and
the product appears not worth the money.
16) Although consumers may have fairly good knowledge of the range of prices involved, very
few can accurately recall specific prices of products.
17) When examining products, consumers compare an observed price to an internal reference
price they remember or an external frame of reference.
18) Many consumers use price as an indicator of quality and value.
19) What are the different possible consumer reference prices?
20) When Abe goes shopping, he comes across a T-shirt that is priced at $35. Although he wants
to buy it, judging from the material used, he feels that the T-shirt should only cost $20. What
reference price is Abe using here?
21) NV Inc. has launched a touch sensitive handset in the Indian market and priced the same at
INR 9500. Although many people are checking it out and showing interest about purchasing it,
the majority of them are holding themselves back because they feel that it is not worth INR 9500.
They compare the handset’s feature with that of its other competitors offering the same features
and come to a conclusion that it is worth INR 8500 and nothing more than that. What kind of a
reference price are the consumers using?
22) When Yolanda went shopping, she paid a lot to buy a jacket that had a well-known
designer’s tag attached to it. After a few days, she came across a jacket which was
undistinguishable from the one she had bought but was priced 5 times lesser than the earlier one.
She didn’t give this a second thought because she was convinced that the designer label she had
bought was worth it. What can be deduced from this?
23) 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
24) 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.
25) A firm that is plagued with overcapacity, intense competition, or changing consumer desires
would do better if it pursues ________ as its major objective.
A) market skimming
B) product-quality leadership
C) survival
D) profit maximization
E) market penetration
26) 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 market share
B) skim the market
C) become a product-quality leader
D) survive in the market
E) maximize current profit
27) Companies who believe that 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
28) 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
29) A market-penetration pricing strategy is most suitable when ________.
A) a low price slows down market growth
B) production and distribution costs fall with accumulated production experience
C) a high price dissuades potential competitors from entering the market
D) the market is characterized by inelastic demand
E) a low price encourages actual competition
30) When a company introduces a product at a 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
31) 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 had 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
32) Market skimming pricing makes sense under all the following conditions, EXCEPT if
________.
A) a sufficient number of buyers have a high current demand
B) the unit costs of producing a small volume are high enough to cancel the advantage of
charging what the traffic will bear
C) the high initial price does not attract more competitors to the market
D) consumers are likely to delay buying the product until its price drops
E) the high price communicates the image of a superior product
33) 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
34) 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
35) The first step in estimating demand is to ________.
A) analyze competitors’ cost
B) select a pricing method
C) understand what affects price sensitivity
D) calculate fixed costs
E) decipher the experience curve
36) 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
37) 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
38) 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
39) If demand changes considerably, with a small change in price, the demand is said to be
________.
A) unit elastic
B) elastic
C) inelastic
D) marginal
E) strained
40) If consumers were largely indifferent to a $0.05 increase in the price of a gallon of milk, the
price rise is said to fall within customers’ ________.
A) price indifference band
B) experience curve
C) arm’s-length price
D) learning curve
E) net price index
41) JJ pays overhead each month, including his company’s bills for rent, heat, interest, and
salaries, which are examples of ________ costs.
A) total
B) average
C) activity-based
D) variable
E) fixed
42) Which of the following is true regarding price elasticity?
A) The higher the elasticity, the lesser is the volume growth resulting from a 1 percent price
reduction.
B) Within the price indifference band, price changes have little or no effect on demand.
C) If demand is elastic, sellers will consider increasing the price.
D) Price elasticity does not depend on magnitude and direction of the contemplated price change.
E) When demand is inelastic, sellers should lower prices in order to increase total revenue.
43) Costs that do not vary with production levels or sales revenue are known as ________ costs.
A) overhead
B) variable
C) average
D) opportunity
E) total
44) Costs that differ directly with the level of production are known as ________ costs.
A) fixed
B) overhead
C) opportunity
D) target
E) variable
45) When ConAgra foods decided to cut $250 million in costs to return to a $1 price point (after
sales dropped as a result of raising prices $0.25 to cover higher commodity costs), it was using
________.
A) target costing
B) experience-curve pricing
C) ceiling pricing
D) the learning curve
E) promotional price elasticities
46) ________ cost is the cost per unit at that level of production; it equals total costs divided by
production.
A) Target
B) Average
C) Marginal
D) Opportunity
E) Fixed
47) 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
48) 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
49) 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
50) Competitors are most likely to react to a price change when ________.
A) the firm has a weak value proposition
B) the firm enjoys a monopoly
C) there are few competing firms
D) the product is heterogeneous
E) buyers have limited information
51) 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
52) 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.
53) 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) $18.10
B) $18.23
C) $20.25
D) $20.70
E) $25.50
54) An umbrella manufacturing company’s fixed costs are $275,000. The variable cost per unit is
$5 and each umbrella is sold at $10. How many units should the firm sell in order to break even?
A) 1,819
B) 5,500
C) 18,000
D) 27,500
E) 55,000
55) ________ 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
56) 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
57) ________ 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
58) A retailer who utilizes a(n) ________ policy charges a constant low price with little or no
price promotions and special sales.
A) everyday low pricing
B) high-low pricing
C) low cost
D) going-rate pricing
E) auction-type pricing
59) Matt’s retail store offers all products at $2 less than its competitors. The store never runs
promotional campaigns or offers special discounts. Matt’s retail store is following a(n) ________
pricing policy.
A) auction-type
B) target-plus
C) everyday low
D) high-low
E) going-rate
60) Everyday 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
61) In ________ pricing, the firm bases its price largely on competitor’s prices.
A) going-rate
B) auction-type
C) markup
D) target-return
E) perceived-value
62) Which of the following auctions is characterized by one seller and many buyers?
A) Walrasian auctions
B) ascending bid auctions
C) closed auctions
D) sealed-bid auctions
E) reverse auctions
63) 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
64) 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
65) ________ auctions let would-be suppliers submit only one bid; they cannot know the other
bids.
A) Descending bid
B) Sealed-bid
C) English
D) Dutch
E) Reverse
66) Companies strive to maximize their current profits if they are plagued with overcapacity,
intense competition, or changing consumer wants.
67) In reality, it is very easy for firms to estimate their demand and cost functions.
68) When Sony introduced the first high-definition television to the Japanese market in 1990, it
was priced at $43,000, which is an example of partial-cost recovery pricing.
69) If firms wish to maximize their market share, they should opt for market-skimming pricing.
70) In the case of prestige goods, the demand curve sometimes slopes upward.
71) Companies prefer customers who are less price sensitive.
72) A marketer who has unit costs of $16 and wants to earn a 20 percent markup on sales would
charge a markup price of $20.
73) Caterpillar uses target-return pricing to set prices on its construction equipment, and justifies
a higher price by showing lower lifetime operating costs.
74) Price elasticity depends upon the magnitude and direction of the contemplated price change.
75) When a product is more distinctive, it leads to less price sensitivity.
76) Total costs consist of the sum of the fixed and the variable costs for any given level of
production.
77) In target-return pricing, the firm adds a standard markup to the product’s cost.
78) One of the weaknesses of using surveys to estimate the demand curve is that consumers
exaggerate their willingness to pay for new products and services.
79) Value pricing requires a company to reengineer its operations to become a low-cost
producer.
80) Price elasticity magnitudes are lower for durable goods than for other goods.
81) In high-low pricing, retailers charge low prices on an everyday basis with occasional price
increases.
82) The US government often uses Dutch auctions to procure supplies.
83) If a calculator company produces 100,000 hand calculators at a cost of $10, but the cost
drops to $9 when it produces 200,000 and $8 when it produces 400,000 hand calculators, the
decline in average cost with accumulated product experience is called the price elasticity of
demand.
84) Briefly describe the different types of pricing objectives.