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CHAPTER 21
Setting Prices
1. Describe the six steps of the process that marketers can use to establish prices.
AACSB: Communication CBE: Model Pricing Difficulty level: Moderate Page: 628
Type: Knowledge
2. What are some of the objectives a firm might hope to achieve when setting prices?
AACSB: Analytic CBE: Model Pricing Difficulty level: Moderate Page: 628
Type: Knowledge
3. How are pricing objectives similar to a corporation's overall goals? How are they different?
AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate Page: 628
Type: Knowledge
4. How can a marketer use product quality as a pricing objective to influence purchasing decisions?
AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Difficult Page: 630
Type: Knowledge
5. How might a marketer find information about a competitor's prices? Why is this information important?
AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Moderate Page: 631
Type: Knowledge
7. Describe, compare, and contrast the three major bases for setting prices.
AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate Page: 633-
636 Type: Knowledge
8. Explain differential pricing and then describe the four major types.
AACSB: Communication CBE: Model Pricing Difficulty level: Easy Page: 636
Type: Knowledge
12. What is bundle pricing? Give three examples, each one from a different industry.
AACSB: Communication CBE: Model Pricing Difficulty level: Moderate Page: 641
Type: Knowledge
14. Under what conditions would a marketer most likely use a price leader strategy?
AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate Page: 644
Type: Knowledge
15. What are some issues to consider when determining a specific price?
AACSB: Communication CBE: Model Pricing Difficulty level: Moderate Page: 645
Type: Knowledge
17. Marketers must take steps to make sure that the pricing objectives they set are consistent with the
organization's ___________ objectives and ___________ objectives.
a) advertising; marketing
b) overall; marketing
c) marketing; promotional
d) overall; promotional
e) overall; revenue
Ans: b AACSB: Analytic CBE: Model Pricing Difficulty level: Moderate Page: 628
Type: Knowledge
18. If Wrigley set its pricing objective as attaining 38 percent of the chewing gum market, what else would be
needed to make this a true pricing objective?
a) Statement of demand elasticities
b) Identification of cost structure
c) Breakeven analysis
d) Identification of a time period for accomplishment
e) Establishment of a subsequent pricing policy
Ans: d AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Difficult
Page: 628 Type: Application
20. When a company adjusts price levels so that it can increase sales volume to levels that match the
organization's expenses, it is said to employ a _________ objective.
a) market share
b) cash flow
c) return on investment
d) survival
e) profit
Ans: d AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Easy Page: 629
Type: Knowledge
21. Running a big sale in order to generate enough cash flow to pay creditors is typical in a situation in which a
firm’s primary pricing objective is
a) status quo.
b) profit.
c) survival.
d) market share.
e) recovery.
Ans: c AACSB: Analytic CBE: Model Pricing Difficulty level: Difficult Page: 629
Type: Comprehensive
22. Westin Inc. has an objective of achieving a 25 percent return from its overall sales. This is an example of a
______ pricing objective.
a) market share
b) cash flow
c) return on investment
d) profit
e) status quo
Ans: d AACSB: Analytic CBE: Model Pricing Difficulty level: Moderate Page: 629
Type: Application
23. Most pricing objectives based on ___________ are achieved by trial and error because not all cost and
revenue data are available when prices are set.
a) market share
b) cash flow
c) return on investment
d) survival
e) profit
Ans: c AACSB: Analytic CBE: Model Pricing Difficulty level: Difficult Page: 629
Type: Knowledge
25. If Nabisco had established a pricing objective of selling one out of every three crackers consumed in the
world, it would have established an objective based on
a) cash flow.
b) market share.
c) survival.
d) return on investment.
e) dollar sales volume.
Ans: b AACSB: Analytic CBE: Model Pricing Difficulty level: Easy Page: 629
Type: Application
27. A firm establishes which of the following pricing objectives to maintain or increase its product's sales in
relation to total industry sales?
a) Cash flow
b) Sales potential
c) Product quality
d) Market share
e) Status quo
Ans: d AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Easy Page: 629
Type: Knowledge
28. Which of the following pricing objectives sets prices to recover cash as quickly as possible?
a) Market share
b) Profit
c) Cash flow
d) Return on investment
e) Product quality
Ans: c AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Difficult
Page: 630 Type: Knowledge
29. A marketer is most likely to set prices according to a cash-flow objective when a
a) trial-and-error approach to the market is acceptable.
b) certain market share must be maintained.
c) quick return on investment is desired.
d) higher price is acceptable to the firm.
e) product is expected to have a long life cycle.
Ans: c AACSB: Analytic CBE: Model Pricing Difficulty level: Moderate Page: 629
Type: Knowledge
30. Gambrell Designs thinks its new product, the Automatic Dog Walker, will have a short product life cycle;
therefore, its marketing department sets its primary pricing objective as
a) market share.
b) cash flow.
c) profit.
d) product quality.
e) status quo.
Ans: b AACSB: Analytic CBE: Model Pricing Difficulty level: Difficult Page: 630
Type: Application
31. Maintaining a certain market share, meeting competitors' prices, maintaining a favorable image, and
achieving price stability are all associated with a _____ pricing objective.
a) product quality
b) market share
c) survival
d) profit
e) status quo
Ans: e AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Moderate
Page: 630 Type: Knowledge
32. Which pricing objective de-emphasizes price and can lead to a climate of nonprice competition in an
industry?
a) Status quo
b) Return on investment
c) Market share
d) Survival
e) Cash flow
Ans: a AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Difficult
Page: 630 Type: Comprehensive
33. What type of pricing objective would an organization use if it were in a favorable position and desired
nothing more?
a) Return on investment
b) Cash flow
c) Profit
d) Status quo
e) Survival
Ans: d AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Moderate
Page: 630 Type: Knowledge
34. Which type of pricing objective can reduce a firm's risk by helping to stabilize demand for its products?
a) Status quo
b) Market share
c) Survival
d) Cash flow
e) Return on investment
Ans: a AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Moderate Page: 630 Type: Knowledge
35. If an organization sets prices to recover research and development expenses and establish a premium quality
image for its product, it would be using a _________ pricing objective.
a) survival
b) return on investment
c) market share
d) product quality
e) cash flow
Ans: d AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 630 Type: Knowledge
36. The pricing of Clinique makeup considerably higher than brands such as Cover Girl, Revlon, and
Maybelline is used to communicate ______, which is the company's primary pricing objective.
a) market share
b) product quality
c) status quo
d) profitability
e) cash flow
Ans: b AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 630 Type: Application
37. Research indicates that both market share and ___________ are good indicators of profitability.
a) low pricing
b) product quality
c) limited competition
d) sales growth
e) ROI pricing
Ans: b AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Moderate Page: 630 Type: Comprehensive
38. When consumers are making do with less expensive products and shopping more selectively, manufacturers
and retailers must focus on the ___________ of their products.
a) price
b) quality
c) availability
d) value
e) image
Ans: d AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Moderate Page: 630-631 Type: Knowledge
43. Competitors' prices, along with the marketing variables they emphasize, are determining factors in
a) the instability of prices in a particular industry.
b) using markup pricing for consumer goods.
c) how much marketing research a firm needs to collect.
d) using differential pricing to demonstrate quality differences.
e) how important price will be to customers.
Ans: e AACSB: Analytic CBE: Model Pricing Difficulty level: Moderate Page: 631-632
Type: Knowledge
44. Companies that focus on particular product categories and rely on everyday low pricing to acquire a large
market share through aggressive and competitive pricing strategies are often referred to as
a) pioneers.
b) category killers.
c) comparison discounters.
d) price leaders.
e) category leaders.
Ans: b AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Moderate
Page: 631-632 Type: Knowledge
46. When a seller's costs are usually determined during or after a product is made and then a specified
percentage or dollar amount is added to the cost to establish a price, an organization is using _____ pricing.
a) markup
b) demand-based
c) differential
d) cost-plus
e) expensed-based
Ans: d AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Moderate
Page: 633 Type: Knowledge
47. For custom-made equipment or commercial construction projects, which pricing method is most likely
used?
a) Prestige
b) Premium
c) Differential
d) Return-on-investment
e) Cost-plus
Ans: e AACSB: Analytic CBE: Model Pricing Difficulty level: Difficult Page: 633
Type: Comprehensive
48. Steinway produces concert grand pianos, often using the custom materials and designs desired by a specific
customer. The average price of these pianos runs about $50,000 depending on the exact piano. What type of
pricing does Steinway most likely use for these pianos?
a) Markup
b) Competition-based
c) Cost-plus
d) Demand-based
e) Secondary-market
Ans: c AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Difficult
Page: 633 Type: Application
49. The federal government often uses _____ pricing when it grants defense contracts.
a) markup
b) differential
c) breakeven
d) cost-plus
e) competition-based
Ans: d AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Moderate Page: 633 Type: Knowledge
53. When determining markup as a percentage of cost, divide the markup amount by
a) price.
b) cost.
c) quantity.
d) revenue.
e) 100.
Ans: b AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Difficult
Page: 633 Type: Knowledge
54. A retailer of Real Dry deodorant prices it at $2.00; it costs the retailer $1.40. What is the approximate
markup as a percentage of selling price?
a) 3 percent
b) 14.3 percent
c) 30 percent
d) 70 percent
e) 20 percent
Ans: c AACSB: Analytic CBE: Model Pricing Difficulty level: Difficult Page: 633
Type: Application
55. J.C. Penney's pays $16.50 for a six-ounce bottle of cologne and sells it for $25.95. Its markup as a
percentage of cost is approximately ___________ percent for this product.
a) 64
b) 36
c) 18
d) 57
e) 45
Ans: d AACSB: Analytic CBE: Model Pricing Difficulty level: Difficult Page: 633
Type: Application
56. If a product is priced based on how many or how few people want it at a particular time and place, ______
pricing is being used.
a) markup
b) demand-based
c) competitive
d) peak
e) differential
Ans: b AACSB: Analytic CBE: Model Pricing Difficulty level: Moderate Page: 634
Type: Knowledge
57. Amtrak prices its tickets so that it is less expensive to travel on weekends than during the week when there
is heavy business travel. This illustrates ___________ pricing.
a) cost-plus
b) demand-based
c) competitive
d) secondary markup
e) seasonal
Ans: b AACSB: Analytic CBE: Model Pricing Difficulty level: Easy Page: 634
Type: Application
58. During July and August, Lakewood Links Golf Course, located in South Carolina, offers weekday rates of
$13 for a round of golf with a cart. During the rest of the year, the weekday rates are between $25 and $35.
This is an example of the use of
a) differential pricing.
b) incentives.
c) competition-based pricing.
d) demand-based pricing.
e) random discounting.
Ans: d AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Difficult
Page: 634 Type: Application
59. If General Motors determines that it wants to sell 200,000 Chevrolet Acadias and sets the price at $29,500
because it knows that at that price it will reach that goal, the firm would be using a ___________ pricing
method.
a) cost-plus
b) competition-based
c) psychological
d) comparison
e) demand-based
Ans: e AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Moderate
Page: 634 Type: Application
61. When products in an industry are relatively homogeneous and price is a key purchase consideration,
a) competition-based pricing becomes more important.
b) demand-based pricing dominates pricing decisions.
c) firms tend to use secondary-market pricing.
d) cost-based methods like markup pricing are dominant.
e) customary pricing is often used.
Ans: a AACSB: Analytic CBE: Model Pricing Difficulty level: Moderate Page: 635
Type: Knowledge
62. If General Mills looks at Kellogg's cereal prices as the primary method of determining its own prices,
General Mills is using
a) price fixing.
b) price discrimination.
c) demand-based pricing.
d) market share pricing.
e) competition-based pricing.
Ans: e AACSB: Analytic CBE: Model Pricing Difficulty level: Easy Page: 635
Type: Application
63. If PepsiCo sets its twelve-pack price at $3.99 to match the price charged by Coca-Cola, Pepsi is using which
of the following pricing methods?
a) Demand-based
b) Cost-based
c) Reference pricing
d) Competition-based
e) Price leader
Ans: d AACSB: Analytic CBE: Model Pricing Difficulty level: Easy Page: 635
Type: Application
64. The fact that senior citizens are charged a lower price at movie theaters than younger adults is an example
of ___________ pricing.
a) price-line
b) promotional
c) professional
d) differential
e) psychological
Ans: d AACSB: Analytic CBE: Model Pricing Difficulty level: Moderate Page: 636
Type: Application
65. Executives in Japan decided to price Lexus luxury cars in the United States at $55,000 while pricing them at
$66,000 in their own country. This is an example of
a) secondary-market pricing.
b) price skimming.
c) bait pricing.
d) prestige pricing.
e) random discounting.
Ans: a AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 637 Type: Application
66. Maria recently put her house on the market at an asking price of $260,000. She realizes, however, that in
order to sell the house, she may have to use
a) secondary-market pricing.
b) reference pricing.
c) negotiated pricing.
d) price lining.
e) professional pricing.
Ans: c AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 637 Type: Application
67. A problem associated with _____ is that consumers can predict when prices will be lowered and delay
purchases until that time.
a) random discounting
b) penetration pricing
c) reference pricing
d) everyday low pricing
e) periodic discounting
Ans: e AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Moderate
Page: 637 Type: Knowledge
68. The “White Sale” that many department stores have every year a few weeks after Christmas is an example
of
a) secondary pricing.
b) off-peak pricing.
c) periodic discounting.
d) random discounting.
e) captive pricing.
Ans: c AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Difficult
Page: 637 Type: Application
69. A manager at JC Penney discovers that Sears has reduced the price of its children's Levi's from $31.99 to
$24.99, according to an advertisement in the Sunday newspaper. She immediately phones her store and
instructs the salesperson on duty to put a sign up next to their children's Levi's that reads, “SALE: $24.99.”
This is an example of what pricing strategy?
a) Secondary-market pricing
b) Bait-pricing
c) Reference pricing
d) Random discounting
e) Comparison discounting
Ans: d AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Difficult
Page: 638 Type: Application
70. If a business decides to reduce its prices once in a while on an unsystematic basis, it is using
a) price reduction planning.
b) random discounting.
c) bait pricing.
d) periodic discounting.
e) penetration pricing.
Ans: b AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Moderate Page: 638 Type: Knowledge
71. A sale that advertised prices “up to 65 percent off” the original price uses
a) tensile pricing.
b) random discounting.
c) periodic discounting.
d) bait pricing.
e) psychological pricing.
Ans: a AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Moderate
Page: 638 Type: Knowledge
72. Price skimming and penetration pricing are both strategies used for
a) product-line pricing.
b) business products only.
c) psychological pricing.
d) new-product pricing.
e) promotional pricing.
Ans: d AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Easy Page: 638
Type: Knowledge
73. When businesses charge the highest possible price that customers who really want the new product will pay,
they are using
a) premium pricing.
b) prestige lining.
c) captive pricing.
d) price skimming.
e) penetration pricing.
Ans: d AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Easy Page: 638 Type: Knowledge
74. If Norelco introduced a new electric razor that sonically removes hair and priced it first at $175 and then at
$150 before reducing the price to $100, the firm's initial pricing strategy is known as
a) penetration pricing.
b) psychological pricing.
c) price lining.
d) price skimming.
e) odd-even pricing.
Ans: d AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 638 Type: Application
75. Sony management decided to use skimming as a pricing strategy for its newest line of high-definition
television (HDTV) sets. It should be aware that this strategy does not
a) generate capital to cover research and development costs.
b) discourage competitors from entering the market.
c) provide flexibility in the introductory base price.
d) protect the firm from covering costs if prices are set too low.
e) reduce the stress that may be placed on the firm's production capabilities.
Ans: b AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 638 Type: Application
76. When Sharp first introduced its line of graphing calculators, it set the price quite high; it has lowered the
price as competitors have entered the market. The pricing strategy initially used by Sharp is called
a) customary pricing.
b) odd-even pricing.
c) penetration pricing.
d) price skimming.
e) prestige pricing.
Ans: d AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Difficult
Page: 638 Type: Application
79. If Nabisco wants to quickly gain a large market share with its new line of reduced-fat snack crackers, it
should use
a) penetration pricing.
b) random discounting.
c) captive pricing.
d) price skimming.
e) everyday low prices.
Ans: a AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Easy
Page: 639 Type: Application
80. The management at Allied Electronics is having difficulty in raising the introductory price on system
components to cover the increased costs of producing the sensing devices for home security systems.
Apparently, Allied used a(n) ___________ strategy in pricing these components.
a) odd-even
b) skimming
c) lining
d) penetration
e) psychological
Ans: d AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Difficult
Page: 639 Type: Application
81. Which of the following would be used in setting the price of a new product if considerable competition is
expected?
a) Psychological pricing
b) Penetration pricing
c) Odd-even pricing
d) Price skimming
e) Prestige pricing
Ans: b AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 639 Type: Comprehensive
82. All of the following are pricing strategies used by companies establishing prices of multiple products within
a product line except
a) premium pricing.
b) price lining.
c) captive pricing.
d) bait pricing.
e) penetration pricing.
Ans: e AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Moderate Page: 639 Type: Knowledge
83. Pricing the basic product in a product line low while pricing related items at a higher level is called
a) premium pricing.
b) bait pricing.
c) captive pricing.
d) price skimming.
e) price lining.
Ans: c AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Moderate Page: 639 Type: Knowledge
84. Lexmark sells some of its color printers for about $100, but the refill cartridges cost over $30 each.
Lexmark's pricing strategy would be best labeled as
a) bait pricing.
b) captive pricing.
c) customary pricing.
d) price lining.
e) complementary pricing.
Ans: b AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 639 Type: Application
85. A product that has more features than those of its competition, or that is perceived to be of higher quality,
warrants using which type of pricing strategy?
a) Custom pricing
b) Special-event pricing
c) Premium pricing
d) Price lining
e) Bait pricing
Ans: c AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 640 Type: Knowledge
86. Breyer's produces a variety of ice cream flavors and lines of varying qualities. The higher quality ice cream
varieties are priced higher than the basic ones. Breyer's is using _____ to price its ice cream.
a) captive pricing
b) price baiting
c) premium pricing
d) bait pricing
e) differential pricing
Ans: c AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 640 Type: Application
87. When a company prices one item in a line low with the intention of selling a higher-priced item in the same
line, it is using
a) bait pricing.
b) a price leader.
c) penetration pricing.
d) price lining.
e) captive pricing.
Ans: a AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Easy Page: 640 Type: Knowledge
88. When Gabriella logs on to Dell's website, she sees a notebook model priced well below $1,000. As she
continues through the site to view the other options, she realizes the first one she saw was the cheapest
model available, but she of course wants more features. Dell is utilizing
a) bait and switch.
b) price lining.
c) captive pricing.
d) penetration pricing.
e) bait pricing.
Ans: e AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Difficult
Page: 640 Type: Application
89. When an organization sets a number of prices for selected groups of merchandise, this is commonly referred
to as
a) prestige pricing.
b) price lining.
c) customary pricing.
d) odd-even pricing.
e) ethical pricing.
Ans: b AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Moderate Page: 640 Type: Knowledge
90. The pricing strategy that assumes that demand is relatively inelastic over certain price ranges is called
a) price lining.
b) odd-even pricing.
c) price skimming.
d) prestige pricing.
e) customary pricing.
Ans: a AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Easy Page: 640 Type: Knowledge
91. When a company attempts to influence a consumer's perception of price to make a product's price more
attractive and reduce “sticker shock,” it is using a ______ pricing strategy.
a) competition-based
b) professional
c) promotional
d) comparison
e) psychological
Ans: e AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Easy
Page: 641 Type: Knowledge
94. A Macy's manager designs the casual clothing department such that one of Macy's private label pairs of
jeans, priced at $24.99, is positioned next to a national brand of jeans, such as Levis, priced at $39.99. What
is the manager attempting to accomplish?
a) Everyday low prices strategy
b) Odd-even pricing strategy
c) Prestige pricing strategy
d) Special-event pricing strategy
e) Reference pricing strategy
Ans: e AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Easy
Page: 641 Type: Application
96. When Mia and Shane are planning their honeymoon, their travel agent tells them that if they buy a special
package, their trip to Paris will include meals, tickets to the theater, and a rental car in addition to airfare
and a hotel. This is an example of the use of
a) multiple-unit pricing.
b) bundle pricing.
c) prestige pricing.
d) price lining.
e) price packaging.
Ans: b AACSB: Analytic CBE: Model Pricing Difficulty level: Easy Page: 641
Type: Application
97. Products such as light bulbs, canned soft drinks, and ice cream sandwiches are usually priced using
a) multiple-unit pricing.
b) reference pricing.
c) price lining.
d) bundle pricing.
e) odd-even pricing.
Ans: a AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Easy Page: 642
Type: Knowledge
98. The decision of Macy’s to use even prices such as $60 for a Ralph Lauren Polo shirt is an application of
odd-even pricing, and even prices are often used to
a) give a product an upscale or exclusive image.
b) show customers products are priced based on tradition.
c) coordinate efforts with a promotional campaign.
d) indicate prices have been cut to the last penny.
e) facilitate comparison to competitors’ prices.
Ans: a AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Easy
Page: 643 Type: Application
100. If REVO sets the price for its sunglasses at $240, it is using psychological pricing to convey
a) thrift.
b) cost cutting.
c) value.
d) prestige.
e) availability.
Ans: d AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Easy
Page: 643 Type: Application
101. Goods that are priced primarily based on the way they have always been priced are examples of
a) traditional pricing.
b) professional pricing.
c) everyday low prices.
d) price lining.
e) customary pricing.
Ans: e AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Easy Page: 643 Type: Knowledge
102. What type of pricing strategy is used in a situation where demand for a product is price inelastic and the
seller has an ethical responsibility not to overcharge the client?
a) Price lining
b) Prestige pricing
c) Professional pricing
d) Customary pricing
e) Price skimming
Ans: c AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 644 Type: Comprehensive
103. Price leaders, comparison discounting, and special-event pricing are applications of
a) psychological pricing.
b) professional pricing.
c) product-line pricing.
d) bait-and-switch.
e) promotional pricing.
Ans: e AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Moderate
Page: 644 Type: Knowledge
104. If Kroger Food Stores advertises 2-liter bottles of Pepsi for 89 cents to generate store traffic that will
purchase other items at regular prices, the grocer is using
a) reference pricing.
b) a price leader.
c) special-event pricing.
d) comparison discounting.
e) professional pricing.
Ans: b AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Difficult
Page: 644 Type: Application
106. To attract customers into a store, Safeway advertises its milk at less than cost, hoping that customers will
purchase other groceries as well. This pricing strategy is called
a) price lining.
b) special-event pricing.
c) differential pricing.
d) comparison discounting.
e) price leader pricing.
Ans: e AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 644 Type: Application
107. Which of the following pricing strategies often results in a retailer losing money on the product?
a) Price leader
b) Psychological discounting
c) Penetration pricing
d) Special-event pricing
e) Ethical pricing
Ans: a AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Difficult
Page: 644 Type: Comprehensive
108. A sale at The Bon Marche the day after Thanksgiving to kick off the Christmas season would be considered
a) psychological pricing.
b) comparison discounting.
c) customary pricing.
d) special-event pricing.
e) captive pricing.
Ans: d AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Easy
Page: 644 Type: Application
109. Showing a product's price along with its previous price, the price of a competing brand, or the price at
another retail outlet is called
a) competition-based pricing.
b) reference pricing.
c) comparison discounting.
d) captive pricing.
e) psychological pricing.
Ans: c AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Easy Page: 644
Type: Knowledge
110. The manager at Best Buy puts a sign up next to a Pioneer audio system that reads, “Only $199.99! $60 less
than Circuit City.” This is an example of what type of pricing strategy?
a) Random discounting
b) Periodic discounting
c) Comparison discounting
d) Penetration pricing
e) Everyday low prices
Ans: c AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Easy
Page: 644 Type: Application
Suppose that Ray-Ban is considering a new line of sunglasses that would be sold in major department stores.
The new line would be positioned as a more distinctive brand than the typical glasses sold through
department stores, and would be priced higher than other brands in the store, but a lower price line than the
current Ray-Ban lines that are sold through more selective stores. In determining the price for this sunglass
line, Ray-Ban wants to gather information about all brands sold in department stores and about customers'
perceptions of those brands.
112. Ray-Ban's plan of gathering information about the other brands sold in department stores, including their
prices, would most likely be used in a __________ basis for pricing.
a) Cost
b) Competition
c) Demand
d) Customer
e) Market
Ans: b AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Easy
Page: 635 Type: Application
113. Given Ray-Ban's plan for positioning the new sunglass line, they should use a __________ strategy when
introducing their new product.
a) promotional
b) penetration
c) price-skimming
d) reference
e) secondary-market
Ans: c AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 638 Type: Application
114. Ray-Ban has decided to promote the new sunglass line as an "affordable luxury" and plans significant
promotional expenditures. With these objectives, which of the following should Ray-Ban use to price its
product line?
a) competition-based pricing
b) cost-plus pricing
c) markup pricing
d) demand-based pricing
e) differential pricing
Ans: d AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 634 Type: Application
115. If Ray-Ban selected the prices for its new sunglasses to be $60, $70, or $80, this would most likely be an
example of using __________ pricing to enhance its distinctive positioning strategy.
a) product-line
b) odd-even
c) professional
d) promotional
e) penetration
Ans: b AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 643 Type: Application
Glenwood Pet Hospital is considering implementing a new pricing strategy for its veterinarian services.
After reviewing the previous three years' revenue, Glenwood finds that most of its customers bring their pets
in for the required annual vaccinations and then only if the animal is ill. Glenwood's objective is to generate
more income per customer on an annual basis. The hospital has previously priced its services by charging a
flat fee for the office visit, a fee for each vaccine, and a fee for each type of examination beyond the basic
office visit. Most customers pay the flat office fee and a fee for a rabies vaccine. Glenwood is now
considering a new plan where the pet owner would pay one fee that would cover an office visit, the required
rabies vaccine, and additional vaccines that prevent heartworm, kennel-cough, and fleas. Glenwood hopes to
encourage the pet owners to view their pet's health as part of a prevention program, rather than a one-time
annual visit.
116. Glenwood's previous pricing strategy is an example of __________ pricing, while the new strategy is an
example of __________ pricing.
a) percentage; cost-based
b) cost-based; psychological
c) sales-based; customary
d) a la carte; bundle
e) demand-based; bundling
Ans: d AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Easy
Page: 641 Type: Application
117. Glenwood has decided that it is going to offer a special package offer if the prevention plan is purchased
within the first 30 days of each year's time for vaccinations. This type of pricing strategy would be an
example of
a) customary pricing.
b) secondary-market pricing.
c) introductory pricing.
d) periodic discounting.
e) random discounting.
Ans: d AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 637 Type: Application
118. Glenwood's closest competitor, The Hearthstone Pet Hospital, currently charges $60 for each basic office
visit. If Glenwood were to price its basic office visit at $45, it would most likely be employing which of the
following?
a) customary pricing.
b) penetration pricing.
c) prestige pricing.
d) price skimming.
e) cost-based pricing.
Ans: b AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 639 Type: Application
119. Glenwood is considering a markup pricing basis, with the cost for office visit plus vaccines at $45. If
Glenwood were to add a markup of 33.3 percent of the costs, its price would be _____.
a) $79
b) $65
c) $55
d) $78
e) $60
Ans: e AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Easy
Page: 633 Type: Application
120. T F The six stages of setting prices should always be followed if prices are to be set correctly.
Ans: False AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Easy
Page: 628 Type: Knowledge
121. T F A marketer uses only one pricing objective to avoid organizational confusion.
Ans: False AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Easy
Page: 628 Type: Knowledge
122. T F Pricing objectives should be considered overall goals to aid the organization in its long-range plans.
Ans: True AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Easy Page: 628 Type: Knowledge
123. T F The objective of profit maximization is rarely operational because its achievement is difficult to
measure.
Ans: True AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Moderate
Page: 629 Type: Knowledge
124. T F The objective of maintaining or increasing market share depends on growth in industry sales.
Ans: False AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Moderate Page: 629 Type: Knowledge
125. T F The use of market share as a pricing objective oversimplifies the value of price in contributing to
profits.
Ans: False AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Difficult
Page: 629 Type: Knowledge
126. T F The role played by attitudes toward price in the overall evaluation of the marketing mix is a minor
concern in identifying the target market.
Ans: False AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 631 Type: Knowledge
127. T F Knowing the target market's evaluation of price allows the marketer to know how much emphasis to
place on price and how to price a product relative to competition.
Ans: True AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Easy Page: 631 Type: Knowledge
128. T F The price of a hotel room is more important to a business traveler than to a tourist.
Ans: False AACSB: Analytic CBE: Model Pricing, Model Customer Difficulty level: Moderate
Page: 631 Type: Knowledge
129. T F The importance of price depends on the type of product, the type of target market, and the purchase
situation.
Ans: True AACSB: Reflective Thinking CBE: Model Pricing, Model Marketing Plan Difficulty
level: Easy Page: 631 Type: Knowledge
130. T F A marketer is usually in a better position to establish prices when it knows the prices charged for
competing brands.
Ans: True AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Easy
Page: 632 Type: Knowledge
131. T F Some stores employ comparison shoppers to learn what prices their competitors are charging.
Ans: True AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Easy Page: 632 Type: Knowledge
132. T F It is usually easy to obtain an accurate price list for a competitor's products.
Ans: False AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Easy
Page: 632 Type: Knowledge
133. T F Marketers that evaluate competitors' prices do so to set their own prices slightly below those of
competitors.
Ans: False AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 632 Type: Knowledge
134. T F Cost-based pricing strategies result in a percentage being added to the cost of the product.
Ans: True AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Easy
Page: 633 Type: Knowledge
135. T F Cost-based pricing results in a high price when demand is high and a low price when demand is low.
Ans: False AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 633 Type: Knowledge
136. T F One pitfall of cost-plus pricing for the buyer is that the seller may increase costs to establish a larger
profit base.
Ans: True AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Easy Page: 633 Type: Knowledge
138. T F Markup pricing is not used often by marketers because establishing a percentage markup greatly
increases the complexity of the decision-making process.
Ans: False AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 633 Type: Knowledge
139. T F Markup can be stated as a percentage of the cost or as a percentage of the selling price.
Ans: True AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Easy
Page: 633 Type: Knowledge
140. T F A major reason why retailers use markup pricing is that it is convenient.
Ans: True AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Easy
Page: 633 Type: Knowledge
141. T F The effectiveness of demand-based pricing often depends on a marketer's ability to determine all the
costs associated with the product.
Ans: False AACSB: Analytic CBE: Model Pricing Difficulty level: Moderate Page: 634
Type: Knowledge
143. T F A firm that considers costs and revenue secondary to competitors' prices when setting its own prices
is using a competition-based pricing strategy.
Ans: True AACSB: Analytic CBE: Model Pricing Difficulty level: Difficult Page: 635
Type: Knowledge
144. T F The government frequently uses competition-based pricing in granting defense contracts.
Ans: False AACSB: Analytic CBE: Model Pricing Difficulty level: Moderate Page: 635
Type: Knowledge
145. T F Competition-based pricing is important if competing products are almost homogeneous or if price is
the key variable in the marketing strategy.
Ans: True AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Difficult
Page: 635 Type: Comprehensive
146. T F A pricing strategy is a course of action designed to achieve pricing and marketing objectives.
Ans: True AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Moderate Page: 636 Type: Knowledge
147. T F Differential pricing means different buyers pay different prices for the same quality and quantity of
product.
Ans: True AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Moderate
Page: 636 Type: Knowledge
148. T F Differential pricing is effective mainly when focusing on only one market segment.
Ans: False AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 636 Type: Knowledge
150. T F An early-bird special offered by a restaurant during off-peak hours is an example of the secondary-
market pricing strategy.
Ans: True AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Easy
Page: 637 Type: Application
151. T F Periodic discounting is often predictable so consumers wait to make purchases until they can benefit
from the price reductions.
Ans: True AACSB: Reflective Thinking CBE: Model Pricing, Model Customer Difficulty
level: Moderate Page: 637 Type: Knowledge
153. T F Two types of new-product pricing are price skimming and product-line pricing.
Ans: False AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Easy
Page: 638-639 Type: Knowledge
154. T F Penetration pricing and price skimming of the market are two types of new-product pricing.
Ans: True AACSB: Reflective Thinking CBE: Model Pricing Difficulty level: Easy
Page: 638-639 Type: Knowledge
156. T F The use of price skimming discourages competitors from entering a market.
Ans: False AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 638 Type: Knowledge
157. T F Penetration pricing is one new-product pricing approach that provides the most flexible introductory
price.
Ans: False AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 639 Type: Knowledge
158. T F A company wanting to maximize profits from its new product would use product-line pricing.
Ans: False AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Difficult
Page: 639 Type: Comprehensive
159. T F Captive pricing, premium pricing, bait pricing, and price lining are all strategies aimed at
maximizing the profits of an entire product line rather than an individual product.
Ans: True AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 639 Type: Knowledge
160. T F Grocery stores that position their less expensive, private brands next to more expensive, well-known
manufacturer brands on the shelf are using the concept of reference pricing.
Ans: True AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Easy
Page: 641 Type: Application
161. T F A psychological price is designed to encourage purchases on the basis of rational response rather
than on the basis of emotional reactions.
Ans: False AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Moderate Page: 641 Type: Knowledge
162. T F In some cases, prices are assigned to goods on the basis of nothing more than custom.
Ans: True AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Easy Page: 643 Type: Knowledge
163. T F Prestige pricing is used when a higher price is consistent with buyers' attitudes toward the quality or
image of a product.
Ans: True AACSB: Reflective Thinking CBE: Model Pricing, Model Strategy Difficulty
level: Moderate Page: 643 Type: Knowledge
164. T F A price-leader approach is a pricing approach most often used in supermarkets to attract consumers
by giving them special low prices on a few items.
Ans: True AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Moderate
Page: 644 Type: Knowledge
165. T F The local florist advertises a discount on arrangements during the month of April because the
anniversary of the store's opening is in April. This is an example of special-event pricing.
Ans: True AACSB: Analytic CBE: Model Pricing, Model Strategy Difficulty level: Easy
Page: 644 Type: Application
166. T F The way that pricing is used in the marketing mix will influence the determination of the final price.
Ans: True AACSB: Reflective Thinking CBE: Model Pricing, Model Marketing Plan Difficulty
level: Moderate Page: 644 Type: Knowledge