Homework Solutions

HOMEWORK 1

3-5ENVIRONMENTAL SCANNING KNOWLEDGE

Environmental scanning refers to

a. assessing any possible negative impact a firm’s activities might have on the local ecology.b. continually acquiring information on events occurring outside the organization to

identify and interpret potential trends.c. setting up a regular schedule to assess the performance of different divisions within a firm.d. initiating an internal talent search to identify employees who can think “outside the box” to

generate solutions to marketing problems caused by changes in the marketing environment.e. requiring all employees to spend time outside the office to avoid the “ivory tower” syndrome.

Answer: b Page(s): 64-65 LO: 1 AACSB: Analytic QD: Easy

Rationale: Key term definition—environmental scanning.

3-7 ENVIRONMENTAL SCANNING KNOWLEDGE

Environmental trends come from all of the following forces EXCEPT:

a. competitiveb. economicc. regulatoryd. geographical e. social

Answer: d Page(s): 64-65 LO: 1 AACSB: Analytic QD: Easy

Rationale: Environmental scanning trends come from social, economic, technological, competitive, and regulatory forces. See Figures 3-1 and 3-2 in the textbook.

3-33 DEMOGRAPHICS KNOWLEDGE

Demographics refers to

a. the description of a population according to its values or cultural beliefs.b. an objective measurement of a person’s likelihood to purchase a product or service.c. the psychological profile of prospective consumers.d. the density of a population in a geographic area.e. the description of a population according to selected characteristics such as age, gender,

ethnicity, income, and occupation.

Answer: e Page(s): 66 LO: 2 AACSB: Analytic QD: Easy

Rationale: Key term definition—demographics.

3-43 WORLD POPULATION KNOWLEDGE

The country expected to have the largest population in 2050 is __________.

a. India b. the United Statesc. China

d. Russiae. Brazil

Answer: a Page(s): 66 LO: 2 AACSB: Analytic QD: Easy

Rationale: India is predicted to have the world’s largest population in 2050 with 1.75 billion people. China will be a close second with 1.44 billion people.

3-50 U.S. POPULATION KNOWLEDGE

Which age segment of the U.S. population is expected to grow to 72 million people or almost 20 percent of the population by 2030?

a. children under the age of 18b. people aged 65 and over c. children of baby boomersd. children of Generation Xe. children of Generation Y

Answer: b Page(s): 67 LO: 2 AACSB: Analytic QD: Easy

Rationale: Today, there are approximately 40 million people 65 and older in America. By 2030, this age group will reach 72 million people or almost 20 percent of the population.

3-51U.S. POPULATION COMPREHENSION

Demographers predict that the number of people in the U.S. aged 65 and over will __________ by 2030.

a. almost double b. be significantly less than the number of children under 18 years oldc. increase at the same rate as the rate for developing countriesd. increase at the same rate as the rate for developed countriese. stay the same as today

Answer: a Page(s): 67 LO: 2 AACSB: Analytic QD: Medium

Rationale: Today, there are approximately 40 million people 65 and older in America. By 2030, this age group will include more than 72 million people or almost 20 percent of the population.

3-54BABY BOOMERS KNOWLEDGE

Baby boomers can be defined as the generation of children born __________.

a. between 1918 and 1945b. between 1946 and 1964 c. between 1965 and 1976d. between 1977 and 1994e. since 1995

Answer: b Page(s): 67 LO: 2 AACSB: Analytic QD: Easy

Rationale: Key term definition—baby boomers.

3-129CULTURE COMPREHENSION

Culture is a component of what type of environmental force that must be scanned to assess its impact on the organization’s marketing environment?

a. regulatoryb. technologicalc. competitived. economice. social

Answer: e Page(s): 71 LO: 2 AACSB: Diversity QD: Medium

Rationale: Culture incorporates the set of values, ideas, and attitudes that are learned and shared among the members of a group. Culture is a component of the social force (the other being demographics) that is one of five forces that impact an organization’s marketing environment.

3-159INFLATIONARY ECONOMY COMPREHENSION

The National Center for Public Policy and Higher Education reports that since 1980, college tuition and fees have increased by 440 percent whereas family incomes have risen less than 150 percent. This is an example of a(n) __________ economy.

a. deflationaryb. recessionaryc. disinflationaryd. inflationary e. depressive

Answer: d Page(s): 73 LO: 3 AACSB: Analytic QD: Medium

Rationale: In an inflationary economy, the cost to produce and buy products and services escalates as prices increase. In this example, college tuition and fees have risen almost three times (440% ÷ 150%) the rate of family incomes since 1980.

3-181DISCRETIONARY INCOME APPLICATION

Emily had an excellent year as a saleswoman in 2011, earning $97,000. She paid $17,000 for “necessities” such as mortgage, food, and clothing. She was given a six-week, all expenses paid vacation by the company for her sales performance that had a value of $9,000. Her state and federal income taxes totaled $24,000. What was her discretionary income?

a. $41,000b. $56,000c. $65,000 d. $73,000e. There is not enough data provided to calculate her discretionary income.

Answer: c Page(s): 75 LO: 3 AACSB: Analytic QD: Hard

Rationale: Discretionary income is the money that remains after paying for taxes and necessities. Discretionary income = Gross income (wages, salaries, commissions, dividends, and noncash

income such as an all expense paid trip) – Taxes (federal, state, and local) – Necessities (mortgage, food, and clothing). Discretionary income = ($97,000 + $9,000) – $24,000 – $17,000 = $65,000. The value of the vacation of $9,000 must be added to the gross income total because the IRS counts this vacation as income.

HOMEWORK 2

5-11 CONSUMER PURCHASE DECISION PROCESS COMPREHENSION

There are five stages in the consumer purchase decision process. The first stage is __________.

a. information searchb. purchase decisionc. alternative evaluationd. postpurchase behaviore. problem recognition

Answer: e Page(s): 110 LO: 1 AACSB: Analytic QD: Medium

Rationale: Problem recognition is the initial step in the consumer purchase decision process, which involves perceiving a difference between a person’s ideal and actual situations big enough to trigger a decision. See Figure 5-1 in the textbook.

5-25 PROBLEM RECOGNITION COMPREHENSION

When the marketing student said, “It’s really hard for me to get to class on time without a car,” she was entering which stage of the consumer purchase decision process?

a. purchase decisionb. alternative evaluationc. information searchd. problem recognition e. postpurchase behavior


Rationale: Problem recognition, the initial step in the consumer purchase decision process, involves perceiving a difference between a person’s ideal and actual situations big enough to trigger a decision. The student’s problem is that she hasn’t been able to get to class on time without a car.

5-35 INTERNAL SEARCH APPLICATION

When the elementary teacher needed to buy poster board for her class, she remembered that she had previously found some poster board at her local 99¢ Only, Walgreen’s, and Family Dollar stores. What term best describes the information search method used by the teacher?

a. personal external sourceb. public external sourcec. market-dominated external sourced. internal search e. market-dominated internal source

Answer: d Page(s): 110 LO: 1 AACSB: Analytic QD: Hard

Rationale: When the teacher scanned her memory for previous experiences with products or brands, she was engaged in an internal search for information.

5-50MARKETER-DOMINATED SOURCES COMPREHENSION

An example of a marketer-dominated source of information consulted during an external search would include

a. personal experience.b. salespeople. c. consumer programs on talk radio stations.d. friends and relatives.e. Consumer Reports magazine.

Answer: b Page(s): 110 LO: 1 AACSB: Analytic QD: Medium

Rationale: Marketer-dominated sources of information originate with the sellers of products and services, and include advertising, company websites, salespeople, and point-of-purchase displays in stores.

5-60 EVALUATIVE CRITERIA APPLICATION

When purchasing a computer, factors the consumer considers prior to purchase are called __________, which represent both the objective attributes of a brand and the subjective ones used to compare different products and brands.

a. hot buttonsb. informational alternativesc. buying-decision choicesd. evaluative criteria e. consumer attributes

Answer: d Page(s): 111 LO: 1 AACSB: Analytic QD: Hard

Rationale: Evaluative criteria represent both the objective attributes of a brand and the subjective ones used to compare different products and brands.

5-61 CONSIDERATION SET KNOWLEDGE

The group of brands a consumer would consider acceptable from among all the brands in the product class of which he or she is aware, is referred to as

a. evaluative set.b. evolved set.c. consideration set. d. alternative selection group.e. aspiration group.

Answer: c Page(s): 111-112 LO: 1 AACSB: Analytic QD: Easy

Rationale: Key term definition—consideration set.

5-68 PURCHASE DECISION COMPREHENSION

Once a consumer has completed the alternative evaluation stage of the consumer purchase decision process, two choices remain, which are

a. to use credit or to pay cash.b. to buy one or buy several if a deal is offered.

c. from whom to buy and when to buy. d. to buy immediately or wait for it to go on sale.e. to buy in person or to buy online.

Answer: c Page(s): 112 LO: 1 AACSB: Analytic QD: Medium

Rationale: The purchase decision requires two additional choices: (1) from whom to buy and (2) when to buy. Alternatives “a” and “b” are elements that would have been considered in an earlier stage of the consumer purchase decision process. Alternatives “d” and “e” only contain one half of the choice.

5-71 POSTPURCHASE BEHAVIOR KNOWLEDGE

At the __________ of the consumer purchase decision process, a consumer compares the product with his or her expectations and is either satisfied or dissatisfied.

a. problem recognition stageb. information search stagec. alternative evaluation staged. purchase decision stagee. postpurchase stage

Answer: e Page(s): 112-113 LO: 1 AACSB: Analytic QD: Easy

Rationale: After buying a product, a consumer compares it with his or her expectations and is either satisfied or dissatisfied. The consumer may attempt to reduce cognitive dissonance by reinforcing the belief that he or she made the right choice. This occurs at the postpurchase stage of the consumer purchase decision process.

5-82 INVOLVEMENT KNOWLEDGE

The personal, social, and economic significance of the purchase to the consumer that causes them to skip or minimize one or more stages in the consumer purchase decision process depends on their level of

a. aspiration.b. cognitive dissonance.c. motivation.d. situational influences.e. involvement.

Answer: e Page(s): 113-114 LO: 2 AACSB: Analytic QD: Easy

Rationale: Key term definition—involvement.

5-88 EXTENDED PROBLEM SOLVING APPLICATION

Robin wants to find the perfect gift for her grandparents’ 50th wedding anniversary. She started looking for the gift last month and expects to spend another couple of months if needed to find a gift they both will like. Robin is engaging in

a. routine problem solving.

b. limited problem solving.c. extended problem solving. d. problem recognition.e. integrated problem solving.


Rationale: Extended problem solving makes use of each stage of the consumer purchase decision process including considerable time and effort on external information search and in identifying and evaluating alternatives. See Figure 5-3 in the textbook.

HOMEWORK 3

6-12 ORGANIZATIONAL BUYERS COMPREHENSION

Which of the following organizational buyers purchases raw materials and parts to reprocess into the finished goods they sell?

a. retailersb. wholesalersc. manufacturers’ agentsd. manufacturers e. ultimate consumers


Rationale: Manufacturers buy raw materials and parts that they reprocess into the finished goods they sell. Wholesalers and retailers resell finished goods without reprocessing them. Manufacturers’ agents sell the finished goods for manufacturers without taking title to the goods. Ultimate consumers are the final users of the goods and services.

6-24 INDUSTRIAL MARKETS COMPREHENSION

The services market sells diverse services such as legal advice, auto repair, and dry cleaning. Along with __________, insurance, and real estate businesses, and transportation, communication and public utility firms, and not for profit, these firms represent about 75 percent of all industrial firms.

a. finance b. wholesalersc. retailersd. government unitse. educational institutions

Answer: a Page(s): 138 LO: 1 AACSB: Analytic QD: Medium

Rationale: The services market sells diverse services such as legal advice, auto repair, and dry cleaning. Along with finance, insurance, and real estate businesses, and transportation, communication, public utility firms, and not-for-profit organizations; service companies represent about 75 percent of all industrial firms.

6-31 RESELLER MARKETS APPLICATION

Itex Corporation, a marketer of Photostat products used in the graphic arts field, buys photo sensitized paper from Eastman Kodak Company, packages it with the Photostat brand name, and sells it directly to amateur photographers. In this context, Itex Corporation is most accurately classified as a

a. manufacturer.b. reseller. c. service provider.d. wholesaler.e. industrial firm.

Answer: b Page(s): 138 LO: 1 AACSB: Analytic QD: Hard

Rationale: Resellers are wholesalers and retailers who buy physical products and resell them again without any reprocessing. Repackaging, such as what Itex does with photosensitive paper, does not constitute reprocessing. Technically, Itex is a retailer, not a wholesaler since it sells the paper directly to ultimate consumers, not other retail outlets.

6-38 GLOBAL ORGANIZATIONAL MARKETS APPLICATION

U.S.-based Pratt & Whitney sells aircraft engines to Europe’s Airbus S.A.S., which in turn sells passenger airplanes to Japan Airlines that fly businesspeople around the world. This is an example of

a. the product life cycle.b. reseller dynamics.c. a global organizational market. d. ISO 9000.e. the business cycle.


Rationale: Industrial, reseller, and government markets exist on a global scale. The majority of world trade involves exchange relationships that span the globe.

6-39 GLOBAL ORGANIZATIONAL MARKETS APPLICATION

Amtrak, the U.S. passenger train service, purchases train cars from Siemens, a German manufacturing company. This purchase is an example of

a. the product life cycle.b. global organizational markets. c. market dynamics.d. reciprocity.e. supplier development.

Answer: b Page(s): 139 LO: 1 AACSB: Analytic QD: Hard

Rationale: Industrial, reseller, and government markets exist on a global scale. The majority of world trade involves exchange relationships that span the globe.

6-41 NORTH AMERICAN INDUSTRY CLASSIFICATION SYSTEM KNOWLEDGE

The system that provides common industry definitions for Canada, Mexico, and the United States, which makes it easier to measure economic activity in the three member countries of the North American Free Trade Agreement (NAFTA), is referred to as the

a. Standard Industrial Code System (SICS).b. United Nations Central Product Classification System (UNCPCS).c. Free Trade Classification System (FTCS).d. North American Industry Classification System (NAICS). e. Federal System of International Organizations (FSIO).

Answer: d Page(s): 139-140 LO: 1 AACSB: Analytic QD: Easy

Rationale: Key term definition—North American Industry Classification System (NAICS).

6-47 NORTH AMERICAN INDUSTRY CLASSIFICATION SYSTEM COMPREHENSION

Which of the following statements about the North American Industry Classification System (NAICS) is most accurate?

a. After being used for more than 50 years, the NAICS was replaced by the Standard Industrial Classification (SIC) system.

b. The NAICS permits comparability across countries but does not accurately measure new or emerging industries.

c. One drawback to the NAICS is that its industry classifications are inconsistent with the International Standards Organization.

d. The NAICS groups economic activity to permit studies of market share, demand for goods and services, import competition in domestic markets, and similar studies.

e. The NAICS is a five-digit code that allows comparison of industries even when information is limited.

Answer: d Page(s): 139-140 LO: 1 AACSB: Analytic QD: Medium

Rationale: NAICS replaced the SIC system, a version of which has been in place for more than 50 years. The SIC neither permits comparability across countries nor accurately measures new or emerging industries. The NAICS is consistent with the International Standard Industrial Classification of All Economic Activities published by the UN. The NAICS groups economic activity to permit studies of market share, demand for goods and services, and similar studies. The six-digit codes help identify specific U.S. national industries.

6-67 DERIVED DEMAND KNOWLEDGE

Derived demand means the demand for industrial products and services is driven by, or derived from, the

a. NAICS statistical models.b. gross national product.c. demand for consumer goods and services. d. demand for industrial goods and services.e. demand for government goods and services.

Answer: c Page(s): 141-142 LO: 2 AACSB: Analytic QD: Easy

Rationale: Derived demand is the demand for industrial products and services that is driven by demand for consumer products and services.

6-76 CHARACTERISTICS OF ORGANIZATIONAL BUYING COMPREHENSION

Important market characteristics in organizational buying behavior include which of the following?

a. unlimited markets but orders are becoming progressively smallerb. diminishing international opportunities as more firms enter the marketc. more customers placing progressively smaller ordersd. fewer customers but with larger orders e. a market that functions independently of consumer demand

Answer: d Page(s): 141-142 LO: 2 AACSB: Analytic QD: Medium

Rationale: Product or service characteristics of organizational buying behavior include: (1) products or services are technical in nature and purchased on the basis of specifications; (2) many of the goods purchased are raw and semifinished; and (3) heavy emphasis is placed on delivery time, technical assistance, and postsale service. See Figure 6-2 in the textbook.

6-94 ORGANIZATIONAL BUYING CRITERIA COMPREHENSION

There are seven commonly used organizational buying criteria. One of them is __________.

a. consumer demandb. flexibility and adaptabilityc. promotional incentivesd. technical capability e. senior management directives


Rationale: Organizational buying criteria include: (1) price; (2) ability to meet the quality specifications required for the item; (3) ability to meet required delivery schedules; (4) technical capability; (5) warranties and claim policies in the event of poor performance; (6) past performance on previous contracts; and (7) production facilities and capacity.

HOMEWORK 4

Q1. Suppose you’re opening a picture frame store. Let’s assume demand for your framed pictures is strong so the average price customers are willing to pay for each picture is $120. Also, suppose your fixed cost (FC) is $32,000 (for real estate taxes, interest on a bank loan, and other fixed expenses), and unit variable cost (UVC) for a picture is $40 (for labor, glass, frame, and matting). How many pictures must you sell to cover your cost at a given price.A. 400B. 500C. 655D. 120E. 978Q2. Suppose you’re opening a picture frame store. Let’s assume demand for your framed pictures is strong so the average price customers are willing to pay for each picture is $200. Also, suppose your fixed cost (FC) is $44,000 (for real estate taxes, interest on a bank loan, and other fixed expenses), and unit variable cost (UVC) for a picture is now $155 (for labor, glass, frame, and matting). How many pictures must you sell to cover your cost at a given price. (Round to the nearest whole number)A. 400B. 500C. 655D. 120E. 978Q3. Touche Toiletries. Inc., has developed an addition to its Lizardman Cologne line tentatively branded Ode d’Toade Cologne. Unit variable costs are 45 cents for a three-ounce bottle, and heavy advertising expenditures in the first year would result in total fixed costs of $900,000. Ode d’Toade Cologne is priced at $7.50 for a three-ounce bottle. How many bottles of Ode d’Toade must be sold to break even? (Round to the nearest whole number)A. 300,000B. 277,665C. 127,660D. 160,000E. 900,111Q4. Touche Toiletries. Inc., has developed an addition to its Lizardman Cologne line tentatively branded Ode d’Toade Cologne. Unit variable costs are $3 for a three-ounce bottle, and heavy advertising expenditures in the first year would result in total fixed costs of $800,000. Ode d’Toade Cologne is priced at $8 for a three-ounce bottle. How many bottles of Ode d’Toade must be sold to break even? (Round to the nearest whole number)A. 300,000B. 277,665C. 127,660D. 160,000E. 900,111Q5. Suppose that marketing executives for Touche Toiletries reduced the price to $6.50 for a three-ounce bottle of Ode d’Toade and the fixed costs were $1,100,000. Suppose further that the unit variable cost were at 45 cents for a three-ounce bottle. How many bottles must be sold to break even? (Round to the nearest whole number)A. 181,818B. 277,665C. 127,660D. 160,000E. 900,111

Q6. Suppose that marketing executives for Touche Toiletries reduced the price to $6.50 for a three-ounce bottle of Ode d’Toade and the fixed costs were $1,100,000. Suppose further that the unit variable cost were at 45 cents for a three-ounce bottle. What dollar profit level would Ode d’Toade achieve if 200,000 bottles were sold?A. $181,818B. $110,000C. $127,660D. $160,000E. $900,111Q7. Executives of Random Recordings, Inc., produced a digital album titled Sunshine/Moonshine by the Starshine Sisters Brand. If the price per album was $9 and fixed cost for the production was $100,000. Album cover, songwriter’s royalties, recoding artists’ royalties, and materials cost $1, $0.3, $0.7, and $1 per album, respectively. What is the break-even point for the digital album? (Round to the nearest whole number)A. 18,181B. 11,000C. 12,660D. 16,667E. 90,111Q8. Executives of Random Recordings, Inc., produced a digital album titled Sunshine/Moonshine by the Starshine Sisters Brand. If the price per album was $15 and fixed cost for the production was $150,000. Album cover, songwriter’s royalties, recoding artists’ royalties, and materials cost $2.5, $3, $2.5, and $2 per album, respectively. What is the break-even point for the digital album? (Round to the nearest whole number)A. 30,000B. 11,000C. 12,660D. 16,667E. 90,111Q9. When the price per unit is $10, the number of units sold is 15. But when we drop the price to $6, we’d sell 35 units. The price elasticity of demand is _____ (Round to the nearest hundredth). Based on the result, the price is _____A. 0.50, inelasticB. 3.33, elasticC. 5.66, elasticD. 7.13, inelasticE. 0.66, inelasticQ10. When the price per unit is $12, the number of units sold is 32. But when we drop the price to $6, we’d sell 40 units. The price elasticity of demand is _____ (Round to the nearest hundredth). Based on the result, the price is _____A. 0.50, inelasticB. 3.33, elasticC. 5.66, elasticD. 7.13, inelasticE. 0.66, inelastic

HOMEWORK 5

14-158 TARGET PROFIT PRICING APPLICATION

1. A custom tailor wishes to use target profit pricing to establish a price for a custom-designed business suit. Assume variable cost is $200 per suit, fixed cost is $44,000, and the target profit is $50,000 based on a volume of 50 suits. What price should be charged for a typical custom suit?

a. $520b. $1,040c. $1,880d. $2,080 e. $10,000

Answer: d Page(s): 349-350 LO: 1 AACSB: Analytic QD: Hard

Rationale: Using the profit equation: Profit = Total revenue – Total cost. Profit = (P × Q) – [FC + (UVC × Q)]. $50,000 = 50P – [$44,000 + ($200 × 50)], or $2,080.00.


2. Lady Marion Seafood, Inc. sells 5-pound packages of Alaskan salmon. Assume its unit variable cost per package is $30 and its fixed cost is $250,000. It wants a target profit of $38,000 on a volume of 16,000 packages. What should the firm charge for a five-pound package of salmon?

a. $25.00b. $33.94c. $40.00d. $48.00 e. $61.25

Answer: d Page(s): 349-350 LO: 1 AACSB: Analytic QD: Hard

Rationale: Using the profit equation: Profit = Total revenue – Total cost. Profit = (P × Q) – [FC + (UVC × Q)]. $38,000 = 16,000P – [$250,000 + ($30 × 16,000)], or $48.00.


3. The manager of a small gasoline station observes that while gasoline sales have been steady, the service side of the business has fallen off, and mechanics are often idle. He decides to offer a promotion—a $20 off coupon for an oil change that is to be mailed to 800 households within a two-mile radius from the gas station. The cost of printing and mailing is $1,000. The normal cost of an oil change is $40. Materials and labor per oil change costs $15. If 200 customers use the coupon, what will be the total profit of the promotion based on the profit equation?

a. ($4,000)b. ($1,000)c. $0 d. $1,000e. $4,000

Answer: c Page(s): 349-350 LO: 1 AACSB: Analytic QD: Hard

Rationale: Using the profit equation and marginal analysis: Profit = Total revenue – Total cost. Profit = (P × Q) – [FC + (UVC × Q)]. Profit = [($40 – $20) × 200)] – [$1,000 + ($15 × 200)], or $0. The gas station essentially breaks even on the coupon promotion. By using this promotional tactic, the gas station owner hopes to generate new loyal customers who will purchase future oil changes at the normal price without the coupon. If so, profits will increase if costs remain the same.

14-164 TARGET RETURN-ON-SALES PRICING APPLICATION

4. A custom kitchen cabinet storeowner wishes to use a target return-on-sales pricing approach to establish a price for a typical section of cabinets. Assume that variable costs total $200 per unit, fixed cost is $44,000, and the storeowner desires a target profit of 20 percent return on sales at an annual volume of 400 cabinets. What price should be charged for a typical cabinet section?

a. $263.50b. $311.00c. $387.50 d. $445.50e. $775.00


Rationale: Target return on sales (TROS%) = Target profit ÷ Total revenue. TROS% = [[(P × Q) – [FC + (UVC × Q)]] ÷ (P × Q)]. 0.20 = [[400P – [$44,000 + ($200 × 400)]] ÷ 400P], or $387.50.

14-35SKIMMING PRICING KNOWLEDGE

5. Setting the highest initial price that customers really desiring the product are willing to pay when introducing a new or innovative product is referred to as a

a. skimming strategy. b. penetration strategy.c. price-lining strategy.d. experience-curve pricing strategy.e. prestige pricing strategy.

Answer: a Page(s): 344 LO: 1 AACSB: Analytic QD: Easy

Rationale: Key term definition—skimming pricing.

14-43 SKIMMING PRICING COMPREHENSION

6. A skimming pricing policy is likely to be most effective when: (1) enough customers are willing to buy immediately at the high initial price; (2) lowering the price has only a minor effect on increasing sales volume and reducing unit costs; (3) customers interpret high price as signifying high quality; and (4) __________.

a. consumers perceive your product to be similar to other products on the marketb. a lower price will significantly reduce unit costs

c. consumers tend to be price sensitived. it will be easier to set measurable sales unit goalse. when the high initial price does not attract competitors

Answer: e Page(s): 344 LO: 1 AACSB: Analytic QD: Medium

Rationale: A skimming pricing strategy, which entails setting a high initial price, is most effective when: (1) customers are willing to buy immediately at the high initial price; (2) lowering the price has only a minor effect on increasing sales volume and reducing unit costs; (3) when the high initial prices do not attract competitors; and (4) when customers interpret high price as signifying high quality.

14-55PENETRATION PRICING COMPREHENSION

7. Which of the following statements about penetration pricing is most accurate?

a. Penetration pricing is a profit-oriented approach to pricing.b. Penetration pricing is a cost-oriented pricing method.c. Penetration pricing encourages competitors to enter a market.d. Penetration pricing is more effective in a marketplace with price-sensitive consumers. e. Penetration pricing usually precedes a skimming pricing.


Rationale: Penetration pricing is setting a low initial price on a new product to appeal to a mass market, which is usually price-sensitive.

14-69PRESTIGE PRICING KNOWLEDGE

8. A manufacturer using _________ is setting a high price so that quality- or status-conscious consumers will be attracted to the product and buy it.

a. skimming pricingb. penetration pricingc. price liningd. odd-even pricinge. prestige pricing

Answer: e Page(s): 345 LO: 1 AACSB: Analytic QD: Easy

Rationale: Key term definition—prestige pricing.

14-104 BUNDLE PRICING COMPREHENSION

9. Which one of the following statements regarding bundle pricing is most accurate?

a. Bundle pricing is intended to benefit the consumer, not the seller.b. Bundle pricing is really “bundle packaging” since the price charged is for two or more

products that are shrink-wrapped together.c. Bundle pricing is often associated with a skimming strategy.d. Bundle pricing often provides a lower total cost to buyers and lower marketing costs to

sellers.e. Bundle pricing is based on the idea that consumers value the individual items more than they

value the group contained in the package.


Rationale: Bundle pricing is the marketing of two or more products in a single package price. Bundle pricing is based on the idea that consumers value the package more than the individual items. This is due to benefits received from not having to make separate purchases and enhanced satisfaction from one item given the presence of another. Moreover, bundle pricing often provides a lower total cost to buyers and lower marketing costs to sellers.

14-175 CUSTOMARY PRICING APPLICATION

10. Consumers buy water and soda from vending machines. Traditionally, the price of each of these products is about $1.25. If a marketer charges a significantly higher price for such products dispensed by vending machines, sales are likely to decline. In order to avoid declines in sales, marketers tend to be very consistent in the prices they charge for vending machine products. This is an example of marketers employing a __________ strategy.

a. below-market pricingb. skimming pricingc. penetration pricingd. loss-leader pricinge. customary pricing

Answer: e Page(s): 351 LO: 1 AACSB: Analytic QD: Hard

Rationale: For some products, tradition, competitive factors, or a standardized distribution channel play a key role in the determination of product price. Vending machines are a prime example of a situation where customary pricing dictates the price charged for the product. As noted in the text, it may be more effective to change the quantity of the product rather than change the price of the product.

Documents

Homework Solutions