REVISION – Chapter 9 & 10

SECTION 1: Circle the correct answer

1. Price is the only element in the marketing mix that produces ________.
A) revenue
B) variable costs
C) expenses
D) outfixed costs
E) stability Answer: A

2. Which of the following is a customer-oriented approach to pricing?

A) value-based pricing
B) sealed-bid pricing
C) break-even pricing
D) target profit pricing
E) C and D Answer: A

3. Value-based pricing is the reverse process of ________.

A) variable cost pricing
B) cost-plus pricing
C) cost-based pricing
D) good-value pricing
E) value-added pricing Answer: C

4. If a seller charges ________ than the buyer's perceived value, the company's
sales will ________.
A) more; benefit
B) more; suffer
C) less; increase
D) less; suffer
E) none of the above Answer: B

5. Some companies have adopted a ________ strategy, offering just the right
combination of quality and good service at a fair price.
A) value-based pricing
B) good-value pricing
C) cost-plus pricing
D) low-price image
E) none of the above Answer: B

6. Wal-Mart is famous for using what important type of value pricing?

A) competition-based pricing
B) everyday low pricing
C) cost-plus pricing
D) break-even pricing
E) penetration pricing Answer: B

7. ________ involves attaching features and services to differentiate a company's

offers and to support charging higher prices.
A) Break-even pricing
B) Target pricing
REVISION – Chapter 9 & 10

C) Value-added pricing
D) Cost-plus pricing
E) Pricing-down Answer: C

8. Ryanair, a low-cost airline, offers free flights to a quarter of its customers and
rock-bottom prices to many of its other customers. Ryanair then charges for all extra
services, such as baggage handling and in-flight refreshments. Which of the following
best describes Ryanair's pricing method?
A) value-added pricing
B) low-cost pricing
C) cost-plus pricing
D) high-low pricing
E) image pricing Answer: B

9. Fixed costs ________ as the number of units produced increases.

A) decrease
B) increase
C) divide in half
D) remain the same
E) increase at a diminishing rate Answer: D

10. Costs that vary directly with the level of production are referred to as
________.
A) fixed costs
B) variable costs
C) target costs
D) total costs
E) unit costs Answer: B

11. ________ are the sum of the ________ and ________ for any given level of
production.
A) Fixed costs; variable; total costs
B) Fixed costs; total; variable costs
C) Variable costs; fixed; total costs
D) Total costs; fixed; variable costs
E) Break-even costs; fixed; total costs Answer: D

12. As production workers become better organized and more familiar with
equipment, the average cost per unit decreases. This is called the ________.
A) demand curve
B) experience curve
C) short-run average cost curve
D) long-run average cost curve
E) marginal utility Answer: B

13. When a downward-sloping experience curve exists, a company should usually

________ the selling price of that product in order to bring in higher revenues.
A) increase
B) greatly increase
C) decrease
REVISION – Chapter 9 & 10

D) not alter
E) none of the above Answer: C

14. The company designs what it considers to be a good product, totals the
expenses of making the product, and sets a price that adds a standard mark-up to the
cost of the product. This approach to pricing is called ________.
A) value-based pricing
B) fixed cost pricing
C) cost-plus pricing
D) variable pricing
E) skimming pricing Answer: C

15. One reason ________ remains popular is that sellers are more certain about
costs than about demand.
A) markup pricing
B) variable pricing
C) inelasticity pricing
D) elasticity pricing
E) penetration pricing Answer: A

16. Target profit pricing uses the concept of a ________, which shows the total
cost and total revenue expected at different sales volume levels.
A) value-based chart
B) break-even chart
C) competition-based chart
D) demand-curve
E) unit cost Answer: B

17. Under ________, the market consists of many buyers and sellers trading in a
uniform commodity such as wheat, copper, or financial securities.
A) pure competition
B) monopolistic competition
C) oligopolistic competition
D) a pure monopoly
E) anti-trust agreements Answer: A

18. Under ________, the market consists of a few sellers who are highly sensitive
to each other's pricing and marketing strategies.
A) pure competition
B) monopolistic competition
C) oligopolistic competition
D) pure monopoly
E) capitalism Answer: C

19. Why do marketers consider prestige goods to be an exception to the typical

demand curve?
A) The demand curve for prestige goods slopes downward and to the right.
B) Increasing the price of prestige goods can make them seem more desirable.
C) Demand for prestige goods often is greater than supply.
D) Prestige products such as diamonds, sapphires, and emeralds are nonrenewable
REVISION – Chapter 9 & 10

resources.
E) Customers are more aware of any price changes to prestige goods. Answer: B

20. If demand hardly changes with a small change in price, we say the demand is
________.
A) variable
B) inelastic
C) value-based
D) at break-even pricing
E) market penetrating Answer: B

21. Xbox 360 decides to add a free subscription to XBOX magazine with every
game bought in an effort to differentiate its offering from PS3 games. This is an
example of ________.
A) good-value pricing
B) add-on pricing
C) product-support pricing
D) value-added pricing
E) cost-based pricing Answer: D

22. A company faces fixed costs of $100,000 and variable costs of $8.00/unit.
They plan to directly sell their product to the market for $12.00. How many units
must they produce and sell to break even?
A) 20,000
B) 25,000
C) 40,000
D) 50,000
E) not enough information to calculate Answer: B

23. In Vin del Mar, Chile, there are a dozen stores specializing in selling the same
quality of seafood products on one street. An individual store dare not charge more
than the going price without the risk of losing business to the other stores that are
selling the fish at a common price. This is an example of what type of market?
A) pure competition
B) monopolistic competition
C) oligopolistic competition
D) pure monopoly
E) socialist Answer: A

24. At Fantastic Flavors, a large regional chain of candy stores, employees from
marketing, design, production, and finance work in a cross-functional group to save
time and money in the new-product development process. Fantastic Flavors uses a(n)
________ approach.
A) customer-centered new-product development
B) sequential new-product development
C) team-based new-product development
D) innovation management system
E) consumer composite Answer: C
REVISION – Chapter 9 & 10

25. Apple's iPod has been called "one of the greatest consumer electronics hits of
all time." More than 120 million iPods have been sold, and the iPod captures more
than 70 percent of the music player market. This success has attracted many large,
resourceful competitors. The iPod is in the ________ stage of the product life cycle.
A) introduction
B) product development
C) maturity
D) decline
E) adoption Answer: C

26. Proctor & Gamble has sold off a number of lesser or declining brands such as
Oxydol detergent and Jif peanut butter. In these examples, management decided to
________ the products.
A) further test
B) maintain
C) drop
D) harvest
E) ignore the test market results of Answer: C

27. When Kraft focused on cost-cutting with its older and established brands,
leaving them to decline without much investment or modification, Kraft had decided
to ________ the older products.
A) extend
B) maintain
C) drop
D) harvest
E) review Answer: D

28. Which of the following is the most likely reason that employees at your firm
regularly attend trade shows and seminars?
A) to analyze the product life cycle
B) to test new-product concepts
C) to get new-product ideas
D) to test market new products
E) to implement a team-based new-product development approach Answer: C

29. Which of the following CANNOT be described using the PLC concept?
A) product class
B) product form
C) product image
D) brand
E) styles Answer: C

30. The innovation management system approach results in two favorable

outcomes: it helps create an innovation-oriented company culture, and it ________.
A) clearly assigns responsibility for the process
B) results in a larger number of new-product ideas
C) guarantees successful products
D) frees up senior management time
E) requires less budget support Answer: B
 REVISION – Chapter 9 & 10

SECTION 2: State whether the following statements are TRUE or FALSE

1. Value-based pricing is the reverse of cost-based pricing.

Answer: TRUE

2. Average unit cost increases with accumulated production experience.

Answer: FALSE

3. Markup pricing is popular because prices tend to be similar and price

competition is thus minimized.
Answer: TRUE

4. Environmental elements are categorized as external factors that affect pricing

decisions.
Answer: TRUE

5. The more elastic the demand, the more it pays for the seller to raise the price.
Answer: FALSE

6. Companies rarely solicit ideas from customers during the idea generation stage
of product development.
Answer: FALSE

7. The stage at which new product and marketing programs are introduced into
realistic market settings is called concept testing.
Answer: FALSE

8. When sales of a product falter during the PLC, a company can take several
approaches. The more common ones are to modify the marketing mix, modify the
product, or modify the market.
Answer: TRUE

9. Sequential product development has the advantage of not only being a team-
oriented approach, but it is also faster in bringing products to market.
Answer: FALSE

10. Companies rarely request for ideas from customers during the idea generation
stage of product development.
Answer: FALSE

SECTION 3: State the name of the concepts or terms that are described below

1. What is the name of the product life cycle period when sales fall off and
profits drop? ___Decline____________________

2. Introducing a new product into the market is called

 REVISION – Chapter 9 & 10

____Commercialization_______________________

3. What is the stage in the new product development process which is carried out
so as to provide management with the information needed to make a final decision
about whether to launch the new product?
__Test Marketing___________

4. What is the type of competition where the market consists of many buyers and
sellers who trade over a range of prices rather than a single market price?
______Monopolistic competition________________

5. What sort of pricing involves attaching features and services to differentiate a

company's offers and is also to be able to charge higher prices?
_________Value-added pricing ___________________________________

SECTION 4: Answer the following questions in one or two sentences

1. Compare pure competition with oligopolistic competition.

Answer: Under pure competition, the market consists of many buyers and sellers
trading in a uniform commodity and where no single buyer or seller has much effect
on the going market price. Under oligopolistic competition, the market consists of few
sellers who are highly sensitive to each other's pricing and marketing strategies; the
product can be uniform or non-uniform.

2. What does price elasticity tell you about a product?

Answer: Price elasticity is a measure of the sensitivity of demand to changes in price.
If demand hardly changes with a small change in price, we say the demand is
inelastic; while if demand changes greatly, we say the demand is elastic.

3. When setting prices, the company must consider its external environment.
Describe any two parts of the external environment and how they affect businesses.
Answer: Economic conditions affect both the costs of producing a product and
consumer perceptions of the product's price and value. Social concerns impact
pricing, especially when a company's short-term sales, market share, and profit goals
may have to be balanced by broader societal considerations.

4. Explain good-value pricing.

Answer: With good-value pricing, a marketer offers just the right combination of
quality and good service at a fair price.

5. A marketer's fixed costs are $400,000, the variable cost is $16, and they
expect the product to sell for $24. What is their break-even point in units?
Answer: The break-even point in units is 50,000 units.

6. Who typically sets prices in small companies? In large companies?

Answer: Top management sets prices in small companies, whereas divisional or
product line managers typically set prices in large companies.
REVISION – Chapter 9 & 10

7. What are the two advantages of an innovation management system for

developing new products?
Answer: The first advantage of an innovation management system is that it helps
create an innovation-oriented company culture. It shows that top management
supports, encourages, and rewards innovation and the second advantage is that it will
yield a larger number of ideas, from which will be found some especially good ones.

8. The PLC can be applied to more than just brands. What is another thing that
the PLC can be applied to? Draw a simple figure or chart to show this thing’s PLC.
Answer: The PLC can be applied to new product and services. It can also be applied
to a product class or a product form. The PLC concept lends itself to styles, fashions,
and fads.

NOTE: Choose one other thing the PLC can be applied to, other than brands. The
PLC charts including for styles, fashions and fads can be found in your Marketing
textbook.

9. A marketer has chosen a multiple-city test market. What might we conclude

from this choice of a multiple-city test market?
Answer: The marketer probably understands that the product being tested will be
perceived (viewed) differently in different geographic regions.

10. Why might ad expenditures be high for products in the introduction stage of
the PLC?
Answer: Consumers have very little awareness about such products; promotional
spending can enhance customer awareness.