HOMEWORK 1

3-5ENVIRONMENTAL SCANNING

KNOWLEDGE

Environmental scanning refers to

a. assessing any possible negative impact a firms 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
Rationale: Key term definitionenvironmental scanning.
3-7 ENVIRONMENTAL SCANNING

QD: Easy

KNOWLEDGE

Environmental trends come from all of the following forces EXCEPT:

a. competitive
b. economic
c. regulatory
d. 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 persons 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
Rationale: Key term definitiondemographics.

AACSB: Analytic

3-43 WORLD POPULATION

The country expected to have the largest population in 2050 is __________.
a. India
b. the United States
c. China

QD: Easy

KNOWLEDGE

d. Russia
e. Brazil
Answer: a
Page(s): 66
LO: 2
AACSB: Analytic
QD: Easy
Rationale: India is predicted to have the worlds 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 18
b. people aged 65 and over
c. children of baby boomers
d. children of Generation X
e. 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 old
c. increase at the same rate as the rate for developing countries
d. increase at the same rate as the rate for developed countries
e. 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 1945
b. between 1946 and 1964
c. between 1965 and 1976
d. between 1977 and 1994
e. since 1995
Answer: b
Page(s): 67
LO: 2
Rationale: Key term definitionbaby boomers.

AACSB: Analytic

QD: Easy

3-129CULTURE

COMPREHENSION

Culture is a component of what type of environmental force that must be scanned to assess its
impact on the organizations marketing environment?
a. regulatory
b. technological
c. competitive
d. economic
e. 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 organizations 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. deflationary
b. recessionary
c. disinflationary
d. 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. $41,000
b. $56,000
c. $65,000
d. $73,000
e. 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 search
b. purchase decision
c. alternative evaluation
d. postpurchase behavior
e. 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 persons 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, Its 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 decision
b. alternative evaluation
c. information search
d. problem recognition
e. postpurchase behavior
Answer: d
Page(s): 110
LO: 1
AACSB: Analytic
QD: Medium
Rationale: Problem recognition, the initial step in the consumer purchase decision process,
involves perceiving a difference between a persons ideal and actual situations big enough to
trigger a decision. The students problem is that she hasnt 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, Walgreens, and Family Dollar
stores. What term best describes the information search method used by the teacher?
a. personal external source
b. public external source
c. market-dominated external source
d. 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 buttons
b. informational alternatives
c. buying-decision choices
d. 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
Rationale: Key term definitionconsideration set.
5-68 PURCHASE DECISION

QD: Easy

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 stage
b. information search stage
c. alternative evaluation stage
d. purchase decision stage
e. 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
Rationale: Key term definitioninvolvement.
5-88 EXTENDED PROBLEM SOLVING

AACSB: Analytic

QD: Easy

APPLICATION

Robin wants to find the perfect gift for her grandparents 50 th 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.
c.
d.
e.

limited problem solving.

extended problem solving.
problem recognition.
integrated problem solving.

Answer: c
Page(s): 114
LO: 2
AACSB: Analytic
QD: Hard
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. retailers
b. wholesalers
c. manufacturers agents
d. manufacturers
e. ultimate consumers
Answer: d
Page(s): 138
LO: 1
AACSB: Analytic
QD: Medium
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. wholesalers
c. retailers
d. government units
e. 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 Europes 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.
Answer: c
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.
6-39 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 definitionNorth 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 smaller
b. diminishing international opportunities as more firms enter the market
c. more customers placing progressively smaller orders
d. 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 demand
b. flexibility and adaptability
c. promotional incentives
d. technical capability
e. senior management directives
Answer: d
Page(s): 143
LO: 2
AACSB: Analytic
QD: Medium
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 youre opening a picture frame store. Lets 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. 400
B. 500
C. 655
D. 120
E. 978
Q2. Suppose youre opening a picture frame store. Lets 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. 400
B. 500
C. 655
D. 120
E. 978
Q3. Touche Toiletries. Inc., has developed an addition to its Lizardman Cologne line tentatively branded
Ode dToade 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 dToade Cologne is priced
at $7.50 for a three-ounce bottle. How many bottles of Ode dToade must be sold to break even? (Round
to the nearest whole number)
A. 300,000
B. 277,665
C. 127,660
D. 160,000
E. 900,111
Q4. Touche Toiletries. Inc., has developed an addition to its Lizardman Cologne line tentatively branded
Ode dToade 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 dToade Cologne is priced
at $8 for a three-ounce bottle. How many bottles of Ode dToade must be sold to break even? (Round to
the nearest whole number)
A. 300,000
B. 277,665
C. 127,660
D. 160,000
E. 900,111
Q5. Suppose that marketing executives for Touche Toiletries reduced the price to $6.50 for a three-ounce
bottle of Ode dToade 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. 181,818
B. 277,665
C. 127,660
D. 160,000
E. 900,111

Q6. Suppose that marketing executives for Touche Toiletries reduced the price to $6.50 for a three-ounce
bottle of Ode dToade 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 dToade achieve if 200,000
bottles were sold?
A. $181,818
B. $110,000
C. $127,660
D. $160,000
E. $900,111
Q7. 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, songwriters 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. 18,181
B. 11,000
C. 12,660
D. 16,667
E. 90,111
Q8. 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, songwriters 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. 30,000
B. 11,000
C. 12,660
D. 16,667
E. 90,111
Q9. When the price per unit is $10, the number of units sold is 15. But when we drop the price to $6,
wed sell 35 units. The price elasticity of demand is _____ (Round to the nearest hundredth). Based on the
result, the price is _____
A. 0.50, inelastic
B. 3.33, elastic
C. 5.66, elastic
D. 7.13, inelastic
E. 0.66, inelastic
Q10. When the price per unit is $12, the number of units sold is 32. But when we drop the price to $6,
wed sell 40 units. The price elasticity of demand is _____ (Round to the nearest hundredth). Based on the
result, the price is _____
A. 0.50, inelastic
B. 3.33, elastic
C. 5.66, elastic
D. 7.13, inelastic
E. 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. $520
b. $1,040
c. $1,880
d. $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.
14-159 TARGET PROFIT PRICING

APPLICATION

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. $25.00
b. $33.94
c. $40.00
d. $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.
14-160 TARGET PROFIT PRICING

APPLICATION

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 promotiona $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. $1,000
e. $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. $263.50
b. $311.00
c. $387.50
d. $445.50
e. $775.00
Answer: c
Page(s): 350
LO: 1
AACSB: Analytic
QD: Hard
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
Rationale: Key term definitionskimming pricing.
14-43 SKIMMING PRICING

QD: Easy

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 market
b. a lower price will significantly reduce unit costs
c. consumers tend to be price sensitive

d. it will be easier to set measurable sales unit goals

e. 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
7.
a.
b.
c.
d.
e.

COMPREHENSION

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

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

Answer: d
Page(s): 345
LO: 1
AACSB: Analytic
QD: Medium
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 pricing
b. penetration pricing
c. price lining
d. odd-even pricing
e. prestige pricing
Answer: e
Page(s): 345
LO: 1
Rationale: Key term definitionprestige pricing.

AACSB: Analytic

14-104 BUNDLE PRICING

QD: Easy

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.
Answer: d

Page(s): 347

LO: 1

AACSB: Analytic

QD: Medium

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 pricing
b. skimming pricing
c. penetration pricing
d. loss-leader pricing
e. 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.