CDN Ed Small Business Management 5th Edition Longenecker Test Bank

CDN ED Small Business Management
5th Edition Longenecker Test Bank

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Chapter 7—Promotional and Pricing Strategies
MULTIPLE CHOICE
1. What are three of the four major factors that influence a promotional mix composition?
a. geography of the market, customer makeup, and product characteristics
b. geography of the market, retailer market, and product characteristics
c. customer makeup, product characteristics, and budget requirements
d. customer makeup, market size, and product characteristics
ANS: A PTS: 1 REF: p. 184
OBJ: 1-Describe the communication process and the factors determining a promotional mix
BLM: Remember
2. Which promotional method is favoured by a widely dispersed market?

a. personal selling
b. sales promotion
c. personal promotion
d. advertising
ANS: D PTS: 1 REF: p. 184
BLM: Remember
3. Which of the following are basic promotional methods?

a. advertising, personal selling, and warranties
b. personal selling, advertising, and rebates
c. sales promotion, warranties, and rebates
d. personal selling, sales promotion, and advertising
BLM: Remember
4. Which basic type of advertising makes potential customers aware of products and their need for them?
a. institutional
b. product
c. customer
d. specialty
ANS: B PTS: 1 REF: p. 187
OBJ: 2-Identify advertising options for a small business BLM: Remember
5. What does advertising by small businesses usually do?

a. stresses products
b. conveys information about the business (institutional advertising)
c. uses one-shot advertising
d. uses up the entire yearly marketing budget
Copyright © 2013 Nelson Education Ltd. 7-1

6. Which advertising method is generally used by small businesses?
a. overreaching the target’s geographic area
b. national television coverage
c. product advertising through free sample promotions
d. general advertising to reach the masses
7. Which of the following is a service provided by ad agencies?

a. collecting delinquent customer accounts
b. providing information about reported shoplifters
c. advising on sales promotions
d. maintaining customer records on behalf of clients
ANS: C PTS: 1 REF: p. 188
8. In what way might small firms restrict their advertising?

a. by geographic boundaries
b. by psychological borders
c. by demographical lines
d. by behavioural patterns
9. What does the right combination of advertising media depend on?

a. the type of business
b. the customer’s income
c. the ad agency
d. the class of the customer
10. Which traditional advertising medium has a low cost and can be scheduled on short notice, but
requires high frequency to generate comprehension and retention?
a. magazines
b. radio
c. billboards
d. newspapers
ANS: B PTS: 1 REF: p. 191| Exhibit 7-4
11. What are Internet banner ads?

a. advertisements on a web page
b. rectangular strips of canvas
c. contest pages
d. newspaper ads that mention a website

12. Why do websites often fail to retain customers?
a. because of the wait times for downloading
b. because they utilize video streaming
c. because they constantly update the information
d. because they are easy to find on the Internet
13. Which of the following serves as an inducement to buy a certain product while typically offering value
to recipients?
a. a sales promotion
b. a specialty trade show
c. advertising
d. specialty advertising
OBJ: 3-Discuss the use of sales promotion tools and describe personal selling activities
BLM: Remember
14. A new cell phone communications company is trying to gain recognition and market share by offering
three free months of long distance with each new phone and contract purchased. What type of sales
promotion is being used?
a. coupons
b. newspaper ads
c. premiums
d. point-of-purchase displays
BLM: Higher Order
15. Which of the following is referenced by the term “lasting medium”?

a. contests
b. sampling
c. specialties
d. free merchandise
BLM: Remember
16. What is the most widely used specialty item?

a. a calendar
b. a pen
c. a lighter
d. a key chain
BLM: Remember

17. At a music consumer show a company that sells software for mixing sounds is giving away free mouse
pads in the shape of guitars and musical notes. What type of sales promotion is this?
a. a sample
b. a contest
c. a prize
d. a specialty
BLM: Higher Order
18. John Frye, a small business manager, is interested in creating more company goodwill. Which
promotional tools should he use?
a. publicity programs
b. trade show exhibits
c. contests
d. specialties
BLM: Remember
19. What promotional tool provides hands-on experience with a product?

a. coupons
b. trade exhibits
c. specialty promotions
d. personal selling
BLM: Remember
20. Anne Dunne owns a small business dealing with industrial products. She currently uses personal
selling extensively, but she wants to reduce her cost without losing exposure. What promotional tool
should she use?
a. specialties
b. coupons
c. contests
d. trade show exhibits
BLM: Higher Order
21. A well-known drug retail chain rewards customers with sales coupons based on points they collect
from shopping. What type of sales promotion is this an example of?
a. a premium
b. a specialty
c. an exhibit
d. a loyalty program
BLM: Higher Order

22. What are loyalty programs effective for?
a. getting customers to try new products
b. increasing seasonal sales
c. increasing the reach of advertising
d. encouraging repeat purchases
ANS: D PTS: 1 REF: p. 199| Exhibit 7-7
BLM: Remember
23. An organic produce farm has volunteered to manage and supply the fruits and liquids at the rest
stations for cyclists participating in a fundraiser. Which type of promotion is the produce farm using?
a. loyalty program
b. specialty
c. exhibit
d. publicity
BLM: Higher Order
24. A salesperson at Carpet Warehouse searches public records of new building permits to identify
potential customers for new carpets. How is this salesperson identifying prospects?
a. customer-initiated contacts
b. marketer-initiated contacts
c. impersonal referrals
d. personal referrals
BLM: Higher Order
25. Mary White, a sales representative for a small cleaning business, asks current customers for names of
friends, customers, and other businesses that might be interested in the company’s cleaning services.
How is Mary identifying potential customers?
BLM: Higher Order
26. Which of the following describes media publications, public records, and directories?
a. impersonal referrals
c. personal referrals
d. customer-initiated contacts
BLM: Remember

27. Roger has set a meeting to promote a new product with an important client; they will meet at her
corporate office. Which activity is Roger using to deliver this promotion?
a. personal selling
b. sales promotion
c. personal promotion
d. advertising
BLM: Higher Order
28. What are the two major steps in preparing for a sales presentation?
a. advertising and practising
b. prospecting and practising
c. publicity and prospecting
d. exhibits and prospecting
ANS: B PTS: 1 REF: pp. 202-203
BLM: Remember
29. Will Thompson is a salesperson for a small appliance store. In an attempt to locate potential new
customers, he decides to mail a survey to residents in selected neighbourhoods. Those individuals who
returned completed surveys will receive a phone call from Thompson about the store’s products and
current “deals.” How is Thompson gaining knowledge of potential customers?
BLM: Higher Order
30. Tracey feels she has successfully completed a dinner meeting. She collected more than 20 business
cards to add to her list of contacts. Which activity was Tracey successful at?
a. making sales
b. setting appointments
c. collecting industry information
d. networking
BLM: Higher Order
31. What are telephone calls and mail surveys examples of?
a. impersonal referrals
c. personal referrals
d. customer-initiated contacts
BLM: Remember

32. Ken consistently tells each of his sales people about the good work he feels they do even when
productivity is low. What is a nonfinancial reward that Ken uses to motivate a salesperson?
a. personal recognition
b. compensation
c. a bonus plan
d. a stock plan
BLM: Higher Order
33. Which compensation plan is best suited for new salespersons?

a. straight salary plan
b. strictly commissions-on-sales plan
c. combination salary and commissions, with the salary representing the larger portion
d. combination salary and commissions, with the commissions representing the larger
portion
BLM: Remember
34. What is the preferred method of determining promotional expenditures?

a. percentage of sales
b. what it will take to do the job
c. cost plus
d. what can be spared
OBJ: 4-Discuss methods of determining the appropriate level of promotional expenditure
BLM: Remember
35. Inspiring Toys, a small manufacturer of educational toys, is formulating a budget for next year’s
promotional activities. The company decides to budget $40,000 for promotional expenses (5 percent of
the current year’s $800,000 in sales). What budgeting method is Inspiring Toys using?
a. spending as much as the level of sales
b. determining what level of sales it will take to do the job
c. allocating a percentage of sales
d. deciding what level of costs to accept
ANS: C PTS: 1 REF: pp. 205-206
BLM: Higher Order
36. Promotional funds are determined according to past experience in what area?
a. spending as much as the competition
b. what can be spared
c. percentage of sales
d. forecast industry standard
ANS: C PTS: 1 REF: pp. 205-206
BLM: Remember

37. For which method of determining promotional expenditures is the tendency to spend more when sales
are increasing and less when they are declining a major problem?
a. percentage of sales
b. what it will take to do the job
c. sales plus
d. what can be spared
ANS: A PTS: 1 REF: pp. 205-206
BLM: Remember
38. Inspiring Toys, a small manufacturer of educational toys, is formulating a budget for next year’s
promotional activities. Elevation Toys sells similar products to the same market. Inspiring decides to
budget $50,000 for promotional expenses (an amount equal to Elevation’s promotional spending).
What budgeting method is Inspiring Toys using?
a. spending as much as the competition
b. determining what it will take to do the job
c. allocating a percentage of sales
d. deciding what can be spared
BLM: Higher Order
39. Which of the following describes the “spending as much as the competition” method?
a. it should be used only to react to close competitors
b. it should never be used
c. it should depend on past experiences
d. it should be used to introduce a unique, new product
BLM: Remember
40. Rahul is reviewing the company’s expense report to determine the amount of funds left over to
purchase samples he wants to give away at a trade show. What method is Rahul using to determine the
promotional expenditure?
a. examining industry forecast
b. spending as much as the competition
c. deciding what can be spared
d. determining what it will take to do the job
BLM: Higher Order

41. What is the term for the seller’s measure of what he or she is willing to receive in exchange for
transferring ownership or use of a product or service?
a. credit
b. average pricing
c. demand
d. price
OBJ: 5-Discuss the role of cost and demand factors in setting a price
BLM: Remember
42. What is the total sales revenue of a small business a direct reflection of?
a. sales volume and price
b. revenues and costs
c. sales volume less costs
d. revenues and price
BLM: Remember
43. What must appropriate pricing in a small business be sufficient to cover?

a. total variable cost
b. total cost
c. total fixed cost
d. total cost and margin of profit
BLM: Remember
44. Mohammad is reviewing the specific costs incurred by the firm in actually producing its product.
These costs include materials, machinery, and labour. Which of the following is Mohammad
reviewing?
a. general overhead costs
b. costs of manufacturing
c. cost of goods sold
d. manufacturing overhead expenses
BLM: Higher Order
45. Active Feet, a small manufacturer of shoes, hired an additional vice-president and purchased a barrel
of synthetic rubber used to make shoe soles. Which two expenses do these costs represent?
a. selling cost/cost of goods sold
b. general overhead expense/cost of goods sold
c. selling cost/general overhead expense
d. general overhead expense/general overhead expense
BLM: Higher Order

46. Which of the following is a systematic comparison of cost and demand estimates in order to determine
the acceptability of alternative prices?
a. break-even analysis
b. price lining
c. cost functioning
d. demand functioning
OBJ: 6-Apply break-even analysis and markup pricing BLM: Remember
47. What does a comprehensive break-even analysis entail?

a. establishing sales forecasts
b. analyzing marketing strategy
c. examining cost-benefits relationships
d. determining the lowest price to charge
48. Within the framework of a break-even analysis, what is examined to determine the quantity at which
the product, with an assumed price, will generate enough revenue to start earning a profit?
a. costs
b. revenues
c. sales forecasts
d. costs and revenue
OBJ: 6-Apply break-even analysis and markup pricing BLM: Higher Order
49. What is the term for a cost-plus method of pricing that arrives at a final price capable of covering
operating expenses, subsequent price reductions, and desired profit levels?
a. markup pricing
b. price lining
c. break-even pricing
d. cost-based pricing
50. Markup pricing may be expressed in terms of a percentage of either the cost or which of the
following?
a. quantity
b. operating expenses
c. selling price
d. labour cost

51. Clock Tickers, a small retailer of a quality alarm clock, sells its product for $180. Clock Tickers
adheres to pricing based on a 35 percent markup of cost. What are the firm’s approximate product
costs?
a. $63
b. $98
c. $133
d. $155
52. The Widget Company sells 1,000 widgets annually at a price of $35 each. The company’s pricing
policies adhere to a 40 percent markup of selling price. What is the cost of each widget?
a. $14
b. $21
c. $28
d. $35
53. Which strategy involves pricing products or services at a lower than normal, long-range market price
in order to gain more rapid market acceptance or to increase existing market share?
a. variable pricing strategy
b. skimming price strategy
c. penetration pricing strategy
d. price-lining strategy
OBJ: 7-Identify specific pricing strategies and create a price quality grid
BLM: Remember
54. Colorful Concoctions, a maker of children’s crayons, decides to price its boxes of crayons below the
long-term market price. The firm agrees to reduce its profit margin from 30 percent to 5 percent in the
short term in order to increase market share and discourage other firms from entering the crayon
market. What strategy is Colorful Concoctions implementing?
BLM: Higher Order

55. Natural Well, a local supplier of natural bottled water, initially sold its product at a premium price of
$4 because the company believed consumers would view the bottled water as a prestigious item. The
company decided that when start-up costs had been fully recovered and competition became imminent,
the company would reduce the price to a more reasonable $1. What strategy is Natural Well
implementing?
56. TRX Inc. will give a lower price to customers that either negotiate well or have the potential to
purchase larger volumes. What pricing strategy does TRX use?
a. variable pricing
b. skimming
c. penetration pricing
d. flexible pricing
ANS: D PTS: 1 REF: pp. 213-215
BLM: Higher Order
57. In the wake of a major competitor going out of business, YYT Airlines has dropped prices to grab
market share quickly before the remaining competition. What pricing strategy is YYT Airlines using?
a. follow-the-leader
b. skimming
c. penetration
d. prestige
BLM: Higher Order
58. A new luxury hotel sets its prices very high to appeal to the rich that desire comfort and unique levels
of service. What pricing strategy is this hotel using?
a. skimming pricing
b. penetration pricing
c. variable pricing
d. prestige pricing
BLM: Higher Order

59. In the auto industry, when one dealership offers a promotion such as zero-percent financing the
competitors soon offer the same promotion. What pricing strategy is common in this industry?
b. flexible pricing strategy
c. follow-the-leader pricing strategy
BLM: Higher Order
60. Hollywood Entertainment analyzed its customer base to ascertain the characteristics of customer
segments and understand special market conditions. The independent movie theatre found that senior
citizens thought the current $5 admission price was too high and that most consumers preferred to go
to the movies after 6:00 p.m. To strengthen ticket demand, Hollywood Entertainment begins offering
$3.50 tickets to all seniors and $4 tickets for all movies starting before 6:00 p.m. What strategy is
Hollywood Entertainment using?
b. flexible pricing strategy
c. price-lining strategy
d. differentiated pricing strategy
BLM: Higher Order
TRUE/FALSE
1. The adage “Build a better mousetrap and the world will beat a path to your door” highlights the
importance of innovation in building a successful marketing program, even if it ignores the other vital
marketing activities.
ANS: T PTS: 1 REF: p. 184

2. A weak pricing strategy is required to ensure that customers perceive the new mousetrap offers better
value than their old one.
ANS: F PTS: 1 REF: p. 184

3. According to the textbook, promotion is largely based on communication.

4. The promotional mix is influenced by three major factors: the geographical nature of the market to be
reached, customer income, and the target market.


5. In developing a promotional mix, a budget is a must.

6. Advertising is the personal presentation of a business idea through mass media.

OBJ: 2-Identify advertising options for a small business
7. Advertising is one type of personal selling technique.

8. The majority of small business advertising is institutional advertising.

9. Institutional advertising is utilized only by institutions such as universities.

10. Product advertising makes potential customers aware of a particular product or service and their need
for it.

11. Product advertising is intended to keep the public conscious of the company and its good reputation.

12. The type of advertising used should be based on the nature of the business, industry practice, available
media, and the firm’s objectives.

13. Some non-continuous, or seasonal, advertising may be justified.

14. Suppliers never furnish display aids or entire advertising programs to their dealers.


15. Most small firms restrict their advertising, either politically or by customer type.

16. The Internet is not as accessible to small businesses as it is to large firms.

17. Web advertising allows advertisers to reach large numbers of global buyers in a timely manner, at less
expense, and with more impact than many alternative forms of advertising.

18. In an affiliate program, a website carries a banner ad or a link for another company in exchange for a
commission on any sales generated by the traffic sent to the sponsoring website.

19. Google is a company with large affiliate programs.

20. Banner ads are solely made by flag-producing companies and appear at civic events.

21. Spam is another term for unsolicited email promotion.

22. Studies show that first-time visitors to a website spend as little as 10 seconds there before deciding
whether or not to stay.

23. Advertising is considered to be part of sales promotion.

24. Sales promotion is an inclusive term for any promotional techniques that is neither personal selling nor
advertising.


25. Sales promotion should always comprise all the promotional efforts of a small business.

26. The most widely used specialty item is a calendar.

27. The distinguishing characteristic of specialties is their temporary nature and intangible value.

28. Specialties are functional items.

29. Trade show exhibits allow potential customers to get hands-on experience with a product.

30. Trade show groups claim that the cost of an exhibit is less than one-fourth the cost of sales calls.

31. Regular contacts with news media are required for publicity programs to be effective.

32. Joining with another firm to promote products is a form of a strategic alliance.

33. Publicity is accurately described as free advertising.

34. Personal selling is an effective method for promoting products such as cameras.


35. Prospecting is the one-time search for new customers.

36. One of the most inefficient prospecting techniques is obtaining personal referrals.

37. Inquiries by a potential customer that do not lead to a sale can still create a “hot prospect.”

38. In personal selling, one should never admit product weaknesses to the potential customers.

39. A “canned” sales talk is successful with most buyers.

40. During a sales presentation, the salesperson should never acknowledge a product disadvantage.

41. Straight financial compensation is the best means for motivating salespeople because of the financial
security salaries provide.

42. One of the best approaches to small business promotion is allocating a percentage of sales.

43. Another approach to budgeting funds for a small business is spending as much as the competition
does.

44. In allocating a percentage of sales, one major shortcoming is an inherent tendency to spend less on
promotion when sales are increasing.


45. Price is a specification of what a seller requires in exchange for transferring ownership or use of a
product or service.

46. Credit involves a disagreement between buyer and seller in terms of payment.

47. Pricing and credit decisions are vital because they affect both revenue and cash flows.

48. Pricing indirectly affects sales quantity.

49. Because the method takes into consideration both fixed and variable costs, average pricing is always
an appropriate pricing approach for small businesses.

50. Total variable costs are costs that vary with the quantity produced or sold.

51. Total fixed costs are costs that remain constant as the quantity produced or sold varies.

52. In conducting a comprehensive break-even analysis, a firm must examine both its revenue-cost
relationships and its sales forecasts.

OBJ: 6-Apply break-even analysis and markup pricing
53. A break-even analysis is typically presented by formulas or graphs.

54. The objective of a break-even analysis is to determine the quantity at which the product, at an assumed
price, will generate enough revenue to start earning a profit.


55. Markup pricing is a cost-plus method of pricing that arrives at a markup percentage high enough to
cover operating expenses, subsequent price reductions, and desired profit levels.

56. Markup pricing has emerged as a manageable pricing system for retailers who must quickly price
hundreds of products.

57. With a skimming price strategy, prices for products or services are set lower than normal long-range
market prices in order to gain more rapid market acceptance or to increase market share.

58. A penetration pricing strategy is most practical when there exists little threat of short-term competition
in the market or when start-up costs must be recovered rapidly.

59. A follow-the-leader strategy is a marketing approach that uses a particular competitor as a model in
setting prices.

60. Prestige pricing requires that a firm’s product have a real or perceived competitive advantage in the
consumer market.

61. A variable pricing strategy takes into consideration special market conditions and practices of
competitors in arriving at a final product or service price.

62. Flexible pricing is a marketing approach that offers different prices to reflect differences in customer
demand.

63. Price lining refers to the systematic determination of the right price for a product or service.


64. Under certain circumstances, local and federal laws must be considered in setting prices in a small
business.

ESSAY
1. Briefly explain the communication process and promotional mix.
ANS:
Communication is a process with identifiable components. The challenge is twofold: (1) to create the
promotions that will be most effective in fostering awareness and motivation to buy with the target
market and (2) to create a cost-effective promotion program.
A promotional mix is a blend of selling, advertising, and promotional tools aimed at a target market.
The composition is determined by four major factors. The first factor is the geographical nature of the
market to be reached. A widely dispersed market generally requires mass coverage through
advertising, in contrast to the more costly individual contacts of personal selling. On the other hand, if
the market is local with relatively small number of customers, personal selling is more feasible.
PTS: 1 REF: pp. 184-185| Exhibit 7-1

2. List the four factors that influence the choice of promotional methods used in a promotional mix.
ANS:
Geographic nature of the market to be reached—A widely dispersed market generally requires mass
coverage through advertising, in contrast to the more costly individual contacts of personal selling. If
the market is local, with a relatively small number of customers, personal selling is more feasible.
Firm's target customers—shot gunning or hitting everyone (target market and everyone else) is
expensive. If the target market is known, an advertising program can be fine-tuned.
Product's characteristics—if a high unit value (mobile home, luxury car), personal selling will be
essential. Personal selling is also good for highly technical items. On the other hand, advertising is
effective for relatively inexpensive items like razor blades or gum.
Budget—you can choose the optimal mix but if you can't afford it, you need to pare it down.
PTS: 1 REF: pp. 184-185


3. Describe three different services an advertising firm can provide to small business.
ANS:
Furnish design, artwork, and copy for specific advertisements and/or commercials.
Evaluate the effectiveness of different advertising appeals.
Advise on sales promotions and merchandise displays.
Conduct market sampling studies to evaluate product acceptance or determine the sales potential of a
specific geographic area.
Provide mailing lists.
PTS: 1 REF: p. 188 OBJ: 2-Identify advertising options for a small business
4. Identify an advantage and a disadvantage for each of the following advertising media: (a) daily
newspaper, (b) magazine, (c) radio, (d) television, and (e) outdoor.
ANS:
a. Daily newspaper. Wide circulation, but nonselective audience
b. Magazine. Good reproduction, but long lead time
c. Radio. Pinpoints audience, but advertising must be bought consistently to be of value
d. Television. Dramatic impact, but high cost
e. Outdoor. Dominant size, but clutter of many signs reduces effectiveness of each
PTS: 1 REF: p. 191| Exhibit 7-4

5. What are the four basic methods of Web advertising?
ANS:
banner ads and pop-ups
direct email promotions
sponsorships and linkages
corporate website
6. Describe how an affiliate program works and why it is popular among Web retailers.
ANS:
In an affiliate program, a website carries a banner ad or a link for another company in exchange for a
commission on any sales generated by the traffic sent to the sponsoring website.
7. Describe two reasons direct email promotions are becoming less effective.
ANS:
spam (cluttered inboxes)
viruses (reluctant to open)

8. List three sales promotion methods discussed in the textbook and briefly explain the unique
characteristics of each.
ANS:
The statements made by students will vary, of course. However, consider those listed below:
Specialties. Sales promotion items with enduring nature and tangible value
Publicity or public relations. A less costly form of sales promotion that is almost “free”
but, unfortunately, can be unfavourable
Trade show exhibits. Product demonstrations that provide hands-on experience with a
product
Loyalty programs. Points or monies or coupons given for purchases made. For instance,
Canadian Tire Money or Pioneer Gas Points, or get three oil changes and the fourth one
is free. It persuades customers to return.
Strategic alliances and sales promotions. Two or more firms that sell to the same target
market may agree to promote each other. For instance, have brochures available or have
draws winning a prize from the other store, etc.
PTS: 1 REF: pp. 197-201

9. List five ways to handle a prospect’s objections during a sales presentation.
ANS:
Direct denial: Deny the prospect’s objection and give facts to back up the denial.
Indirect denial: Express concern about the prospect’s objection and follow with a denial.
Boomerang technique: Turn the valid objection into a valid reason to buy.
Compensation method: Admit to agreeing with the objection and then proceed to show compensating
advantages.
Pass-up method: Acknowledge the concern expressed by the prospect and then move on.
PTS: 1 REF: p. 203

10. What are the advantages and disadvantages of using salary and commission as methods of
compensating salespeople?
ANS:
Security for the salesperson is the greatest advantage of a salary plan. However, a straight salary tends
to restrict the salesperson’s earning ability and can even promote laziness. On the other hand, when a
salesperson is compensated with salary, the firm can more easily require that person to perform
nonselling activities.
A commission plan serves as a strong incentive to the salesforce—“no sale, no income.” A
commission plan also helps with a firm’s cash flow problems because payment is not made until sales
revenue begins to come in. A 100 percent commission plan may not help the salesperson’s morale,
however, if sales are slow.
PTS: 1 REF: p. 205


11. List and briefly explain the three common methods of earmarking funds for promotion.
ANS:
Allocating a percentage of sales. A company’s own past sales experiences are evaluated
to establish a promotion/sales ratio. Secondary data from industry sources like
Performance Plus can be used.
Spending as much as the competition. This method studies competitors and allocates
funds at a level close to theirs.
Determining what it will take to do the job. This method analyzes the market and
promotional alternatives to determine the amount of funds required to do the job.
PTS: 1 REF: p. 205

12. Describe why setting a price is so important.
ANS:
Price directly affects the total revenue taken in by a company. If the price is too high, the quantity sold
will decrease thus lowering the overall revenue. If the price is changed and the quantity isn't, it still
affects the total revenue taken in. Therefore, pricing has a dual influence on total revenue—both
directly, as part of the gross revenue equation, and indirectly through its impact on quantity demanded.
PTS: 1 REF: p. 207

13. List the three types of costs that are used in determining prices. Give an example of each one.
ANS:
Cost of goods offered—the cost of the item, and the freight charges
Selling cost—salesperson's time, advertising
Overhead cost—storage, security, salaries, taxes
PTS: 1 REF: p. 208| Exhibit 7-10


14. What would be the break-even point if a firm set a unit selling price of $100 when total fixed costs
were $100,000 and variable costs per unit were $80? Draw a graph that depicts the break-even point.
ANS:
100,000 / 100 – 80 = 100,000 /20 = 5,000 units
PTS: 1 REF: p. 210 OBJ: 6-Apply break-even analysis and markup pricing
15. Contrast penetration pricing and skimming price strategies.
ANS:
Penetration pricing involves pricing products or services lower than the normal,
long-range market price. The purpose is to gain more rapid market acceptance or to
increase existing market share.
Skimming pricing sets prices at very high levels for a limited period for the purpose of
recovering start-up costs rapidly or when there is little threat of short-term competition.
PTS: 1 REF: p. 213


16. Describe each of the following pricing strategies and give an example.
a) bundling
b) flexible pricing
ANS:
a) Bundling is when a business combines two or more items together. The main purpose
is to move higher volumes. For instance, Bell offers discounts if you have your phone,
cellphone, satellite TV, and Internet with them—the more services, the more discounts
you get.
It is useful if there are economies of scale in the production/distribution of the product

(sell more, reduce each one's cost of goods sold) – buy 1 for $2 or 3 for $5.
Sometimes, it’s a good selling technique as the customer wants a simplified bundle
(computer CPU and you get the monitor and printer)
Also useful if the marginal costs of bundling are low – Valentine's Day chocolates; get
a card too.
Way of increasing the sale of high margin products….buy a camera, get a case for $15
(reg. $18)
b) Flexible pricing – if there are special market conditions and adjusting the pricing will
help increase revenue, or to adjust to pricing of competitors or if it will make a
difference in the customer demand. For instance…special market conditions, if the
demand is higher than the supply, you can charge a premium price. For instance, there
won't be sales on a new product that has just been released and it is in big demand. Or,
lower matinee prices or Tuesday night specials entice people to go to the movies at a
time of day when they might not otherwise go. Cruises to Alaska have an off-season, a
shoulder season, and a prime season.
Adjusting to competitors often sees Future Shop offering to match any advertised
competitor’s pricing.
Hotels that cater to business travellers during the week will often have special pricing
for family getaways on the weekend—otherwise, their rooms might be empty.
PTS: 1 REF: pp. 215-216


CDN Ed Small Business Management 5th Edition Longenecker Test Bank

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CDN Ed Small Business Management 5th Edition Longenecker Test Bank

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CDN ED Small Business Management

5th Edition Longenecker Test Bank

2. Which promotional method is favoured by a widely dispersed market?

3. Which of the following are basic promotional methods?

5. What does advertising by small businesses usually do?

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7. Which of the following is a service provided by ad agencies?

8. In what way might small firms restrict their advertising?

9. What does the right combination of advertising media depend on?

11. What are Internet banner ads?

Copyright © 2013 Nelson Education Ltd. 7-2

15. Which of the following is referenced by the term “lasting medium”?

16. What is the most widely used specialty item?

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19. What promotional tool provides hands-on experience with a product?

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33. Which compensation plan is best suited for new salespersons?

34. What is the preferred method of determining promotional expenditures?

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Copyright © 2013 Nelson Education Ltd. 7-8

43. What must appropriate pricing in a small business be sufficient to cover?

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47. What does a comprehensive break-even analysis entail?

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ANS: T PTS: 1 REF: p. 184

ANS: F PTS: 1 REF: p. 184

3. According to the textbook, promotion is largely based on communication.

ANS: T PTS: 1 REF: p. 184

ANS: F PTS: 1 REF: p. 184

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ANS: T PTS: 1 REF: p. 185

6. Advertising is the personal presentation of a business idea through mass media.

ANS: F PTS: 1 REF: p. 185

7. Advertising is one type of personal selling technique.

ANS: F PTS: 1 REF: p. 185

8. The majority of small business advertising is institutional advertising.

ANS: F PTS: 1 REF: p. 187

9. Institutional advertising is utilized only by institutions such as universities.

ANS: F PTS: 1 REF: p. 187

ANS: T PTS: 1 REF: p. 187

ANS: F PTS: 1 REF: p. 187

ANS: T PTS: 1 REF: p. 187

13. Some non-continuous, or seasonal, advertising may be justified.

ANS: T PTS: 1 REF: p. 188

ANS: F PTS: 1 REF: p. 188

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ANS: F PTS: 1 REF: p. 189

16. The Internet is not as accessible to small businesses as it is to large firms.

ANS: F PTS: 1 REF: p. 190

ANS: T PTS: 1 REF: p. 190

ANS: T PTS: 1 REF: p. 192

19. Google is a company with large affiliate programs.

ANS: T PTS: 1 REF: p. 192

ANS: F PTS: 1 REF: p. 192

21. Spam is another term for unsolicited email promotion.

ANS: T PTS: 1 REF: p. 193

ANS: T PTS: 1 REF: p. 194

23. Advertising is considered to be part of sales promotion.

ANS: F PTS: 1 REF: p. 197