MKT301 Testbank Pricing, Channels, SCM, Marcom Question Bank 4Ps Pt1 Multiple Choice Questions Completed for 2022/2023

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MKT301 – Testbank – Pricing, Channels, SCM, Marcom - Kerin-QuestionBank-4Ps-Pt1/ CHAPTER 13 BUILDING THE PRICE FOUNDATION MULTIPLE CHOICE QUESTIONS 13-1 CHAPTER OPENING EXAMPLE CONCEPTUAL Wh... at do Expedia, Travelocity, and Priceline have in common? a. They are three websites that use the same Internet service provider (ISP). b. They are companies that use reverse auctions to sell their merchandise. c. They are three online websites that only sell to businesses. d. They are all franchise operations that operate in the business-to-business market only. e. They are the three leading online travel websites. Answer: e Page: 335 Rationale: These three websites book airline tickets, hotel rooms, and special travel packages for travelers. 13-2 CHAPTER OPENING EXAMPLE CONCEPTUAL Online travel websites have not experienced the same problems as other dot-com companies because these websites: a. rarely attempt to establish any type of long-term relationships with customers. b. focus on market share. c. use tactical objectives instead of strategic objectives. d. allow customers to save money and time. e. create form utility for customers. Answer: d Page: 335 Rationale: Like any company, online travel sites must establish marketing relationships with customers. The online sites can create time and place utility, but not form.13-3 CHAPTER OPENING EXAMPLE CONCEPTUAL Which of the following is true about price? a. Customers don’t have to pay the price because there are always people who will but the item. b. Small changes in price can have big effects on the number of units sold but not company profit. c. Small changes in price can have big effects on company profit but not on the number of units sold. d. Small changes in price can have big effects on the number of units sold and also on company profit. e. All of the above are true. Answer: d Page: 335 Rationale: Price is the place where all other business decisions come together. The price must be right in the sense that customers must be willing to pay it and it must generate enough sales dollars to pay for the cost of developing, producing, and marketing the product and earn a profit for the company. Small changes in price can have big effects on both the number of units sold and company profit. 13-4 PRICE CONCEPTUAL Attorneys fees, entrance fees, train fares, and organization dues are all: a. premiums. b. bartering tools. c. mediums of exchange. d. synonyms for price. e. examples of liquidity. Answer: d Page: 336 Other Locations: web Learning Objective: 1 Rationale: Tuition, rent, interest, premium, fee, dues, fares, salary, commission and wage are all synonyms for price. 13-5 PRICE CONCEPTUAL Which of the following is a particular type of price? a. operating costs b. liquidity c. equitable medium d. college tuition e. stockholders' equity Answer: d Page: 336 Other Locations: SG Learning Objective: 1 Rationale: College tuition is a special kind of price, the money paid by a college student for a term of classes.13-6 PRICE DEFINITION From a marketing viewpoint, price is __________ exchanged for the ownership or use of a good or service. a. money or other considerations (including goods but not intangibles and services) b. money or other considerations (including other goods and services) c. money exclusively earmarked for the transaction d. what is recognized as barter within a particular culture e. anything of value to the buyer but not necessarily of value to the seller Answer: b Page: 336-337 Learning Objective: 1 Rationale: Key term definition—price 13-7 PRICE DEFINITION From a marketing viewpoint, __________ is money or other considerations (including goods and services) exchanged for the ownership or use of a good or service. a. value b. price c. barter d. a contract e. a tariff Answer: b Page: 336-337 Learning Objective: 1 Rationale: Key term definition—price 13-8 BARTER DEFINITION Barter is the practice of exchanging goods and services for other goods and services rather than for: a. value. b. perceptions. c. money. d. promises. e. tariffs. Answer: c Page: 337 Learning Objective: 1 Rationale: Key term definition—barter13-9 BARTER DEFINITION The practice of exchanging goods and services for other goods and services rather than for money is called: a. pricing. b. pricing substitution. c. debt restructuring. d. value-pricing. e. barter. Answer: e Page: 337 Other Locations: web Learning Objective: 1 Rationale: Key term definition—barter 13-10 PRICE APPLICATION Patty O'Rourke hired an attorney to represent her in a court case involving an auto accident. The attorney charged O'Rourke a fee for his services. Terry Thomas needed a haircut--the local stylist charged him $12 for her services. Aaron Mathison mowed his neighbor's lawn; in exchange, the neighbor roto-tilled Mathison's garden. The attorney fees paid by O'Rourke, the $12 charged by the hair stylist, and exchange of lawn mowing for garden tilling are examples of: a. price. b. barter. c. fee setting. d. unfair market exchanges. e. product fares. Answer: a Page: 336 Learning Objective: 1 Rationale: In the marketing realm, price is the money, goods, or services exchanged between two or more parties for the ownership or use of a good or service. Just as a customer pays a specific monetary price for physical product like a loaf of bread or a box of cereal, the price of a haircut service might be $12. The price of getting one's garden roto-tilled might take the form of barter--where in exchange for one service or product no money changes hands, but the parties exchange services or goods. 13-11 PRICE EQUATION DEFINITION The price equation formula is price equals list price minus discounts and allowances plus: a. salaries. b. commissions. c. trade-ins. d. extra fees. e. taxes. Answer: d Page: 337 Learning Objective: 1 Rationale: The price equation is: price=list price – incentives and allowances+extra fees.13-12 PRICE EQUATION DEFINITION The price equation formula is price equals __________ minus discounts and allowances plus extra fees. a. salaries b. commissions c. trade-ins d. list price e. taxes Answer: d Page: 337 Learning Objective: 1 Rationale: The price equation is: price=list price – incentives and allowances+extra fees. 13-13 PRICE EQUATION DEFINITION The price equation formula is price equals list price minus __________ plus extra fees. a. salaries b. commissions c. trade-ins d. discounts and allowances e. taxes Answer: d Page: 337 Learning Objective: 1 Rationale: The price equation is: price=list price – incentives and allowances+extra fees. 13-14 PRICE EQUATION APPLICATION A company that manages apartments decides to buy 15 new dishwashers at a list price of $550 each as replacements for old dishwashers in a small apartment complex it owns. Because the company is buying more than 10 dishwashers, it is eligible for a $150 per unit quantity discount. Financing charges total $20 per unit. The company gets $10 per dishwasher for the 15 dishwashers traded in. What is the actual price the company will pay for each dishwasher? a. $390 b. $400 c. $410 d. $530 e. $560 Answer: c Page: 337 Learning Objective: 1 Rationale: Using the price equation. Price = List price - Discounts and allowances + Extra Fees= $550 - ($150 quantity discount + $10 trade in) + $20 financing= 550 - (150 + 10) + 20= $41013-15 PRICE EQUATION APPLICATION Tara is enrolled for spring semester at college. The tuition is $6,000 but she has a scholarship for $1,000 as well as a work study grant of $1,500. The health fees and student activity fees are $150 for the semester. What is the actual price Tara is paying for the spring semester? a. $2,500 b. $2,650 c. $3,650 d. $5,150 e. $6,150 Answer: c Page: 337; Figure 13-2 Learning Objective: 1 Rationale: Using the price equation. Tuition = published tuition – Scholarship, Other financial aid, discounts for number of credits taken + Special Activity Fees= $6,000 - ($1,000 scholarship + $1,500 work study financial aid) + $150 special activity fees= 6,000 - (1,000 + 1,500) + 150= $3,650. 13-16 PRICE EQUATION CONCEPTUAL The use of ―special fees‖ and ―surcharges‖ is driven by consumers’ zeal for __________ and the ease of making price comparisons on the Internet. a. high prices b. low prices c. extra accessories d. service contracts e. waranties Answer: b Page: 337 Learning Objective: 1 Rationale: One new pricing tactic is to use ―special fees‖ and ―surcharges.‖ This practice is driven by consumers’ zeal for low prices combined with the ease of making price comparisons on the Internet. Buyers are more willing to pay extra fees than a higher list price, so sellers use add-on charges as a way of having the consumer pay more without raising the list price. 13-17 PRICE EQUATION CONCEPTUAL The use of ―special fees‖ and ―surcharges‖ is driven by consumers’ zeal for low prices and __________. a. high prices b. the ease of making price comparisons on the Internet. c. extra accessories d. service contracts e. waranties Answer: b Page: 337 Learning Objective: 1 Rationale: One new pricing tactic is to use ―special fees‖ and ―surcharges.‖ This practice is driven by consumers’ zeal for low prices combined with the ease of making price comparisons on the Internet. Buyers are more willing to pay extra fees than a higher list price, so sellers use add-on charges as a way of having the consumer pay more without raising the list price.13-18 VALUE DEFINITION The ratio of perceived benefits to price is called: a. the price-quality relationship. b. prestige pricing. c. value-added pricing. d. value. e. value analysis. Answer: d Page: 338 Learning Objective: 1 Rationale: Key term definition—value 13-19 VALUE DEFINITION The ratio of __________to price is called value. a. perceived benefits b. prestige value c. value-added pricing d. value e. perceived costs Answer: a Page: 338 Learning Objective: 1 Rationale: Key term definition—value 13-20 VALUE DEFINITION The ratio of perceived benefits to __________ is called value. a. price b. prestige value c. value-added pricing d. value analysis e. perceived costs Answer: a Page: 338 Learning Objective: 1 Rationale: Key term definition—value 13-21 VALUE-PRICING DEFINITION Value-pricing is: a. the ratio of perceived benefits to price. b. the practice of simultaneously increasing product and service benefits and maintaining or decreasing price. c. the practice of simultaneously increasing product and service benefits and increasing price. d. the ratio of price to perceived benefits. e. list price minus discounts and allowances plus extra fees. Answer: b Page: 339 LearningObjective: 1 Rationale: Key term definition—value-pricing13-22 ETHICS AND SOCIAL RESPONSIBILITY ALERT CONCEPTUAL Financial counselors suggest that to reduce credit card debt students should: a. reduce the number of credit cards they have and pay cash. b. increase the number of credit cards they have and pay cash. c. pay off the credit card debt with a loan against their home. d. pay for all future purchases with a new low-interest credit card. e. pay the interest only on all the credit cards and stop purchasing new things. Answer: a Page: 338 Learning Objective: 1 Rationale: Financial counselors have two bits of advice for students: (1) reduce the number of credit cards and (2) pay cash. Paying cash forces some hard thinking that is avoided by simply bringing out a plastic credit card. 13-23 VALUE CONCEPTUAL To increase value marketers may: a. increase price and increase benefits b. decrease benefits c. decrease price and increase benefits d. decrease price and decrease benefits e. all of the above Answer: c Page: 338 Learning Objective: 1 Rationale: To increase value, marketers may increase benefits, decrease price, or both increase benefits and decrease price according to the value formula: value=perceived benefits/price. 13-24 VALUE-PRICING DEFINITION Creative marketers engage in __________, the practice of simultaneously increasing product and service benefits and maintaining or decreasing price. a. revenue sharing b. diminishing returns c. quantitative analysis d. value-pricing e. cost-plusing Answer: d Page: 339 Other Locations: web Learning Objective: 1 Rationale: Key term definition—value-pricing13-25 VALUE-PRICING DEFINITION Creative marketers engage in value-pricing, the practice of simultaneously __________and maintaining or decreasing price. a. revenue sharing b. decreasing product and service benefits c. analyzing benefits d. increasing product and service benefits e. decreasing cost Answer: d Page: 339 Learning Objective: 1 Rationale: Key term definition—value-pricing 13-26 VALUE-PRICING DEFINITION Creative marketers engage in value-pricing, the practice of simultaneously increasing product and service benefits and__________. a. revenue sharing b. decreasing product and service benefits c. analyzing benefits d. maintaining or decreasing price e. decreasing cost Answer: d Page: 339 Learning Objective: 1 Rationale: Key term definition—value-pricing 13-27 PRICE/VALUE APPLICATION Most consumers realize the quality of diamonds varies, and most believe the higher the price of the diamond the higher its quality. This is an example of price influencing the perception of overall quality, and __________ to consumers. a. acceptable cost b. perceptual investment c. barter potential d. return on investment e. value Answer: e Page: 339 Learning Objective: 1 Rationale: For some products, price influences the perception of overall quality, and ultimately value, to consumers.13-28 PRICE/VALUE APPLICATION When Pizza Hut announced it was going to add 25 percent more toppings to its Lover's Line of pizzas without increasing the price, what consumer motivation was it appealing to? a. cost b. appearance c. reliability d. value e. prestige Answer: d Page: 339 Learning Objective: 1 Rationale: By offering more toppings for the same price, Pizza Hut was helping customers to compare perceived benefits to price, the ―value‖ of the pizza offering. 13-29 REFERENCE VALUE APPLICATION A buying situation can involve comparing the costs and benefits of substitute items— such as real sugar to the sugar substitute Equal which, although more expensive than sugar, is purchased by many consumers because it contains no calories. This situation involves the consumer considering: a. a marginal analysis. b. a profit equation. c. a break-even analysis. d. price elasticity of demand. e. a reference value. Answer: e Page: 339 Learning Objective: 1 Rationale: Reference value involves comparing the costs and benefits of substitute items. 13-30 PROFIT EQUATION DEFINITION To calculate __________, you would compute: (unit price x quantity sold) - total cost. a. total revenue b. profit c. marginal revenue d. average revenue e. break-even point Answer: b Page: Page: 339 Learning Objective: 1 Rationale: Key term definition—profit equation13-31 PROFIT EQUATION DEFINITION A firm's profit equation demonstrates that its profit equals: a. total cost + total revenue. b. total revenue - total cost. c. total cost - marginal cost. d. total cost - variable cost. e. total revenue x total cost. Answer: b Page: 339 Learning Objective: 1 Rationale: Key term definition—profit equation 13-32 PROFIT EQUATION DEFINITION According to the profit equation, profit equals total revenue minus: a. marginal cost. b. discounts and allowances. c. total cost. d. variable cost. e. fixed cost. Answer: c Page: 339 Other Locations: web Learning Objective: 1 Rationale: Key term definition—profit equation 13-33 PROFIT EQUATION APPLICATION Forever Quilting is a small company that makes quilting kits priced at $120 each. (There is no quantity discount.) The costs of the materials that go into each kit are $45. It costs $5 in labor to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising in quilting magazines, and $4,500 for the monthly salary of its owner. If Forever Quilting sells 150 kits in a given month, its monthly profit will be: a. $4,300. b. $10,500. c. $13,700. d. $11,800. e. $18,000. Answer: a Page: 339 Learning Objective: 1 Rationale: Profit = total revenue - total cost = (unit price x quantity sold) - (fixed cost + variable cost) = $18,000 - ($6200 + $7,500) = $4,300. The variable cost is the labor and materials for each kit ($5 + $45) times the number of kits sold (150 kits) or $50 x 150 = $7,500. The fixed costs are $1,000, $200, $500, and $4500=$6200. The profit is $4,300 for the month.13-34 PRICE-SETTING PROCESS CONCEPTUAL According to your text, which of the following is NOT one of the steps included in the six-step process for setting price? a. Set list or quoted price. b. Estimate the break-even point. c. Identify pricing constraints and objectives. d. Select an approximate price level. e. Make special adjustments to list or quoted price. Answer: b Page: 339 Learning Objective: 1 Rationale: The six steps provided in the text are identify pricing constraints and objectives; estimate demand and revenue; determine cost, volume, and profit relationships; select an approximate price level; set list or quoted price; and make special adjustments to list or quoted price. 13-35 PRICE-SETTING PROCESS CONCEPTUAL Which of the following are (is an) example(s) of elements of Step 1, pricing objectives and constraints? a. profit, market share and newness of product b. demand estimation, sales revenue c. cost estimation, break-even analysis d. marginal analysis e. price elasticity estimation Answer: a Page: 339; Fig. 13-3 Learning Objective: 2 Rationale: The following are examples of pricing objectives and constraints: objectives like profit, market share, and survival, constraints like demand for product class and brand, newness, costs, and competition. The following are elements of Step 2, estimate demand and revenue: demand estimation, sales revenue estimation, price elasticity estimation. The following are elements of Step 3, determine cost, volume, and profit relationships: cost estimation, marginal analysis, relation to profit, break-even analysis, relation to profit.13-36 PRICE-SETTING PROCESS CONCEPTUAL Which of the following are (is an) example(s) of elements of Step 2, estimate demand and revenue? a. profit, market share and newness of product b. demand estimation, sales revenue c. cost estimation, break-even analysis d. marginal analysis e. demand for product class and brand Answer: b Page: 339; Fig. 13-3 Learning Objective: 3 Rationale: The following are examples of pricing objectives and constraints: objectives like profit, market share, and survival, constraints like demand for product class and brand, newness, costs, and competition. The following are elements of Step 2, estimate demand and revenue: demand estimation, sales revenue estimation, price elasticity estimation. The following are elements of Step 3, determine cost, volume, and profit relationships: cost estimation, marginal analysis, relation to profit, break-even analysis, relation to profit. 13-37 PRICE-SETTING PROCESS CONCEPTUAL Which of the following are (is an) example(s) of elements of Step 3, determine cost, volume, and profit relationships? a. profit, market share and newness of product b. demand estimation, sales revenue c. cost estimation, break-even analysis d. sales revenue estimation e. demand for product class and brand Answer: c Page: 339; Fig. 13-3 Learning Objective: 5 Rationale: The following are examples of pricing objectives and constraints: objectives like profit, market share, and survival, constraints like demand for product class and brand, newness, costs, and competition. The following are elements of Step 2, estimate demand and revenue: demand estimation, sales revenue estimation, price elasticity estimation. The following are elements of Step 3, determine cost, volume, and profit relationships: cost estimation, marginal analysis, relation to profit, break-even analysis, relation to profit. 13-38 PRICING OBJECTIVES DEFINITION Expectations that specify the role of price in an organization's marketing and strategic plans are called: a. a business mission. b. pricing constraints. c. pricing objectives. d. a pricing plan. e. list or quoted prices. Answer: c Page: 340 LearningObjective: 2 Rationale: Key term definition—pricing objectives13-39 PRICING OBJECTIVES CONCEPTUAL Pricing objectives may change depending on: a. the financial position of the company as a whole. b. the success of company products. c. the segments in which the company is doing business. d. where the company is doing business by country. e. all of the above. Answer: e Page: 340 Learning Objective: 2 Rationale: Pricing objectives may change depending on the financial position of the company as a whole, the success of its products, or the segments in which it is doing business, including the country in which the product is sold. 13-40 PRICING OBJECTIVES DEFINITION Which of the following is NOT one of the six major pricing objectives discussed in the text? a. profit b. unit volume c. break-even d. survival e. market share Answer: c Page: 340-341 Other Locations: SG Learning Objective: 2 Rationale: The six major pricing objectives are: profit, sales, market share, unit volume, survival, and social responsibility. 13-41 PROFIT OBJECTIVES CONCEPTUAL Which of the following statements about profit objectives is true? a. Managers in the United States have long been praised for their insistence on managing for long-run profits. b. Profit objectives are frequently measured in terms of return on investment or return on assets. c. Firms that are interested in strategic planning set their objectives to maximize current profit. d. A target return pricing objective would only be used by a company that needs to attract more customers to survive. e. Market share and unit volume are two types of profit objectives. Answer: b Page: 340 Other Locations: web Learning Objective: 2 Rationale: Profit objectives in a firm are frequently measured in terms of return on investment or return on assets. Firms that use maximizing current profit objectives are taking a short-term view. Alternative d is describing a survival objective—not a target return objective. Alternative e contains two pricing objectives, but these are not profit objectives.13-42 PRICING OBJECTIVES CONCEPTUAL Which of the following statements about pricing objectives is true? a. Market share and unit volume are synonymous. b. Unit volume is not a type of pricing objective because it is a production strategy. c. A firm that forgoes higher profits and wants to satisfy its obligations to its customers and society in general is pursuing a social responsibility objective. d. Target return is a type of market share objective. e. All of the above statements about pricing objectives are true. Answer: c Page: 341 Learning Objective: 2 Rationale: Market share and unit volume are two distinctly different types of pricing objectives. Unit volume is a type of pricing objective. Target return is a type of profit objective. 13-43 MARKET SHARE APPLICATION When General Mills divides the sales revenue in a single year obtained by all its breakfast cereals by the breakfast cereal sales of all its competitors plus its own for that same year, it is calculating its: a. unit volume b. long-run profit. c. current profit. d. market share. e. target return. Answer: d Page: 341 Learning Objective: 2 Rationale: Market share is the ratio of a firm’s sales revenues or unit sales to those of the industry (competitors plus the firm itself). 13-44 MARKET SHARE APPLICATION If the CEO of the Clorox Company were to say, "We want to control 60 percent of the bleach market within the next five years,‖ he would have set a __________ pricing objective. a. profit b. sales c. unit volume d. market share e. social responsibility Answer: d Page: 341 Learning Objective: 2 Rationale: The CEO has set a numerical target for the percentage of the total bleach market, including his own sales, which is one definition of market share.13-45 MARKET SHARE DEFINITION __________ is the ratio of the firm’s sales revenues or unit sales to those of the industry. a. target return b. marginal profit c. unit volume d. market share e. profit Answer: d Page: 341 Learning Objective: 2 Rationale: Market share is the ratio of the firm’s sales revenues or unit sales to those of the industry (competitors plus the firm itself). 13-46 MARKET SHARE DEFINITION Market share is the ratio of the __________to those of the industry. a. target return on sales b. marginal profit of the firm c. marketing expenses of the firm d. firm’s sales revenues or unit sales e. profits of the firm Answer: d Page: 341 Learning Objective: 2 Rationale: Market share is the ratio of the firm’s sales revenues or unit sales to those of the industry (competitors plus the firm itself). 13-47 UNIT VOLUME CONCEPTUAL Which of the following is true of unit volume as a pricing objective? a. It is the quantity produced or sold. b. Firms sometimes need to match the unit volume demanded with price. c. Firms sometimes need to match the unit volume demanded with production capacity. d. Using unit volume as an objective can be counterproductive. e. All of the above are true of unit volume. Answer: d Page: 341 Learning Objective: 2 Rationale: Many firms use unit volume, the quantity produced or sold, as a pricing objective. These firms often sell multiple products at very different prices and need to match the unit volume demanded by customers with price and production capacity. Using unit volume as an objective can be counterproductive if a volume objective is achieved by drastic price cutting that drives down profit.13-48 SOCIAL RESPONSIBILITY CONCEPTUAL Which of the following is true of social responsibility as a pricing objective? a. A firm may forgo higher profit on sales to recognize its obligations to society in general.. b. Drug pricing is a critical social responsibility issue today. c. Medtronics, maker of the world’s first heart pacemaker, followed this pricing policy. d. There is a critical social responsibility issue in setting a price low enough to be affordable, yet high enough to allow companies to recoup their research costs. e. All of the above are true of social responsibility. Answer: d Page: 341 Learning Objective: 2 Rationale: A firm may forgo higher profit on sales and follow a pricing objective that recognizes its obligations to customers and society in general. Medtronics followed this pricing policy when it introduced the world’s first heart pacemaker. A critical social responsibility issues today is drug pricing—setting a price low enough to make the drug affordable by consumers needing it but high enough for drug companies to cover research costs and make a profit. 13-49 PRICING CONSTRAINTS APPLICATION When George and Arthurine Renfro decided to start a family business in 1990 and market chowchow, a southern regional food, they had to determine how they would price the chowchow by examining the demand for the product (would people rather eat homemade or store-bought), the cost of getting the jars for bottling the chowchow, and how much it would cost to distribute the product to area stores. In other words, the Renfros had to begin the development of their pricing strategy by: a. identifying pricing constraints. b. estimating break-even points and revenue points. c. setting list price. d. selecting an approximate price level. e. determining profit relationships. Answer: a Page: 339 Learning Objective: 2 Rationale: In their pricing decision, The Renfros had to identify restrictions or ―constraints‖ that affected the price they could charge. This involved the first step in setting prices which is identifying pricing constraints and objectives. 13-50 PRICING CONSTRAINTS DEFINITION Factors that limit the range of prices a firm may set are called: a. pricing objectives. b. pricing restraints. c. pricing constraints. d. pricing elasticity. e. the pricing environment. Answer: c Page: 341 Learning Objective: 2 Rationale: Key term definition—pricing constraints13-51 PRICING CONSTRAINTS DEFINITION Pricing constraints are: a. barriers that must be overcome in order to set pricing objectives. b. competitive pricing advantages one firm has over another. c. different pricing strategies for each of the firm's products. d. factors that limit the range of prices a firm may set. e. another name for demand curves. Answer: d Page: 341 Learning Objective: 2 Rationale: Key term definition—pricing constraints 13-52 PRICING CONSTRAINTS CONCEPTUAL Which term describes factors that affect price and include: newness of the product, whether it is part of a product line, and cost of changing a price? a. price fixings b. pricing constraints c. price elasticities d. pricing demands e. pricing margins Answer: b Page: 341-342 Other Locations: SG Learning Objective: 2 Rationale: Factors such as demand for the product class, product, and brand, newness of the product, single product versus a product line, cost of producing and marketing the product, cost of changing prices, type of competitive markets and competitors’ prices limit the range of prices a firm may set and are referred to as pricing constraints. 13-53 PRICING CONSTRAINTS CONCEPTUAL Often, the earlier a product is in its life cycle: a. the lower the price the firm must charge. b. the more competition it has. c. the greater the flexibility to charge a higher price. d. the lower the production costs. e. the lower the unit variable cost. Answer: c Page: 341 Learning Objective: 2 Rationale: Early in the product life cycle a firm can often charge a higher price because there are few, if any, substitutable products—an example of one of the pricing constraints the firm should consider.13-54 PRICE-SETTING PROCESS CONCEPTUAL An analysis of a prospective product shows it is expected to grow by at least 10 percent each year over the next 5 years, and then enter the maturity phase of its product life cycle. This type of analysis would provide useful information in which stage of the price-setting process? a. identifying pricing constraints and objectives b. determining cost, volume, and profit relationships c. estimating demand and revenue d. selecting an appropriate (approximate) price lining strategy e. making special adjustments to list or quoted price Answer: a Page: 341-342 Other Locations: web Learning Objective: 2 Rationale: Expected demand and stage of the product life cycle are pricing constraints, and would be information used in the first stage of price setting, identifying pricing constraints and objectives. 13-55 PRICING CONSTRAINTS CONCEPTUAL Which of the following factors would act as a constraint on pricing? a. We are dealing with a necessity type of good. b. The product is in the maturity stage of its product life cycle. c. The competitive environment is an oligopoly. d. Competitors' prices average $300 per unit. e. All of the above factors would act as constraints on pricing. Answer: e Page: 341-342 Learning Objective: 2 Rationale: The constraints listed in the text are demand for the product class, product, and brand; newness of the product: stage of the product life cycle; single product versus a product line; cost of producing and marketing the product; cost of changing prices and time period they apply; type of competitive markets; and competitors' prices. 13-56 PRICING CONSTRAINTS CONCEPTUAL Which of the following is true with regard to demand as a pricing constraint? a. The number of potential buyers for the product class affects the price a seller can charge. b. The number of potential buyers for the product affects the price a seller can charge. c. The number of potential buyers for the brand affects the price a seller can charge. d. Whether the item is a luxury or a necessity affects the price a seller can charge. e. All of the above are true. Answer: e Page: 341-342 Learning Objective: 2 Rationale: The number of potential buyers for the product class, product, and brand affect the price a seller can charge. So does whether the item is a luxury or a necessity. Generally, the greater the demand for a product, the higher the price that can be set.13-57 PRICING CONSTRAINTS CONCEPTUAL Which of the following is true with regard to the product life cycle as a pricing constraint? a. The newer a product is the higher the price that can usually be charged. b. The earlier in the product life cycle the product is, the higher the price that can usually be charged. c. Prices may rise later in the product’s life cycle if nostalgia is a factor. d. Prices may rise later in the product’s life cycle if the product is a fad. e. All of the above are true with respect to the product life cycle as a pricing constraint. Answer: e Page: 342 Learning Objective: 2 Rationale: The newer a product and earlier in the life cycle the product is, the higher the price that can usually be charged. Prices may rise later in the product’s life cycle if nostalgia or fad factors come into play. 13-58 PRICING CONSTRAINTS CONCEPTUAL Which of the following is true with regard to the product life cycle as a pricing constraint? a. The newer a product is the higher the price that can usually be charged. b. The later in the product life cycle the product is, the higher the price that can usually be charged. c. Prices may be lower later in the product’s life cycle if nostalgia is a factor. d. Prices may be lower later in the product’s life cycle if the product is a fad. e. All of the above are true with respect to the product life cycle as a pricing constraint. Answer: a Page: 342 Learning Objective: 2 Rationale: The newer a product and earlier in the life cycle the product is, the higher the price that can usually be charged. Prices may rise later in the product’s life cycle if nostalgia or fad factors come into play. 13-59 PRICING CONSTRAINTS CONCEPTUAL Which of the following is true with regard to the product life cycle as a pricing constraint? a. The older a product is the higher the price that can usually be charged. b. The earlier in the product life cycle the product is, the higher the price that can usually be charged. c. Prices may be lower later in the product’s life cycle if nostalgia is a factor. d. Prices may be lower later in the product’s life cycle if the product is a fad. e. All of the above are true with respect to the product life cycle as a pricing constraint. Answer: b Page: 342 Learning Objective: 2 Rationale: The newer a product and earlier in the life cycle the product is, the higher the price that can usually be charged. Prices may rise later in the product’s life cycle if nostalgia or fad factors come into play.13-60 PRICING CONSTRAINTS CONCEPTUAL Which of the following is true with regard to the product life cycle as a pricing constraint? a. The older a product is the higher the price that can usually be charged. b. The later in the product life cycle the product is, the higher the price that can usually be charged. c. Prices may rise later in the product’s life cycle if nostalgia is a factor. d. Prices may be lower later in the product’s life cycle if the product is a fad. e. All of the above are true with respect to the product life cycle as a pricing constraint. Answer: c Page: 342 Learning Objective: 2 Rationale: The newer a product and earlier in the life cycle the product is, the higher the price that can usually be charged. Prices may rise later in the product’s life cycle if nostalgia or fad factors come into play. 13-61 PRICING CONSTRAINTS CONCEPTUAL Which of the following is true with regard to the product life cycle as a pricing constraint? a. The older a product is the higher the price that can usually be charged. b. The later in the product life cycle the product is, the higher the price that can usually be charged. c. Prices may be lower later in the product’s life cycle if nostalgia is a factor. d. Prices may rise later in the product’s life cycle if the product is a fad. e. All of the above are true with respect to the product life cycle as a pricing constraint. Answer: d Page: 342 Learning Objective: 2 Rationale: The newer a product and earlier in the life cycle the product is, the higher the price that can usually be charged. Prices may rise later in the product’s life cycle if nostalgia or fad factors come into play. 13-62 PRICING CONSTRAINTS: COMPETITIVE MARKETS CONCEPTUAL Which pricing constraint is demonstrated by the following statement: "Most public utilities must petition regulatory commissions in order to obtain a rate increase." a. demand for the product, class, or brand b. newness of product in the life cycle c. costs of production d. type of competitive markets e. single product versus a product line Answer: d Page: 342-343 Learning Objective: 2 Rationale: The seller's price is constrained by the type of competitive market in which it competes; a monopoly in this case.13-63 WEB LINK CONCEPTUAL Imagine you have some extra cash and would like to invest in something that will give you some extra money while you look for a job after graduation. If you invest $260 in a black-pawed Zip (a cat) Beanie Baby, you should remember that its price is most closely tied to: a. whether it is listed on the eBay website. b. the price at the same time last year because of seasonal factors. c. the price a decade ago because of long-term trend factors. d. the relation of its changing price to gross domestic product. e. supply and demand. Answer: e Page: 343 Learning Objective: 2 Rationale: Prices of collectibles are set by demand and supply forces--some prices are high and only going up. But many prices are falling (like Zip, the cat). To get some recent collectible prices, visit www.ebay.com. 13-64 PURE MONOPOLY DEFINITION __________ is the competitive market situation in which one seller sets the price for a unique product. a. Pure monopoly b. Oligopoly c. Monopolistic competition d. Pure competition e. Monopolistic oligopoly Answer: a Page: 343; Fig. 13-5 Other Locations: web Learning Objective: 2 Rationale: Text term definition—pure monopoly 13-65 PURE MONOPOLY CONCEPTUAL If competitive market circumstances are such that there is no price competition, no product differentiation, and the purpose of advertising is to increase demand for the product class, then __________ must exist in the industry. a. a pure monopoly b. an oligopoly c. monopolistic competition d. pure competition e. oligopolistic competition Answer: a Page: 343; Fig. 13-5 Learning Objective: 2 Rationale: In a pure monopoly, there is no price competition, no product differentiation, and the purpose of advertising is to increase demand for the product class.13-66 PURE MONOPOLY APPLICATION Florida Power & Light, an electric power company, is the only source of electricity for consumers in most parts of the Florida panhandle. As a(n) __________, the company receives approval from the state utility commission for the rates it can charge. a. free enterprise b. pure monopoly c. oligopoly d. monopolistic competitor e. competitor in a pure competition Answer: b Page: 343; Fig. 13-5 Learning Objective: 2 Rationale: Figure 13-5 describes a pure monopoly as a market with one seller who sets the price for a unique product. 13-67 PURE MONOPOLY APPLICATION The former Soviet republic Turkmenistan is in Central Asia and is one of the last countries on the planet to gain Internet access. The only Internet service provider for the entire country is Turkmen Telecom. There is no need for price competition, promotion competition, or product differentiation because Turkmen Telecom is a(n): a. free enterprise. b. pure monopoly. c. oligopoly. d. monopolistic competitor. e. pure competitor. Answer: b Page: 343; Fig. 13-5 Other Locations: SG Learning Objective: 2 Rationale: Text term definition—pure monopoly 13-68 PURE MONOPOLY CONCEPTUAL The marketing director for a(n) __________ is most likely to believe, "The purpose of advertising is to increase demand for the product class." a. pure monopoly b. oligopoly c. monopolistic competitor d. pure competitor e. competitive oligopoly Answer: a Page: 343; Fig. 13-5 Learning Objective: 2 Rationale: The extent of advertising for a pure monopoly is to increase demand for the product class.13-69 OLIGOPOLY DEFINITION The competitive market situation in which the few sellers are sensitive to one another's prices is called: a. pure monopoly. b. oligopoly. c. monopolistic competition. d. pure competition. e. oligopolistic competition. Answer: b Page: 343 Learning Objective: 2 Rationale: Text term definition—oligopoly 13-70 OLIGOPOLY DEFINITION If competitive market circumstances are such that there is some leader-follower price competition, some product differentiation, and the purpose of advertising is to inform, but avoid price competition, then __________ must exist in the industry. a. a pure monopoly b. an oligopoly c. monopolistic competition d. pure competition e. monopolistic oligopoly Answer: b Page: 343 Learning Objective: 2 Rationale: Text term definition—oligopoly 13-71 OLIGOPOLY APPLICATION Go to any Kroger supermarket and walk to the cereal aisle. You will notice four brands—Kellogg's, Quaker, General Mills, and Post—seem to occupy most of the shelf space. These cereals are all priced about the same. There is a good deal of product differentiation as the result of licensing agreements that have created a line of Disney cereals and through the use of different health claims. Given this information, you should know the cereal industry is an example of: a. a pure monopoly. b. an oligopoly. c. monopolistic competition. d. a pure competition. e. monopolistic oligopoly. Answer: b Page: 343 Learning Objective: 2 Rationale: An oligopoly is a market with few sellers who are sensitive to each other’s prices. See also Figure 13-5.13-72 OLIGOPOLY CONCEPTUAL If competitive market circumstances are such that there are few sellers who are sensitive to each other’s prices, and the purpose of advertising is to inform but avoid price competition, then __________ must exist in the industry. a. a pure monopoly b. an oligopoly c. monopolistic competition d. pure competition e. oligopolistic competition Answer: b Page: 343 Learning Objective: 2 Rationale: See Figure 13-5, which shows that oligopoly has these conditions. 13-73 MONOPOLISTIC COMPETITION DEFINITION The competitive market situation in which many sellers compete on non-price factors is called: a. a pure monopoly. b. an oligopoly. c. monopolistic competition. d. pure competition. e. monopolistic oligopoly. Answer: c Page: 343 Other Locations: SG Learning Objective: 2 Rationale: Text term definition—monopolistic competition 13-74 MONOPOLISTIC COMPETITION APPLICATION In which type of industry would a marketing director be most likely to say, ―The purpose of our advertising is to differentiate our firm's products from our competitors' products.‖ a. pure monopoly b. oligopoly c. monopolistic competition d. pure competition e. monopolistic oligopoly Answer: c Page: 343 Learning Objective: 2 Rationale: See Figure 13-5, which shows that the purpose of advertising in monopolistic competition is to differentiate the firm’s products from those of competitors.13-75 MONOPOLISTIC COMPETITION APPLICATION There are over 100 companies that manufacture natural and artificial flavorings used to enhance the taste of food before it is sold to consumers. Many of these manufacturers are regional operations. Many differentiate themselves in their advertising from the competition by specializing in one or two types of foods for which they provide flavorings. Some use their distribution strategies as a means of differentiating themselves from their competition. This industry is most likely an example of: a. pure monopoly. b. oligopoly. c. monopolistic competition. d. bilateral monopoly. e. monopolistic oligopoly. Answer: c Page: 343 Learning Objective: 2 Rationale: See Figure 13-5, which shows these characteristics of monopolistic competition. The advertising message of these firms is to differentiate their products from competitors through particular products or distribution. 13-76 MONOPOLISTIC COMPETITION DEFINITION The competitive market situation in which the many sellers compete on nonprice factors is called: a. pure monopoly. b. oligopoly. c. monopolistic competition. d. pure competition. e. oligopolistic competition. Answer: c Page: 343; Fig. 13-5 Learning Objective: 2 Rationale: Text term definition—monopolistic competition 13-77 PURE COMPETITION DEFINITION The competitive market situation in which many sellers follow the market price for identical, commodity products is called: a. pure monopoly. b. oligopoly. c. monopolistic competition. d. pure competition. e. oligopolistic competition. Answer: d Page: 343; Fig. 13-5 Learning Objective: 2 Rationale: Text term definition—pure competition13-78 PURE COMPETITION CONCEPTUAL If competitive market circumstances are such that there is almost no price competition, no product differentiation, and the only advertising informs prospects the product is available, then _________ must exist in this industry. a. a pure monopoly b. an oligopoly c. monopolistic competition d. pure competition e. monopolistic oligopoly Answer: d Page: 343; Fig. 13-5 Learning Objective: 2 Rationale: See Figure 13-5, which describes pure competition as having the characteristics given. 13-79 PURE COMPETITION CONCEPTUAL The marketplace sets the price for wheat, so farmers who are trying to sell their wheat crops don't have to create a pricing strategy. The wheat is sold in a(n) __________ market. a. oligopoly b. pure monopoly c. pure competition d. monopolistic competition e. monopolistic oligopoly Answer: c Page: 343; Fig. 13-5 Learning Objective: 2 Rationale: This is similar to the corn example in the text in which many sellers offering an identical commodity product are facing pure competition. 13-80 COMPETITORS' PRICES CONCEPTUAL A manufacturing company that introduces a product must know or anticipate what specific price its __________ currently charge or will charge in the future. a. information technology departments b. subsidiary manufacturing divisions c. previous industry relations d. present and potential competitors e. government bureaus and labor unions Answer: d Page: 344 Other Locations: web Learning Objective: 2 Rationale: Of the choices, only d involves price setting directly relevant to the firm.13-81 DEMAND AND REVENUE CONCEPTUAL Marketing executives must translate estimates of customer demand into estimates of: a. personnel requirements. b. advertising expenditures. c. public relations efforts. d. revenues. e. none of the above. Answer: d Page: 344 Learning Objective: 3 Rationale: Basic to setting a product’s price is the extent of customer demand for it. Marketing executives must also translate this estimate of customer demand into estimates of revenues the firm expects to receive. 13-82 DEMAND CURVE APPLICATION Newsweek ran a pricing experiment that involved setting different prices for its magazine in different cities and counting the number of units sold. After adjusting for factors like the population of the different cities, Newsweek could plot these prices and units to result in a: a. target return curve. b. demand curve. c. unit volume curve. d. consumer tastes curve. e. unit cost curve. Answer: b Page: 344 Learning Objective: 3 Rationale: A demand curve involves plotting the price charged against the units (quantity) sold at that price. 13-83 DEMAND CURVE DEFINITION A demand curve shows: a. the total number of buyers for all products in a particular industry. b. the total sales for specified product lines, usually over a three-year period. c. a maximum number of products consumers will buy at a given price. d. anticipated marginal revenue obtained under specified customer demand conditions. e. the opposing axis on a profit equation projection. Answer: c Page: 344 Other Locations: web Learning Objective: 3 Rationale: Key term definition—demand curve13-84 DEMAND CURVE DEFINITION The maximum quantity of products consumers will buy at given price is shown by: a. a demand curve. b. a price constraints. c. a break-even point. d. price lining. e. a marginal revenue curve. Answer: a Page: 344 Learning Objective: 3 Rationale: Key term definition—demand curve 13-85 DEMAND CURVE CONCEPTUAL Which of the following statements about the factors that influence demand is true? a. As the availability of close substitutes increases, the demand for a product increases. b. As real consumer income increases, demand for a product increases. c. As the price of close substitutes increases, demand for a product declines. d. Changing consumer tastes have little impact on demand for a product. e. All of the above statements about the factors that influence demand are true. Answer: b Page: 345 Other Locations: SG Learning Objective: 3 Rationale: As the price of close substitute products falls and their availability increases, the demand for a product also increases. Changing consumer tastes have a major impact on demand for a product. See Figure 13-6. 13-86 DEMAND FACTORS DEFINITION Factors that determine consumers' willingness and ability to pay for goods and services are called: a. economic environmental factors. b. the ―misery index.‖ c. demand factors. d. elasticity factors. e. consumer income. Answer: c Page: 345 Learning Objective: 3 Rationale: Key term definition—demand factors 13-87 DEMAND FACTORS DEFINITION Demand factors are factors that determine: a. the number of consumers who can afford to purchase a product or service. b. the price that should be charged for a given product. c. consumers' willingness and ability to pay for goods and services. d. the number of consumers who want to purchase a product. e. the number of consumers who can purchase a product.Answer: c Page: 345 Learning Objective: 3 Rationale: Key term definition—demand factors 13-88 DEMAND FACTORS APPLICATION There are a lot of skateboards on the market, but the BMW Streetcarver is the only one with stabilizers and wheel design based on BMW's automobile. This technology gives the BMW Streetcarver better control at high speeds and around sharp turns than any other brand. The skateboard is priced at $495, which leaves many consumers (especially young males) who might want to buy the Streetcarver unable to afford it. This inability to pay for the high-priced BMW-made skateboard shows the affect of __________ on sales. a. demand factors b. macroeconomic environmental factors c. the consumer index d. supply factors e. exchange parameters Answer: a Page: 345 Learning Objective: 3 Rationale: Demand factors are factors that determine consumers' willingness and ability to pay for goods. 13-89 DEMAND FACTORS APPLICATION Mrs. Renfro's, Inc., is a company that sells 25 different relishes in 45 different states. Mrs. Renfro's chipotle corn salsa is so popular that the company cannot make enough to keep its resellers stocked. Its price of $4.50 for a jar seems just right to consumers who savor its hot and spicy taste. The popularity of hot and spicy food is an example of a(n) __________ that Mrs. Renfro's has used to make its product a success. a. exchange parameter b. demand factor c. supply factor d. consumer index e. macroeconomic environmental factor Answer: b Page: 345 Learning Objective: 3 Rationale: Demand factors are factors that determine consumers' willingness and ability to pay for goods. The popularity of hot and spicy has increased consumers' willingness to pay. 13-90 MOVEMENT ALONG THE DEMAND CURVE DEFINITION Movement along the demand curve is illustrated by which of the following? a. As the price is lowered, the quantity demanded increases, assuming all else stays the same. b. As the price is raised, the quantity demanded increases, assuming all else stays the same. c. As the amount of advertising increases, the quantity demanded decreases, assuming all else stays the same. d. As the amount of advertising increases, the quantity demanded increases, assuming all else stays the same. e. As consumer incomes rise, the quantity demanded decreases, assuming all else staysthe same. Answer: a Page: 345 Learning Objective: 3 Rationale: Text term definition—movement along the demand curve 13-91 SHIFT IN THE DEMAND CURVE DEFINITION A shift in the demand curve is illustrated by which of the following? a. As the price is lowered, the quantity demanded increases, assuming all else stays the same. b. As the price is raised, the quantity demanded increases, assuming all else stays the same. c. As the amount of advertising increases, the quantity demanded increases, assuming all else stays the same. d. As the amount of advertising increases, the price decreases, assuming all else stays the same. e. As consumer incomes rise, the price decreases, assuming all else stays the same. Answer: c Page: 345 Learning Objective: 3 Rationale: Text term definition—shift in the demand curve 13-92 MARGINAL REVENUE DEFINITION Marginal revenue is: a. monies made after all fixed costs are covered. b. monies made after fixed and variable costs are covered. c. the amount by which marginal costs exceed fixed costs. d. the profit made on an additional unit of product sold. e. the slope of the total revenue curve. Answer: e Page: 347 Other Locations: SG Learning Objective: 3 Rationale: Key term definition—marginal revenue 13-93 MARGINAL REVENUE APPLICATION Forever Quilting is a company that designs and distributes quilting kits. The kits are priced at $120 each. (There is no quantity discount.) The costs of the materials that go into each kit are $45. It costs $5 in labor to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising in quilting magazines, and $3,500 for the monthly salary of its owner. Forever Quilting’s marginal revenue is: a. $50. b. $120. c. $170. d. $3,500. e. $5,200. Answer: b Page: 347 Learning Objective: 3Rationale: Marginal revenue is the change in total revenue by selling one additional unit- -in this case one quilting kit—which is priced at $120. See Figures 13-7 and 13-8.13-94 MARGINAL REVENUE DEFINITION The change in total revenue obtained by selling one additional unit is called: a. demand revenue. b. median revenue. c. average revenue. d. marginal revenue. e. marginal cost. Answer: d Page: 346 Learning Objective: 3 Rationale: Key term definition—marginal revenue 13-95 MARGINAL REVENUE APPLICATION At a price of $3 each, SHΛPE magazine sells 1.25 million copies of its magazine targeted to young women seeking a healthier lifestyle. If the price per issue is increased to $3.25 each, only 1 million copies will be sold. Fixed costs are $1 million and unit variable costs are $0.50 per magazine. Calculate the marginal revenue for SHΛPE magazine at the higher price. a. $.50 b. $1.25 c. $1.65 d. $3.00 e. $3.25 Answer: e Page: 346; Fig. 13-7 Learning Objective: 3 Rationale: Marginal revenue is the addition to revenue by selling one more unit. Because each additional unit sold brings in $3.25 more, the marginal revenue is $3.25 per unit, which is also the average revenue per unit and price per unit for this problem. 13-96 TOTAL REVENUE APPLICATION At a price of $3 each, SHΛPE magazine sells 1.25 million copies of its magazine targeted to young women seeking a healthier lifestyle. If the price is increased to $3.25 each, only 1 million copies will be sold. Fixed costs are $1 million and unit variable costs are $0.50 per magazine. For the information provided here, what is SHΛPE magazine's total revenue obtained at the higher price? a. $3,750,000 b. $3,250,000 c. $2,125,000 d. $1,625,000 e. $675,000 Answer: b Page: 346; Fig. 13-7 Learning Objective: 3 Rationale: Total revenue at the higher price is equal to the price of $3.25 x 1,000,000 copies, or $3,250,000. See Figures 13-7 and 13-8.13-97 TOTAL REVENUE APPLICATION At a price of $3 each, SHΛPE magazine sells 1.25 million copies of its magazine targeted to young women seeking a healthier lifestyle. If the price per issue is increased to $3.25 each, only 1 million copies will be sold. Fixed costs are $1 million and unit variable costs are $0.50 per magazine. For the information provided here, what is SHΛPE magazine's total revenue obtained at the lower price? a. $3,750,000 b. $3,000,000 c. $2,125,000 d. $1,625,000 e. $675,000 Answer: a Page: 346; Fig. 13-7 Learning Objective: 3 Rationale: Total revenue at the lower price is equal to the price of $3.00 x 1,250,000 copies, or $3,750,000. See Figures 13-7 and 13-8. 13-98 TOTAL REVENUE APPLICATION Forever Quilting is a small company that makes quilting kits priced at $120 each. (There is no quantity discount.) The costs of the materials that go into each kit are $45. It costs $5 in labor to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and $4,500 for the monthly salary of its owner. Last month the company sold 150 kits. Forever Quilting’s total revenue for the month was: a. $3,500. b. $6,750. c. $7,500. d. $10,500. e. $18,000. Answer: e Page: 346; Fig. 13-7 Learning Objective: 3 Rationale: Total revenue is the unit price multiplied by the quantity sold. In this case: $120 x 150 kits = $18,000.13-99 AVERAGE REVENUE APPLICATION Ampro-Mag is a small company that makes materials for safely controlling hazardous spills of all kinds. It sells these items as a neutralizing kit that priced at $120 each. (There is no quantity discount.) The costs of the materials that go into each kit are $45. It costs $5 in labor to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising in trade journals, and $3,500 for the monthly salary of its owner. Ampro-Mag's average revenue per unit is: a. $30. b. $50. c. $70. d. $120. e. $3,500. Answer: d Page: 346; Fig. 13-7 Learning Objective: 3 Rationale: Average revenue is the average amount of money received for selling one unit of the product, or simply the price of this unit--in this case, $120. 13-100 AVERAGE REVENUE APPLICATION At a price of $4 each, SHΛPE magazine sells 1.25 million copies of its magazine targeted to young women seeking a healthier lifestyle. If the price per issue is increased to $4.50 each, only 1 million copies will be sold. Fixed costs are $1 million and unit variable costs are $0.50 per magazine. Calculate the average revenue for SHΛPE magazine at the higher price. a. $.50. b. $1.25 c. $4.00 d. $4.50 e. $5.68 Answer: d Page: 346; Fig. 13-7 Learning Objective: 3 Rationale: Price = average revenue = $4.50 13-101 MARKETING NEWSNET CONCEPTUAL Which of the following pricing constraints will most likely affect the new Airbus Industries A380 airplane being built to carry more than 550 passengers? a. the use of pricing skimming b. the possible permanent decrease in the number of air passengers due to September 11, 2001 events c. a desire to use social responsibility pricing objectives d. a need to eliminate all fixed costs e. a newly developed code of ethics Answer: b Page: 348 Learning Objective: 3 Rationale: Demand for air travel significantly impacts demand for new airliners. Therefore, demand for new airplanes has also decreased. Alternative B contains the only actual constraint.13-102 MARKETING NEWSNET APPLICATION There are only a few companies like Airbus Industries and Boeing that manufacture commercial planes. Airbus is trying to differentiate itself from the competition by building the largest airplanes while Boeing is trying to build the most efficient planes. Companies in this industry do not want to engage in price wars. Airbus and Boeing are operating in: a. an oligopoly. b. a pure monopoly. c. pure competition. d. monopolistic competition. e. monopolistic oligopoly. Answer: a Page: 343 Learning Objective: 2 Rationale: Boeing and Airbus operate in an industry where few sellers are sensitive to each other’s prices. The purpose of advertising is to inform but avoid price competition. 13-103 PRICE ELASTICITY OF DEMAND CONCEPTUAL Other things equal, if a firm finds the demand for one of its products is inelastic, it can INCREASE its total revenues by: a. raising its price. b. lowering its price. c. reducing fixed costs. d. reducing variable costs. e. reducing both fixed and variable costs. Answer: a Page: 348 Learning Objective: 4 Rationale: With inelastic demand, price reduction causes the quantity sold to increase but total revenue actually decreases. So with inelastic demand while a price increase causes the quantity sold to decrease, the total revenue increases (answer a). 13-104 PRICE ELASTICITY OF DEMAND DEFINITION __________ is the percentage change in quantity demanded relative to (divided by) the percentage change in price. a. Marginal revenue b. Price elasticity of demand c. Average demand d. Marginal demand e. Demand shift Answer: b Page: 348 Learning Objective: 4 Rationale: Key term definition—price elasticity of demand13-105 PRICE ELASTICITY OF DEMAND CONCEPTUAL Which of the following statements about price elasticity of demand is true? a. Price elasticity with unitary demand is less than 1. b. The more substitutes a product has, the less likely it is to be price elastic. c. With inelastic demand, a reduction in price increases total revenue. d. With inelastic demand, price elasticity is less than 1. e. None of the above statements about price elasticity of demand is true. Answer: d Page: 348-349 Other Locations: SG Learning Objective: 4 Rationale: Price elasticity with unitary demand is equal to 1. The more substitutes a product has, the more likely it is to be price elastic. Items that require a large cash outlay compared with a person's disposable income are price elastic. Price elasticity with inelastic demand is less than one. Price elasticity with elastic demand is greater than one. With inelastic demand, reducing price decreases total revenue. 13-106 PRICE ELASTICITY OF DEMAND CONCEPTUAL Which of the following statements about price elasticity of demand is true? a. Price elasticity with unitary demand is equal to 1. b. The more substitutes a product has, the less likely it is to be price elastic. c. With inelastic demand, a reduction in price increases total revenue. d. With inelastic demand, price elasticity is greater than 1. e. None of the above statements about price elasticity of demand is true. Answer: a Page: 348-349 Learning Objective: 4 Rationale: Price elasticity with unitary demand is equal to 1. The more substitutes a product has, the more likely it is to be price elastic. Items that require a large cash outlay compared with a person's disposable income are price elastic. Price elasticity with inelastic demand is less than one. Price elasticity with elastic demand is greater than one. With inelastic demand, reducing price decreases total revenue. 13-107 PRICE ELASTICITY OF DEMAND CONCEPTUAL Which of the following statements about price elasticity of demand is true? a. Price elasticity with unitary demand is greater than 1. b. The more substitutes a product has, the more likely it is to be price elastic. c. With inelastic demand, a reduction in price increases total revenue. d. With inelastic demand, price elasticity is greater than 1. e. None of the above statements about price elasticity of demand is true. Answer: b Page: 348-349 Learning Objective: 4 Rationale: Price elasticity with unitary demand is equal to 1. The more substitutes a product has, the more likely it is to be price elastic. Items that require a large cash outlay compared with a person's disposable income are price elastic. Price elasticity with inelastic demand is less than one. Price elasticity with elastic demand is greater than one. With inelastic demand, reducing price decreases total revenue.13-108 PRICE ELASTICITY OF DEMAND CONCEPTUAL Which of the following statements about price elasticity of demand is true? a. Price elasticity with unitary demand is greater than 1. b. The more substitutes a product has, the less likely it is to be price elastic. c. With inelastic demand, a increase in price increases total revenue. d. With inelastic demand, price elasticity is greater than 1. e. None of the above statements about price elasticity of demand is true. Answer: c Page: 348-349 Learning Objective: 4 Rationale: Price elasticity with unitary demand is equal to 1. The more substitutes a product has, the more likely it is to be price elastic. Items that require a large cash outlay compared with a person's disposable income are price elastic. Price elasticity with inelastic demand is less than one. Price elasticity with elastic demand is greater than one. With inelastic demand, reducing price decreases total revenue. 13-109 PRICE ELASTICITY OF DEMAND CONCEPTUAL A specific product in a snack vending machine is: a. more likely to be price elastic than price inelastic. b. an ideal example of unitary demand. c. likely to have a price elasticity equal to 1. d. likely to have a price elasticity less than 1. e. more likely to be price inelastic than price elastic. Answer: a Page: 348-349 Learning Objective: 4 Rationale: The more substitutes a product has, the more likely it is to be price elastic. In many snack machines today, the buyer has more than two dozen choices—making the demand more elastic. 13-110 PRICE ELASTICITY OF DEMAND APPLICATION At a price of $3 each, SHΛPE magazine sells 1.25 million copies of its magazine targeted to young women seeking a healthier lifestyle. If the price per issue is increased to $3.25 each, only 1 million copies will be sold. For the information provided, the price elasticity of demand for SHΛPE magazine in this price range can be described as: a. inelastic demand. b. elastic demand. c. unitary demand. d. null elasticity. e. subsidized elasticity. Answer: b Page: 348-349 Learning Objective: 4 Rationale: Price elasticity of demand is the percentage change in quantity demanded relative to the percentage change in price. Here reducing price from $3.25 per issue to $3.00 increases total revenue, making demand elastic in this price range.13-111 PRICE ELASTICITY OF DEMAND APPLICATION In 2003-2004 much of the western U.S. experienced a drought condition. For example in Denver, water usage was restricted. Yet even though most people used less water, the price of water did not drop. In fact, when the drought was over, the water company actually raised water prices. Still, residents of Denver did not use less water. Water is: a. price inelastic. b. price elastic. c. price sensitive. d. price insensitive. e. unitary elastic. Answer: a Page: 348-349 Learning Objective: 4 Rationale: Demand is price inelastic when a 1 percent decrease in price produces less than a 1 percent increase in quantity demanded, thereby actually decreasing sales revenue. Slight increases or decreases in price will not significantly affect the demand for water. 13-112 ELASTIC DEMAND CONCEPTUAL Demand for a product is likely to be more price elastic if: a. it is considered a necessity. b. it has many substitutes. c. it has few substitutes. d. its price is low relative to a product with which it must be used. e. none of the above. Answer: b Page: 348-349 Learning Objective: 4 Rationale: The more substitutes a product or service has, the more likely it is that demand will be elastic. 13-113 ELASTIC DEMAND DEFINITION Several companies produce latex gloves that are used in a variety of different industries. If one of the glove manufacturers decreases its price by just a few percentage points, it will result in a significant increase in quantity demanded. The demand for latex gloves is: a. synergistic. b. elastic. c. inelastic. d. holistic. e. entropic. Answer: b Page: 348-349 Learning Objective: 4 Rationale: Text term definition—elastic demand13-114 ELASTIC DEMAND CONCEPTUAL Elastic demand exists when a(n): a. a small percentage decrease in price produces a smaller percentage increase in quantity demanded and total revenue falls. b. a small percentage decrease in price produces a larger percentage increase in quantity demanded and total revenue increases. c. an increase in price causes a larger increase in quantity demanded and total revenue falls to zero. d. the quantity demanded remains the same regardless of level of price and total revenue is unchanged. e. a small percentage decrease in price produces a smaller percentage decrease in quantity demanded and total revenue increases. Answer: b Page: 349 Other Locations: SG Learning Objective: 4 Rationale: Demand is price elastic when a small percentage decrease in price produces a larger percentage increase in quantity demanded and total revenue increases. 13-115 INELASTIC DEMAND CONCEPTUAL Inelastic demand exists when a(n): a. a small percentage decrease in price produces a smaller percentage increase in quantity demanded and total revenue falls. b. a small percentage decrease in price produces a smaller percentage increase in quantity demanded and total revenue falls. c. an increase in price causes a larger increase in quantity demanded and total revenue falls to zero. d. the quantity demanded remains the same regardless of level of price and total revenue is unchanged. e. a small percentage decrease in price produces a smaller percentage decrease in quantity demanded and total revenue increases. Answer: a Page: 348-349 Learning Objective: 4 Rationale: Demand is price inelastic when a small percentage decrease in price produces a smaller percentage increase in quantity demanded and total revenue decreases. 13-116 UNITARY DEMAND APPLICATION A book on how to invest in collectibles spends several weeks on best seller lists. The paperback book was originally released for $9.99. A reduction of the price to $9.79 had no effect on total revenue, which remained the same. This is due to the book having: a. inelastic demand. b. elastic demand. c. unitary demand. d. null elasticity. e. subsidized elasticity. Answer: c Page: 348-349 Learning Objective: 4 Rationale: With unitary demand, small percentage decrease in price produces an identical percentage increase in quantity demanded so total revenue remains unchanged.13-117 UNITARY DEMAND DEFINITION Unitary elasticity of demand exists when: a. a small percentage decrease in price produces a larger percentage increase in quantity demanded. b. a small percentage decrease in price produces a smaller percentage increase in quantity demanded. c. an increase in price causes a larger increase in quantity demanded. d. a small percentage decrease in price is identical to the percentage increase in quantity demanded. e. percentage change in the target market size is equal to the change in quantity demanded. Answer: d Page: 349 Other Locations: web Learning Objective: 4 Rationale: Text term definition—unitary demand 13-118 UNITARY DEMAND CONCEPTUAL Which of the following statements about unitary demand is true? a. Products for which there are a lot of substitutes have unitary demand. b. Products like life-saving drugs have unitary demand. c. Products with unitary demand will have a price elasticity equal to 1. d. Products with unitary demand have a price elasticity that is greater than one. e. Consumer products like personal jets, yachts, and summer homes usually have unitary demand. Answer: c Page: 348-349 Learning Objective: 4 Rationale: Products with a lot of substitutes have elastic demand. Products like lifesaving drugs have inelastic demand. Products with elastic demand have a price elasticity that is greater than one. Consumer products like personal jets, yachts, and summer homes are more likely to have elastic demand if their price is a significant percentage of the purchaser's disposable income. 13-119 PRICE-SETTING PROCESS CONCEPTUAL Market analysts for a large cereal company estimated that price elasticity of demand for presweetened cereal is 1.97, but that the entire market for ready-to-eat cereals exhibits price elasticity of demand of 0.36. Most likely, this information will be collected by managers in which step of the price-setting process? a. identifying pricing constraints and objectives b. estimating the break-even point c. estimating demand and revenue d. selecting an appropriate (approximate) price level e. making special adjustments to list or quoted price Answer: c Page: 349 Other Locations: SG Learning Objective: 4 Rationale: Price elasticity of demand is important to marketing managers because of its relationship to total revenue. Analyzing elasticities is an activity that takes place in the second step of the price setting process, estimating demand and revenue.13-120 PRICE ELASTICITY OF DEMAND CONCEPTUAL Price elasticity of demand is determined by a number of factors. Which of the following is NOT one of those factors? a. the availability of substitutes b. necessity good or service c. importance of purchase relative to a person's disposable income d. luxury good or service e. the cost of production. Answer: e Page: 349 Learning Objective: 4 Rationale: The first four factors listed above are all discussed in the text as factors influencing price elasticity of demand. The more substitutes a product has, the more likely it is to be price elastic. Products and services considered to be necessities are price inelastic. Items that require large cash outlays relative to disposable personal income are price elastic. The cost of production relates to costs, not revenues (which is the special focus of price elasticity of demand). 13-121 PRICE ELASTICITY OF DEMAND APPLICATION Ace Shoe Co. has fixed costs of $6 million and unit variable costs of $5 per pair. Suppose a consultant tells Ace it can sell 700,000 pairs of shoes, thus earning a profit of $2.5 million. What potential error is the consultant making? a. assuming that fixed costs are independent of price b. assuming that units sold is independent of price c. assuming that some fixed costs are variable d. assuming that some variable costs are fixed e. neglecting the elasticity of supply Answer: b Page: 349 Learning Objective: 4 Rationale: The consultant assumes that price resulting from specifying the profit and quantity sold is one consumers are willing to pay. This is a very big assumption and is the same as saying demand is unrelated to price. 13-122 STEP 3: DETERMINE COST, VOLUME AND PROFIT CONCEPTUAL The break-even point for a large grain farming operation was calculated to be 2 million bushels of corn. Break-even analysis would take place in which stage of the price-setting process? a. identifying pricing constraints and objectives b. determining cost, volume, and profit relationships c. estimating demand and revenue d. select an appropriate (approximate) price level e. make special adjustments to list or quoted price Answer: b Page: 350-351 Learning Objective: 5 Rationale: Break-even analysis is a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output. It occurs during Step 3 of the pricing process: Determine cost, volume, and profit relationships.13-123 TOTAL COST DEFINITION The sum of fixed and variable costs is called: a. marginal cost. b. value added. c. average cost. d. total administrative overhead. e. total cost. Answer: e Page: 350 Other Locations: web Learning Objective: 5 Rationale: Key term definition—total cost 13-124 FIXED COST DEFINITION Fixed cost refers to: a. the sum of the expenses that vary directly with the quantity of the product produced and sold. b. the total expense incurred by a firm in producing and marketing a product or service. c. expenses that are stable and do not change with the quantity of the product that is produced and sold. d. the consideration exchanged for the ownership or use of a good or service. e. total expenses incurred in producing or selling one additional unit of product. Answer: c Page: 350 Other Locations: SG Learning Objective: 5 Rationale: Key term definition—fixed cost 13-125 FIXED COST DEFINITION The sum of the expenses of a firm that is stable and does not change with the quantity of the product that is produced and sold is called: a. fixed cost. b. variable cost. c. total cost. d. marginal cost. e. inelastic costs. Answer: a Page: 350 Learning Objective: 5 Rationale: Key term definition—fixed cost 13-126 FIXED COST CONCEPTUAL Rents, executive salaries, and insurance are examples of typical: a. variable costs. b. fixed costs. c. dividends. d. liquidity payments. e. total costs.Answer: b Page: 350 Learning Objective: 5 Rationale: Key term definition—fixed cost 13-127 FIXED COST APPLICATION Which of the following would be an example of a fixed cost for a company that makes carbon monoxide monitoring systems for employees to wear that work in hazardous areas? a. the lithium batteries that are used in each monitor b. the chest harness which the employee must use to wear the monitor c. the rent for the company’s offices d. the free training videos that are sent to each new customer e. the stainless steel, water-resistant cases in which the monitors sit Answer: c Page: 350 Learning Objective: 5 Rationale: Rents, executive salaries, and insurance are examples of typical fixed costs. 13-128 FIXED COST CONCEPTUAL Which of the following is a typical example of a fixed cost? a. taxes b. building rental expense c. raw materials d. sales commissions e. hourly wages Answer: b Page: 350 Learning Objective: 5 Rationale: The building rental expense is independent of how much the firm produces and sells. 13-129 VARIABLE COST DEFINITION Variable cost is the: a. total expense incurred by a firm in producing and marketing a product or service. b. sum of the expenses of the firm that are stable and do not change with the quantity of the product that is produced and sold. c. money or other considerations (including other goods and services) exchanged for the ownership or use of a good or service. d. change in total cost that results from producing and marketing one additional unit of product. e. sum of the expenses of the firm that vary directly with the quantity of the product that is produced and sold. Answer: e Page: 350 Learning Objective: 5 Rationale: Key term definition—variable cost13-130 VARIABLE COST DEFINITION The sum of the expenses of the firm that vary directly with the quantity of the product that is produced and sold is called: a. fixed cost. b. total cost. c. marginal cost. d. administrative costs. e. none of the above. Answer: e Page: 350 Learning Objective: 5 Rationale: Key term definition—variable cost 13-131 VARIABLE COST APPLICATION Which of the following would be an example of a variable cost for a publication like SHΛPE magazine that is targeted to young women seeking a healthier lifestyle? a. increase in women in targeted demographics b. salary of publisher c. rent for parking deck used by employees d. paper and ink e. advertising purchased by new accounts Answer: d Page: 350 Other Locations: SG Learning Objective: 5 Rationale: The amount of paper and ink vary directly with the number of magazines produced and, hence, are variable costs. Alternative e describes revenue, not costs. 13-132 UNIT VARIABLE COST APPLICATION Forever Quilting is a small company that makes quilting kits priced at $120. The costs of the materials that go into each kit are $45. It costs $5 in labor to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and $4,500 for the monthly salary of its owner. Forever Quilting’s unit variable cost for its kits is: a. $45. b. $50. c. $120. d. $170. e. cannot be determined from the information provided. Answer: b Page: 350 Learning Objective: 5 Rationale: Unit variable cost is variable cost expressed on a per unit basis—$45 of materials and $5 of labor.13-133 MARGINAL COST DEFINITION Marginal cost is the: a. sum of the expenses of the firm that do not vary directly with the quantity of product that is produced and sold. b. total expense incurred by a firm in producing and marketing a product or service. c. sum of the expenses of the firm that are stable and do not change with the quantity of product that is produced and sold. d. money or other consideration (including other goods and services) exchanged for the ownership or use of a good or service. e. change in total cost that results from producing and marketing one additional unit of product. Answer: e Page: 350 Learning Objective: 5 Rationale: Key term definition—marginal cost 13-134 MARGINAL COST DEFINITION Marginal cost is the change in total cost that results from: a. reducing the total number of units produced. b. increasing the number of units produced by fifty percent. c. increasing the number of products in a product line. d. producing and marketing one additional unit of product. e. eliminating a brand from a product line. Answer: d Page: 350 Learning Objective: 5 Rationale: Key term definition—marginal cost 13-135 MARGINAL COST APPLICATION Ampro-Mag is a small company that makes materials for safely controlling hazardous spills of all kinds. It sells these items as a neutralizing kit priced at $120. The costs of the materials that go into each kit are $45. It costs $5 in labor to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising in trade journals, and $3,500 for the monthly salary of its owner. Ampro-Mag's marginal cost is: a. $5. b. $13. c. $45. d. $50. e. $3,500. Answer: d Page: 350 Learning Objective: 5 Rationale: Marginal cost is the change in total cost that results from producing and marketing one additional unit. In this example, these are the unit variable costs needed to produce one more neutralizing kit ($45 plus $5), which gives a marginal cost of $50 for each unit.13-136 MARGINAL COST DEFINITION The change in total cost that results from producing and marketing one additional unit of product is called: a. fixed cost. b. variable cost. c. total cost. d. marginal cost. e. marginal revenue. Answer: d Page: 350 Learning Objective: 5 Rationale: Key term definition—marginal cost 13-137 MARGINAL ANALYSIS DEFINITION Which process determines whether total revenue from the sale of an additional unit of product exceeds the cost of producing and marketing that unit? a. break-even analysis b. marginal analysis c. demand analysis d. cost-benefit analysis e. situation analysis Answer: b Page: 351 Learning Objective: 5 Rationale: Key term definition—marginal analysis 13-138 MARGINAL ANALYSIS DEFINITION __________ determines whether total revenue from the sale of an additional unit of product exceeds the cost of producing and marketing that unit. a. break-even analysis b. marginal analysis c. demand analysis d. cost-benefit analysis e. situation analysis Answer: b Page: 351 Learning Objective: 5 Rationale: Key term definition—marginal analysis13-139 BREAK-EVEN ANALYSIS DEFINITION Break-even analysis is: a. a process that investigates the magnitude of difference between marginal revenue and marginal cost. b. a method of determining just how much a consumer is willing to pay for a product or service. c. a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output. d. the process of determining the quantity of product consumers will buy relative to the quantity produced by the firm. e. the graph that shows the maximum number of products consumers will buy at a given price. Answer: c Page: 351 Learning Objective: 6 Rationale: Key term definition—break-even analysis 13-140 BREAK-EVEN POINT DEFINITION A break-even point is: a. the point of greatest difference between marginal revenue and marginal cost. b. the point at which total revenue and total cost are equal and beyond which profit occurs. c. the point at which marginal revenue equals marginal cost. d. the point at which total revenue and average revenue converge. e. the point at which profit is at a maximum. Answer: b Page: 351 Learning Objective: 6 Rationale: Key term definition—break-even point 13-141 BREAK-EVEN POINT DEFINITION The quantity at which total revenue and total cost are equal and where profit starts to occur is called the: a. break-even point. b. point of maximum profit. c. coverage amount. d. incremental return quantity. e. shadow price quantity. Answer: a Page: 351 Learning Objective: 6 Rationale: Key term definition—break-even point13-142 TOTAL COSTS APPLICATION The Precision Writing Instruments Company makes two pen designs—the Cordova design and the Savannah design. These data apply, regardless of which of two pen designs is being implemented. Materials cost per pen is $6. Labor cost per pen is $5. Production overhead is $1,000,000. Advertising and promotion is $1,000,000. Marketing research has estimated the following demand functions for the next year of sales for the two pen designs where Q represents demand in thousands and P represents price. For the Cordova design, Q = 150 - 2.5P. For the Savannah design, Q = 175 - 2.1P. What are the total costs for sales of 500,000 units of the Cordova design? a. $1,000,000 b. $2,000,000 c. $3,650,00 d. $5,500,000 e. $7,500,000 Answer: e Page: 350 Other Locations: web Learning Objective: 5 Rationale: The demand function of each design is irrelevant. The answer is Total costs = Fixed costs + Variable costs= (1,000,000 +1,000,000) + (500,000 units x $11/unit) = $7,500,000 13-143 BREAK-EVEN ANALYSIS APPLICATION The owner of a small restaurant that sells take-out fried chicken and biscuits pays $2,500 in rent each month, $500 in utilities, $750 interest on his loan, insurance premium of $200, and advertising on local buses $250 a month. A bucket of take-out chicken is priced at $9.50. Unit variable costs for the bucket of chicken are $5.50. How many small buckets of chicken does the restaurant need to sell to break-even? a. 988 buckets b. 1,000 buckets c. 1,050 buckets d. 3,150 buckets e. 4,200 buckets Answer: c Page: 352 Learning Objective: 6 Rationale: The break-even point is calculated as fixed costs divided by price minus unit variable costs, or $4,200/($9.50 - $5.50), which equals 1,050 buckets of chicken.13-144 BREAK-EVEN ANALYSIS APPLICATION The owner of a carwash pays $2,500 in rent each month, $500 in utilities, $750 interest on his loan, an insurance premium of $200, and advertising on local bus of $250 a month. A full-service car wash is priced at $10.50. Unit variable costs for the carwash are $7.50. At what level of sales of dollars of revenue will the carwash break-even? a. $4,200.00 b. $12,600.00 c. $14,700.00 d. $29,925.00 e. $39,900.00 Answer: c Page: 352 Learning Objective: 6 Rationale: The break-even point is calculated as fixed costs divided by price minus unit variable costs, or $4,200/($10.50 - $7.50), which equals 1,400 carwashes. Then multiply 1,400 by $10.50, which equals $14,7.00, which is the break-even point in dollars. 13-145 BREAK-EVEN ANALYSIS APPLICATION You have been asked to calculate the break-even point for a new line of souvenir teeshirts. The selling price will be $25 per shirt. The labor costs will be $5 per shirt. The administrative costs of operating the company are estimated to be $60,000 annually and the sales and marketing expenses are $20,000 a year. Additionally, the cost of materials will be $10 per shirt. What is the break-even quantity? a. 1,715 shirts b. 2,286 shirts c. 3,000 shirts d. 4,000 shirts e. 8,000 shirts Answer: e Page: 352 Learning Objective: 6 Rationale: The break-even point is calculated as fixed costs divided by price minus unit variable costs, or 80,000/(25-15) = 8,000 shirts needed to break-even. 13-146 BREAK-EVEN ANALYSIS APPLICATION Tim Marlow, the owner of The Clock Works, wanted to know how many clocks he must sell in order to cover his fixed cost at a given price. Tim knew that he had a fixed cost of $20,000 for equipment, taxes, and a bank loan. He also had a unit variable cost of $20 per clock for labor, materials, and promotional costs. If the price Tim charges for each of his clocks is $40, what is his break-even point quantity? a. 10 clocks b. 100 clocks c. 1,000 clocks d. 10,000 clocks e. cannot be determined from the information provided Answer: c Page: 352 Learning Objective: 6 Rationale: The break-even point is calculated as fixed costs divided by price minus unit variable costs, or 20,000/(40-20) = 1,000 clocks. 13-147 BREAK-EVEN ANALYSIS APPLICATIONAce Shoe Company sells heel replacement kits for men's shoes. It has fixed costs of $10 million and unit variable costs of $5 per pair. If the company charges $15 per pair, how many pairs must it sell to break even? a. 300,000 kits b. 400,000 kits c. 600,000 kits d. 1,000,000 kits e. 2,000,000 kits Answer: d Page: 352 Learning Objective: 6 Rationale: The break-even point is calculated as fixed costs divided by price minus unit variable costs, or 10,000,000/(15-5) = 1,000,000. 13-148 BREAK-EVEN ANALYSIS APPLICATION Ace Shoe Company sells heel replacement kits for men's shoes. It has fixed costs of $6 million and unit variable costs of $5 per pair. Ace would like to earn a profit of $2 million; how many pairs must they sell at a price of $15? a. 100,000 kits b. 200,000 kits c. 600,000 kits d. 800,000 kits e. 1,400,000 kits Answer: d Page: 352 Learning Objective: 6 Rationale: Let Q = Target Quantity. Profit = Total Revenue - Total Cost Total Revenue = [P x Q] – [FC + (UVC x Q)] = $2,000,000 = [15 x Q] – [$6,000,000 + (5 x Q)] = $2,000,000 = 15Q – $6,000,000 – 5Q = $2,000,000 10Q = 8,000,000 Q = 800,000 kits 13-149 BREAK-EVEN ANALYSIS APPLICATION Ace Shoe Company sells heel replacement kits for men's shoes. It has fixed costs of $5 million and unit variable costs of $5 per pair. Suppose a consultant tells Ace it can sell 750,000 heel repair kits, what price must it charge to achieve a profit of $2.5 million? a. $3.58 b. $7.58 c. $12.15 d. $15.00 e. $17.90 Answer: d Page: 352 Learning Objective: 6 Rationale: Use the break-even formula and solve for price. Let P stand for price. 750,000 = [2,500,000 + 6,000,000]/[P - 5] P = $15.0013-150 BREAK-EVEN ANALYSIS APPLICATION Ampro-Mag is a small company that makes materials for safely controlling hazardous spills of all kinds. It sells these items as a neutralizing kit priced at $120. The costs of the materials that go into each kit are $45. It costs $5 in labor to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising in trade journals, and $3,500 for the monthly salary of its owner. What is Ampro-Mag's monthly break-even point in terms of number of neutralizing kits sold? a. 47 neutralizing kits b. 68 neutralizing kits c. 75 neutralizing kits d. 104 neutralizing kits e. 310 neutralizing kits Answer: c Page: 352 Learning Objective: 6 Rationale: The break-even point is calculated as fixed costs divided by price minus unit variable costs, or [$1,000 + $200 + $500 + $3,500]/[$120 - ($5 + $2 + $13 + $30)] = 74.3 or 75 kits. 13-151 BREAK-EVEN ANALYSIS APPLICATION Jane Westerlund owns a picture-framing shop, The Caplow Co. The average price she receives for a picture she frames for a customer is $120. This price must cover her average costs for a typical framed picture of $5 for glass, $2 for matting, and $13 for the frame, and $30 for the labor involved. She must also cover monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and $3,500 for her salary. Westerland is considering buying an automatic mat-cutting machine in order to reduce the number of hours of direct labor required to produce a framed picture. In considering this purchase, she should recognize it will _____ Caplow's variable cost and _____ Caplow's fixed cost. a. decrease; increase b. decrease; decrease c. increase; decrease d. increase; increase e. have no effect on; have no effect on Answer: a Page: 354 Learning Objective: 6 Rationale: The automatic mat-cutting machine will be a fixed cost, which will increase the total fixed cost. This is done in order to lower (decrease) the variable cost involved in cutting the mat for the framed picture.13-152 BREAK-EVEN ANALYSIS APPLICATION Ace Shoe Company sells heel replacement kits for men's shoes. It has fixed costs of $9 million and unit variable costs of $5 per pair. Ace is considering a switch from manual labor to an automated process. New equipment would cost an additional $4 million per year while lowering variable costs by $3 per shoe repair kit. How many kits would Ace have to sell at $17 per pair to make $2 million in profits in the next year with the automated process? a. 169,231 kits b. 666,667 kits c. 705,883 kits d. 800,000 kits e. 1,000,000 kits Answer: e Page: 354 Learning Objective: 6 Rationale: The quantity to achieve this profit is calculated as profit + fixed costs divided by price minus unit variable costs, or [$2,000,000 + ($9,000,000 + $4,000,000)]/[$17 – ($5 - $3)] = 1,000,000 kits. 13-153 BREAK-EVEN ANALYSIS APPLICATION You are president of a manufacturer of small electronic appliances. You want to reduce your break-even quantity. Other things equal, you can do this by: a. increasing the quantity sold, while keeping price unchanged. b. reducing marginal revenue. c. reducing unit variable cost. d. increasing fixed cost. e. doing all of the above. Answer: c Page: 354 Learning Objective: 6 Rationale: Increasing the quantity sold leaving the price unchanged (Alternative a) will increase profit but has no impact on break-even quantity. Alternatives b and d will actually increase the break-even quantity. Reducing unit variable cost will decrease the slope of the total cost curve, thereby reducing the quantity needed to break even.13-154 BREAK-EVEN ANALYSIS APPLICATION Jane Westerlund owns a picture-framing shop, The Caplow Co. The average price she receives for a picture she frames for a customer is $120. This price must cover her average costs for a typical framed picture of $5 for glass, $2 for matting, and $13 for the frame, and $30 for the labor involved. She must also cover monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and $3,500 for her salary. Assuming everything else stays the same, if Westerlund wants to increase her advertising expenses to $1,000, this would cause the slope of the total cost curve to __________ and the break-even quantity to __________. a. decrease; stay the same b. decrease; increase c. increase; increase d. stay the same; increase e. stay the same; decrease Answer: d Page: 353-354 Learning Objective: 6 Rationale: The slope of the total cost curve is only affected by changes in unit variable cost, so the slope stays the same—it intersects the vertical axis $1000 higher. Thus, the total revenue and total cost curves intersect at higher (increased) quantity, thereby increasing the break-even quantity. 13-155 BREAK-EVEN ANALYSIS APPLICATION Jane Westerlund owns a picture-framing shop, The Caplow Co. The average price she receives for a picture she frames for a customer is $120. This price must cover her average costs for a typical framed picture of $5 for glass, $2 for matting, and $13 for the frame, and $30 for the labor involved. She must also cover monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and $3,500 for her salary. Assuming everything else stays the same, if Jane Westerlund increased the average price charged for a framed picture, in a break-even chart this would cause the slope of the total revenue curve to __________ and the break-even quantity to ___________. a. increase; increase b. increase; decrease c. decrease; decrease d. decrease; increase e. stay the same; increase Answer: b Page: 353-354 Learning Objective: 6 Rationale: Increasing prices causes the slope of the total curve to increase, which causes it to intersect the total cost curve at a lower (decreased) quantity.13-156 MARKETING NEWSNET CONCEPTUAL According to the text, one of the reasons for the failure of so many brick-and-mortar dotcom businesses was due to: a. the need to conduct almost all operations electronically. b. setting prices too low to cover huge costs of inventory and warehousing. c. setting prices too high relative to customer income. d. the ability to reach customers who had a great deal of flexibility in what would satisfy their needs. e. spending too little on traditional promotion on TV, such as the Super Bowl. Answer: b Page: 351 Rationale: One of the advantages that dot-coms have is the ability to conduct almost all operations electronically. One of the factors in the failure of so many brick-and-mortar dot-coms was setting a price so low they couldn’t cover inventory, warehousing, and order-fulfillment costs. 13-157 BREAK-EVEN CHART DEFINITION A __________ is a graphic presentation of the relationship between total revenue and total cost that determines profitability at various levels of output. a. Gantt chart b. demand curve c. ROI analysis d. cross-tabulation e. break-even chart Answer: e Page: 353 Learning Objective: 6 Rationale: Key term definition—break-even chart 13-158 BREAK-EVEN CHART CONCEPTUAL A __________ is most often used in marketing to study the impact on profits of changes in price, fixed costs, and variable costs. a. Gantt chart b. break-even chart c. ROI analysis d. cross-tabulation e. demand curve Answer: b Page: 353 Other Locations: SG Learning Objective: 6 Rationale: Key term definition—break-even chart CHAPTER 14 ARRIVING AT THE FINAL PRICE MULTIPLE CHOICE QUESTIONS14-1 CHAPTER OPENING EXAMPLE: GILLETTE CONCEPTUAL Which of the following statements about Gillette’s pricing policy for the M3Power shaving system is true? a. Gillette obviously used market penetration to gain as large a market share as possible for its shaving system. b. Gillette used target pricing because it was in the introduction stage of its product life cycle. c. If the M3Power shaving system is viewed as a new product category, then Gillette used skimming pricing. d. Gillette chose to use customary pricing for the new shaving system. e. None of the above statements about the pricing policy used by Gillette is true. Answer: c Page: 361 Learning Objective: 1 Rationale: The introductory price for the Gillette M3Power was 67 percent higher than Gillette's other razors. This innovative product was introduced with skimming pricing, the highest initial price that customers really desiring the product are willing to pay. 14-2 CHAPTER OPENING EXAMPLE: GILLETTE CONCEPTUAL Gillette’s M3Power shaving system: a. gives Gillette a competitive advantage. b. would be in the same product life cycle stage as regular razors. c. would not meet the federal guidelines for identifying a new product. d. uses a price penetration strategy. e. is a good example of a new product failure. Answer: a Page: 361 Learning Objective: 1 Rationale: This question will require students to remember previously learned concepts. The M3Power is more likely in an introductory stage while regular razors are in the mature stage of the product life cycle. The Gillette M3Power shaving system would be an example of a highly successful new product. Its price would be low relative to other razors if it was using penetration pricing—but it did the opposite. It is a competitive advantage because the M3Power system, according to market research, gives the world’s best shave.14-3 THE PRICE-SETTING PROCESS CONCEPTUAL In which step of the price setting process would a new-product manager be deciding whether to adopt a penetration or a skimming pricing strategy for a new product she is about to introduce to the market? a. Make special adjustments to the list or quoted price. b. Select an approximate price level. c. Estimate demand and revenue. d. Identify price constraints and objectives. e. Set list or quoted price. Answer: b Page: 362; Fig. 14-1 Other Locations: SG Learning Objective: 1 Rationale: The decision between skimming and penetration pricing is a demand-based approach, part of step 4 in the price setting process. 14-4 THE PRICE-SETTING PROCESS CONCEPTUAL In which step of the price setting process would a new-product manager be deciding whether to use a prestige pricing strategy for a new product she is about to introduce to the market? a. Make special adjustments to the list or quoted price. b. Select an approximate price level. c. Estimate demand and revenue. d. Identify price constraints and objectives. e. Set list or quoted price. Answer: b Page: 362; Fig. 14-1 Learning Objective: 1 Rationale: The prestige pricing strategy decision is a demand-based approach, part of step 4 in the price setting process. 14-5 THE PRICE-SETTING PROCESS CONCEPTUAL In which step of the price setting process would a new-product manager be considering the company, customer, and competitive effects for a new product she is about to introduce to the market? a. Make special adjustments to the list or quoted price. b. Select an approximate price level. c. Estimate demand and revenue. d. Identify price constraints and objectives. e. Set list or quoted price. Answer: e Page: 362; Fig. 14-1 Learning Objective: 1 Rationale: Considering the company, customer, and competitive effects for a new product is done in Step 5, set list or quoted price.14-6 THE PRICE-SETTING PROCESS CONCEPTUAL In which step of the price setting process would a new-product manager be deciding whether to use geographical adjustments to the price for a new product she is about to introduce to the market? a. Make special adjustments to the list or quoted price. b. Select an approximate price level. c. Estimate demand and revenue. d. Identify price constraints and objectives. e. Set list or quoted price. Answer: a Page: 362; Fig. 14-1 Learning Objective: 1 Rationale: Geographical adjustments, allowances, and discounts are all done in Step 6, make special adjustments to list or quoted price. 14-7 DEMAND ORIENTED APPROACHES CONCEPTUAL Demand-oriented approaches weigh factors underlying expected __________ more heavily than factors such as cost, profit, and competition when selecting a price level. a. customer tastes and preferences b. total sales revenue c. prevailing prices d. number of others selling the product e. mark-up Answer: a Page: 362 Learning Objective: 1 Rationale: Demand-oriented approaches weigh factors underlying expected customer tastes and preferences. 14-8 SKIMMING PRICING DEFINITION Setting the highest initial price that customers really desiring the product are willing to pay is: a. skimming pricing. b. penetration pricing. c. price lining. d. odd-even pricing. e. prestige pricing. Answer: a Page: 362 Learning Objective: 1 Rationale: Key term definition—skimming pricing14-9 SKIMMING PRICING DEFINITION Skimming pricing is a strategy that introduces a new or innovative product by: a. setting the price 10 percent below its nearest competitor. b. determining if the product is supply inelastic. c. creating a product image that appeals to fiscally-conservative consumers. d. setting a high initial price. e. setting a low initial price. Answer: d Page: 362 Learning Objective: 1 Rationale: Key term definition—skimming pricing 14-10 SKIMMING PRICING CONCEPTUAL A skimming pricing policy is likely to be most effective when: a. consumers perceive your product to be similar to other products on the market. b. a lower price will have a major effect on reducing unit costs. c. competitors will be attracted to the market due to the potential for high sales revenues. d. consumers tend to be price sensitive. e. a high initial price will not attract competitors Answer: e Page: 362 Learning Objective: 1 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. 14-11 SKIMMING PRICING APPLICATION Hallmark was the official supplier of flowers at the last Winter Olympics. It was the first time that it has participated in the Olympics. Hallmark presented each Olympic winner with a special bouquet of roses designed to resemble the Olympic torch. Consumers can buy a smaller version of this same bouquet at the Hallmark website for $74.95. The Olympic bouquet that consumers can buy contains two dozen yellow roses, yet you can buy two dozen yellow roses for less than $35 at most supermarkets. If Hallmark is treating the Olympic bouquet as an innovative product, then it is using which demandoriented approach to pricing a. bundle pricing b. yield management pricing c. skimming pricing d. target return-on-sales pricing e. penetration pricing Answer: c Page: 362 Learning Objective: 1 Rationale: Skimming pricing is appropriate when there are enough prospective customers who are willing to buy the product immediately at the high price, the high initial price will not attract competitors, and customers interpret the high price as signifying high quality (playing off the prestige associated with the Olympics).14-12 SKIMMING PRICING CONCEPTUAL The manufacturer of a DVD-R, a recordable DVD disk that can be erased and reused, is thinking of using a skimming pricing strategy for its new product. Which of the following conditions would argue AGAINST using a skimming pricing strategy for the DVD-R disks? a. large potential market, even at a high price b. technological problems still exist for competitors c. increasing volume reduces production costs substantially d. consumers perceive a price-quality relationship e. all of the above Answer: c Page: 362 Learning Objective: 1 Rationale: Production economies of scale and experience curve effects favor high production--and, hence, a penetration strategy, not a skimming strategy. 14-13 SKIMMING PRICING APPLICATION For precision shooting competitions, Leupold & Thomas, U.S. manufacturers of rifle scopes, introduced a revolutionary new patented optical system. Competitions are won by hundredths of an inch, so the image seen through the scope is crucial. That's why the Leupold rifle scope with its new optical system is designed to offer an image that is crisp, sharp, flat and second to none in image contrast. The initial price of the Competition Series scope will be $1,605.40. Which pricing strategy will best attract price-insensitive customers and help Leupold & Stevens recoup its research and development costs? a. price lining b. experience curve pricing c. customary pricing d. skimming pricing e. target pricing Answer: d Page: 362 Learning Objective: 1 Rationale: The conditions favoring skimming pricing are most likely to exist when a new product is protected by patent or copyright or its uniqueness is understood and appreciated by customers.14-14 SKIMMING PRICING APPLICATION When microwave ovens were in the introduction stage of the product life cycle, some consumers were willing to pay exorbitant prices for the innovative ovens. Taking advantage of this strong consumer desire, marketers set the price for microwave ovens at the highest initial price that customers with a very strong desire for the product were willing to pay. Marketers of microwave ovens were using a __________ pricing strategy. a. skimming b. penetration c. prestige d. price lining e. bundle Answer: a Page: 362 Other Locations: SG Learning Objective: 1 Rationale: Skimming pricing strategies are used for new, innovative products that are highly sought after by a significant number of customers. Such customers are relatively insensitive to price because of the product's ability to satisfy their needs and wants in relation to alternative products. As initial consumer demand is met, the marketer lowers the price of the product to attract another, more price sensitive segment of the market. 14-15 DEMAND-ORIENTED APPROACHES CONCEPTUAL Which of the following is NOT a demand-oriented approach to pricing? a. prestige pricing b. bundle pricing c. price lining d. penetration pricing e. customary pricing Answer: e Page: 363; Fig. 14-2 Learning Objective: 1 Rationale: Customary pricing is a competition-oriented approach to pricing. 14-16 COMPETITION-BASED METHODS CONCEPTUAL Which of the following is NOT a competition-based pricing method? a. loss-leader pricing b. below-market pricing c. customary pricing d. above-market pricing e. penetration pricing Answer: e Page: 363; Fig. 14-2 Learning Objective: 1 Rationale: Penetration pricing is a demand-oriented approach to pricing.14-17 COMPETITION-BASED METHODS CONCEPTUAL Which of the following is a competition-based pricing method? a. loss-leader pricing b. prestige c. skimming d. price lining e. penetration pricing Answer: a Page: 363; Fig. 14-2 Learning Objective: 1 Rationale: Loss leader pricing is a competition-oriented approach. 14-18 COMPETITION-BASED METHODS CONCEPTUAL Which of the following is a competition-based pricing method? a. customary b. prestige c. skimming d. price lining e. penetration pricing Answer: a Page: 363; Fig. 14-2 Learning Objective: 1 Rationale: Customary is a competition-oriented approach. 14-19 PROFIT-ORIENTED APPROACHES CONCEPTUAL Which of the following is a profit-oriented pricing method? a. target return on investment b. loss leader c. at, above, or below market d. price lining e. penetration pricing Answer: a Page: 363; Fig. 14-2 Learning Objective: 1 Rationale: Target return on investment is a profit-oriented approach. 14-20 PROFIT-ORIENTED APPROACHES CONCEPTUAL Which of the following is a profit-oriented pricing method? a. target return on sales b. loss leader c. at, above, or below market d. price lining e. penetration pricing Answer: a Page: 363; Fig. 14-2 Learning Objective: 1 Rationale: Target return on sales is a profit-oriented approach.14-21 COST-ORIENTED APPROACHES CONCEPTUAL Which of the following is a cost-oriented pricing method? a. standard markup b. loss leader c. at, above, or below market d. price lining e. penetration pricing Answer: a Page: 363; Fig. 14-2 Learning Objective: 1 Rationale: Standard markup is a cost-oriented approach. 14-22 COST-ORIENTED APPROACHES CONCEPTUAL Which of the following is a cost-oriented pricing method? a. experience curve b. loss leader c. at, above, or below market d. price lining e. penetration pricing Answer: a Page: 363; Fig. 14-2 Learning Objective: 1 Rationale: Experience curve is a cost-oriented approach. 14-23 PENETRATION PRICING DEFINITION A company that sets a low initial price on a new product to appeal immediately to the mass market is using: a. skimming pricing. b. penetration pricing. c. price lining. d. odd-even pricing. e. prestige pricing. Answer: b Page: 363 Learning Objective: 1 Rationale: Key term definition—penetration pricing 14-24 PENETRATION PRICING DEFINITION The exact opposite of skimming pricing is: a. target pricing. b. penetration pricing. c. price lining. d. odd-even pricing. e. prestige pricing. Answer: b Page: 363 Learning Objective: 1 Rationale: Key term definition—penetration pricing14-25 PENETRATION PRICING APPLICATION Leupold & Stevens, Inc., makes Leupold scopes for rifles and has introduced a new scope that has the quality and performance for which Leupold & Stevens is famous at a price much lower than it has ever sold a rifle scope before. The new scope offers several different magnifications and is the only scope in the $200 range that is made in the United States. Which pricing strategy is Leupold & Stevens using to appeal to a larger market? a. skimming pricing b. penetration pricing c. price lining d. odd-even pricing e. demand-backward pricing Answer: b Page: 363 Other Locations: web Learning Objective: 1 Rationale: Penetration pricing is setting a low initial price on a new product to appeal immediately to the mass market. 14-26 PENETRATION PRICING CONCEPTUAL Penetration pricing is intended to appeal to which market? a. highly selective quality-seeking consumers b. price-insensitive markets c. the mass market d. specialty goods markets e. the same markets as skimming pricing Answer: c Page: 363 Other Locations: web Learning Objective: 1 Rationale: Penetration pricing is setting a low initial price on a new product to appeal immediately to the mass market. 14-27 PENETRATION PRICING CONCEPTUAL Which of the following statements about penetration pricing is true? a. Penetration pricing is a profit-oriented approach to pricing. b. Penetration pricing is a cost-based pricing method. c. Penetration pricing encourages competitors to enter a market. d. A penetration pricing strategy is more effective in a marketplace with price-sensitive consumers. e. Because penetration pricing is a high initial-price strategy, it will not attract competitors. Answer: d Page: 363 Learning Objective: 1 Rationale: Penetration pricing is setting a low initial price on a new product to appeal to a mass market, which is price-sensitive.14-28 PENETRATION PRICING APPLICATION When Hallmark cards introduced a line of $.99 cards (about half the price of the previously least expensive cards sold by Hallmark), the greeting card company was trying to appeal to a mass market that was price sensitive. Hallmark was using a __________ pricing strategy. a. prestige b. skimming c. penetration d. demand-backward e. experience-curve Answer: c Page: 363 Other Locations: SG Learning Objective: 1 Rationale: Penetration pricing is the setting of a low initial price on a new product (inexpensive greeting cards) to appeal immediately to the mass market. 14-29 PENETRATION PRICING APPLICATION The manufacturer of a new kind of fat-free ice cream that has the consistency and taste of regular ice cream is thinking of using a skimming pricing strategy for its new product. Which of the following conditions would argue AGAINST using a skimming pricing strategy for the tasty fat-free ice cream? a. The ice cream market is highly conservative. b. A large portion of the market has inelastic demand for ice cream—over a fairly broad range of prices. c. Economies of scale in production are substantial. d. Retailers are willing to pay for new brands of premium ice cream in an overcrowded category. e. Once the initial price is set, it is nearly impossible to lower price because of the possibility of alienating early buyers. Answer: b Page: 363 Learning Objective: 1 Rationale: Inelastic demand would result in small sales increases due to lower price, in which case a skimming strategy--not a penetration strategy, would be best. 14-30 PRESTIGE PRICING DEFINITION A manufacturer using _________ is setting a high price so that quality- or statusconscious 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: 363 Learning Objective: 1 Rationale: Key term definition—prestige pricing14-31 PRESTIGE PRICING APPLICATION Talbot’s sells women's clothes. A simple tee shirt with the Talbot’s label costs $25. If you know you simply want a tee shirt, you can buy one for $5 at a Family Dollar Store, but it won't have the Talbot's label. What kind of demand-oriented approach to pricing is being used by this manufacturer? a. experience curve pricing b. target market share pricing c. demand-backward pricing d. prestige pricing e. flexible pricing Answer: d Page: 363 Learning Objective: 1 Rationale: Prestige pricing involves setting a high price so that quality- or statusconscious consumers will be attracted to the product and buy it. Talbot's is obviously hoping to attract that market. 14-32 PRESTIGE PRICING APPLICATION Bijan's in New York City has offered a five-piece set of crocodile luggage for $55,000. This is an example of __________ pricing. a. penetration b. prestige c. odd-even d. experience curve e. loss-leader Answer: b Page: 363 Learning Objective: 1 Rationale: Prestige pricing involves setting a high price so the quality- or statusconscious consumers will be attracted to the product and buy it. 14-33 PRESTIGE PRICING APPLICATION You can buy a General Electric dishwasher for $399, or you can buy a similar sized under-the-counter Bosch brand dishwasher for $989. Since Bosch uses its pricing strategy to project a product image, it is most likely using __________ pricing. a. bait and switch b. standard markup c. prestige d. penetration e. cost plus fixed-fee Answer: c Page: 363 Learning Objective: 1 Rationale: Prestige pricing is an appropriate strategy for items for which a marketer wants to project a quality image. Prestige pricing involves setting a high price so the quality- or status-conscious consumers will be attracted to the product and buy it.14-34 PRESTIGE PRICING DEFINITION The demand curve for which type of pricing method slopes downward and to the right, then turns back to the left? a. skimming pricing b. penetration pricing c. price lining d. demand-backward pricing e. prestige pricing Answer: e Page: 363-364 Other Locations: SG Learning Objective: 1 Rationale: Prestige pricing involves setting a high price so that quality- or statusconscious consumers will be attracted to the product and buy it. The demand curve slopes downward and to the right, but turns back to the left when it goes low enough to lose the ability to suggest status. 14-35 PRICE LINING DEFINITION When using a price lining strategy, a retailer will: a. set price slightly higher than absolutely necessary to protect against losses from environmental factors. b. adjust the price of a product so it is "in line" with that of its largest competitor. c. set the price of a line of products at a number of different specific pricing points. d. add a fixed percentage to the cost of all items in a specific product class. e. set prices to achieve a profit that is a specified percentage of the sales volume. Answer: c Page: 364 Learning Objective: 1 Rationale: Key term definition—price lining 14-36 PRICE LINING DEFINITION The assumption that demand is elastic at a number of price points but is inelastic between these price points leads to which approach to pricing? a. target pricing b. skimming pricing c. penetration pricing d. price lining e. odd-even pricing Answer: d Page: 364 Other Locations: web Learning Objective: 1 Rationale: Often a firm that is selling not just a single product but a line of products may price them at a number of different specific pricing points, which is called price lining. As shown in Figure 14-3B, that demand is elastic at each of these price points but inelastic between them.14-37 PRICE LINING CONCEPTUAL Which of the following statements about price lining is true? a. This method assumes that demand is elastic at each price point used. b. Primarily government contractors use this method. c. Those who use this method prefer to have at least a dozen different price points. d. This method assumes demand is elastic between the price points. e. All the above statements about price lining are true. Answer: a Page: 364 Learning Objective: 1 Rationale: Price lining is a method used by firms selling a line of products, and having different price points for groups of products within the line. The method assumes demand is elastic at each of the price points, but is inelastic between the price points. 14-38 ODD-EVEN PRICING DEFINITION Odd-even pricing is: a. setting prices one way for product lines and another way for individual brands. b. setting prices of luxury items at even price points and setting the price of necessities at odd price points. c. setting prices a few dollars or cents under an even number. d. a method of pricing where price often falls following the reduction of costs associated with the firm's production experience. e. adding a fixed percentage to the cost of all items in a specific product class. Answer: c Page: 364 Learning Objective: 1 Rationale: Key term definition—odd-even pricing 14-39 ODD-EVEN PRICING CONCEPTUAL Odd-even pricing is most closely related to: a. retailers' perceptions of price. b. customers' perceptions of price. c. wholesalers' markups. d. manufacturers' costs. e. cost of product facilitation to market. Answer: b Page: 364 Learning Objective: 1 Rationale: Odd-even pricing involves setting price a few dollars or cents under an even number. For example, customers see an item priced at $4.99 as "something over $4.00" rather than "about $5.00." The customers' perception of price is the influential factor.14-40 ODD-EVEN PRICING CONCEPTUAL The prices for all furniture sold at American Furniture Warehouse end in $9. American Furniture Warehouse uses: a. odd-even pricing. b. dynamic pricing. c. price lining. d. bundle pricing. e. experience curve pricing. Answer: a Page: 364 Learning Objective: 1 Rationale: Odd-even pricing involves setting prices a few dollars or cents under an even number. 14-41 TARGET PRICING DEFINITION __________ is a method of setting price by estimating the price consumers would be willing to pay for the item and then working backward to assure necessary margins for the retailers and wholesalers. a. Penetration pricing b. Price lining c. Cost plus percentage-of-cost pricing d. Cost plus fixed fee pricing e. Target pricing Answer: e Page: 364 Other Locations: SG Learning Objective: 1 Rationale: This involves setting price by estimating the price consumers would be willing to pay, and then working backward through margins for intermediaries to determine the price to charge. This often results in deliberate adjustment of the quality of component parts to achieve the target price. 14-42 TARGET PRICING DEFINITION Target pricing is the result of a manufacturer __________ in a product to achieve the target price. a. setting the highest costs possible b. deliberately adjusting the cost and quality of the component parts c. researching what mark-ups wholesalers will accept d. studying competitive prices and making fixed-cost adjustments e. relying on a jury of executive opinion to establish cost factors Answer: b Page: 364 Learning Objective: 1 Rationale: Key term definition—target pricing14-43 TARGET PRICING APPLICATION The Swedish manufacturer of Asko dishwashers concluded that consumers would be willing to pay approximately $989 for a dishwasher that was quieter than any other machine on the market. Based on this price, Asko determined the margins that would have to be allowed for wholesalers and retailers to give the $989 retail price. Asko used: a. prestige pricing. b. price lining. c. cost-plus pricing. d. target pricing. e. customary pricing.. Answer: d Page: 364 Learning Objective: 1 Rationale: Target pricing is setting a price by estimating the price consumers would be willing to pay for the product, then working backward through margins for retailers and wholesalers to achieve the targeted retail price. 14-44 TARGET PRICING CONCEPTUAL Which of the following pricing techniques is most sensitive to customers' responses to price? a. cost-plus-percentage-of-cost pricing b. experience curve pricing c. cost plus fixed fee pricing d. target pricing e. standard markup pricing Answer: d Page: 364 Learning Objective: 1 Rationale: Alternatives a, b, c, and e are cost-oriented approaches, so consumer demand is irrelevant. Target pricing is demand-based and focused on what consumers are willing to pay. 14-45 MARKETING NEWSNET APPLICATION In response to Duracell's introduction of the Duracell Ultra battery, Energizer introduced an Advanced Formula battery, but unlike Duracell, Energizer priced its batteries at a low initial price to attract the mass market. Energizer used: a. penetration pricing. b. prestige pricing. c. skimming pricing. d. price lining. e. cost plus fixed fee pricing. Answer: a Page: 365 Learning Objective: 1 Rationale: Penetration pricing is setting a low initial price of a new product—the strategy Energizer chose.14-46 MARKETING NEWSNET CONCEPTUAL In response to Duracell's introduction of the Duracell Ultra battery, Energizer introduced an Advanced Formula battery, but unlike Duracell, Energizer priced its batteries at a low initial price to attract the mass market. Was Energizer's strategy to steal market share from Duracell a success? a. No, because consumers equate quality of batteries with higher prices. b. No, because retailers did not respond appropriately to the target market pricing strategy. c. No, because consumers are price-insensitive when it comes to batteries. d. Yes, because consumers typically respond positively to cost-plus pricing. e. Yes, because the demand for batteries has unitary elasticity. Answer: a Page: 365 Learning Objective: 1 Rationale: Answer a is what happened because with batteries consumers believe there is a price-quality relationship, which makes answers c and e incorrect. Answer b is incorrect because there is no indication Energizer set a target price and adjusted cost and quality components to maintain wholesaler and retailer margins. Answer d involves costoriented pricing, which is irrelevant here. 14-47 BUNDLE PRICING DEFINITION __________ is the marketing of two or more products for a single "package" price. a. Packaged pricing b. Loss-leader pricing c. Bundle pricing d. Tie-in pricing e. Multi-product pricing Answer: c Page: 364-365 Learning Objective: 1 Rationale: Key term definition—bundle pricing 14-48 BUNDLE PRICING CONCEPTUAL If you were to buy five dwarf peach trees from the Stark Bros. fruit trees and landscaping catalog in five separate orders, you will pay $108.99, but if you order its assortment (1 each of five different dwarf peach trees), you pay $89.99. Stark Bros. uses: a. standard markup pricing. b. bundle pricing. c. prestige pricing. d. price lining. e. demand-backward pricing. Answer: b Page: 364-365 Learning Objective: 1 Rationale: This is an example of bundle pricing--the marketing of the five dwarf trees at a single "package" price.14-49 BUNDLE PRICING APPLICATION A computer retailer shrink-wraps Microsoft Works to his private label Pentium IV computer and sells the computer and software for $900.00. This pricing scenario might best be described as: a. price lining. b. loss-leader pricing. c. customary pricing. d. prestige pricing. e. bundle pricing. Answer: e Page: 364-365 Learning Objective: 1 Rationale: The retailer is selling two products for a "package" price, which is bundle pricing. 14-50 BUNDLE PRICING APPLICATION A box of dishwasher detergent shrink-wrapped with a bottle of Jet Dry for 10 cents more than the regular price of the dishwasher detergent is an example of __________ pricing. a. penetration b. prestige c. bundle d. odd-even e. standard mark-up Answer: c Page: 364-365 Learning Objective: 1 Rationale: Bundle pricing is the marketing of two or more products at a single package price, the situation here. 14-51 YIELD MANAGEMENT PRICING DEFINITION __________ is charging different prices to maximize revenue for a set amount of capacity at any given time. a. Demand backward pricing b. Target pricing c. Yield management pricing d. Skimming pricing e. Penetration pricing Answer: c Page: 365 Learning Objective: 1 Rationale: Key term definition—yield management pricing14-52 YIELD MANAGEMENT PRICING APPLICATION One problem in the interstate trucking industry is the number of trucks that return after making a delivery with an empty truck. There is a website where independent interstate truckers can look for loads that they can carry with them on their return trip. Because the trucks would be returning empty (and inefficiently), truckers, who use this website to get business that they would not have had without it, give a reduced shipping rate. This reduced rate is an example of: a. yield management pricing. b. penetration pricing. c. target pricing. d. cost plus pricing. e. odd-even pricing. Answer: a Page: 365 Learning Objective: 1 Rationale: This yield management pricing benefits independent truckers because they can obtain some revenue from carrying loads in trucks that would otherwise be empty. In this case, charging different prices for loads on a return trip enables them to increase/maximize revenue on their return trip that would otherwise be zero. 14-53 COST-ORIENTED APPROACHES CONCEPTUAL Which of the following is NOT a cost-oriented approach to pricing? a. experience curve pricing b. cost plus fixed fee pricing c. standard markup pricing d. loss-leader pricing e. cost-plus-percentage-of-cost pricing Answer: d Page: 365 Learning Objective: 1 Rationale: Loss-leader pricing is a competition-oriented approach to pricing. 14-54 COST-ORIENTED APPROACHES CONCEPTUAL Which of the following is a cost-oriented approach to pricing? a. experience curve pricing b. skimming pricing c. prestige pricing d. loss-leader pricing e. bundle pricing Answer: a Page: 363; Fig. 14-2 Learning Objective: 1 Rationale: Loss-leader pricing is a competition-oriented approach to pricing. Skimming, prestige, and bundle pricing are demand-oriented approaches to pricing.14-55 COST-ORIENTED APPROACHES CONCEPTUAL Which of the following is a cost-oriented approach to pricing? a. cost-plus pricing b. skimming pricing c. prestige pricing d. loss-leader pricing e. bundle pricing Answer: a Page: 363; Fig. 14-2 Learning Objective: 1 Rationale: Loss-leader pricing is a competition-oriented approach to pricing. Skimming, prestige, and bundle pricing are demand-oriented approaches to pricing. 14-56 COST-ORIENTED APPROACHES CONCEPTUAL Which of the following is a cost-oriented approach to pricing? a. standard markup pricing b. skimming pricing c. prestige pricing d. loss-leader pricing e. bundle pricing Answer: a Page: 363; Fig. 14-2 Learning Objective: 1 Rationale: Loss-leader pricing is a competition-oriented approach to pricing. Skimming, prestige, and bundle pricing are demand-oriented approaches to pricing. 14-57 COST-ORIENTED APPROACHES CONCEPTUAL Which of the following statements about cost-oriented approaches is true? a. These methods focus on the demand side of the pricing problem and involve stimulating demand and decreasing revenue. b. These methods focus on the supply side of the pricing problem and involve considerations of production and marketing expenses. c. Target return on investment is an example of a cost-based method. d. Experience curve pricing is simple to use because costs predictably decrease by 25 percent with each doubling of production. e. Cost-oriented approaches are subcategories of competition-based methods so revenues are a critical factor. Answer: b Page: 365 Other Locations: web Learning Objective: 1 Rationale: Cost-oriented approaches focus on the supply side of pricing. They focus on covering production costs, marketing costs, overhead, and profit. Target return on investment is a profit-based method. Costs do not always decrease by 25 percent with an experience curve effect. Cost-oriented approaches are not a subdivision of competitionbased methods.14-58 STANDARD MARKUP PRICING DEFINITION Standard markup pricing: a. adjusts the price of a product so it is "in line" with that of its largest competitor. b. sets the price of a line of products at a number of different price points. c. adds a fixed percentage to the cost of all items in a specific product class. d. sets prices to achieve a profit that is a specified percentage of the sales volume. e. increases the price slightly to protect against undue profit losses from unforeseen environmental factors. Answer: c Page: 366 Learning Objective: 1 Rationale: Key term definition—standard markup pricing 14-59 STANDARD MARKUP PRICING DEFINITION Which cost-based pricing method entails adding a fixed percentage to the cost of all items in a specific product class? a. experience curve pricing b. cost plus fixed-fee pricing c. demand backward pricing d. standard markup pricing e. target profit pricing Answer: d Page: 366 Other Locations: SG Learning Objective: 1 Rationale: Key term definition—standard markup pricing 14-60 STANDARD MARKUP PRICING APPLICATION Creative Quilts Studio sells hundreds of colors and types of thread and fabric. To price its inventory, the owners of the studio add 50 percent to the cost of each bolt of fabric and every spool of thread. What is this pricing method called? a. target return-on-sales pricing b. flexible pricing c. cost-plus-fixed-fee pricing d. standard markup pricing e. customary pricing Answer: d Page: 366 Learning Objective: 1 Rationale: Standard markup pricing adds a fixed percentage to the cost of all items in a specific product class—in this case, fabric and thread.14-61 STANDARD MARKUP PRICING APPLICATION Assume it costs Lady Marion Seafood, Inc. $30 to catch, process, freeze, package, and ship 5-pound packages of Alaskan salmon. It uses a 60 percent markup on its salmon products and charges customers $48 for a postage-paid vacuum-sealed package. What type of pricing does Lady Marion Seafood use? a. target return-on-sales pricing b. cost-plus-fixed-fee pricing c. standard markup pricing d. target profit pricing e. customary pricing Answer: c Page: 366 Learning Objective: 1 Rationale: Standard markup pricing adds a fixed percentage to the cost of all items in a specific product class (5-pound packages of salmon). 14-62 COST-PLUS PRICING DEFINITION What type of pricing involves summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at the price? a. standard markup pricing b. experience curve pricing c. cost-plus pricing d. penetration pricing e. bundle pricing Answer: c Page: 366 Learning Objective: 1 Rationale: Key term definition—cost-plus pricing 14-63 COST-PLUS PRICING DEFINITION The two variations of cost-plus pricing are: a. cost-plus percentage-of-cost pricing and cost-plus fixed-fee pricing. b. cost-plus ROI pricing and cost-minus markdown pricing. c. target return on sales pricing and target return on investment pricing. d. cost-plus fixed-fee pricing and cost-plus variable-fee pricing. e. dynamic pricing and one-price pricing. Answer: a Page: 366 Other Locations: web Learning Objective: 1 Rationale: Key term definition—cost-plus pricing14-64 COST-PLUS PRICING APPLICATION Rather than billing clients by the hour, some lawyers and their clients agree on a fixed fee based on expected costs plus a profit for the law firm. Which pricing method are they using? a. target pricing b. cost-plus pricing c. customary pricing d. experience curve pricing e. bundle pricing Answer: b Page: 366 Learning Objective: 1 Rationale: The rising cost of legal fees has prompted some law firms to adopt a cost-plus pricing approach. 14-65 COST-PLUS-PERCENTAGE-OF-COST PRICING DEFINITION __________ is setting the price of a product or service by adding a fixed percentage of the production or construction costs. a. Cost-plus-fixed-fee pricing b. Cost-plus-percentage-of-cost pricing c. Demand backward pricing d. Experience curve pricing e. Target return on investment pricing Answer: b Page: 366 Learning Objective: 1 Rationale: Text term definition—cost-plus-percentage-of-cost pricing 14-66 COST-PLUS-PERCENTAGE-OF-COST PRICING APPLICATION When a firm is hired to construct a custom home, it is a one-of-a-kind project and often requires unforeseen expenses. Companies that contract to build custom homes typically add a fixed percentage to the total unit cost to take care of these unplanned costs. This pricing method is called: a. competition-oriented pricing. b. target return-on-investment pricing. c. target return-on-sales pricing. d. cost-plus-fixed-fee pricing. e. cost-plus-percentage-of-cost pricing. Answer: e Page: 366 Learning Objective: 1 Rationale: Text term definition—cost-plus-percentage-of-cost pricing14-67 COST-PLUS-PERCENTAGE-OF-COST PRICING CONCEPTUAL Which of the following businesses is most likely to use cost-plus-percentage-of-cost pricing? a. realty agency b. architect c. insurance company d. power company e. amusement park Answer: b Page: 366 Learning Objective: 1 Rationale: Cost-plus-percentage-of-cost pricing is setting the price a product or service by adding a fixed percentage to the production or construction costs involved in a project, the pricing approach often used by many architects. 14-68 COST-PLUS-FIXED-FEE PRICING DEFINITION __________ is a pricing method where a supplier is reimbursed for all costs, regardless of what they may be, plus a set earlier-agreed-on dollar amount that is independent of the final cost of the project. a. Target return on investment pricing b. Cost-plus-percentage-of-cost pricing c. Target return on sales pricing d. Experience curve pricing e. Cost-plus-fixed-fee pricing Answer: e Page: 366 Learning Objective: 1 Rationale: Text term definition—cost-plus-fixed-fee pricing 14-69 COST-PLUS-FIXED-FEE PRICING CONCEPTUAL The Brazilian government wants to build a global satellite transmission system. The manufacturer will receive $500,000 above actual development costs, whatever they may be. Payment to the manufacturer of the satellite transmission system will be determined using: a. standard markup pricing. b. experience curve pricing. c. cost-plus-percentage-of-cost pricing. d. cost-plus-fixed-fee pricing. e. bundle pricing. Answer: d Page: 366 Learning Objective: 1 Rationale: Cost plus fixed-fee pricing is setting the price so the supplier is reimbursed for all costs, regardless of what they may be, but is allowed only a fixed amount as profit, the situation here.14-70 EXPERIENCE CURVE PRICING DEFINITION __________ is a method of pricing where price often falls following the reduction of costs associated with the firm's producing and selling an increased volume of the product. a. Cost-plus-percentage-of-cost pricing b. Marginal revenue pricing c. Target return on investment pricing d. Experience curve pricing e. Target return on sales pricing Answer: d Page: 367 Learning Objective: 1 Rationale: Key term definition—experience curve pricing 14-71 EXPERIENCE CURVE PRICING CONCEPTUAL Which cost-based pricing method holds that a product's unit costs predictably decline by 10 to 30 percent each time the firm's production volume doubles? a. experience curve pricing b. cost-plus-percentage-of-cost pricing c. cost-plus-fixed-fee pricing d. standard markup pricing e. demand-backward pricing Answer: a Page: 367 Learning Objective: 1 Rationale: Experience curve pricing is a method of pricing in which price often falls following the reduction of costs associated with the firm's experience in producing or selling a product. 14-72 EXPERIENCE CURVE PRICING APPLICATION The retail price of cell phones has decreased from $4,000 to less than $99 over several years. This is due in large part to: a. skimming pricing. b. prestige pricing. c. odd-even pricing. d. experience curve pricing. e. customary pricing. Answer: d Page: 367 Learning Objective: 1 Rationale: Experience curve pricing is a method of pricing in which price often falls following the reduction of costs associated with the firm's experience in producing or selling a larger volume of the product—the situation with cell phones.14-73 EXPERIENCE CURVE PRICING APPLICATION The retail price of fax machines has decreased from $1,000 to less than $100 over several years. This is due in large part to: a. skimming pricing. b. prestige pricing. c. odd-even pricing. d. experience curve pricing. e. customary pricing. Answer: d Page: 367 Learning Objective: 1 Rationale: Experience curve pricing is a method of pricing in which price often falls following the reduction of costs associated with the firm's experience in producing or selling a larger volume of the product—the situation with fax machines. 14-74 EXPERIENCE CURVE PRICING APPLICATION The retail price of DVD players has decreased from $900 to less than $100 over several years. This is due in large part to: a. skimming pricing. b. prestige pricing. c. odd-even pricing. d. experience curve pricing. e. customary pricing. Answer: d Page: 367 Learning Objective: 1 Rationale: Experience curve pricing is a method of pricing in which price often falls following the reduction of costs associated with the firm's experience in producing or selling a larger volume of the product—the situation with DVD players. 14-75 TARGET PROFIT PRICING DEFINITION Target profit pricing is: a. adjusting the price of a product so it is "in line" with that of its largest competitor. b. setting the price of a line of products at a number of different price points. c. adding a fixed percentage to the cost of all items in a specific product class. d. setting prices to achieve a profit that is a specified percentage of the sales volume. e. setting a price based on a specific annual dollar target volume of profit. Answer: e Page: 367 Other Locations: SG Learning Objective: 1 Rationale: Key term definition—target profit pricing14-76 TARGET PROFIT PRICING APPLICATION 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 a target profit of $50,000 on a volume of 50 suits is desired? What should be charged for a typical custom suit? a. $1,040.00 b. $900.00 c. $1,800.00 d. $2,080.00 e. cannot be determined from the information provided Answer: d Page: 368 Learning Objective: 1 Rationale: Profit = total revenue - total cost. Profit = (P x Q) - [FC + (UVC x Q)]. Thus, $50,000 = 50P - [$44,000 + ($200 x 50)], or $2,080.00. 14-77 TARGET PROFIT PRICING APPLICATION Lady Marion Seafood, Inc. sells 5-pound packages of Alaska salmon. Assume its variable costs 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 it charge for a five-pound package of salmon? a. $25.00 b. $30.00 c. $40.00 d. $48.00 e. $55.00 Answer: d Page: 368 Learning Objective: 1 Rationale: Profit = total revenue - total cost. Profit = (P x Q) - [FC + (UVC x Q)]. Thus, $38,000 = 16,000P - [$250,000 + ($30 x 16,000] = $48. 14-78 TARGET PROFIT PRICING APPLICATION 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—an oil change for $10 with a coupon mailed to 800 households in a 2-mile radius from his station. The $10 will just cover the costs of the oil change, and the cost of printing and mailing is $1000. He hopes the promotion will increase regular maintenance service calls, which average $40. (Materials and labor per job cost $30.) If two hundred customers used the coupon, what will be the total cost of the promotion? (Disregard any opportunity costs.) a. $200 b. $800 c. $1000 d. $1200 e. $1800 or more Answer: c Page: 368 Learning Objective: 1 Rationale: If you don't consider opportunity costs, the promotion will cost $1000 (thecost of the coupon printing and mailing) regardless of the response. 14-79 TARGET RETURN-ON-SALES PRICING DEFINITION Target return-on-sales pricing is: a. adjusting the price of a product so it is "in line" with that of its largest competitor. b. setting the price of a line of products at a number of different price points. c. adding a fixed percentage to the cost of all items in a specific product class. d. setting prices to achieve a profit that is a specified percentage of the sales revenue. e. setting a price based on a specific annual dollar target profit volume. Answer: d Page: 368 Learning Objective: 1 Rationale: Key term definition—target return-on-sales pricing 14-80 TARGET RETURN-ON-SALES PRICING APPLICATION A custom kitchen cabinet storeowner wishes to use target return-on-sales pricing to establish a price for a typical section of cabinets. Assume variable cost is $200 per unit, fixed cost is $44,000, and the storeowner desires a target profit of 20 percent of sales on an annual volume of 400 cabinets. What price should be charged for a typical cabinet section? a. $372.00 b. $311.00 c. $445.50 d. $395.75 e. $387.50 Answer: e Page: 368 Learning Objective: 1 Rationale: Target return on sales = target profit / total revenue. TROS = P x Q - [FC + (UVC x Q)]/TR. 0.20 = 400P - [$44,000 + ($200 x 400)]/400P, or $387.50. 14-81 TARGET RETURN-ON-INVESTMENT PRICING DEFINITION Target return-on-investment pricing is: a. setting the price of a line of products at a number of different price points. b. adding a fixed percentage to the cost of all items in a specific product class. c. setting prices to achieve a profit that is a specified percentage of the sales volume. d. setting prices to achieve a specified percentage return-on-investment. e. setting a price based on an annual specific dollar target volume of profit. Answer: d Page: 368-369 Learning Objective: 1 Rationale: Key term definition—target return-on-investment pricing14-82 TARGET RETURN-ON-INVESTMENT PRICING CONCEPTUAL Which of the following companies would be most likely to use target return-oninvestment pricing? a. an automobile manufacturer b. a florist shop c. a book publisher d. a veterinarian e. a farmer Answer: a Page: 368-369 Learning Objective: 1 Rationale: Target return-on-investment pricing is used to set prices to achieve a particular return on investment. 14-83 CUSTOMARY PRICING DEFINITION Customary pricing is: a. a pricing method where the price the seller quotes includes all transportation costs. b. setting the same price for similar customers who buy the same product and quantities under the same conditions. c. deliberately selling a product below its list price to attract attention to it. d. a method of pricing a product based on tradition, standardized channel of distribution, or other competitive factors. e. pricing based on what the market will bear. Answer: d Page: 370 Learning Objective: 1 Rationale: Key term definition—customary pricing 14-84 CUSTOMARY PRICING DEFINITION __________ is a competition-based method of pricing where tradition, a standardized channel of distribution, or other competitive factors dictate the price of a product. a. Standard markup pricing b. Cost-plus-percentage-of-cost pricing c. Customary pricing d. Experience curve pricing e. Target profit pricing Answer: c Page: 370 Learning Objective: 1 Rationale: Key term definition—customary pricing14-85 CUSTOMARY PRICING APPLICATION Consumers buy candy bars, snacks, and soda pop from vending machines. Traditionally, the price of each of these products is about 75 cents. If a marketer charges a significantly higher price for such products dispensed by vending machines, sales are likely to decline. In order to avoid such declines in sales, marketers tend to be very consistent in the price charged for vending machine products. This is an example of marketers employing a __________ strategy. a. below-market pricing b. skimming pricing c. penetration pricing d. customary pricing e. loss-leader pricing Answer: d Page: 370 Other Locations: web Learning Objective: 1 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. 14-86 CUSTOMARY PRICING CONCEPTUAL Vending machines are a good example of the application of what type of competitionbased pricing? a. customary pricing b. above-,at-,or below-market pricing c. loss-leader pricing d. penetration pricing e. bundle pricing Answer: a Page: 370 Learning Objective: 1 Rationale: Customary pricing is a method of pricing based on a product's tradition, standardized channel of distribution, or other competitive factors. This is the situation with vending machines.14-87 CUSTOMARY PRICING APPLICATION Southern gardeners have a preconceived idea on what they will pay for pine bark mulch that they buy at their local gardening supply store to keep the weeds down in their gardens. If the price being charged is not within a narrow range that they feel is appropriate, they will make substitutions--newspaper, grass clippings or some other kind of ground covering. When pricing pine bark mulch, a garden supply retailer should use: a. customary pricing. b. above-,at-,or below market pricing. c. loss-leader pricing. d. penetration pricing. e. bundle pricing. Answer: a Page: 370 Learning Objective: 1 Rationale: Customary pricing is a method of pricing based on a product's tradition, standardized channel of distribution, or other competitive factors. 14-88 ABOVE-MARKET PRICING APPLICATION A Swedish company such as Asko that prides itself on manufacturing and marketing some of the best-built and most expensive appliances in the world is using which competition-based method of pricing? a. customary pricing b. above-market pricing c. loss-leader pricing d. bait-and-switch pricing e. bundle pricing Answer: b Page: 370 Learning Objective: 1 Rationale: Above-, at-, or below-market pricing is pricing based on what the market price is. Asko has decided to price its products far above the industry pricing "benchmark," an above-market pricing strategy. 14-89 BELOW-MARKET PRICING APPLICATION An ad campaign by Suave shampoo asked television viewers to identify the hair that was shampooed and conditioned with Suave products and the hair on which expensive salon hair-care products were used. The idea of the ad was that a person could not tell by looking that a woman was using the much cheaper Suave brand. By making price its selling point, Suave is most likely using: a. demand backward pricing. b. below-market pricing. c. loss-leader pricing. d. prestige pricing. e. skimming pricing. Answer: b Page: 370 Other Locations: SG Learning Objective: 1 Rationale: The promotional campaign for Suave implies that its prices are significantly below those of equal products on the market, a below-market pricing strategy.14-90 BELOW-MARKET PRICING CONCEPTUAL Manufacturers of generic products use which method of competition-based pricing? a. demand backward pricing b. below-market pricing c. loss-leader pricing d. prestige pricing e. skimming pricing Answer: b Page: 370 Learning Objective: 1 Rationale: Above-, at-, or below-market pricing is pricing based on what the market price is. Manufacturers of generic products and retailers selling private brands often deliberately set prices between 8 and 10 percent lower than nationally branded competitive products, which is a below-market pricing strategy. 14-91 LOSS-LEADER PRICING DEFINITION Loss-leader pricing is: a. a pricing method where the price the seller quotes includes all transportation costs. b. setting the same price for similar customers who buy the same product and quantities under the same conditions. c. deliberately selling a product below its customary price to attract attention to it. d. a method of pricing based on a product's tradition, standardized channel of distribution, or other competitive factors. e. pricing based on intensity of customer demand. Answer: c Page: 370 Other Locations: web Learning Objective: 1 Rationale: Key term definition—loss-leader pricing 14-92 LOSS-LEADER PRICING CONCEPTUAL Using __________, many retailers deliberately sell products below their normal prices (and sometimes below cost) to attract attention and induce additional store traffic. a. customary pricing b. above-market pricing c. loss-leader pricing d. prestige pricing e. skimming pricing Answer: c Page: 370 Learning Objective: 1 Rationale: Loss-leader pricing is deliberately pricing a product below its customary price to attract consumer attention to it. It is hoped that customers will buy other, highermargin products while in the store.14-93 LOSS-LEADER PRICING APPLICATION When Kroger’s, a national supermarket chain, prices soda at $2.09 a six-pack, it is attempting to: a. drive its competition out of business. b. attract customers in hopes they will buy other products as well. c. fill its parking lot so its store will look successful. d. help the local bottler dispose of excess soda cans. e. circumvent fair trade rulings by the Federal Trade Commission (FTC). Answer: b Page: 370 Learning Objective: 1 Rationale: When retailers use loss-leader pricing, their purpose is to attract customers in the hopes that they will buy other items in the store as well. 14-94 ONE-PRICE POLICY APPLICATION A radio advertisement features a female buyer who is very enthusiastic about the pricing policies of the Saturn automobile dealers. In the testimonial-type advertisement, the car buyer laments about the difficulty she experienced with other car dealers in haggling over a final price for an auto. In comparison, the buyer touts the ease with which she arrived at a final price for her new Saturn automobile--she simply entered the show room, asked for the price of the car she preferred, and the sales person quoted her the selling price. No matter which Saturn dealer she visited, the buyer (or any other buyer for that matter) would be quoted the same price for the same automobile. The advertisement represents Saturn's __________ policy. a. flexible-price b. standard-price c. fixed-price d. one-price e. sticker-price Answer: d Page: 371 Learning Objective: 2 Rationale: The idea is simple: no matter which Saturn dealer a customer might visit, a given model of Saturn car is priced the same. 14-95 ONE-PRICE POLICY DEFINITION A __________ policy is the setting of the same price for similar customers who buy the same product and quantities under the same conditions. a. customary pricing b. one-price c. flexible-price d. standard markup e. blanket price Answer: b Page: 371 Learning Objective: 2 Rationale: Key term definition—one-price policy14-96 ONE-PRICE POLICY CONCEPTUAL When you buy a Saturn Automobile from a dealership, you are offered the car at a single price. You can buy it or not, but there is no variation in price under the seller's: a. penetration strategy. b. odd-even pricing. c. one-price policy. d. bundle-pricing policy. e. flexible-price policy. Answer: c Page: 371 Learning Objective: 2 Rationale: One-price policy, also called fixed pricing, is setting one price for all buyers of a product or service. 14-97 ONE-PRICE POLICY DEFINITION What is fixed pricing? a. pricing for products that have a traditionally accepted price range b. another name for price lining c. another name for cost-plus fixed-fee pricing d. a type of demand-oriented pricing e. another name for a one-price policy Answer: e Page: 371 Learning Objective: 2 Rationale: Key term definition—one-price policy 14-98 FLEXIBLE-PRICE POLICY DEFINITION Offering different prices for products and services depending on individual buyers and purchase situations is called: a. price lining. b. customary pricing. c. a flexible-price policy. d. price fixing. e. discretionary pricing. Answer: c Page: 371 Learning Objective: 2 Rationale: Key term definition—flexible-price policy14-99 FLEXIBLE-PRICE POLICY CONCEPTUAL Which of the following statements about a flexible-price policy is true? a. When using a flexible-price policy, the seller may risk violating the RobinsonPatman Act. b. A flexible-price policy may be used when selling a house. c. This flexible-price policy may be used when selling a car. d. Flexible pricing may result in race and gender discrimination. e. All of the above statements about a flexible-price policy are true. Answer: e Page: 371-372 Learning Objective: 2 Rationale: While a flexible-price policy may be used in selling products like houses or cars, it runs the risk of violating the Robinson-Patman Act or resulting in discrimination against the buyer. 14-100 FLEXIBLE-PRICE POLICY DEFINITION Yield management pricing is a form of: a. fixed-pricing b. loss-leader pricing. c. dynamic pricing, d. customary pricing. e. price lining. Answer: c Page: 371 Learning Objective: 2 Rationale: Dynamic pricing is a synonym for a flexible-price policy. 14-101 FLEXIBLE-PRICE POLICY APPLICATION When Teresa went into the furniture store to buy a new sleeper sofa, she thought the prices quoted by the salesperson were too high, so she prepared to leave. As she neared the door, the salesperson asked if she would be interested in buying the sofa if the price was $150 lower. Teresa returned to the store, purchased the sofa, and felt like she had gotten a good deal. The furniture store uses: a. price lining. b. customary pricing. c. a flexible-price policy. d. price fixing. e. discretionary pricing. Answer: c Page: 371 Learning Objective: 2 Rationale: With a flexible-price policy, the furniture store could offer the sofa to similar customers but at different prices.14-102 PRODUCT-LINE PRICING APPLICATION Different brands within a company’s product line generally have different profit margins; higher price lines have higher profit margins. For example, Nike Variety tennis shoes have variable costs of $6 and sell for $24; whereas, Nike Wimbleton tennis shoes have variable costs of $10 and sell for $48. It must be true that: a. demand is unrelated to price. b. Nike is using a cost-plus percentage-of-cost pricing strategy. c. Nike is using a product-line pricing strategy. d. demand is unrelated to product quality. e. consumers do not use price as an indication of quality. Answer: c Page: 372 Other Locations: SG Learning Objective: 2 Rationale: Nike is using a product-line pricing strategy. It is not using b because the percentages of markups are different. The other answers do not follow from the example. 14-103 ETHICS AND SOCIAL RESPONSIBILITY ALERT CONCEPTUAL Which of the following statements about how a new car is purchased in the United States is true? a. Car dealers offer male and female African-Americans and white females higher prices than white males. b. A shortcoming of how flexible pricing is used in car sales is the potential for price discrimination by race and gender. c. Smaller price premiums remain after adjusting for income, education and other factors that may affect price negotiations. d. Sixty percent of car buyers dread price negotiations when looking for a new car. e. All of the above statements about how a new car is purchased in the United States are true. Answer: e Page: 372 Learning Objective: 2 Rationale: The Ethics and Social Responsibility Alert cites all these examples as possible abuses of a flexible-price policy. 14-104 PRODUCT-LINE PRICING DEFINITION When a manager sets prices for all items in a multiple products line to cover the total cost and to produce a profit for the complete line—not necessarily for each item, it is called: a. line item pricing. b. product-line pricing. c. price lining. d. customary pricing. e. discretionary pricing. Answer: b Page: 372 Learning Objective: 2 Rationale: Key term definition—product-line pricing14-105 PRODUCT-LINE PRICING APPLICATION Leupold & Stevens, Inc., a U.S. manufacturer of rifle scopes, uses a variety of pricing strategies for its rifle scopes. For some, the company uses above-, at-, or below-market pricing to reach as many customers as possible. The company is more concerned about making a profit for the complete line of its scopes—rather than making a profit on just one item in its product line. Leupold & Stevens uses: a. line item pricing. b. product-line pricing. c. price lining. d. customary pricing. e. discretionary pricing. Answer: b Page: 372 Other Locations: web Learning Objective: 2 Rationale: When a manager sets prices for all items in a multiple products line to cover the total cost and to produce a profit for the complete line--not necessarily for each item, it is called product-line pricing. 14-106 CUSTOMER EFFECTS ON PRICING DECISION APPLICATION The Hummer was an attention-getting SUV that sold for $80,000 in a limited number of outlets. Then, General Motors proved the smaller version for $50,000 could be sold in many more outlets. To cover costs and reach the market faster, the Hummer 2 shared some parts with other GM cars. To which customer effects did Hummer marketing managers need to pay particular attention? a. The original Hummer is prestige priced; therefore, the price of Hummer 2 should make sense to customers and reflect differences in the perceived value of the products offered. b. High gas mileage will be important for Hummer 2. c. Color choices will be important for Hummer 2. d. Comfort and space for families will be important for Hummer 2. e. The original Hummer was penetration priced, so that the Hummer 2 continues this pricing strategy to maximize expected profit. Answer: a Page: 373 Learning Objective: 2 Rationale: The challenge will be to deliver a Hummer for a lower price that will not lead customers to become dubious about quality and prestige and buy fewer vehicles. In this market, at either price point, customers are not buying the vehicle for its gas mileage or color or as family transport. Clearly, the original was not penetration (low) priced.14-107 CUSTOMER EFFECTS APPLICATION Toro decided to augment its traditional hardware outlet distribution by also selling through big discounters such as Wal-Mart and Target and set prices for the discounters substantially below those for its traditional hardware outlets. Many unhappy hardware stores subsequently abandoned Toro products in favor of other manufacturers. This is an example of a firm failing to consider __________ effects when setting its final list or quoted price. a. company b. social responsibility c. backlash d. competitive e. customer Answer: e Page: 373 Learning Objective: 2 Rationale: In setting its prices, Toro failed to weigh the customer effects of its pricing decisions and consider the factors that satisfy the perceptions or expectations of its customers. By failing to consider how its traditional hardware outlet customers would view the lower prices offered the discounters, Toro lost many of these hardware store (customer) outlets. 14-108 COMPETITIVE EFFECTS APPLICATION Many times low-cost airlines will enter a particular city pair market at a much lower price than that offered by the major airline currently serving the market. When the low-cost airline enters, the major airline will then cut its prices, many times at or below those offered by the low-cost airline, hoping to eventually drive the smaller carrier out of its market. This is an example of a company failing to consider __________ effects when planning its strategy. a. company b. social responsibility c. backlash d. competitive e. customer Answer: d Page: 373 Learning Objective: 2 Rationale: In setting its prices for a particular city-pair, a low-cost airline needs to consider the other airlines currently serving that city-pair and the prices the other airlines charge. Without considering this competitive effect, the airline may find itself in a price war.14-109 COMPETITIVE EFFECTS: PRICE WAR DEFINITION A __________ involves successive price cutting by competitors to increase or maintain their unit sales or market share. a. low-price policy b. price war c. pricing backlash d. competitive cost war e. price reduction Answer: b Page: 373 Learning Objective: 2 Rationale: Key term definition—price war 14-110 COMPETITIVE EFFECTS: PRICE WAR DEFINITION A price war involves successive price cutting by competitors to __________ or market share. a. decrease return on investment b. increase customers awareness c. decrease unit sales d. decrease variable costs e. increase unit sales Answer: e Page: 373 Learning Objective: 2 Rationale: Key term definition—price war 14-111 COMPETITIVE EFFECTS: PRICE WAR DEFINITION A price war involves successive price cutting by competitors to increase or maintain their unit sales or __________. a. decrease return on investment b. increase customers awareness c. decrease unit sales d. decrease variable costs e. increase market share Answer: e Page: 373 Learning Objective: 2 Rationale: Key term definition—price war14-112 COMPETITIVE EFFECTS: PRICE WAR CONCEPTUAL Marketers should consider price cutting only if: a. the company has a technological advantage over its competitors. b. primary demand for a product class will grow if prices are lowered. c. the price cut is confined to specific products and not across-the-board. d. the price cut is confined to specific customers and not across-the-board. e. All of the above are conditions under which marketers may consider price cutting. Answer: e Page: 373 Learning Objective: 2 Rationale: Marketers are advised to consider price cutting only when one or more conditions exist: (1) the company has a cost or technological advantage over its competitors, (2) primary demand for a product class will grow if prices are lowered, and (3) the price cut is confined to specific products or customers, and not across-the-board. 14-113 INCREMENTAL COSTS AND REVENUES CONCEPTUAL What is the main difficulty involved in performing a marginal analysis of the incremental costs and revenues that could result from a new advertising campaign? a. measuring the extra fixed cost involved b. measuring the extra variable cost involved c. measuring the incremental revenue generated by the change d. measuring the incremental cost incurred by the change e. all of the above Answer: c Page: 374 Learning Objective: 2 Rationale: A firm can measure the incremental cost of a new advertising campaign quite easily because the costs figures are readily available. It is difficult, however, to measure the incremental revenue generated by the advertising campaign. 14-114 INCREMENTAL COSTS AND REVENUES APPLICATION A small gasoline station manager observes that while gasoline sales have been steady, the service side of her business has fallen off and mechanics are often idle. She decides to offer a promotion--an oil change for $10 with a coupon mailed to 800 households in a 2- mile radius from her station. The $10 will just cover the costs of the oil change, and the cost of printing and mailing is $1000. She hopes the promotion will increase regular maintenance service calls, whose average price is $40 (Average materials and labor costs per job is $30.) How many additional maintenance service jobs must result for the promotion to break even? (Disregard opportunity costs, goodwill effects, and any additional revenues.) a. 70 maintenance jobs b. 80 maintenance jobs c. 100 maintenance jobs d. 300 maintenance jobs e. 400 maintenance jobs Answer: c Page: 374 Other Locations: SG Learning Objective: 2 Rationale: Incremental No. of Jobs = Extra Fixed Cost / Price - UVC = 1000 / 40 - 30 = 100 maintenance jobs14-115 TYPES OF SPECIAL ADJUSTMENTS DEFINITION The three major types of special adjustments to list or quoted price are: a. discounts, allowances, geographical adjustments. b. demand-oriented, cost-oriented, profit-oriented. c. one price, flexible price, discounts. d. discounts, allowances, competition-oriented. e. discounts, incremental costs and revenues, geographic. Answer: a Page: 375; Fig. 14-6 Learning Objective: 3 Rationale: The three major types of special adjustments to list or quoted price are discounts, allowances, and geographical adjustments. 14-116 TYPES OF DISCOUNTS DEFINITION Four types of price discounts are: a. quantity, trade-in, promotional, and cash. b. seasonal, trade (functional), cash, and quantity. c. quantity, seasonal, promotional, and cash. d. cash, trade-in, seasonal, and promotional. e. trade-in, promotional, geographic, and functional. Answer: b Page: 375; Fig. 14-6 Learning Objective: 3 Rationale: These are identified in the text as the four kinds of especially important discounts. 14-117 QUANTITY DISCOUNTS DEFINITION Reductions in unit cost for placing a larger order are: a. promotional allowances. b. quantity discounts. c. one-price policy prices. d. penetration prices. e. size of order allowances. Answer: b Page: 375 Learning Objective: 3 Rationale: Key term definition—quantity discounts 14-118 QUANTITY DISCOUNTS APPLICATION Your local instant photocopying service charges 10 cents a copy for copies up to a quantity of 25, 9 cents a copy for 26 to 100, and 8 cents a copy for 101 or more. What kind of adjustment to list or quoted prices is the photocopying service using? a. bundle pricing b. quantity discounts c. loss-leader pricing d. promotional discounts e. everyday low pricingAnswer: b Page: 375 Learning Objective: 3 Rationale: The question provides an example of quantity discounts. 14-119 QUANTITY DISCOUNTS:NONCUMULATIVE APPLICATION If you buy one pair of Uvex Clear UVExtreme safety eyewear, the cost is $7.40, but if you buy ten at one time, the price per pair is reduced to $6.85. This is an example of a: a. promotional allowance. b. cumulative quantity discount. c. bundle pricing. d. functional discount. e. noncumulative quantity discount. Answer: e Page: 375 Learning Objective: 3 Rationale: Text term definition__noncumulative quantity discounts 14-120 QUANTITY DISCOUNTS:CUMULATIVE DEFINITION A __________ applies to the accumulation of purchases of a product over a given time period, typically a year. a. promotional allowance b. cumulative quantity discount c. cash discount d. functional discount e. noncumulative quantity discount Answer: b Page: 375 Learning Objective: 3 Rationale: Text term definition—cumulative quantity discounts 14-121 QUANTITY DISCOUNTS APPLICATION Mike Morgan, a sales representative for a major distributor of Kodak film, wanted to encourage repeat purchases by his customers. In order to accomplish this objective, Morgan offered the following discount to his customers: 10-50 cases of film over the next 12 months—a 10 percent discount, 51-100 cases of film over the next 12 months—a 12 percent discount, 101-200 cases of film over the next 12 months—a 15 percent discount. What type of discount was Morgan offering his customers? a. a seasonal discount b. a cumulative quantity discount c. a noncumulative quantity discount d. a trade discount e. a noncumulative trade discount Answer: b Page: 375 Learning Objective: 3 Rationale: Cumulative quantity discounts are typically used to encourage customers to engage in repeat purchase behavior. In essence, the more product a customer purchases during a given and specified period of time, the greater the price discount that customerreceives. This is what Mike Morgan offered his customers.14-122 SEASONAL DISCOUNT CONCEPTUAL Manufacturers use seasonal discounts to: a. entice dealers to purchase seasonal merchandise earlier in the selling season. b. rid themselves of dated merchandise. c. prolong the peak seasonal selling season. d. "load up" their dealers. e. show consumers holiday goodwill. Answer: a Page: 375 Learning Objective: 3 Rationale: Seasonal discounts encourage the buyer to stock inventory earlier than normal demand would require. This enables the manufacturer to reduce seasonal peaks and troughs in production. 14-123 SEASONAL DISCOUNT CONCEPTUAL To encourage buyers to stock inventory earlier than their normal demand would require, manufacturers often use: a. noncumulative discounts. b. cumulative discounts. c. seasonal discounts. d. trade discounts. e. functional discounts. Answer: c Page: 375 Learning Objective: 3 Rationale: Discounts are reductions from list price that a seller gives a buyer as a reward for some activity of the buyer that is favorable to the seller. Seasonal discounts encourage buyers to stock inventory earlier than their normal demand would require. 14-124 SEASONAL DISCOUNT CONCEPTUAL To enable manufacturers to smooth out manufacturing peaks and troughs and thereby contribute to more efficient production, manufacturers offer: a. noncumulative discounts. b. cumulative discounts. c. seasonal discounts. d. trade discounts. e. functional discounts. Answer: c Page: 375 Learning Objective: 3 Rationale: Discounts are reductions from list price that a seller gives a buyer as a reward for some activity of the buyer that is favorable to the seller. Seasonal discounts encourage buyers to stock inventory earlier than their normal demand would require. This allows manufacturers to smooth out manufacturing peaks and troughs as well as rewarding wholesalers and retailers for the risk they accept in assuming increased inventory carrying costs and having supplies in stock at the time they are wanted by customers.14-125 SEASONAL DISCOUNT CONCEPTUAL To reward wholesalers and retailers for the risk they accept in assuming increased inventory carrying costs, manufacturers offer: a. noncumulative discounts. b. cumulative discounts. c. seasonal discounts. d. trade discounts. e. functional discounts. Answer: c Page: 375 Learning Objective: 3 Rationale: Discounts are reductions from list price that a seller gives a buyer as a reward for some activity of the buyer that is favorable to the seller. Seasonal discounts encourage buyers to stock inventory earlier than their normal demand would require. This allows manufacturers to smooth out manufacturing peaks and troughs as well as rewarding wholesalers and retailers for the risk they accept in assuming increased inventory carrying costs and having supplies in stock at the time they are wanted by customers. 14-126 SEASONAL DISCOUNT CONCEPTUAL To reward wholesalers and retailers for having supplies in stock at the time they are wanted by customers, manufacturers offer: a. noncumulative discounts. b. cumulative discounts. c. seasonal discounts. d. trade discounts. e. functional discounts. Answer: c Page: 375 Learning Objective: 3 Rationale: Discounts are reductions from list price that a seller gives a buyer as a reward for some activity of the buyer that is favorable to the seller. Seasonal discounts encourage buyers to stock inventory earlier than their normal demand would require. This allows manufacturers to smooth out manufacturing peaks and troughs as well as rewarding wholesalers and retailers for the risk they accept in assuming increased inventory carrying costs and having supplies in stock at the time they are wanted by customers. 14-127 SEASONAL DISCOUNT APPLICATION When purchasing which one of the following products would you be likely to receive a seasonal discount? a. an engraved silver picture frame b. a ream of computer printer paper c. a mystery novel d. a can of Italian-cut green beans e. none of the above Answer: e Page: 375 Learning Objective: 3 Rationale: Seasonal discounts are given on products like Christmas decorations, swimsuits, and wood burning stoves that have seasonal spikes in demand. The products listed would not have a primary selling season.14-128 TRADE (FUNCTIONAL) DISCOUNT DEFINITION When calculating trade (functional) discounts, the first number in the sequence always refers to the: a. the discount to the ultimate consumer. b. the manufacturer's percentage cost. c. the retail end of the channel. d. the channel intermediary closest to the manufacturer. e. SKU. Answer: c Page: 376 Learning Objective: 3 Rationale: This is the pricing convention used in today’s businesses. The price quote is the manufacturer’s suggested retail price $100 less 30/10/5 for example. The first number in the percentage sequence always refers to the retail end of the channel, and the last number always refers to the wholesaler or jobber closest to the manufacturer in the channel. 14-129 TRADE DISCOUNT APPLICATION A manufacturer does marketing research and estimates that consumers will accept a price of $50 for a jacket. If the manufacturer expects to offer trade discounts of 40/10/5 to retailers, wholesalers, and agents, what price will the manufacturer receive for the jacket? a. $45 b. $27.50 c. $25.65 d. $22.50 e. $10.05 Answer: c Page: 376 Learning Objective: 3 Rationale: $50 x .6 x .9 x .95 = $25.65 14-130 TRADE DISCOUNT APPLICATION A manufacturer estimates that consumers will accept a price of $275 for a snowboard. If the manufacturer expects to offer trade discounts of 35/15/ 5 to retailers, wholesalers, and agents, respectively, what price will the manufacturer receive for the snowboard? a. $72.37 b. $99.94 c. $104.73 d. $125.00 e. $144.34 Answer: e Page: 376-377 Learning Objective: 3 Rationale: $275 x .65 x .85 x .95 = $144.3414-131 TRADE DISCOUNT APPLICATION What would be the ultimate selling price of a sweater be if the cost to the manufacturer is $11.75 and the manufacturer, wholesaler, and retailer (no other members of the channel) took markups on selling price of 10 percent, 25 percent, and 40 percent respectively? a. $22.62 b. $14.68 c. $16.45 d. $20.57 e. $29.01 Answer: e Page: 376-377 Learning Objective: 3 Rationale: $11.75 / (.9 x .75 x .6) = $29.01 14-132 TRADE DISCOUNT APPLICATION Within the channel of distribution for certain types of imported furniture, the typical trade terms are 40/15/10. If a dining room table has a list price of $1000, how much would the manufacturer sell the table to a jobber for? a. $459.00 b. $400.00 c. $390.00 d. $350.00 e. $300.00 Answer: a Page: 376-377 Learning Objective: 3 Rationale: The manufacturer would realize $459.00, calculated as follows: $1000 less 40 percent of $1000 = $600 is the amount the retailer pays the wholesaler. $600 less 15 percent of $600 = $510 is the amount the wholesaler pays the jobber. $510 less 10 percent of $510 = $459 is the amount the jobber pays the manufacturer. 14-133 TRADE DISCOUNT APPLICATION What would be the ultimate selling price of vase if the cost to the manufacturer is $20.00 and the manufacturer, wholesaler, and retailer (no other members of the channel) took markups on selling price of 25 percent, 10 percent, and 50 percent? a. $23.75 b. $26.60 c. $27.36 d. $33.75 e. $60.60 Answer: e Page: 376 Learning Objective: 3 Rationale: $20.00/.75 x .9 x .5 = $60.6014-134 CASH DISCOUNT DEFINITION To encourage retailers to pay their bills quickly, manufacturers offer them: a. quantity discounts. b. flexible pricing policies. c. promotional allowances. d. cash discounts. e. manufacturers' inducements. Answer: d Page: 376-377 Learning Objective: 3 Rationale: Text term definition—cash discounts 14-135 CASH DISCOUNT APPLICATION If an invoice for $45,000 is billed 2/10 net 30, what is the highest annual interest rate that one would rationally pay to borrow money in order to take advantage of the cash discount if the only consideration is a lower annual interest rate than charged on the invoice? a. 71.9 percent b. 9.9 percent c. 17.9 percent d. 23.9 percent e. 35.9 percent Answer: e Page: 376-377 Learning Objective: 3 Rationale: 2 percent for 20 days is an annual rate of 36 percent. So the highest annual interest rate below 36 percent is possible, 35.9 percent here. 14-136 CASH DISCOUNT APPLICATION Larry’s Lawn Care allows customers to use a credit card for purchases. Larry pays 3 percent of the sale to the credit card company. To promote more business, Larry decides to offer a lower price to customers paying cash—that price being 3 percent less than the standard list price. Larry is giving his customers a(n): a. functional discount. b. trade-in allowance. c. promotional allowance. d. discount-for-cash. e. everyday low price. Answer: d Page: 377 Learning Objective: 3 Rationale: Larry is providing a cash discount to customers equal to the cost of credit. This discount takes the form of a discount-for-cash policy.14-137 CASH DISCOUNT APPLICATION When Sherman bought gas, he noticed the convenience store offered him a 3 percent reduction in price if he paid cash rather than used his credit card. The convenience store was offering him a: a. trade discount. b. cash discount. c. promotional allowance. d. rebate. e. functional discount. Answer: b Page: 377 Learning Objective: 3 Rationale: Retailers provide cash discounts to customers to eliminate the cost of credit granted to consumers. 14-138 TRADE-IN ALLOWANCE APPLICATION A new car dealer can offer a substantial reduction in the list price of a new Ford pickup truck by offering you a __________ of $3,000 for your 1988 Camaro. a. cash discount b. functional discount c. seasonal discount d. trade-in allowance e. promotional allowance Answer: d Page: 377 Learning Objective: 3 Rationale: This is a description of a situation involving a trade-in allowance. 14-139 TRADE-IN ALLOWANCE DEFINITION A __________ is a price reduction given when a used product is part of the payment on a new product. a. cash discount b. functional discount c. seasonal discount d. trade-in allowance e. promotional allowance Answer: d Page: 377 Learning Objective: 3 Rationale: Text term definition—trade-in allowance14-140 PROMOTIONAL ALLOWANCE DEFINITION The cash payment or extra amount of "free goods" awarded sellers in the channel of distribution for undertaking certain advertising or selling activities to promote the product is a: a. quantity discount. b. flexible pricing policy. c. promotional allowance. d. payoff. e. manufacturer's inducement. Answer: c Page: 377 Learning Objective: 3 Rationale: Key term definition—promotional allowances 14-141 EVERYDAY LOW PRICING DEFINITION The practice of replacing promotional allowances with lower manufacturer list prices is called: a. everyday low pricing. b. FOB origin pricing. c. trade-in allowances. d. single-zone pricing. e. basing-point pricing. Answer: a Page: 377 Learning Objective: 3 Rationale: Key term definition—everyday low pricing 14-142 MARKETING NEWSNET CONCEPTUAL Which of the following statements about everyday low pricing (EDLP) is true? a. EDLP encourages manufacturer allowances. b. Supermarkets have hailed EDLP as value pricing at its most effective. c. Some argue that EDLP without price specials is boring for many grocery shoppers. d. EDLP allows supermarkets to use deeply discounted price specials. e. EDLP can increase average retail prices by as much as 10 percent. Answer: c Page: 377 Learning Objective: 3 Rationale: EDLP eliminated manufacturer allowances. EDLP does not allow supermarkets to use deeply discounted price specials--Hi-Lo pricing. Manufacturers refer to EDLP as value pricing, and supermarkets call it day low profits. EDLP can reduce average retail prices by as much as 10 percent.14-143 MARKETING NEWSNET CONCEPTUAL In preference to everyday low prices (EDLP), supermarkets prefer __________ based on frequent specials where prices are temporarily lowered, then raised again. a. odd-even pricing b. a one-price policy c. Hi-Lo pricing d. bundle-pricing e. rigid-pricing. Answer: c Page: 378 Learning Objective: 3 Rationale: The Marketing NewsNet describes how supermarkets prefer Hi-Lo pricing based on frequent specials that they believe enables them to have higher profits than with EDLP. 14-144 GEOGRAPHICAL ADJUSTMENTS CONCEPTUAL Which of the following statements about geographical adjustments to price is correct? a. In FOB origin pricing, the seller selects the mode of transportation. b. In FOB with freight allowed pricing, the seller adds the transportation costs to the list price. c. Multiple-zone pricing is sometimes referred to as "postage-stamp" pricing. d. Basing point pricing seems to have been used in industries where freight expenses are a significant part of the total cost to the buyer. e. All of the above statements about geographical adjustments to price are correct. Answer: d Page: 378 Other Locations: SG Learning Objective: 3 Rationale: Basing point pricing methods have been used in the cement, and lumber industries where freight expenses are a significant part of the total cost to the buyer and products are largely undifferentiated. 14-145 GEOGRAPHICAL ADJUSTMENTS CONCEPTUAL Geographic adjustments are made by manufacturers or wholesalers to cover: a. production costs. b. administrative costs. c. promotional costs. d. variable costs. e. none of the above. Answer: e Page: 378 Learning Objective: 3 Rationale: Geographic adjustments are made by manufacturers or wholesalers to list or quoted prices to reflect the cost of transportation of the products from seller to buyer.14-146 FOB ORIGIN PRICING DEFINITION FOB origin pricing is a method of pricing where: a. title of goods remains with the manufacturer until sold to the ultimate consumer. b. title of goods passes to the buyer upon arrival at the final destination. c. title of goods passes to the buyer at the point of loading. d. price the seller sets includes all transportation costs. e. title of goods passes to the buyer when the state boundary is crossed. Answer: c Page: 378 Learning Objective: 3 Rationale: Key term definition—FOB origin pricing 14-147 FOB ORIGIN PRICING APPLICATION Central Ice Machine Company is located in Omaha, Nebraska, sells Frick, Sullair, York, and Fes Fuller ammonia refrigeration parts. The company ships using FOB origin pricing. Which of the following statements about the shipment of a Frick reciprocating compressor is true? a. All buyers will pay no shipping costs because they are paid by Central Ice Machine. b. Central Ice Machine pays the same amount as the buyer no matter where the compressor is shipped. c. It will cost Central Ice Machine more to ship to Charlotte, North Carolina than to Topeka, Kansas. d. A buyer in Albany, New York, will pay significantly more shipping charges than a buyer in Lincoln, Nebraska, and Central Ice Machine will pay none. e. All buyers will pay the same shipping costs, and Central Ice Machine will pay none. Answer: d Page: 378 Learning Objective: 3 Rationale: With FOB origin pricing, Central Ice Machine will not be paying shipping costs. 14-148 FOB ORIGIN PRICING CONCEPTUAL When buyers and sellers are separated by vast distances, geographical adjustments may be made to reflect the cost of transportation of the products from sellers to buyers. Which method of quoting prices would be chosen by a seller who wants to maximize profits? a. uniform delivered pricing b. single-zone pricing c. multiple-zone pricing d. FOB origin pricing e. FOB buyer's location Answer: d Page: 378 Learning Objective: 3 Rationale: The seller pays the cost of loading the product onto the vehicle, usually at the seller's factory or warehouse. The title passes to the buyer at the point of loading, so the buyer is responsible for all freight costs. Thus, the seller has maximized profit, with no added costs for freight--and no geographical adjustments. However, a competitor may offer some kind form of delivered pricing method, so the seller may need to adjust this policy.14-149 FOB ORIGIN PRICING CONCEPTUAL The fashion buyer for Neiman Marcus is in Italy to view the new collections and to order for the coming season. In Milan, she negotiates a good price for a quantity of shoes in a range of sizes and styles, FOB factory. This means that: a. the factory selects the mode of transportation, pays freight charges, and is responsible for any damage because the seller retains title to the goods until they are delivered to Neiman Marcus. b. Neiman Marcus selects the mode of transportation, pays freight charges, and is responsible for any damage while the shoes are in transit because title passed to the buyer at the point of loading. c. Neiman Marcus and the factory split freight costs. d. the factory pays freight to the U.S., Neiman Marcus pays freight within the U.S. e. the factory passes the title when the goods are loaded, but will pay all shipping costs. Answer: b Page: 378 Learning Objective: 3 Rationale: With FOB factory (FOB origin pricing) the title to the goods passes to the buyer at the point of loading, so Neiman Marcus becomes responsible for picking the specific mode of transportation, for all the transportation costs, and for subsequent handling of the shoes. 14-150 UNIFORM DELIVERED PRICING CONCEPTUAL Which of the following is NOT a uniform delivered pricing method? a. single-zone pricing b. FOB with freight allowed pricing c. freight absorption pricing d. multiple-zone pricing e. FOB origin pricing Answer: e Page: 378 Learning Objective: 3 Rationale: All of the examples, except e are forms of uniform delivered pricing. 14-151 UNIFORM DELIVERED PRICING DEFINITION Uniform delivered pricing means: a. title of goods remains with the manufacturer until sold to the ultimate consumer. b. pricing and title of goods passes to the buyer upon arrival at final destination. c. title of the goods passes to the buyer at the point of shipment. d. the price the seller sets includes all transportation costs. e. title of goods passes to the buyer when the state boundary is crossed. Answer: d Page: 378-379 Other Locations: SG Learning Objective: 3 Rationale: Key term definition—uniform delivered pricing14-152 UNIFORM DELIVERED PRICING APPLICATION Many cruise lines pay the customer's airfare to the point of cruise departure. What type of price adjustment are the cruise lines using? a. skimming pricing b. promotional pricing c. quantity discount pricing d. uniform delivered pricing e. prestige pricing Answer: d Page: 378-379 Other Locations: SG Learning Objective: 3 Rationale: Uniform delivered pricing is a method of pricing where the price the seller quotes includes all transportation costs. 14-153 SINGLE-ZONE PRICING APPLICATION A company placing an order from the Lab Safety Supply catalog is instructed to add 6 percent of the total cost of the order to pay shipping. Which method of shipping does this catalog supplier use? a. single-zone pricing b. flexible-price pricing c. FOB origin pricing d. uniform delivered pricing e. basing-point pricing Answer: a Page: 379 Learning Objective: 3 Rationale: Single-zone pricing (also called postage stamp pricing) means that every buyer pays the same delivered price for the products. 14-154 MULTIPLE-ZONE PRICING CONCEPTUAL After extensive analysis, a mail order company has decided to embark on a policy of multiple zone pricing. In which step of the price-setting process would the mail order firm have made this decision? a. Make special adjustments to the list or quoted price. b. Select an approximate price level. c. Estimate demand and revenue. d. Identify price constraints and objectives. e. Set list or quoted price. Answer: a Page: 379 Learning Objective: 3 Rationale: This decision is part of step 6 of the price-setting process: Make special adjustments to the list or quoted price.14-155 MULTIPLE-ZONE PRICING APPLICATION A company in Virginia that manufactures and sells peanut brittle to retailers charges higher shipping costs for orders sent to customers living west of the Mississippi River. This Virginia company is using: a. single-zone pricing. b. multiple-zone pricing. c. FOB origin pricing. d. uniform delivered pricing. e. basing-point pricing. Answer: b Page: 379 Learning Objective: 3 Rationale: In multiple-zone pricing, a firm divides its selling territories into geographic areas and charges shipping according to the distance away from the factory. 14-156 FOB WITH FREIGHT-ALLOWED PRICING DEFINITION Another name for freight-absorption pricing is: a. FOB factory. b. postage stamp pricing. c. FOB with freight-allowed pricing. d. basing point pricing. e. FOB origin pricing. Answer: c Page: 379 Learning Objective: 3 Rationale: Text term definition—FOB with freight-allowed pricing 14-157 FOB WITH FREIGHT-ALLOWED PRICING DEFINITION With __________, the buyer is allowed to deduct freight expenses from the list price of the goods. The seller pays the transportation costs. a. FOB factory b. basing-point pricing c. postage stamp pricing d. FOB origin pricing e. FOB with freight-allowed pricing Answer: e Page: 379 Learning Objective: 3 Rationale: Text term definition—FOB with freight-allowed pricing14-158 BASING-POINT PRICING APPLICATION For which of the following products is its manufacturer or producer most likely to use basing-point pricing? a. pet food b. furniture c. crystal glass bowls d. cut flowers e. coal Answer: e Page: 379 Learning Objective: 3 Rationale: Basing-point pricing is commonly used in industries where freight expenses are a significant part of the total cost to the buyer, and the products are largely undifferentiated. 14-159 BASING-POINT PRICING DEFINITION __________ involves selecting one or more geographical locations from which the list price for products plus freight expenses are changed to the buyer. a. FOB origin pricing b. Uniform delivered pricing c. Basing-point pricing d. Multiple-zone pricing e. Postage stamp pricing Answer: c Page: 379 Learning Objective: 3 Rationale: Key term definition—basing-point pricing 14-160 LEGAL AND REGULATORY ASPECTS OF PRICING CONCEPTUAL Which of the following statements about the legal and regulatory aspect of pricing is true? a. The Robinson-Patman Act deals with predatory pricing. b. The Consumer Goods Pricing Act is the only federal legislation that deals directly with pricing issues. c. The Sherman Act deals only with vertical price fixing. d. The Federal Trade Commission Act deals with predatory pricing, deceptive pricing, and geographical pricing issues. e. The Consumer Goods Pricing Act and the Robinson-Patman Act deal with price discrimination. Answer: d Page: 379; Fig. 14-8 Learning Objective: 4 Rationale: Predatory pricing is regulated by the Federal Trade Commission Act and the Sherman Act. The Federal Trade Commission Act also deals with deceptive pricing and geographical pricing. The Consumer Goods Pricing Act deals with vertical price fixing. The Robinson-Patman Act deals with price discrimination and geographical pricing. Finally the Sherman Act deals with horizontal price fixing as well as predatory pricing. See also Figure 14-8.14-161 PRICE FIXING DEFINITION Conspiracy among firms to set prices for a product is: a. price discrimination. b. price fixing. c. predatory pricing. d. tying arrangements. e. exclusive dealing. Answer: b Page: 379 Learning Objective: 4 Rationale: Key term definition—price fixing 14-162 PRICE FIXING DEFINITION Price fixing is: a. an arrangement a manufacturer makes with a reseller to handle only its products and not those of a competitor. b. the practice of charging a very low price for a product with the intent of driving competitors out of business. c. the practice of charging different prices to different buyers for goods of like grade and quality. d. a conspiracy among firms to set prices for a product. e. a seller's requirement that the purchaser of one product also buy another product in the line. Answer: d Page: 379 Learning Objective: 4 Rationale: Key term definition—price fixing 14-163 WEB LINK CONCEPTUAL According to the text, the Federal Trade Commission (FTC) is especially concerned about the: a. overuse of FOB origin pricing. b. misuse of quantity discounting. c. elimination of seasonal discounts. d. widespread use of fixed pricing. e. misuse of the word ―free‖ in promotions. Answer: e Page: 380 Learning Objective: 4 Rationale: The Web Link points out that advertisers must take extreme care in using the word, ―free‖ in their promotions.14-164 PRICE-FIXING APPLICATION Mark Johnson, the manager of a discount consumer electronics store, has been approached by the manufacturer of a popular and profitable line of compact disk storage racks regarding the retail price charged for the racks at Johnson's store. The manufacturer's representative has implied that if Johnson doesn't raise the retail prices for the storage racks to those charged by the manufacturer's non-discount customers, Johnson's supply of racks may be severely curtailed. The manufacturer is guilty of attempting: a. horizontal price-fixing. b. resale price maintenance. c. price discrimination. d. predatory pricing. e. bait and switch pricing. Answer: b Page: 380 Other Locations: SG Learning Objective: 4 Rationale: Resale price maintenance (also called vertical price fixing), illegal since 1975, involves controlling agreements between independent buyers and sellers whereby sellers are required not to sell products below a minimum retail price. 14-165 PRICE DISCRIMINATION APPLICATION In one of its least favorite actions, Amazon.com was caught fiddling with its price tags. Avid videodisc shoppers found that the online store was offering different customers different prices for the same DVD, and complained vociferously. Amazon was caught red-handed. It was, company officials admitted, trying to see how much it could charge for an item before shoppers balked. No matter what the reasoning behind it, Amazon.com was using: a. horizontal price-fixing. b. resale price maintenance. c. price discrimination. d. predatory pricing. e. bait and switch pricing. Answer: c Page: 379 Learning Objective: 4 Rationale: Price discrimination the practice of charging different prices to different buyers for goods of like grade and quality. 14-166 PRICE DISCRIMINATION DEFINITION Price discrimination is: a. an arrangement a manufacturer makes with a reseller to handle only its products and not those of a competitor. b. the practice of charging a very low price for a product with the intent of driving competitors out of business. c. the practice of charging different prices to different buyers for goods of like grade and quality. d. a conspiracy among firms to set prices for a product or service. e. a seller's requirement that the purchaser of one product also buy another product in the line.Answer: c Page: 380 Learning Objective: 4 Rationale: Key term definition—price discrimination 14-167 ROBINSON-PATMAN ACT CONCEPTUAL Which of the following statements about the Robinson-Patman Act is true? a. The Robinson-Patman deals with price discrimination. b. The Robinson-Patman contains provisions dealing with promotional allowances. c. The Robinson-Patman allows price differentials to different customers under certain changing market conditions. d. The Robinson-Patman allows sellers to "meet the competition." e. All of the above statements about the Robinson-Patman Act are true. Answer: e Page: 380 Learning Objective: 4 Rationale: As explained in the text, all of the first four statements are correct. 14-168 DECEPTIVE PRICING APPLICATION A hardware store advertises a 3/8" Black and Decker Power Drill for $29.95. You enter the store intending to purchase the drill. The salesperson informs you that they are all sold out. She tells you that the "sale" drills were factory seconds and that if you are going to be doing any kind of serious woodworking, you should buy the Model 3309, which sells for $49.99. This scenario has elements of which type of deceptive pricing? a. comparable value comparisons b. former price comparisons c. comparisons with suggested prices d. conditional bargains e. bait and switch Answer: e Page: 381; Fig. 14-9 Learning Objective: 4 Rationale: This scenario has all the elements of bait and switch. The store offers a product at a low price, is out of stock on the product, the salesperson tells you that the sale item was of inferior quality, and attempts to get you to buy a higher-priced model. See also Figure 14-9. 14-169 DECEPTIVE PRICING APPLICATION Brake-O is a franchise company that repairs brakes in cars and trucks. A radio ad for the company warned potential customers to ―not fall prey to bait-and-switch schemes.‖ The ad was telling potential customers to: a. report services that violate the Robinson-Patman Act. b. be wary of brake repair services that are priced low because the services may try to sell customers a much higher priced service once the customer enters the store. c. avoid doing businesses with services that have initiated a conspiracy among firms in its industry to set prices for a product or service. d. not do business at services that have arranged with a particular manufacturer that they will only buy from this manufacturer and from no other. e. avoid doing business with monopolistic competitors who are trying to start a price war. Answer: b Page: 381 Learning Objective: 4Rationale: With a bait-and-switch scheme, the store offers a product at a low price, is out of stock on the product, the salesperson tells the customer that the sale item was of inferior quality, and attempts to get him or her to buy a higher-priced model.14-170 DECEPTIVE PRICING APPLICATION To promote their business, some psychics advertise free tarot-card readings and other insights into their customers' futures on television. Unfortunately, this ―free reading‖ has cost some unsuspecting callers as much as $700 in phone charges. This sort of deceptive pricing practice would be monitored by the: a. Consumer Protection Agency. b. U.S. Department of Justice. c. Federal Trade Commission. d. Federal Communications Commission. e. Telecommunications Commission. Answer: c Page: 380 Learning Objective: 4 Rationale: See also the Web Link in this chapter, which further discusses the misuse of the term, ―free,‖ which is overseen by the Federal Trade Commission. 14-171 GEOGRAPHICAL PRICING CONCEPTUAL Which of the following statements about geographical pricing is true? a. Geographical pricing is one type of pricing that has never fallen under the scrutiny of the U.S. legal system. b. FOB origin pricing is legal. c. Geographical pricing has come under more government scrutiny than any other pricing policy. d. FOB freight-allowed pricing practices are illegal. e. Basing-point pricing is the only form of geographical pricing that is not under some type of legal restriction. Answer: b Page: 381 Other Locations: SG Learning Objective: 4 Rationale: Under the Robinson-Patman Act, basing-point pricing can be illegal. Just like FOB origin pricing, FOB freight-allowed pricing practices are also legal. For the most part, geographical pricing has been immune to legal and regulatory restrictions, but not completely. Hence, Alternative A is not true. 14-172 PREDATORY PRICING DEFINITION __________ is the practice of changing a very low price for a product with the intent of driving competitors out of business. a. Price fixing b. Price discrimination c. Predatory pricing d. Deceptive pricing e. Geographical pricing Answer: c Page: 381 Learning Objective: 4 Rationale: Key term definition—predatory pricing14-173 PREDATORY PRICING APPLICATION In the early 1980s, typical round trip coach fares from the East Coast to London were over $500. Then Freddie Laker introduced a competing service into Newark at $350. Major airlines matched his price—and continued to do so until they drove Laker out of business. Then prices shot back up to over $500. A lawsuit filed under the Sherman Act resulted in the judgment that the major airlines had explicitly tried to destroy a competitor. Laker's experience is an example of: a. price fixing. b. price discrimination. c. predatory pricing. d. deceptive pricing. e. pricing constraints. Answer: c Page: 381 Learning Objective: 4 Rationale: Predatory pricing, the practice Laker encountered, is illegal under the Sherman Act. Proving the presence of this practice has been difficult and expensive, but since Laker's case, transatlantic airlines have been more careful. 14-174 PREDATORY PRICING DEFINITION Predatory pricing is: a. an arrangement a manufacturer makes with a reseller to handle only its products and not those of a competitor. b. the practice of charging a very low price for a product with the intent of driving competitors out of business. c. the practice of charging different prices to different buyers for goods of like grade and quality. d. a conspiracy among firms to set prices for a product or service. e. a seller's requirement that the purchaser of one product also buy another product in the line. Answer: b Page: 381 Learning Objective: 4 Rationale: Key term definition—predatory pricing14-175 PREDATORY PRICING APPLICATION Bob Biltmore owns dozens of very successful print shops throughout the Midwest. Biltmore's shops specialize in low cost black and white copies and feature user-friendly machines consumers can easily operate. In recent months, Biltmore has noticed many more competitors in the areas where his stores are located. In an attempt to eliminate the competition, Biltmore has decided to charge a very low price for his black and white copies, a price so low his competitors will be forced out of business. After the competition has been driven out, Biltmore plans to raise the price of his copies. Biltmore is planning to engage in the illegal practice of: a. price fixing. b. price inflation. c. predatory pricing. d. competitive pricing. e. price flighting. Answer: c Page: 381 Learning Objective: 4 Rationale: Under the Sherman Act and the Federal Trade Commission Act the practice of predatory pricing is illegal—the activity Biltmore plans to undertake . Although difficult to prove, marketers cannot deliberately lower prices in order to eliminate competitors while intending to increase the price of a product once all competition is erased. 14-176 VIDEO CASE: STUART CELLARS APPLICATION According to Steven Bombola, consulting general manager, Stuart Cellars is targeting the "upper end of wine connoisseurs, people who can afford a premium product at a premium price." Mr. Bombola’s statement suggests that the company has been pursuing a __________ method of selecting an approximate price level a. competition-based b. profit-based c. cost-based d. demand-based e. experience-based Answer: d Page: 363 Learning Objective: 1 Rationale: Bombola's statement suggests that the company has been pursuing a prestige pricing strategy, which is a demand-oriented approach of selecting an approximate price.14-177 VIDEO CASE: STUART CELLARS APPLICATION If Steven Bombola, general manager of Stuart Cellars decides that the retail price of a bottle of wine should be $28 and he then calculates the price he can charge wholesalers by calculating the margins that may have to be paid to retailers and wholesalers, he is practicing: a. price lining. b. penetration pricing. c. predatory pricing. d. cost plus percentage-of-cost pricing. e. target pricing. Answer: e Page: 364 Learning Objective: 1 Rationale: The process of estimating the price that customers would be willing to pay and then working backward through the margins that may have to be paid to retailers and wholesalers to determine what price can be charged for the product is called target pricing.CHAPTER 14 ARRIVING AT THE FINAL PRICE SHORT ESSAY QUESTIONS 14-178 SKIMMING PRICING CONCEPTUAL When is skimming pricing an effective strategy? Answer: Skimming pricing is an effective strategy when: (1) enough prospective customers are willing to buy the product immediately at the high initial price to make those sales profitable (2) the high initial price will not attract competitors (3) lowering price has only a minor effect on increasing the sales volume and reducing unit costs (4) customers interpret the high price as signifying high quality. Page: 362 Learning Objective: 1 14-179 APPROXIMATE PRICE LEVEL DEFINITION What are the four common approaches used by managers to help them find an approximate price level? Answer: Four common approaches to helping find this approximate price level are: (1) demand-based (2) cost-based (3) profit-based (4) competition-based methods. Page: 362; Fig. 14-1 Learning Objective: 1 14-180 PENETRATION PRICING CONCEPTUAL What are the conditions favoring the use of penetration pricing? Answer: The conditions favoring penetration pricing are the reverse of those supporting skimming pricing and are: (1) many segments of the market are price sensitive (2) a low initial price discourages competitors from entering the market (3) unit production and marketing costs fall dramatically as production volumes increase. Page: 363 Learning Objective: 1CHAPTER 15 MANAGING MARKETING CHANNELS AND WHOLESALING MULTIPLE CHOICE QUESTIONS 15-1 CHAPTER OPENING EXAMPLE: APPLE APPLICATION Apple is most closely associated with which type of distribution strategy? a. intensive indirect distribution b. direct distribution c. dual distribution d. selective indirect distribution e. extensive indirect distribution Answer: b Page: 395 Learning Objective: 2 Rationale: Apple’s company owned retail stores use direct distribution since Apple owns the stores. 15-2 CHAPTER OPENING EXAMPLE: APPLE APPLICATION Was Apple’s decision to open its own stores a wise move? a. It is too soon to tell. b. Apple does not own its own stores. c. Yes, Apple stores reached $1 billion in sales faster than any retail business in history. d. No, people prefer to have their computers delivered directly to their homes or offices. e. No, Apple is just spending more money to reach the same customer base. Answer: c Page: 395 Rationale: Apple’s decision to open its own stores was a wise move, as sales reached $1 billion faster than any retail business in history. 15-3 CHAPTER OPENING EXAMPLE: APPLE APPLICATION Which of the following is true of the Apple stores? a. There is an atmosphere where consumers can experience the Apple product line. b. Knowledgeable Apple personnel are available. c. Most Apple stores are in upscale U.S. shopping malls. d. By 2004, about half of the U.S. population lives within 15 miles of an Apple store. e. All of the above are true. Answer: c Page: 395 Rationale: The thinking behind Apple Stores was to create an atmosphere where consumers can experience the thrill of owning and using Apple’s complete line of Macintosh computers and more with the assistance of knowledgeable Apple personnel. Apple has been opening about 25 stores per year, mostly in upscale shopping malls in the U.S. About half of the U.S. population resides within 15 miles of an Apple Store.15-4 CHAPTER OPENING EXAMPLE: APPLE CONCEPTUAL An Apple store is an example of a(n): a. agent b. broker c. wholesaler d. retailer e. manufacturer Answer: d Page: 396 Learning Objective: 1 Rationale: The Apple stores are retailers, intermediaries who well to consumers. 15-5 MARKETING CHANNEL DEFINITION Individuals and firms involved in the process of making a good or service available for use or consumption by consumers or industrial users are considered members of a: a. distribution line. b. marketing channel. c. consortium. d. cartel. e. distribution mix. Answer: b Page: 396 Other Locations: SG Learning Objective: 1 Rationale: Key term definition—marketing channel 15-6 MARKETING CHANNEL DEFINITION A __________ consists of individuals and firms involved in the process of making a good or service available for use or consumption by consumers or industrial users. a. distribution line. b. marketing channel. c. consortium. d. cartel. e. distribution mix. Answer: b Page: 396 Learning Objective: 1 Rationale: Key term definition—marketing channel15-7 MARKETING CHANNEL APPLICATION Jay stops at the shopping mall to purchase a new pair of jeans from the Diesel store. He is the ultimate consumer in a pipeline from the producer through intermediaries including the clothing store. This pipeline is actually a: a. consumer market. b. marketing intermediary. c. marketing channel. d. transactional function. e. logistical function. Answer: c Page: 396 Learning Objective: 1 Rationale: Marketing channels can be compared with a pipeline through which water flows from a source to terminus. Marketing channels make possible the flow of goods from a producer, through intermediaries, to a buyer. 15-8 MARKETING CHANNEL APPLICATION You probably own several pairs of shoes. Further, it is highly likely you purchased those shoes at retail stores located in a shopping mall. It is quite unlikely you bought the shoes directly from the manufacturer. In fact, most goods are brought to you via a(n) __________, which consists of several organizations involved in the process of marketing products or services and making them available for our use as consumers. a. organizational chain of command b. organizational hierarchy c. marketing channel d. marketing hierarchy e. marketing chain of command Answer: c Page: 396 Learning Objective: 1 Rationale: From automobiles to shoes, most of the products we purchase are made available to us by a marketing channel. A marketing channel is a series of individuals or organizations that work together to bring products from the manufacturer to the ultimate consumer. 15-9 AGENT DEFINITION A(n) _____ is any intermediary with legal authority to act on behalf of the manufacturer. a. dealer b. agent or broker c. retailer d. wholesaler e. disintermediary Answer: b Page: 396 Learning Objective: 1 Rationale: See Figure 15-1.15-10 DEALER DEFINITION Which type of an intermediary is a dealer? a. a middleman b. a wholesaler c. a retailer d. a distributor e. any of the above Answer: e Page: 396 Learning Objective: 1 Rationale: See Figure 15-1. 15-11 MIDDLEMAN DEFINITION A(n) __________ is any intermediary between manufacturer and end-user markets. a. middleman b. wholesaler c. retailer d. agent e. any of the above Answer: a Page: 396 Learning Objective: 1 Rationale: See Figure 15-1. 15-12 WHOLESALER DEFINITION A(n) __________ is an intermediary who sells to other intermediaries. a. agent b. a wholesaler c. a retailer d. a distributor e. any of the above Answer: b Page: 396 Learning Objective: 1 Rationale: See Figure 15-1. 15-13 RETAILER DEFINITION A(n) __________ is an intermediary who sells to consumers. a. agent b. a wholesaler c. a retailer d. a distributor e. any of the above Answer: c Page: 396 Learning Objective: 1 Rationale: See Figure 15-1.15-14 RETAILER APPLICATION Several artists in Charleston, South Carolina, have created an arrangement to sell their paintings. They have set up an art gallery in downtown Charleston so tourists and art lovers can look at their paintings and buy the ones they like. Each artist takes a turn acting as the sales clerk at the gallery. In terms of the marketing channel, the artist who is on duty in the gallery is acting as a(n): a. ultimate consumer. b. retailer. c. wholesaler. d. brokerage firm. e. end user. Answer: b Page: 396 Learning Objective: 1 Rationale: A retailer is any intermediary who sells to consumers. 15-15 INTERMEDIARIES CONCEPTUAL Which of the following statements about the terms used for marketing intermediaries is true? a. The most precise terms used to describe marketing intermediaries are dealer and distributor. b. A retailer sells to business markets. c. An agent has no legal authority to act on behalf of a manufacturer. d. A wholesaler is an intermediary who sells to other intermediaries. e. A broker is a synonym for a dealer. Answer: d Page: 396 Learning Objective: 1 Rationale: Dealer and distributor are described as the two least precise terms. A retailer sells to ultimate consumers. An agent has legal authority to act on behalf of a manufacturer. A broker is any intermediary similar to an agent. A wholesaler is an intermediary who sells to other intermediaries. 15-16 INTERMEDIARIES CONCEPTUAL Which of the following statements about the terms used for marketing intermediaries is true? a. The least precise terms used to describe marketing intermediaries are dealer and distributor. b. A retailer sells to business markets. c. An agent has no legal authority to act on behalf of a manufacturer. d. A wholesaler is an intermediary who sells to consumers. e. A broker is a synonym for a dealer. Answer: a Page: 396 Learning Objective: 1 Rationale: Dealer and distributor are described as the two least precise terms. A retailer sells to ultimate consumers. An agent has legal authority to act on behalf of a manufacturer. A broker is any intermediary similar to an agent. A wholesaler is an intermediary who sells to other intermediaries.15-17 INTERMEDIARIES CONCEPTUAL Which of the following statements about the terms used for marketing intermediaries is true? a. The most precise terms used to describe marketing intermediaries are dealer and distributor. b. A retailer sells to consumers. c. An agent has no legal authority to act on behalf of a manufacturer. d. A wholesaler is an intermediary who sells to consumers. e. A broker is a synonym for a dealer. Answer: b Page: 396 Learning Objective: 1 Rationale: Dealer and distributor are described as the two least precise terms. A retailer sells to ultimate consumers. An agent has legal authority to act on behalf of a manufacturer. A broker is any intermediary similar to an agent. A wholesaler is an intermediary who sells to other intermediaries. 15-18 INTERMEDIARIES CONCEPTUAL Which of the following statements about the terms used for marketing intermediaries is true? a. The most precise terms used to describe marketing intermediaries are dealer and distributor. b. A retailer sells to business markets. c. An agent has legal authority to act on behalf of a manufacturer. d. A wholesaler is an intermediary who sells to consumers. e. A broker is a synonym for a dealer. Answer: c Page: 396 Learning Objective: 1 Rationale: Dealer and distributor are described as the two least precise terms. A retailer sells to ultimate consumers. An agent has legal authority to act on behalf of a manufacturer. A broker is any intermediary similar to an agent. A wholesaler is an intermediary who sells to other intermediaries. 15-19 INTERMEDIARIES CONCEPTUAL Which of the following statements about the terms used for marketing intermediaries is true? a. The most precise terms used to describe marketing intermediaries are dealer and distributor. b. A retailer sells to business markets. c. An agent has no legal authority to act on behalf of a manufacturer. d. A wholesaler is an intermediary who sells to consumers. e. A broker is a synonym for an agent. Answer: e Page: 396 Learning Objective: 1 Rationale: Dealer and distributor are described as the two least precise terms. A retailer sells to ultimate consumers. An agent has legal authority to act on behalf of amanufacturer. A broker is any intermediary similar to an agent. A wholesaler is an intermediary who sells to other intermediaries.15-20 VALUE CREATED BY INTERMEDIARIES CONCEPTUAL Intermediaries make the selling of goods more efficient by: a. maximizing the number of contacts necessary between producer and consumer. b. identifying target markets. c. reducing manufacturing costs. d. minimizing the number of sales contacts between producer and consumer. e. eliminating inventory costs. Answer: d Page: 397 Learning Objective: 1 Rationale: Producers recognize that intermediaries make selling goods and services more efficient because they minimize the number of sales contacts necessary to reach a target market. 15-21 VALUE CREATED BY INTERMEDIARIES CONCEPTUAL Two students, Nick and Lee, were studying for an upcoming exam in their introduction to marketing course. While studying the chapter on marketing channels and wholesalers, Nick made the following statement: "If it weren't for wholesalers and other intermediaries in the channel of distribution, the products we buy would cost a lot less!" After contemplating Nick's statement, Lee said, "Wait a minute. We learned in class that channel intermediaries actually make marketing more efficient by minimizing the number of transactions necessary to sell products." Lee's statement refers to: a. value created by channel intermediaries. b. channel intermediary development. c. price inflation by channel intermediaries. d. channel intermediary promotional efforts. e. an inaccurate statement by Lee; Nick was correct. Answer: a Page: 397 Learning Objective: 1 Rationale: Marketers are aware that channel intermediaries create value for the consumer and the marketer by making the selling of goods and services more efficient. 15-22 INTERMEDIARIES DEFINITION The three basic functions performed by intermediaries are: a. accommodating functions, logistical functions, and transactional functions. b. implementation functions, accommodating functions, and contractual functions. c. contractual functions, facilitating functions, and logistical functions. d. facilitating functions, accommodating functions, and implementation functions. e. transactional functions, logistical functions, and facilitating functions. Answer: e Page: 397 Learning Objective: 1 Rationale: Intermediaries make possible the flow of products from producers to buyers by performing three basic functions. They are (1) transactional--buying, selling, and risk taking, (2) logistical--assorting, storing, sorting, transporting and(3) facilitating--making goods and services more attractive to buyers through financing, grading, and marketing information and research.15-23 TRANSACTIONAL FUNCTION DEFINITION Intermediaries performing a transactional function in distribution are engaged in buying, selling, and: a. channeling. b. strategizing. c. liaising. d. risk taking. e. merchandising. Answer: d Page: 398; Fig. 15-3 Learning Objective: 1 Rationale: Transactional functions include buying, selling, and risk taking. 15-24 TRANSACTIONAL FUNCTION DEFINITION Transactional function activities involve: a. buying, selling, and risk taking. b. assorting, sorting, and storing. c. financing and grading. d. transportation. e. marketing information and research. Answer: a Page: 398; Fig. 15-3 Learning Objective: 1 Rationale: Transactional functions include buying, selling, and risk taking. 15-25 TRANSACTIONAL FUNCTION DEFINITION In terms of distribution, when marketing channel members are engaged in buying, selling, and risk taking, they are performing __________ functions. a. logistical b. transformational c. facilitating d. implementing e. transactional Answer: e Page: 398; Fig. 15-3 Learning Objective: 1 Rationale: Transactional functions include buying, selling, and risk taking. 15-26 LOGISTICAL FUNCTION DEFINITION Logistical function activities include: a. buying and selling. b. gathering, storing, and dispersing products. c. financing and grading. d. risk taking. e. marketing information and research. Answer: b Page: 398; Fig. 15-3 Learning Objective: 1 Rationale: Most intermediaries perform a logistical function evident in the gathering, storing, and dispersing of products.15-27 LOGISTICAL FUNCTION DEFINITION When marketing channel members are engaged in assorting, storing, sorting, and transporting they are performing __________ functions. a. logistical b. transformational c. facilitating d. implementing e. transactional Answer: a Page: 398; Fig. 15-3 Learning Objective: 1 Rationale: Logistical functions include assorting, storing, sorting, and transporting. 15-28 LOGISTICAL FUNCTION APPLICATION A consumer buys berries at Remlinger Farms, flour and sugar at a bulk food store, and milk and butter at a supermarket, then returns home to bake two dozen strawberry pies for a family reunion. Which logistical function activity did the consumer engage in that is ordinarily performed by a retailer? a. assorting b. storing c. sorting d. transporting e. risk taking Answer: a Page: 398; Fig. 15-3 Learning Objective: 1 Rationale: Assorting is creating product assortments from several sources to serve customers. 15-29 LOGISTICAL FUNCTION APPLICATION When Hunter went to the hardware looking for gloves to wear while refinishing a table, he bought one pair because that was all he needed, but when the hardware store purchased the gloves, it purchased a case containing 100 pairs of identical gloves. Which logistical function did the hardware store perform for Hunter? a. marketing b. buying c. sorting d. assorting e. risk taking Answer: c Page: 398; Fig. 15-3 Learning Objective: 1 Rationale: Sorting is purchasing in large quantities and breaking into smaller amounts desired by customers.15-30 FACILITATING FUNCTION DEFINITION Facilitating function activities include: a. buying and selling. b. assorting, sorting, and storing. c. financing, grading, and marketing information and research. d. risk taking. e. transportation. Answer: c Page: 398; Fig. 15-3 Learning Objective: 1 Rationale: Facilitating function activities include financing, grading, and marketing information and research. 15-31 FACILITATING FUNCTION DEFINITION In terms of distribution, when marketing channel members are engaged in financing, grading, marketing information and research, they are performing the __________ function. a. logistical b. transformational c. facilitating d. implementing e. transactional Answer: c Page: 398 Other Locations: web Learning Objective: 1 Rationale: Facilitating function activities include financing, grading, and marketing information and research. 15-32 FACILITATING FUNCTION DEFINITION Intermediaries perform facilitating function activities, which assist producers in making goods and services more attractive to buyers. These activities include: a. producing, assembling, and distributing. b. transportation and distribution. c. buying, selling, and risk taking. d. assorting, sorting, and storing. e. financing, grading, and marketing information and research. Answer: e Page: 398 Other Locations: web Learning Objective: 1 Rationale: Facilitating function activities include financing, grading, and marketing information and research.15-33 FACILITATING FUNCTION APPLICATION Before consumers see a movie, it is assigned a rating such as G or PG based on its language and content. This rating system is most closely related to which facilitating function activity performed by marketing intermediaries? a. grading b. sorting c. risk taking d. marketing e. assorting Answer: a Page: 398; Fig. 15-3 Learning Objective: 1 Rationale: Grading is the judging of products and assigning them quality grades. 15-34 VALUE CREATED BY MARKET CHANNELS CONCEPTUAL Marketing channels create customer value from all of the following utilities EXCEPT: a. possession. b. form. c. quality. d. place. e. time. Answer: c Page: 398 Learning Objective: 1 Rationale: Quality is not a utility although it does have an effect on customer value. 15-35 FOUR UTILITIES CONCEPTUAL Marketing channels help create value for consumers through four utilities. The utilities are: a. product, price, promotion, and place. b. intangibility, heterogeneity, perishability, and consistency. c. time, place, form, and possession. d. the four environmental dichotomies. e. transactional, logistical, facilitating, and marketing. Answer: c Page: 398 Learning Objective: 1 Rationale: Marketing channels help create value for consumers by providing goods and services they want, when they want them, where they want them, and in the form they want them.15-36 FOUR UTILITIES APPLICATION A snack vending machine located in a university building that you use between classes when you are hungry creates __________ utility. a. time and place b. place and form c. form and creation d. possession and form e. application and place Answer: a Page: 398 Learning Objective: 1 Rationale: The vending machine (a marketing channel) made the snack ready at the time and place it was needed. 15-37 FOUR UTILITIES APPLICATION A textile artist can buy fabric, thread, and batting, create an heirloom quilt and sell the finished work to customers. By designing the piece with aesthetic value, the middleman artist creates __________ utility. a. form b. application c. possession d. time e. place Answer: a Page: 398 Learning Objective: 1 Rationale: Form utility involves enhancing a product to make it more appealing to buyers. 15-38 MARKETING CHANNELS FOR CONSUMER GOODS APPLICATION A small electronics company manufactures a line of low to moderate quality stereo components that are distributed through wholesalers to mass market retailers such as Wal-Mart. The electronics company has begun production of a small line of high quality, professional studio model components. How should the small electronics company distribute its new products? a. use its established channel b. distribute directly to mass market retailers c. distribute through agents who sell to specialty electronics stores who will feature the new line d. sell directly to specialty electronics stores who will feature the new line e. cannot be determined from the information given Answer: c Page: 399 Learning Objective: 2 Rationale: The new products need an up-scale outlet, but the electronics company does not have the sales force to call on thousands of specialty stores, and there is no indication that the new products warrant creating one.15-39 DIRECT CHANNEL DEFINITION A(n) __________ exists when producers and ultimate consumers deal directly with each other. a. strategic channel alliance b. direct channel c. marketing channel d. indirect channel e. dual distribution channel Answer: b Page: 399 Learning Objective: 2 Rationale: Key term definition—direct channel 15-40 DIRECT CHANNEL CONCEPTUAL In a direct channel, all channel functions are performed by: a. retailers. b. wholesalers. c. producers. d. brokers and agents. e. middlemen. Answer: c Page: 399 Learning Objective: 2 Rationale: In a direct channel the producer and ultimate consumer deal directly with each other. Because there are no intermediaries in a direct channel, the producer must perform all channel functions. 15-41 DIRECT CHANNEL APPLICATION When the Avon representative sells cosmetics door-to-door, it is an example of which type of marketing channel? a. direct channel b. indirect channel c. strategic channel alliances d. marketing channel e. dual distributive channel Answer: a Page: 399 Learning Objective: 2 Rationale: A direct channel is where the producer and ultimate consumers deal directly with each other.15-42 DIRECT CHANNEL APPLICATION Schwan's Sales Enterprises of Marshall, Minnesota, markets a full line of frozen foods in 49 states and parts of Canada using door-to-door salespeople who sell from refrigerated trucks. This particular method of distribution is called a: a. direct channel. b. indirect channel. c. facilitated channel. d. customer-service channel. e. truck jobber channel. Answer: a Page: 399 Learning Objective: 2 Rationale: In a direct channel, a producer and ultimate consumers deal directly with each other. 15-43 DIRECT CHANNEL APPLICATION In an episode of the Andy Griffith television series, two local farmers were selling the produce they grew on their farms from the back of their pickup trucks to local people that drove by on the road. The farmers selling their products without wholesalers or retailers were an example of a: a. roadside channel of distribution. b. traveling channel of distribution. c. intermediate channel of distribution. d. informal channel of distribution. e. direct channel of distribution. Answer: e Page: 399 Learning Objective: 2 Rationale: Such distribution channels are called direct channels of distribution because the consumer and producer deal directly with one another. 15-44 DIRECT CHANNEL APPLICATION Longaberger baskets are sold at parties. A hostess invites friends and neighbors to admire the baskets the company has sent to display and takes orders. In return, the hostess is able to purchase the baskets at a discount. Longaberger uses which type of marketing channel? a. clustering b. direct channel c. indirect channels d. marketing channel e. strategic channel alliances Answer: b Page: 399 Learning Objective: 2 Rationale: In a direct channel the producer and ultimate consumers deal directly with each other.15-45 INDIRECT CHANNELS DEFINITION Indirect channels for consumer goods: a. occur when one firm's marketing channels are used to sell another firm's products. b. include producers and end-users dealing directly with each other. c. include intermediaries that are between the producer and consumer and perform numerous channel functions. d. are arrangements whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product. e. are accurately described by none of the above. Answer: c Page: 399 Other Locations: web Learning Objective: 2 Rationale: Key term definition—indirect channels 15-46 INDIRECT CHANNELS CONCEPTUAL The most common indirect channel moves product from producer to retailer to consumer. This type of channel is most likely to exist when: a. the retailer is large and can buy in large quantities. b. the cost of inventory makes it too expensive to use a wholesaler. c. there are so many product variations that a wholesaler could not carry them all in sufficient quantity. d. the cost of maintaining inventory is high. e. all of the above conditions exist. Answer: e Page: 399 Other Locations: web Learning Objective: 2 Rationale: A retailer is most commonly added when the retailer is large and can buy in large quantities from a producer or when the cost of inventory makes it too expensive to use a wholesaler. 15-47 INDIRECT CHANNELS CONCEPTUAL Adding a wholesaler to the marketing channel for consumer goods is most common for: a. low-cost, low unit value items. b. low-cost, high unit value items. c. high-cost, low unit value items. d. high-cost, high unit value items. e. any item regardless of cost as long as there is sufficient product variety. Answer: a Page: 399 Learning Objective: 2 Rationale: Adding a wholesaler is most common for low-cost, low-unit value items that are frequently purchased by consumers such as candy, confectionery items, and magazines.15-48 INDIRECT CHANNELS CONCEPTUAL The most indirect channel for consumer goods incorporates agents, wholesalers, and retailers and is most commonly used when: a. there are only a few large manufacturers but many small retailers. b. there are low-cost, low unit volume goods. c. there are many small manufacturers and many small retailers. d. there is too large an inventory to be carried by wholesalers. e. there are many manufacturers with a limited inventory competing for a small group of retailers. Answer: c Page: 399 Other Locations: SG Learning Objective: 2 Rationale: The most indirect channel is used when there are many small manufacturers and many small retailers and an agent is used to help coordinate supply of the product. 15-49 INDUSTRIAL DISTRIBUTOR DEFINITION A(n) __________ is an intermediary that performs a variety of marketing channel functions involving selling, stocking, and delivering a full product assortment as well as providing financing for industrial goods and services. a. agent b. wholesaler c. disintermediary d. channel captain e. industrial distributor Answer: e Page: 400 Learning Objective: 2 Rationale: Key term definition—industrial distributor 15-50 INDUSTRIAL DISTRIBUTOR APPLICATION International Products, a Burlington, New Jersey, firm that sells industrial cleansers and lubricants wanted to sell its product to factories, hospitals and labs in China, but it did not have the necessary expertise. As a result International Products hired Asia Marketing & Management to sell, stock, and deliver a full assortment of products to the Chinese market. Asia Marketing & Management is an example of a(n): a. agent. b. wholesaler. c. disintermediary. d. retailer. e. industrial distributor. Answer: e Page: 400 Learning Objective: 2 Rationale: An industrial distributor is an intermediary that performs a variety of marketing channel functions involving selling, stocking, and delivering a full product assortment as well as providing financing for industrial goods and services.15-51 INDUSTRIAL DISTRIBUTOR CONCEPTUAL Industrial distributors perform functions that are most like which intermediary in the consumer goods marketing channel? a. manufacturers b. retailers c. agents d. wholesalers e. brokers Answer: d Page: 400 Learning Objective: 2 Rationale: An industrial distributor performs a variety of marketing channel functions, including selling, stocking, and delivering a full product assortment and financing similar to wholesalers in consumer channels. 15-52 ELECTRONIC MARKETING CHANNELS APPLICATION MachineTools.com sells grinders, boring mills, and engine lathes. The website has listed goods from over 700 machinery manufacturers, 2,500 distributors of new equipment, and 650 dealers of used inventory for sale at the website. MachineTools.com relies on a wellestablished channel of manufacturers, distributors, and machinery dealers to provide the merchandise that is sold through this: a. internet distribution channel. b. electronic marketing channel. c. virtual marketing channel. d. consumer-responsive channel. e. product-driven channel. Answer: b Page: 400 Learning Objective: 2 Rationale: Electronic marketing channels employ the Internet to make goods and services available for consumption or use by consumers or industrial buyers. 15-53 ELECTRONIC MARKETING CHANNELS DEFINITION __________ employ the Internet to make goods and services available for consumption or use by consumers or industrial buyers. a. Internet distribution channels b. Electronic marketing channels c. Virtual marketing channels d. Consumer-responsive channels e. Product-driven marketing channels Answer: b Page: 400 Other Locations: SG Learning Objective: 2 Rationale: Key term definition—electronic marketing channels15-54 DIRECT MARKETING CHANNELS DEFINITION __________ is a method of marketing which allows consumers to buy products by interacting with various advertising media without a face-to-face meeting with a salesperson. a. Indirect marketing b. Direct marketing c. Impersonal marketing d. Channel bypass marketing e. Personal selling Answer: b Page: 401 Learning Objective: 2 Rationale: Key term definition—direct marketing channels 15-55 DIRECT MARKETING CHANNELS DEFINITION Mail order selling, catalog sales, and telemarketing, are all examples of: a. indirect channels. b. direct marketing channels. c. impersonal marketing channels. d. channel bypass marketing. e. direct channels. Answer: b Page: 401 Learning Objective: 2 Rationale: Key term definition—direct marketing channels 15-56 DIRECT MARKETING CHANNELS APPLICATION When you order a sweater from an L. L. Bean mail order catalog, what type of marketing channel are you and the company using? a. cash and carry marketing channel b. intensive distribution channel c. selective distribution channel d. indirect marketing channel e. direct marketing channel Answer: e Page: 401 Learning Objective: 2 Rationale: Some firms, such as L.L. Bean, sell products almost entirely through direct marketing channels.15-57 MARKETING NEWSNET APPLICATION CPW is the food industry’s first __________ designed to be a global business. It joined the cereal manufacturing and marketing capability of General Mills with the distribution clout of Nestlé. a. dual distribution partnership b. multi-channel distribution c. cooperative distribution channel d. strategic channel alliance e. bilateral trade agreement Answer: d Page: 402 Learning Objective: 2 Rationale: Strategic channel alliances are popular in global marketing, where the creation of marketing channel relationships is expensive and time consuming. 15-58 DUAL DISTRIBUTION DEFINITION __________ is an arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product. a. A strategic channel alliance b. Multiple level selling c. Parallel distribution d. Dual distribution e. Multi-layered distribution Answer: d Page: 402 Learning Objective: 2 Rationale: Key term definition—dual distribution 15-59 DUAL DISTRIBUTION APPLICATION Pharmaceutical companies sell to hospitals and clinics directly. They market their products to large retail chains that distribute the medicines to their stores across the nation. They also sell to drug wholesalers that sell to the remaining independent drugstores in the U.S. What method of distribution is used by pharmaceutical companies? a. dual distribution b. vertical distribution c. horizontal distribution d. direct distribution e. exclusive distribution Answer: a Page: 402 Learning Objective: 2 Rationale: Dual distribution is an arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same product.15-60 DUAL DISTRIBUTION APPLICATION The channel strategy demonstrated when Hallmark sells its Hallmark brand greeting cards through Hallmark stores and its Ambassador brand of cards through discount and drugstore chains is called: a. strategic channel alliance. b. multi-channel distribution. c. parallel distribution. d. dual distribution. e. multi-product distribution. Answer: d Page: 402 Learning Objective: 2 Rationale: Dual distribution is an arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product. 15-61 STRATEGIC CHANNEL ALLIANCES DEFINITION A recent innovation in marketing channels whereby one firm's marketing channel is used to sell another firm's products is called a(n): a. dual distribution. b. a strategic channel alliance. c. cooperative distribution. d. a integrated channel alliance. e. a multi-channel venture. Answer: b Page: 402 Other Locations: SG Learning Objective: 2 Rationale: Key term definition—strategic channel alliances 15-62 STRATEGIC CHANNEL ALLIANCES CONCEPTUAL Which type of marketing channel arrangement is good for a firm to use in international marketing where the creation of marketing channel relationships is expensive and time consuming? a. dual distribution b. strategic channel alliance c. cooperative distribution d. integrated global channel alliance e. multi-channel distribution Answer: b Page: 402 Learning Objective: 2 Rationale: Strategic channel alliances use one firm’s marketing channel to sell another firm’s products.15-63 STRATEGIC CHANNEL ALLIANCES APPLICATION Kraft distributes Starbucks coffee in U.S. supermarkets and internationally using a __________. a. multi-channel distribution b. a direct marketing channel c. a cooperative distribution channel d. a strategic channel alliance e. a dual distribution agreement Answer: d Page: 402 Learning Objective: 2 Rationale: A strategic channel alliance occurs when one firm's marketing channel is used to sell another firm's products. 15-64 STRATEGIC CHANNEL ALLIANCES APPLICATION Meyers, Inc., is an American company that manufacturers and distributes coffee products in the U.S. Because of the wide popularity of its products in the U.S., Meyers wants to initiate distribution internationally as soon as possible. The most efficient distribution arrangement in terms of cost and time for Meyers Inc. to use would be: a. multi-channel distribution. b. direct marketing. c. cooperative distribution. d. a strategic channel alliance. e. a dual distribution agreement. Answer: d Page: 402 Learning Objective: 2 Rationale: Strategic channel alliances are popular in international marketing because developing marketing channel relationships are expensive and time consuming. 15-65 STRATEGIC CHANNEL ALLIANCES APPLICATION An example of a(n) __________ occurs when Kraft Foods uses the distribution system of Ajinomoto, a major Japanese food company, to market its Maxwell House coffee in Japan. a. direct marketing channel b. industrial distributor c. dual distribution system d. strategic channel alliance e. franchising operation Answer: d Page: 402 Learning Objective: 2 Rationale: Strategic channel alliances are popular in international marketing because developing marketing channel relationships are expensive and time consuming.15-66 INDEPENDENT WHOLESALERS CONCEPTUAL Which limited-service wholesalers perform no facilitating functions? a. selling agents and drop shippers b. manufacturers' agents and selling agents c. specialty merchandise wholesalers and rack jobbers d. brokers and general merchandise wholesalers e. cash and carry wholesalers and truck jobbers Answer: e Page: 403 Learning Objective: 2 Rationale: See Figure 15-7. 15-67 GENERAL MERCHANDISE WHOLESALERS DEFINITION Which type of wholesaler carries a broad assortment of merchandise and performs all channel functions? a. general merchandise wholesaler b. limited-line wholesaler c. specialty merchandise wholesaler d. rack jobber e. drop shipper Answer: a Page: 403 Learning Objective: 2 Rationale: Text term definition—general merchandise wholesalers 15-68 SPECIALTY MERCHANDISE WHOLESALERS DEFINITION Which type of wholesaler carries a narrow assortment of merchandise and performs all channel functions? a. general merchandise wholesaler b. limited-line wholesaler c. specialty merchandise wholesaler d. rack jobber e. drop shipper Answer: c Page: 403 Learning Objective: 2 Rationale: Text term definition—specialty merchandise wholesalers 15-69 SPECIALTY MERCHANDISE WHOLESALERS DEFINITION Which type of wholesaler offers a relatively narrow range of products but has an extensive assortment within the product lines carried? a. general merchandise wholesaler b. limited-service wholesaler c. specialty merchandise wholesaler d. cash and carry wholesaler e. drop shipper Answer: c Page: 403 Other Locations: SG Learning Objective: 2 Rationale: Text term definition—specialty merchandise wholesalers15-70 MERCHANT WHOLESALERS DEFINITION Merchant wholesalers are independently owned firms that __________ the merchandise they handle. a. take title to b. broker c. act as agent for d. determine intensity strategy for e. do not deliver Answer: a Page: 403 Learning Objective: 2 Rationale: Key term definition—merchant wholesalers 15-71 MERCHANT WHOLESALERS CONCEPTUAL All of the following are types of merchant wholesalers EXCEPT: a. manufacturer’s agents. b. rack jobbers. c. drop shippers. d. full-line wholesalers. e. specialty merchandise wholesalers. Answer: a Page: 403 Learning Objective: 2 Rationale: Merchant wholesalers are independently owned firms that take title to the merchandise they handle. Manufacturer’s agents do not take title to the goods they sell. In most cases, they act as agents on behalf of manufacturers. 15-72 MERCHANT WHOLESALERS CONCEPTUAL All of the following are types of limited service merchant wholesalers EXCEPT: a. manufacturer’s agents. b. rack jobbers. c. drop shippers. d. truck jobbers. e. cash and carry wholesalers. Answer: a Page: 403 Learning Objective: 2 Rationale: Merchant wholesalers are independently owned firms that take title to the merchandise they handle. Manufacturer’s agents do not take title to the goods they sell. In most cases, they act as agents on behalf of manufacturers.15-73 WHOLESALING INTERMEDIARIES APPLICATION A regional bakery makes organic breads and muffins. It feels the choice of distribution channel is critical to the product's success, especially since it wants to have the product distributed nationally. However, it will take some time before sales take off, and it wants to make sure the marketing program is consistent everywhere. It should use: a. its own sales force to sell directly to retailers. b. the services of a selling agent to sell to general merchandise wholesalers who will sell to retailers. c. a dual distribution system composed of both direct and indirect wholesalers. d. a rack jobber who will sell to a merchant wholesaler and who will in turn sell to retailers. e. manufacturers' agents to sell to truck jobbers who in turn will deal with retailers. Answer: e Page: 404 Learning Objective: 2 Rationale: Manufacturers' agents work for several producers buying and selling complementary products and act as a selling arm of the producer. Truck jobbers specialize in dealing with perishable items. 15-74 FULL-SERVICE WHOLESALERS CONCEPTUAL Which of the following is a type of full service merchant wholesaler? a. cash and carry wholesaler b. rack jobbers c. truck jobbers d. specialty merchandise wholesaler e. drop shippers Answer: d Page: 403 Learning Objective: 2 Rationale: Specialty merchandise wholesalers offer a relatively narrow range of products but have an extensive assortment within the product lines carried. They perform transactional, logistical and facilitating functions. 15-75 LIMITED-SERVICE WHOLESALERS CONCEPTUAL Which of the following is NOT a type of limited-service wholesaler? a. cash and carry wholesaler b. rack jobber c. truck jobber d. general merchandise wholesaler e. drop shipper Answer: d Page: 403 Learning Objective: 2 Rationale: General merchandise wholesalers are full-line wholesalers.15-76 LIMITED-SERVICE WHOLESALERS CONCEPTUAL Which of the following is NOT a type of limited-service wholesaler? a. cash and carry wholesaler b. rack jobber c. truck jobber d. specialty merchandise wholesaler e. drop shipper Answer: d Page: 403 Learning Objective: 2 Rationale: Specialty merchandise wholesalers are full-service wholesalers. 15-77 RACK JOBBERS DEFINITION What type of limited-service wholesaler furnishes shelves that display merchandise in stores, performs all channel functions, and sells on consignment to retailers? a. stack loader b. rack jobbers c. drop shipper d. desk jobber e. truck jobber Answer: b Page: 404 Learning Objective: 2 Rationale: Text term definition—rack jobbers 15-78 RACK JOBBERS DEFINITION Rack jobbers are wholesalers who: a. furnish the shelves that display merchandise in retail stores, perform all channel functions, and sell on consignment to retailers. b. own the merchandise they sell and use warehouse racks to store it. c. own the merchandise they sell but do not physically handle, stock, or deliver it. d. have a small warehouse from which they stock their trucks for distribution to retailers. e. work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory. Answer: a Page: 404 Learning Objective: 2 Rationale: Text term definition—rack jobbers15-79 RACK JOBBERS APPLICATION Hosiery, toys, and health and beauty items are sold by __________. a. cash and carry wholesalers b. rack jobbers c. truck jobbers d. general merchandise wholesalers e. drop shippers Answer: b Page: 404 Learning Objective: 2 Rationale: Rack jobbers are wholesalers who furnish the racks or shelves that display merchandise in retail stores, perform all channel functions, and sell on consignment to retailers. Familiar products such as hosiery, toys, housewares, and health and beauty items are sold by rack jobbers. 15-80 CASH AND CARRY WHOLESALER DEFINITION Cash and carry wholesalers are wholesalers who: a. furnish the racks or shelves that display merchandise in retail stores, perform all channel functions, and sell on consignment to retailers. b. take title to merchandise but sell only to buyers who call on them, pay cash for merchandise, and furnish their own transportation for merchandise. c. own the merchandise they sell but do not physically handle, stock, or deliver it. d. have a small warehouse from which they stock their trucks for distribution to retailers. e. work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory. Answer: b Page: 404 Learning Objective: 2 Rationale: Text term definition—cash and carry wholesaler 15-81 CASH AND CARRY WHOLESALER DEFINITION Cash and carry wholesalers: a. handle bulky items like lumber, bricks, and telephone poles. b. typically handle office supplies, electrical supplies, hardware products, and groceries. c. handle perishable items like flowers, baked goods, and deli meats. d. are a kind of full-service wholesaler. e. are accurately described by none of the above. Answer: b Page: 404 Learning Objective: 2 Rationale: Text term definition—cash and carry wholesaler15-82 DROP SHIPPERS DEFINITION Drop shippers are wholesalers who: a. furnish the racks or shelves that display merchandise in retail stores, perform all channel functions, and sell on consignment to retailers. b. take title to merchandise but sell only to buyers who call on them, pay cash for merchandise, and furnish their own transportation for merchandise. c. own the merchandise they sell but do not physically handle, stock, or deliver it. d. have a small warehouse from which they stock their trucks for distribution to retailers. e. work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory. Answer: c Page: 404 Learning Objective: 2 Rationale: Text term definition—drop shippers 15-83 DROP SHIPPERS APPLICATION A __________ would be most likely to use drop shippers to distribute its products. a. canning plant b. baby furniture manufacturer c. publishing company d. coal mine e. bakery Answer: d Page: 404 Learning Objective: 2 Rationale: Drop shippers are wholesalers who own the merchandise they sell but do not physically handle, stock, or deliver it. They are used for bulky products such as coal, lumber, and chemicals, which are sold in extremely large quantities. 15-84 DROP SHIPPERS DEFINITION Wholesalers who own the merchandise they sell but do not physically handle, stock, or deliver it are called: a. cash and carry wholesalers. b. rack jobbers. c. drop shippers. d. truck jobbers. e. manufacturer's reps. Answer: c Page: 404 Learning Objective: 2 Rationale: Text term definition—drop shippers15-85 TRUCK JOBBERS DEFINITION Truck jobbers are wholesalers who: a. furnish the racks or shelves that display merchandise in retail stores, perform all channel functions, and sell on consignment to retailers. b. store all the merchandise they sell in their trucks. c. own the merchandise they sell but do not physically handle, stock, or deliver it. d. have a small warehouse from which they stock their trucks for distribution to retailers. e. work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory. Answer: d Page: 404 Learning Objective: 2 Rationale: Text term definition—truck jobbers 15-86 TRUCK JOBBERS APPLICATION A __________ would be most likely to use truck jobbers to distribute its products. a. a clothing manufacturer b. manufacturer of electric generators c. a leather goods importer d. pharmaceutical company e. meat processing plant Answer: e Page: 404 Learning Objective: 2 Rationale: Truck jobbers are wholesalers who have a small warehouse from which they stock their trucks for distribution to retailers. Truck jobbers specialize in dealing with perishable items. 15-87 AGENTS AND BROKERS CONCEPTUAL Which of the following statements describes the key difference between merchant wholesalers and agents and brokers? a. Merchant wholesalers don't perform all channel functions and agents and brokers do. b. Agents and brokers only deal with consumer channels. c. Agents and brokers make their profits based on the sales of merchandise they own, while merchant wholesalers make profits based on fees paid for their services. d. Merchant wholesalers take title to merchandise and agents and brokers do not. e. Agents and brokers take title to merchandise and merchant wholesalers do not. Answer: d Page: 404 Learning Objective: 2 Rationale: Unlike merchant wholesalers, agents and brokers do not take title to merchandise and typically provide fewer channel functions.15-88 MANUFACTURER'S AGENTS DEFINITION Manufacturer's agents: a. furnish the racks or shelves that display merchandise in retail stores, perform all channel functions, and sell on consignment to retailers. b. take title to merchandise but sell only to buyers who call on them, pay cash for merchandise, and furnish their own transportation for merchandise. c. own the merchandise they sell but do not physically handle, stock, or deliver it. d. have a small warehouse from which they stock their trucks for distribution to retailers. e. work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory. Answer: e Page: 404 Learning Objective: 2 Rationale: Key term definition—manufacturer's agents 15-89 MANUFACTURER'S AGENTS APPLICATION Culver Glassware is a manufacturer of sets of drinking glasses and ice buckets that sells to many retailers. It does not have its own sales force, choosing instead to use a __________ to be principally responsible for the transactional channel functions. a. rack jobber b. drop shipper c. truck jobber d. manufacturer's agents e. broker Answer: d Page: 404 Learning Objective: 2 Rationale: Manufacturer's agents work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory. 15-90 SELLING AGENTS DEFINITION Selling agents are agents who: a. furnish the racks or shelves that display merchandise in retail stores, perform all channel functions, and sell on consignment to retailers. b. work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory. c. take title to merchandise but sell only to buyers who call on them, pay cash for merchandise, and furnish their own transportation for the merchandise. d. work for several producers and carry noncompetitive/complementary merchandise in an exclusive territory. e. represent a single producer and are responsible for the entire marketing function of that producer. Answer: e Page: 404 Learning Objective: 2 Rationale: Key term definition—selling agents15-91 SELLING AGENTS APPLICATION Hallmark Cards has its own sales force that is responsible for the entire marketing function. Hallmark uses __________ as its sales force. a. manufacturer’s agents b. brokers c. selling agents d. manufacturer’s branches e. manufacturer’s sales offices Answer: c Page: 404 Learning Objective: 2 Rationale: Key term definition—selling agents 15-92 BROKERS DEFINITION Brokers are independent firms or individuals whose principal function is to: a. represent a single producer and are responsible for the entire marketing function of that producer. b. work for several producers and carry noncompetitive, complementary merchandise in an exclusive territory. c. take title to merchandise but sell only to buyers who call on them, pay cash for merchandise, and furnish their own transportation for the merchandise. d. own the merchandise they sell but not physically handle, stock, or deliver it. e. bring buyers and sellers together to make sales. Answer: e Page: 404 Learning Objective: 2 Rationale: Key term definition—brokers 15-93 BROKERS APPLICATION Freightfinder.com and loads.truck.net are both Internet companies that are called ―gobetweens.‖ If a trucker needs to find a load for a particular trade lane, he or she can visit one of these sites, list their price and available truck space, and find a company that needs a shipment moved. Since the purpose of these websites it to put buyer and sellers together so that a sale can be made, these two websites can be categorized as: a. brokers. b. selling agents. c. manufacturer's representatives. d. manufacturers' agents. e. administrators. Answer: a Page: 404 Learning Objective: 2 Rationale: Brokers are independent firms or individuals whose principal function is to bring buyers and sellers together to make sales.15-94 BROKERS APPLICATION In 1997, office vacancy rates from Kansas City to San Jose hovered at or near a 10-year low. Like skilled labor at the time, choice office space was a scarce commodity. A business in Kansas City, Missouri, looking to rent office space should have used a __________ to help it locate the most suitable space at the best possible rate. a. broker b. selling agent c. manufacturer's representative d. manufacturers' agent e. administrator Answer: a Page: 404 Learning Objective: 2 Rationale: Brokers are independent firms or individuals whose principal function is to bring buyers and sellers together to make sales--in this case to create a lease arrangement. 15-95 BROKERS CONCEPTUAL Originally, filters for Mr. Coffee electric-drip coffee makers were sold through appliance and mass merchandise stores. When the company decided to sell the filters in stores where customers purchased their coffee, what type of intermediaries would the company most likely have hired? a. rack jobbers b. drop shippers c. truck jobbers d. manufacturer's reps e. food brokers Answer: e Page: 404 Other Locations: web Learning Objective: 2 Rationale: Food brokers act on behalf of producers on a permanent basis and receive a commission for their services. 15-96 MANUFACTURER'S BRANCHES AND OFFICES CONCEPTUAL __________ are wholly owned extensions of the producer that perform wholesaling activities. a. General merchandise wholesalers b. Cash and carry wholesalers c. Agents and brokers d. Manufacturer's branches and sales offices e. Merchant wholesalers Answer: d Page: 404 Learning Objective: 2 Rationale: Unlike merchant wholesalers, agents, and brokers, manufacturers’ branches and sales offices are wholly owned extensions of the producer that performs wholesaling activities.15-97 MANUFACTURER'S BRANCH OFFICE DEFINITION A manufacturer's branch office: a. performs a sales function as an option to agents and brokers. b. works for several producers and carries noncompetitive, complementary merchandise in an exclusive territory. c. takes title to merchandise but sells only to buyers who call on them, pays cash for merchandise, and furnishes their own transportation for the merchandise. d. carries a producer's inventory, performs the functions of a full-service wholesaler. e. brings buyers and sellers together to make sales. Answer: d Page: 404 Learning Objective: 2 Rationale: Text term definition—manufacturer's branch office 15-98 MANUFACTURER'S SALES OFFICE DEFINITION A manufacturer's sales office: a. does not carry inventory, typically performs a sales function, and is an alternative to agents and brokers. b. works for several producers and carries noncompetitive, complementary merchandise in an exclusive territory. c. takes title to merchandise but sells only to buyers who call on them, pays cash for merchandise, and furnishes their own transportation for the merchandise. d. carries a producer's inventory, performs the functions of a full-service wholesaler and is an alternative to a merchant wholesaler. e. brings buyers and sellers together to make sales. Answer: a Page: 404-405 Learning Objective: 2 Rationale: Text term definition—manufacturer's sales office 15-99 VERTICAL MARKETING SYSTEMS DEFINITION __________ marketing systems are professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact. a. Integrated b. Horizontal c. Vertical d. Functional e. Cooperative Answer: c Page: 405 Learning Objective: 2 Rationale: Key term definition—vertical marketing systems15-100 VERTICAL MARKETING SYSTEMS CONCEPTUAL The purpose of a vertical marketing system is to: a. dissuade retailers from dealing with other manufacturers or wholesalers. b. limit the number of retail outlets served, or maintain a limited service region. c. achieve channel economies and maximum marketing impact. d. eliminate competition by narrowing the channel from supplier to consumer. e. maximize the number of wholesalers a supplier can deal through. Answer: c Page: 405 Other Locations: SG Learning Objective: 2 Rationale: Vertical marketing systems are professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact. 15-101 VERTICAL MARKETING SYSTEMS CONCEPTUAL Cessna is considered the volume leader for the executive-jet market. It has been described as ―almost totally vertically integrated.‖ This quote means that Cessna: a. does not fall under the jurisdiction of any federal regulatory agency. b. has eliminated economies of scale. c. has achieved a high level of social responsibility. d. achieves coordination of production and distribution through ownership, which results in more control. e. uses outsourcing for all component parts and materials. Answer: d Page: 405 Learning Objective: 2 Rationale: A corporate vertical marketing system achieves coordination of production and distribution through ownership. 15-102 VERTICAL MARKETING SYSTEMS APPLICATION A new company produces paint and other home decorating products. Its goal is to choose the best marketing channel arrangement that would give it the most control and the least amount of conflict. Which marketing channel arrangement should this company choose? a. a corporate vertical marketing system b. a contractual vertical marketing system c. an administered vertical marketing system d. an integrated marketing system e. a corporate horizontal marketing system Answer: a Page: 405 Learning Objective: 2 Rationale: A corporate vertical marketing system achieves coordination of production and distribution through ownership, which results in more control. Ties among the intermediaries are the strongest when they are all under the same ownership.15-103 CORPORATE VERTICAL MARKETING SYSTEM DEFINITION The combination of successive stages of production and distribution under a single ownership is called a(n): a. corporate vertical marketing system. b. integrated marketing system. c. contractual vertical marketing system. d. corporate horizontal marketing system. e. contractual horizontal marketing system. Answer: a Page: 405 Learning Objective: 2 Rationale: Text term definition—corporate vertical marketing system 15-104 CORPORATE VERTICAL MARKETING SYSTEM APPLICATION The Fox Entertainment Group counts among its assets a thriving TV production unit, a Hollywood movie studio, 33 TV stations, a half-dozen national cable networks, and 21 regional sports networks. Since most of the shows produced at its TV production unit and many of the movies made at its studio are made just for televising on its cable networks, Fox Entertainment Group is an example of a(n): a. corporate vertical marketing system. b. integrated marketing system. c. contractual vertical marketing system. d. corporate horizontal marketing system. e. contractual horizontal marketing system. Answer: a Page: 405 Learning Objective: 2 Rationale: A corporate vertical marketing system combines successive stages of production and distribution under a single ownership. 15-105 FORWARD INTEGRATION DEFINITION When a producer owns an intermediary at the next level down in the marketing channel, it is called: a. forward integration. b. backward integration. c. vertical channel. d. horizontal channel. e. horizontal integration. Answer: a Page: 405 Learning Objective: 2 Rationale: Text term definition—forward integration15-106 FORWARD INTEGRATION APPLICATION Hart Schaffner & Marx is a producer of men's suits and sports coats that operates 100 menswear stores. Hart Schaffner & Marx uses: a. dual distribution. b. forward integration. c. backward integration. d. horizontal integration. e. strategic alliance. Answer: b Page: 405 Learning Objective: 2 Rationale: Forward integration occurs when a producer owns an intermediary at the next level down in the marketing channel. 15-107 BACKWARD INTEGRATION APPLICATION Kroger supermarkets operate manufacturing facilities that produce everything from aspirin to cottage cheese, for sale under the Kroger label. Kroger uses: a. dual distribution. b. forward integration. c. backward integration. d. horizontal integration. e. strategic alliance. Answer: c Page: 405 Learning Objective: 2 Rationale: Backward integration is the practice of retailers owning a manufacturing operation. 15-108 BACKWARD INTEGRATION DEFINITION When a retailer owns a manufacturing operation, it is called: a. forward integration. b. backward integration. c. vertical integration. d. joint venture. e. horizontal integration. Answer: b Page: 405 Learning Objective: 2 Rationale: Text term definition—backward integration15-109 CORPORATE VERTICAL MARKETING SYSTEMS CONCEPTUAL Which of the following is true of a corporate vertical marketing system? a. successive stages of production and distribution are under a single ownership b. backward and/or forward integration occur in corporate vertical marketing systems c. corporate vertical marketing systems reduce distribution costs and increase control d. capital investment and fixed costs increase with corporate vertical marketing systems e. all of the above are true Answer: e Page: 405 Learning Objective: 2 Rationale: The combination of successive stages of production and distribution under a single ownership is a corporate vertical marketing system. Forward and/or backward integration occur in corporate vertical marketing systems. Companies seeking to reduce distribution costs and gain greater control over supply sources or resale of their products pursue forward and backward integration. Both types of integration increase a company’s capital investment and fixed costs. 15-110 CONTRACTUAL VERTICAL MARKETING SYSTEMS CONCEPTUAL Which of the following is the most popular type of vertical marketing system, accounting for about 40 percent of all retail sales? a. corporate vertical marketing systems b. horizontal marketing systems c. contractual vertical marketing systems d. administered vertical marketing systems e. wholesaler-sponsored voluntary systems Answer: c Page: 406 Other Locations: web Learning Objective: 2 Rationale: Contractual systems (including franchises) are the most popular among the three types of vertical marketing systems and are estimated to account for about 40 percent of all retail sales. 15-111 WHOLESALER-SPONSORED VOLUNTARY CHAIN CONCEPTUAL Which type of contractual vertical marketing system involves a contractual relationship between a wholesaler and small independent retailers to standardize and coordinate buying practices, merchandising programs, and inventory management efforts? a. service-sponsored retail franchise system b. retailer-sponsored cooperative c. administered vertical marketing system d. manufacturer-sponsored retail franchise system e. wholesaler-sponsored voluntary chain Answer: e Page: 406 Other Locations: SG Learning Objective: 2 Rationale: Wholesaler-sponsored voluntary chains involve a wholesaler that develops a contractual relationship with small independent retailers to standardize and coordinate buying practices, merchandise programs, and inventory management efforts.15-112 RETAILER-SPONSORED COOPERATIVE APPLICATION Ace Hardware is a national ___________ that allows its members, retailers of paint and hardware products, to concentrate their buying power through wholesalers and more importantly plan collaborative promotional and pricing activities. a. service-sponsored retail system b. retailer-sponsored cooperative c. administered cooperative system d. manufacturer-sponsored cooperative e. wholesaler-sponsored voluntary chain Answer: b Page: 406 Learning Objective: 2 Rationale: Retailer-sponsored cooperatives exist when small, independent retailers form an organization that operates a wholesale facility cooperatively. 15-113 RETAILER-SPONSORED COOPERATIVE DEFINITION Which type of contractual vertical marketing system involves small independent retailers forming an organization that operates a wholesale facility cooperatively? a. service-sponsored retail system b. retailer-sponsored cooperative c. administered cooperative system d. manufacturer-sponsored cooperative e. wholesaler-sponsored voluntary chain Answer: b Page: 406 Learning Objective: 2 Rationale: Text term definition—retailer-sponsored cooperative 15-114 CONTRACTUAL VERTICAL MARKETING SYSTEM DEFINITION Franchising is a form of: a. corporate vertical marketing systems. b. horizontal marketing systems. c. contractual vertical marketing systems. d. administered vertical marketing systems. e. wholesaler-sponsored voluntary systems. Answer: c Page: 406 Learning Objective: 2 Rationale: Key term definition—franchising15-115 FRANCHISING DEFINITION A contractual arrangement between a parent company and an individual or firm that allows the individual or firm to operate a certain type of business under an established name and according to specific rules is called: a. a corporate vertical marketing system. b. a wholesaler sponsored voluntary chain. c. a retailer sponsored cooperative. d. franchising. e. an administered vertical marketing system. Answer: d Page: 406 Other Locations: SG Learning Objective: 2 Rationale: Key term definition—franchising 15-116 FRANCHISING APPLICATION Jacob has developed a lawn care service that will revolutionize the lawn care industry. Jacob, however, has limited operating capital and yet, still wants a wide distribution of his new product. Which of the following options might he choose? a. He might develop an administered vertical marketing system in order to achieve distribution. b. He might establish a corporate vertical marketing system to control the distribution system established. c. He might open up branch offices around the country to provide the exposure he needs. d. He could establish a wholesaler-sponsored vertical marketing system to obtain greater economies of scale. e. He can establish a contractual vertical marketing system (franchise). Answer: e Page: 406 Learning Objective: 2 Rationale: In a franchised vertical marketing system, Jacob can establish a contract that allows the franchisee to use the product and the name, but provide the operating capital to run independent businesses. Jacob would get a profit or sales royalty to gain income. 15-117 MANUFACTURER-SPONSORED RETAIL FRANCHISE CONCEPTUAL __________ are commonly used in the automobile industry. With this system, a manufacturer licenses dealers to sell its cars subject to various sales and service conditions. a. Service-sponsored producer franchise systems b. Service-sponsored retail franchise systems c. Manufacturer-sponsored wholesale systems d. Manufacturer-sponsored retail franchise systems e. Administered vertical marketing systems Answer: d Page: 406 Other Locations: SG Learning Objective: 2 Rationale: Manufacturer-sponsored retail franchise systems are prominent in the automobile industry, where a manufacturer such as Ford licenses dealers to sell its cars subject to various sales and service conditions.15-118 MANUFACTURER-SPONSORED WHOLESALE SYSTEM CONCEPTUAL The __________ system is common in the soft drink industry where the manufacturer sells its concentrate to wholesalers, who carbonate it, and market the finished product to retailers. a. service-sponsored franchise b. service-sponsored retail franchise c. manufacturer-sponsored wholesale d. manufacturer-sponsored retail franchise e. administered vertical marketing Answer: c Page: 406 Learning Objective: 2 Rationale: Manufacturer-sponsored wholesale systems are evident in the soft drink industry where Pepsi-Cola licenses wholesalers (bottlers) who purchase concentrate from Pepsi-Cola and then carbonate, bottle, promote, and distribute its products to supermarkets and restaurants. 15-119 FRANCHISE SYSTEM CONCEPTUAL The four types of franchise arrangements that are most popular are: a. service-sponsored franchise, service-sponsored retail franchise, manufacturersponsored wholesales systems, and manufacturer-sponsored retail franchise systems. b. service-sponsored retail franchise, corporate vertical marketing system, wholesalersponsored voluntary chains, service-sponsored franchise. c. manufacturer-sponsored wholesale system, service-sponsored retail franchise, corporate vertical marketing system, wholesaler-sponsored voluntary chains d. manufacturer-sponsored retail franchise, service-sponsored retail franchise, corporate vertical marketing system, wholesaler-sponsored voluntary chains e. administered vertical marketing, service-sponsored retail franchise, corporate vertical marketing system, wholesaler-sponsored voluntary chains Answer: a Page: 405; Fig. 15-8 Learning Objective: 2 Rationale: The four types of franchise programs are manufacturer-sponsored retail franchise system, manufacturer-sponsored wholesale franchise system, service-sponsored retail franchise system, and service-sponsored franchise system. 15-120 ADMINISTERED VERTICAL MARKETING SYSTEMS DEFINITION Which type of vertical marketing system achieves coordination at successive stages of production and distribution by the size and influence of one channel member rather than through ownership? a. corporate vertical marketing system b. integrated vertical marketing system c. contractual vertical marketing system d. administered vertical marketing systems e. interactive vertical marketing system Answer: d Page: 407 Learning Objective: 2 Rationale: Text term definition—administered vertical marketing systems15-121 ADMINISTERED VERTICAL MARKETING SYSTEMS CONCEPTUAL Which of the following statements describes the most significant distinction between a corporate vertical marketing system and an administered vertical marketing system? a. Administered vertical marketing systems gain power through ownership while vertical marketing systems gain power through corporate agreement. b. Administered vertical marketing systems gain power through size and influence of one channel member and ownership. c. Administered vertical marketing systems achieve coordination at successive stages of production and distribution by the size and influence of one channel member rather than through ownership. d. Administered vertical marketing systems gain power through contractual agreement and ownership. e. Administered vertical marketing systems are usually larger and more profitable than corporate vertical marketing systems. Answer: c Page: 407 Learning Objective: 2 Rationale: Size and influence of a single channel member is the key distinction between corporate and administered vertical marketing systems. 15-122 ADMINISTERED VERTICAL MARKETING SYSTEMS APPLICATION Wal-Mart can obtain cooperation from manufacturers in terms of product specifications, price levels, and promotional support, given its position as the world’s largest retailer. Which type of vertical marketing system does Wal-Mart represent? a. corporate vertical marketing system b. integrated vertical marketing system c. contractual vertical marketing system d. administered vertical marketing systems e. interactive vertical marketing system Answer: d Page: 407 Learning Objective: 2 Rationale: Wal-Mart can achieve coordination of production and distribution because of its size and influence rather than through ownership. 15-123 CHANNEL PARTNERSHIP DEFINITION What sort of system consists of agreements and procedures among channel members for ordering and physically distributing a producer's products through the channel to the ultimate consumer? a. franchise b. channel partnership c. selling agency d. brokerage firm e. drop shipping Answer: b Page: 407 Learning Objective: 2 Rationale: Key term definition—channel partnership15-124 CHANNEL PARTNERSHIP APPLICATION Levi Strauss has a __________ with Modell’s Sporting Goods in New York that uses point-of-sale scanning equipment and direct electronic linkage between the two firms. Modell’s can instantaneously inform Levi Strauss what styles and sizes of jeans are needed, thus assuring that the correct selection of Levi jeans are in stock. a. franchise b. channel partnership c. selling agency d. limited-service marketing system e. corporate vertical marketing system Answer: b Page: 407 Learning Objective: 2 Rationale: A channel partnership consists of agreements and procedures among channel members for ordering and distributing a producer’s products through the channel to the ultimate consumer. The collaborative use of information through the point-of-sale scanning is used to better serve customers and reduce the time and cost of performing channel functions. 15-125 FACTORS AFFECTING MARKETING CHANNEL CHOICE CONCEPTUAL All of the following factors affect the final choice of a marketing channel by a producer EXCEPT: a. changes in consumer purchasing behavior. b. the stage in the product life cycle. c. corporate tax legislation. d. environmental factors. e. the firm's financial, human, and technical capabilities. Answer: c Page: 407-408 Learning Objective: 3 Rationale: The final choice of a marketing channel by a producer depends on environmental, consumer, product, and company factors. 15-126 WEBLINK CONCEPTUAL Apple’s web site offers customers: a. a tutorial on using computers. b. suggestions on how to pick a password you will remember. c. a way to order Apple merchandise. d. a way to find the nearest Apple store. e. information on Olympic athletes Apple supports. Answer: d Page: 411 Rationale: Apple’s website offers consumers a way to find the nearest Apple store.15-127 WEBLINK APPLICATION When Apple Computer opened the Apple stores to allow customers to create a less stressful and more supportive environment for shopping for a new PC, Apple used: a. channel partnerships. b. forward integration. c. backward integration. d. administered systems. e. contractual vertical marketing systems. Answer: b Page: 405 Learning Objective: 2 Rationale: Forward integration occurs when a producer owns an intermediary at the next level down in the marketing channel. 15-128 MARKETING NEWSNET APPLICATION In Singapore you are likely to find Wrigley’s chewing gum: a. in a vending machine. b. in a 7-11. c. at the dentist office. d. in a grocery store. e. in all of the above. Answer: c Page: 408 Rationale: Wrigley’s chewing gum can only be bought from a pharmacist or dentist in Singapore. 15-129 MARKETING NEWSNET APPLICATION In Singapore chewing gum is distributed using: a. vending machines. b. intensive distribution. c. selective distribution. d. grocery stores. e. all of the above. Answer: c Page: 408 Learning Objective: 3 Rationale: Wrigley’s chewing gum can only be bought from a pharmacist or dentist in Singapore; this is selective distribution. The distribution intensity was selected by the government rather than Wrigley.15-130 DEGREES OF DISTRIBUTION CONCEPTUAL The three degrees of distribution density are: a. intensive, extensive, and selective. b. extensive, concentrated, and selective. c. intensive, exclusive, and selective. d. extensive, pervasive, and concentrated. e. concentrated, exclusive, and intensive. Answer: c Page: 409-410 Learning Objective: 3 Rationale: Achieving the best coverage of the target market requires attention to the density and type of intermediaries to be used at the retail level of distribution. Three degrees of distribution density exist: intensive; exclusive; and selective. 15-131 INTENSIVE DISTRIBUTION APPLICATION Candy bars are best sold using which type of target market coverage? a. exclusive distribution b. direct distribution c. intensive distribution d. dual distribution e. selective distribution Answer: c Page: 409 Learning Objective: 3 Rationale: Since this is a product that customers are not likely to spend much time searching for, convenience becomes the key attribute of distribution. Thus, intensive distribution is the answer. 15-132 INTENSIVE DISTRIBUTION DEFINITION The density of distribution whereby a firm tries to place its products or services in as many outlets as possible is called __________ distribution. a. intensive b. extensive c. selective d. exclusive e. concentrated Answer: a Page: 409 Other Locations: web Learning Objective: 3 Rationale: Key term definition—intensive distribution15-133 INTENSIVE DISTRIBUTION APPLICATION Breath mints, bottled water, and nail clippers would most likely use which density of distribution? a. intensive distribution b. extensive distribution c. selective distribution d. exclusive distribution e. concentrated distribution Answer: a Page: 409 Learning Objective: 3 Rationale: Intensive distribution is usually chosen for convenience products or services; for example, chewing gum, automatic teller machines, and cigarettes. 15-134 EXCLUSIVE DISTRIBUTION DEFINITION The density of distribution whereby a firm tries to place its products or services with only one retail outlet in a specified geographical area is called __________ distribution. a. intensive b. extensive c. selective d. exclusive e. concentrated Answer: d Page: 409 Other Locations: web Learning Objective: 3 Rationale: Key term definition—exclusive distribution 15-135 EXCLUSIVE DISTRIBUTION APPLICATION John Deere manufactures and distributes industrial and farm equipment. These types equipment are considered to be specialty products. Which type of market coverage does the company use? a. intensive distribution b. extensive distribution c. selective distribution d. exclusive distribution e. concentrated distribution Answer: d Page: 409 Learning Objective: 3 Rationale: Exclusive distribution is typically chosen for specialty products or services.15-136 EXCLUSIVE DISTRIBUTION APPLICATION Which type of distribution density is used by Rolls Royce when the car manufacturer maintains only one dealership in any large metropolitan area? a. intensive distribution b. extensive distribution c. selective distribution d. exclusive distribution e. private label distribution Answer: d Page: 409 Learning Objective: 3 Rationale: Exclusive distribution is typically chosen for specialty products or services-- for example, automobiles, some women's fragrances, men's suits, and yachts. 15-137 EXCLUSIVE DISTRIBUTION CONCEPTUAL For which of the following products would the manufacturer be most likely to use exclusive distribution? a. Timex watches, Hanes underwear, and Nike shoes b. Chanel perfume, Steinway pianos, and Baccarat crystal c. Oreos, Teddy Grahams, and vanilla wafers d. paper clips, light bulbs, and file folders e. Lean Cuisine meals, Breyer's ice cream, and Coca-Cola Answer: b Page: 409 Learning Objective: 3 Rationale: Exclusive distribution is typically chosen for specialty products or services; for example, automobiles, some women's fragrances, men's suits, and yachts. 15-138 SELECTIVE DISTRIBUTION DEFINITION The density of distribution whereby a firm tries to place its products in a few retail outlets in a specific area is called __________ distribution. a. intensive b. extensive c. selective d. exclusive e. concentrated Answer: c Page: 410 Learning Objective: 3 Rationale: Key term definition—selective distribution15-139 SELECTIVE DISTRIBUTION CONCEPTUAL The target market coverage and distribution intensity associated with shopping goods such as electronics, clothing, and costume jewelry is called: a. intensive distribution. b. exclusive distribution. c. selective distribution. d. primary distribution. e. secondary distribution. Answer: c Page: 410 Learning Objective: 3 Rationale: Selective distribution is the most common form of distribution intensity and is usually associated with shopping goods or services. 15-140 SELECTIVE DISTRIBUTION CONCEPTUAL Which type of market coverage is usually associated with shopping goods? a. intensive distribution b. extensive distribution c. selective distribution d. exclusive distribution e. concentrated distribution Answer: c Page: 410 Learning Objective: 3 Rationale: Selective distribution is the most common form of distribution intensity and is usually associated with shopping goods or services. 15-141 SELECTIVE DISTRIBUTION CONCEPTUAL The Hallmark Card Company is able to maintain good dealer relationships because it limits the number and maintains the quality of outlets through which it sells. Hallmark uses __________ distribution. a. intensive b. extensive c. selective d. exclusive e. concentrated Answer: c Page: 410 Learning Objective: 3 Rationale: Selective distribution selects a few retail outlets in a specific area to carry its products. There are neither too many nor too few competitors.15-142 TARGET MARKET COVERAGE APPLICATION IBM has long been perceived as the leader in computer technology. As such, for many years IBM computers were available only from selected, authorized IBM retailers. Currently, IBM has changed its distribution strategy. Consumers can now purchase IBM computers at several well-known department and discount stores, including Wal-Mart and K-Mart, located throughout the country. Initially, IBM employed __________ distribution and made its products available only through a single retail outlet in specific locations. Currently, as computers have become more of a shopping good, IBM is using __________ distribution, as it seeks to broaden the degree of its distribution and make its computers available in several retail outlets in specific areas. a. intensive; exclusive b. exclusive; intensive c. intensive; selective d. selective; exclusive e. exclusive; selective Answer: e Page: 409-410 Learning Objective: 3 Rationale: Marketers seek to achieve the best coverage of their target markets by selecting the type and density of intermediaries used at the retail level. Exclusive distribution involves the use of one specific retailer in a certain geographic region as the sole outlet for a product. Such a distribution strategy may be used to create or maintain an image of market leadership or cutting-edge product development. Selective distribution means that a marketer chooses a select few retail establishments in specific geographic locations to distribute shopping goods. 15-143 CHANNEL DESIGN: SATISFYING BUYER REQUIREMENTS CONCEPTUAL Which of the following is a major consideration for satisfying buyer requirements when designing distribution channels? a. information b. convenience c. variety d. attendant services e. all of the above Answer: e Page: 410 Learning Objective: 3 Rationale: Answers a, b, c, and d are all categories of interests buyers might want fulfilled when they purchase a firm’s products or services.15-144 CHANNEL DESIGN: SATISFYING BUYER REQUIREMENTS APPLICATION Channels are typically designed to satisfy one or more of four consumer interests. When a membership book club allows its members to use the Internet to notify the company whether they want to receive the next month's issue, the book club is appealing to which buyer requirement? a. information b. convenience c. variety d. attendant services e. all of the above Answer: b Page: 410 Learning Objective: 3 Rationale: Convenience has multiple meanings for buyers, such as ease of use. In this case, convenience means being able to respond without having to find a stamp and take the letter to the mailbox. 15-145 CHANNEL DESIGN: SATISFYING BUYER REQUIREMENTS APPLICATION Which buyer requirement would be most important in choosing a channel design for a financial service for a consumer who is interested in setting up a retirement account? a. information b. context c. variety d. attendant services e. none of the above would be more important Answer: a Page: 410 Learning Objective: 3 Rationale: Information is an important requirement when buyers have limited knowledge or desire specific data about a product or service. In this case, setting up a retirement account requires information. 15-146 KEIRETSU DEFINITION Keiretsu is the term for: a. a full-line wholesaler in Korea. b. a producer-customer direct channel in Japan. c. selling agents and brokers in Japan. d. a vertical integration of as well as a social and economic bond between producers and intermediaries in Japan. e. vertical integration and a social and economic bond between producers and intermediaries in Hong Kong. Answer: d Page: 412 Other Locations: web Learning Objective: 3 Rationale: Text term definition—keiretsu15-147 KEIRETSU CONCEPTUAL The dominant member of a keiretsu is the: a. customer. b. retailer. c. local wholesaler. d. full-line wholesaler. e. producer. Answer: e Page: 412 Learning Objective: 3 Rationale: The producer exerts control over intermediaries of the keiretsu by deciding which competing products are sold by the other channel members. 15-148 CHANNEL CONFLICT DEFINITION ___________ arises when one channel member believes another channel member is engaged in behavior that prevents it from achieving its goals. a. Channel conflict b. Disintermediation c. Cross-docking d. Partnership inconsistency e. Relationship variance Answer: a Page: 412 Other Locations: web Learning Objective: 4 Rationale: Key term definition—channel conflict 15-149 CHANNEL CONFLICT DEFINITION The two types of channel conflict are: a. divisional and organizational. b. horizontal and vertical. c. transactional and transformational. d. external and internal. e. supervisor-subordinate and subordinate-subordinate. Answer: b Page: 412 Learning Objective: 4 Rationale: Key term definition—channel conflict 15-150 VERTICAL CONFLICT DEFINITION __________ conflict occurs between two different levels in a marketing channel. a. Corporate b. Horizontal c. Vertical d. Administered e. Contractual Answer: c Page: 412 Learning Objective: 4 Rationale: Text term definition—vertical conflict15-151 VERTICAL CONFLICT CONCEPTUAL Which of the following is NOT a source of vertical conflict? a. when Foot Locker decided to give more shelf space to lower priced shoes b. when channel members disagree on how profit margins are distributed among channel members c. when a manufacturer increases its distribution coverage in a geographic area d. when a manufacturer believes a wholesaler or retailer is not devoting sufficient attention to its products e. when a channel member bypasses another member and sells or buys a product direct Answer: c Page: 412 Learning Objective: 4 Rationale: Alternative c is a source of horizontal channel conflict. 15-152 DISINTERMEDIATION DEFINITION When a channel member bypasses another member and sells or buys product direct, this is termed: a. disintermediation. b. unethical. c. vertical conflict. d. horizontal conflict. e. resale restrictions. Answer: a Page: 412 Other Locations: SG Learning Objective: 4 Rationale: Key term definition—disintermediation 15-153 DISINTERMEDIATION APPLICATION While Maytag appliances have the leading brand name, its sales are third in the industry. One of the things the company has done to spur sales is to create a website where potential customers can find the answers to the questions most asked during the appliance purchase process. While Maytag considered using __________ (allowing customers to purchase at the site), it decided against it and simply provides the name and address of the nearest Maytag dealers. a. transactional function b. horizontal integration c. horizontal innovation d. cross-docking e. disintermediation Answer: e Page: 412 Learning Objective: 4 Rationale: Disintermediation occurs when a channel member bypasses another member and sells or buys product directly.15-154 CHANNEL CONFLICT CONCEPTUAL Which of the following types of vertical marketing systems is likely to experience the least channel conflict? a. corporate vertical marketing system b. wholesaler-sponsored voluntary chain c. retailer-sponsored cooperative d. franchise system e. administered vertical marketing system Answer: a Page: 412 Learning Objective: 4 Rationale: Ties among elements are strongest when all intermediaries are owned by a single organization; aspects of both horizontal and vertical competition are stronger in other systems. 15-155 ETHICS AND SOCIAL RESPONSIBILITY ALERT CONCEPTUAL The payments supermarkets receive in the form of money or free goods in exchange for shelf space to display and stock products of producers are called: a. bribes. b. exclusive dealing fees. c. tying arrangements. d. slotting allowances. e. extortion. Answer: d Page: 413 Learning Objective: 4 Rationale: Some large supermarket chains demand slotting allowances from food manufacturers, paid in the form of money or free goods to stock and display products. 15-156 HORIZONTAL CONFLICT DEFINITION Conflict occurring between intermediaries at the same level in a marketing channel, such as between two or more retailers is called __________ conflict. a. corporate b. horizontal c. vertical d. administered e. contractual Answer: b Page: 412 Learning Objective: 4 Rationale: Text term definition—horizontal conflict15-157 CHANNEL CAPTAIN DEFINITION A channel member who coordinates, directs, and supports other channel members is called a: a. product champion. b. product captain. c. channel captain. d. director of distribution. e. channel coordinator. Answer: c Page: 413 Learning Objective: 4 Rationale: Key term definition—channel captain 15-158 CHANNEL CAPTAIN APPLICATION Bombardier makes corporate jets. The aircraft company relies heavily on outside suppliers for design support and to share development costs and market risks. For its newest plane, the Continental, Bombardier has about 30 prime suppliers—about ten of those have been involved since the initial design phase. Furthermore, as the owner of the defunct Lear Jet Corporation, Bombardier is the leading marketer of corporate jets. Bombardier is an example of a: a. product champion. b. product captain. c. channel captain. d. director of distribution. e. channel coordinator. Answer: c Page: 413 Learning Objective: 4 Rationale: A channel captain is a channel member who coordinates, directs, and supports other channel members. 15-159 CHANNEL CAPTAIN CONCEPTUAL Which of the following is the source of power determining which channel member will be the channel captain? a. economic power b. expertise c. identification with a particular channel member d. legitimate rights through contracts e. any of the above Answer: e Page: 413 Other Locations: SG Learning Objective: 4 Rationale: A firm can become a channel captain because it is typically the channel member with the ability to influence the behavior of other members. Influence can take four forms: economic; expertise; identification with a channel member; and contractual rights.15-160 CHANNEL CAPTAIN APPLICATION During the 1990s, Sports Port, a motorcycle and fishing boat retailer located in a small northern Minnesota town was the world's largest dealer for Crestliner fishing boats. In order to meet the demand of his many customers, the owner of Sports Port worked with a wide variety of channel members, ranging from the manufacturer of the boats to trucking firms, other retailers, and even detailers. Such a diverse channel of distribution often resulted in channel conflict. However, due to his strong consumer following, the owner of Sports Port had the power to resolve disputes between channel members. The owner of Sports Port served as the __________ in the channel of distribution. a. wholesaler b. producer c. channel captain d. channel spokesperson e. sole channel intermediary Answer: c Page: 413 Learning Objective: 4 Rationale: A channel captain is the member of a channel of distribution with the ability to exert power and influence the actions of other channel members. A channel captain may be a producer, a wholesaler, or a retailer. The channel captain has the power to resolve channel conflict. 15-161 CHANNEL POWER APPLICATION Wal-Mart is a channel power because of their strong image, number of outlets, and purchasing volume.The source of Wal-Mart’s power is: a. its economic influence. b. its expertise. c. its identification with a particular channel member. d. its legitimate rights through contracts. e. all of the above. Answer: a Page: 413 Learning Objective: 4 Rationale: Economic power arises from the ability of the firm to reward or influence other members in the channel given its strong financial position or customer franchise. 15-162 CHANNEL POWER APPLICATION American Hospital Supply helps its customers (hospitals) manage inventory and streamline order processing for hundreds of medical supplies. The source of American Hospital Supply’s power is: a. its economic influence. b. its expertise. c. its identification with a particular channel member. d. its legitimate rights through contracts. e. all of the above. Answer: b Page: 413 Learning Objective: 4 Rationale: Expertise is a source of influence as the channel captain has certain knowledge about hospital inventory management and order processing. 15-163 CHANNEL POWER APPLICATIONNeiman-Marcus is a retailer that many small manufacturers would like to be associated with. A product placement in Neiman-Marcus will increase the prestige of a smaller brand. The source of Neiman-Marcus’ power is: a. its economic influence. b. its expertise. c. its sought-after identification for a particular channel member. d. its legitimate rights through contracts. e. all of the above. Answer: c Page: 413 Learning Objective: 4 Rationale: Identification with a particular channel member (Neiman-Marcus) may also create influence for that channel member. 15-164 LEGAL CONSIDERATIONS CONCEPTUAL When developing distribution strategy, marketers should avoid __________ if they want to avoid the possibility of violating the Clayton Act or the Sherman Act. a. resale restrictions b. refusal to deal c. tying arrangements d. exclusive dealing e. all of the above Answer: e Page: 414; Fig. 15-9 Learning Objective: 4 Rationale: Figure 15-9 describes channel strategies and practices affected by legal restrictions, including those in answers a, b, c, and d. 15-165 LEGAL CONSIDERATIONS CONCEPTUAL The Federal Trade Commission and the Justice Department monitor channel practices that __________, create monopolies, or otherwise represent unfair methods of competition under the Sherman Act (1890) and the Clayton Act (1914). a. are deemed to have unfair advertising b. suggest patent infringement c. restrain competition d. connect channel members e. all of the above Answer: c Page: 414; Fig. 15-9 Learning Objective: 4 Rationale: The Federal Trade Commission and the Justice Department monitor channel practices that restrain competition, create monopolies, or otherwise represent unfair methods of competition under the Sherman Act (1890) and the Clayton Act (1914).15-166 DUAL DISTRIBUTION CONCEPTUAL Producers can find it difficult to use dual distribution because: a. it is the most expensive marketing channel. b. it provides limited market coverage. c. it can cause conflict between channel members. d. the channels are usually corporate owned. e. tying arrangements are illegal. Answer: c Page: 414 Learning Objective: 4 Rationale: Dual distribution can cause conflict in a marketing channel and may raise legal questions, especially if the produces’s behavior is viewed as an attempt to lessen competition by eliminating wholesalers or retailers. 15-167 DUAL DISTRIBUTION CONCEPTUAL Dual distribution is considered illegal if: a. both channels are corporate owned. b. one channel is a direct channel and the other is not. c. there is an attempt to lessen competition by eliminating wholesalers or retailers. d. channels are operated from two different states. e. the prices charged consumers differ as a result of the channel in which they were make their purchases. Answer: c Page: 414 Learning Objective: 4 Rationale: If the manufacturer's behavior is viewed as an attempt to lessen competition by eliminating wholesalers or retailers, then the action would violate both the Sherman and Clayton Acts. 15-168 DUAL DISTRIBUTION CONCEPTUAL Dual distribution can violate the Sherman Act and the Clayton Act if the: a. price charged for items sold through one channel is different from the price charged for the same item in another channel. b. manufacturer has a corporate marketing system with one channel and an administered system with the other. c. manufacturer's behavior is viewed as lessening competition by eliminating wholesalers or retailers. d. manufacturer uses both a direct and indirect marketing channel. e. product is not available through more than one marketing channel. Answer: c Page: 414 Learning Objective: 4 Rationale: Dual distribution, although not illegal can be viewed as anti-competitive in some situations especially if the manufacturer's behavior is viewed as an attempt to lessen competition by eliminating wholesalers or retailers. Such action would violate both the Sherman and Clayton Acts.15-169 VERTICAL INTEGRATION CONCEPTUAL Vertical integration can lead to legal prosecution if: a. mergers create too much competition. b. a corporate system attempts to become a contractual system. c. an administered system attempts to become a corporate system. d. there is potential to lessen competition or create a monopoly. e. one member of the channel attempts to take the position of channel captain away from another. Answer: d Page: 414 Learning Objective: 4 Rationale: Although not illegal, this practice is sometimes subject to legal action under the Clayton Act if it has the potential to lessen competition or foster a monopoly. 15-170 TYING ARRANGEMENTS AND EXCLUSIVE DEALING CONCEPTUAL Questions of legality regarding tying arrangements and exclusive dealing would most likely occur in: a. corporate systems. b. administered systems. c. franchises. d. manufacturing. e. retail-sponsored cooperatives. Answer: c Page: 414 Other Locations: SG Learning Objective: 4 Rationale: Tying arrangements and exclusive dealing often arise in franchising. They are illegal if the tied products could be purchased at fair market value from other suppliers at desired quality standards of the franchiser. 15-171 REFUSAL TO DEAL CONCEPTUAL Under the Clayton Act, __________ with existing channel members may be illegal. a. refusal to cooperate b. refusal to deal c. sharing proprietary information d. horizontal integration e. disintermediation Answer: b Page: 414 Learning Objective: 4 Rationale: Even though a supplier has a legal right to choose intermediaries to carry and represent its products, a refusal to deal with existing channel members may be illegal under the Clayton Act.15-172 EXCLUSIVE DEALING CONCEPTUAL Some manufacturers have tried to use the brand loyalty of their consumers to force retailers to carry the manufacturers' products and none of their competitors. These manufacturers were trying to force retailers to participate in: a. resale restriction. b. vertical integration. c. exclusive dealing. d. refusal to deal. e. tying arrangement. Answer: c Page: 414 Learning Objective: 4 Rationale: Exclusive dealing exists when a supplier requires a channel member to sell only its products. 15-173 TYING ARRANGEMENT APPLICATION A fast-food franchisee is required by its franchisor to buy unmarked plastic eating utensils from the franchisor if the franchisee wants to use the cups, napkins, and other paper products with the franchise logo. The franchisee can buy the identical utensils from a local supplier for half the price. This requirement would be an example of: a. a dual distribution network. b. a refusal to deal. c. disintermediation. d. a tying arrangement. e. a resale restriction. Answer: d Page: 414 Learning Objective: 4 Rationale: A tying arrangement occurs when a supplier requires the franchisee to buy some products it may not want to get products it does want. 15-174 RESALE RESTRICTIONS DEFINITION A(n) __________ is a supplier's attempt to stipulate to whom distributors may resell the supplier's products and in what specific geographical areas or territories they may sell. a. resale restriction b. oligopolistic practice c. monopolistic practice d. refusal to deal e. tying arrangement Answer: a Page: 414 Other Locations: SG Learning Objective: 4 Rationale: Text term definition—resale restrictions15-175 VIDEO CASE: GOLDEN VALLEY MICROWAVE FOODS APPLICATION Golden Valley Microwave Foods uses __________ to get their products to consumers. a. corporate vertical marketing systems b. franchising c. exclusive distribution d. dual distribution e. transporting, storing, and financing Answer: d Page: 402 Learning Objective: 2 Rationale: Only alternative a contains a list of purely logistical functions. 15-176 VIDEO CASE: GOLDEN VALLEY MICROWAVE FOODS APPLICATION For most consumers popcorn is considered a convenience product. Therefore, Golden Valley should use __________ distribution for its ACT II popcorn. a. intensive b. extensive c. selective d. exclusive e. concentrated Answer: a Page: 409 Learning Objective: 3 Rationale: Convenience goods are typically sold using intensive distribution. 15-177 VIDEO CASE: GOLDEN VALLEY MICROWAVE FOODS CONCEPTUAL A broker working with Golden Valley Microwave Foods would NOT: a. train distributors' sales forces. b. provide marketing information to distributors. c. assist in making sales calls to retailers. d. create product assortments for distributors. e. take title to the popcorn. Answer: e Page: 404 Learning Objective: 2 Rationale: Brokers do not take title to the merchandise they sell.CHAPTER 18 INTEGRATED MARKETING COMMUNICATIONS AND DIRECT MARKETING MULTIPLE CHOICE QUESTIONS 18-1 CHAPTER OPENING EXAMPLE: DISNEY DEFINITION To promote its theme parks to groups, Disney is using advertising, direct marketing, Internet promotion, and partnerships with other companies. In other words, Disney is using: a. implemented market codes (IMC). b. interactive media convergence (IMC). c. an infrastructure of market customization (IMC). d. integrated marketing communications (IMC). e. integrated media convergence (IMC). Answer: d Page: 469-470 Learning Objective: 1 Rationale: Disney employs an integrated marketing communications (IMC) program to suggest group travel to the Disney theme parks by using a consistent message via advertising, direct marketing, etc. 18-2 CHAPTER OPENING EXAMPLE: DISNEY CONCEPTUAL Disney is using an integrated marketing communications program (IMC) to promote group travel to its theme parks because: a. it needs to be sure that all of its promotional activities are delivering a consistent message. b. it does not want to reach any member of its target audience more than once. c. IMC is less expensive than other forms of promotion such as public service announcements. d. if it didn't, Disney would have to use indirect personal selling. e. it is more concerned about frequency than reach. Answer: a Page: 469-470 Learning Objective: 1 Rationale: In order to reach all of its audiences with a consistent message, Disney must coordinate all of its promotional activities. 18-3 PROMOTIONAL MIX DEFINITION The __________ includes advertising, personal selling, sales promotion, public relations and direct marketing. a. promotion channel b. communication chain c. marketing matrix d. promotional mix e. media mixAnswer: d Page: 470 Other Locations: SG Learning Objective: 1 Rationale: Key term definition—promotional mix18-4 PROMOTIONAL MIX DEFINITION The promotional mix includes __________, personal selling, sales promotion, public relations and direct marketing. a. promotion channel b. communication chain c. marketing matrix d. advertising e. media mix Answer: d Page: 470 Learning Objective: 1 Rationale: Key term definition—promotional mix 18-5 INTEGRATED MARKETING COMMUNICATIONS (IMC) DEFINITION __________ is the concept of designing marketing communications programs that coordinate all promotional activities—advertising, personal selling, sales promotion, public relations, and direct marketing—to provide a consistent message across all audiences. a. The promotion channel b. The communication chain c. The marketing matrix d. Integrated marketing communications e. The media mix Answer: d Page: 470 Learning Objective: 1 Rationale: Key term definition—integrated marketing communications 18-6 INTEGRATED MARKETING COMMUNICATIONS (IMC) DEFINITION Integrated marketing communications is the concept of designing marketing communications programs that coordinate all promotional activities—advertising, personal selling, sales promotion, public relations, and direct marketing—to provide __________. a. a promotion channel. b. a communication chain. c. a marketing matrix. d. a consistent message across all audiences. e. a media mix useful to all types of companies. Answer: d Page: 470 Learning Objective: 1 Rationale: Key term definition—integrated marketing communications18-7 COMMUNICATION DEFINITION __________ is the process of conveying a message to others that requires six central elements—a source, a message, a channel of communication, a receiver, and the processes of encoding and decoding. a. Exchange b. Dialogue c. Communication d. Encoding e. Feedback Answer: c Page: 470 Learning Objective: 1 Rationale: Key term definition—communication 18-8 COMMUNICATION DEFINITION Communication is the sharing of meaning and requires six elements. Those elements are a source, a(n) __________, a channel of communication, a receiver, and the processes of encoding and decoding. a. sender b. message c. trademark d. slogan e. offer Answer: b Page: 470 Learning Objective: 1 Rationale: Key term definition—communication 18-9 COMMUNICATION DEFINITION Communication is the sharing of meaning and requires six elements. Those elements are a source, a message, __________, a receiver, and the processes of encoding and decoding. a. sender b. a channel of communication c. trademark d. slogan e. offer Answer: b Page: 470 Learning Objective: 1 Rationale: Key term definition—communication18-10 COMMUNICATION DEFINITION Communication is the sharing of meaning and requires six elements. Those elements are a source, a message, a channel of communication, __________, and the processes of encoding and decoding. a. sender b. a receiver c. trademark d. slogan e. offer Answer: b Page: 470 Learning Objective: 1 Rationale: Key term definition—communication 18-11 SOURCE DEFINITION In terms of the communication process, the source is: a. any information which is paid for. b. consumers who read, hear, or see the message. c. similar understanding and knowledge. d. a company or person who has information to convey. e. any knowledgeable group of individuals. Answer: d Page: 470 Learning Objective: 1 Rationale: Key term definition—source 18-12 SOURCE APPLICATION Procter & Gamble created an advertisement for its High Endurance men’s antiperspirant. In terms of the communication process, the __________ for the information in the High Endurance men’s antiperspirant advertisement is Procter & Gamble, its manufacturer. a. communication channel b. message c. decoder d. source e. feedback Answer: d Page: 470 Learning Objective: 1 Rationale: The source is a company or person who has information to convey.18-13 MESSAGE DEFINITION In terms of the communication process, information sent by the source is referred to as: a. source material. b. promotional material. c. the message. d. feedback. e. publicity. Answer: c Page: 470 Learning Objective: 1 Rationale: Key term definition—message 18-14 MESSAGE APPLICATION Proctor & Gamble Co. created an advertisement for its Old Spice Red Zone antiperspirant. In terms of the communication process, the __________ in the ad for Old Spice Red Zone antiperspirant informed prospective customers that the antiperspirant offered more protection than the Old Spice High Endurance brand. a. channel b. message c. decoder d. source e. feedback Answer: b Page: 470 Learning Objective: 1 Rationale: A message is information sent by the source. 18-15 CHANNEL OF COMMUNICATION DEFINITION A message is conveyed by means of a __________ such as a salesperson, advertising media, or public relations tools. a. encoding device b. promotional program c. channel of communication d. direct feedback loop e. publicity and PSA program Answer: c Page: 471 Learning Objective: 1 Rationale: Key term definition—channel of communication18-16 CHANNEL OF COMMUNICATION APPLICATION L’Oréal created an advertisement for its Visible Life makeup. The magazine in which the ad for L'Oréal Visible Lift makeup appeared is a: a. communication channel. b. message. c. decoder. d. source. e. feedback. Answer: a Page: 471 Learning Objective: 1 Rationale: The channel of communication conveys the message. 18-17 RECEIVERS DEFINITION In the communication process, consumers who read, hear, or see the message are called: a. clients. b. the target market. c. receivers. d. transmitters. e. encoders. Answer: c Page: 471 Learning Objective: 1 Rationale: Key term definition—receivers 18-18 RECEIVERS APPLICATION In the communication process, the 18-to-34 year-old men who see the NASCAR TV commercial spot advertising P & G’s High Endurance Old Spice antiperspirant are called: a. clients. b. the target market. c. receivers. d. transmitters. e. encoders. Answer: c Page: 471 Learning Objective: 1 Rationale: Key term definition—receivers 18-19 ENCODING DEFINITION Encoding is the: a. reception of a message with a common field of experience. b. reception of a message that requires integration of new information. c. process of the sender transforming an idea into a set of symbols. d. process of selecting a communication channel. e. creation of a common field of experience. Answer: c Page: 471 Learning Objective: 1 Rationale: Key term definition—encoding18-20 ENCODING APPLICATION In a brainstorming session for a new drug to lower cholesterol, the members of the marketing department agreed the benefits of the new drug could best be promoted by comparing the drug to those currently on the market. In terms of the communication process, the transformation of this idea into an ad campaign is an example of: a. lead generation. b. receiving. c. decoding. d. messaging. e. encoding. Answer: e Page: 471 Learning Objective: 1 Rationale: Encoding is the process of having the sender transform an idea into a set of symbols. 18-21 ENCODING APPLICATION When Procter & Gamble bought the Old Spice brand in 1990 it planned to transform the old, stagnating brand into a men’s ―personal-care powerhouse.‖ The ads that P & G developed shed the older-man image and now appeal to the 18 to 34 age group. In terms of the communication process, the encoding of the message would most likely be undertaken by its: a. communication channel. b. medium. c. decoder. d. source. e. feedback recipient. Answer: d Page: 471 Learning Objective: 1 Rationale: Encoding is usually done by the source--in this case, the company selling the product. 18-22 ENCODING APPLICATION When Procter & Gamble bought the Old Spice brand in 1990 it planned to transform the old, stagnating brand into a men’s ―personal-care powerhouse.‖ The ads that P & G developed shed the older-man image and now appeal to the 18 to 34 age group. In terms of the communication process, the __________ of the message would most likely be undertaken by Procter & Gamble. a. communication b. discussion c. decoding d. encoding e. feedback Answer: d Page: 471 Learning Objective: 1 Rationale: Encoding is usually done by the source--in this case, the company selling the product.18-23 ENCODING DEFINITION Encoding is usually done by the: a. source. b. receiver. c. user. d. decoder. e. medium. Answer: a Page: 471 Learning Objective: 1 Rationale: Key term definition—encoding 18-24 DECODING DEFINITION Decoding is the process of: a. receiving a message that contains a common field of experience. b. receiving a message which requires integration of new information. c. having the sender transform an abstract idea into a set of symbols. d. having a receiver take a set of symbols, the message, and transform them back to an idea. e. creating a common field of experience. Answer: d Page: 471 Learning Objective: 1 Rationale: Key term definition—decoding 18-25 DECODING APPLICATION After watching Joan Rivers’ 30-minute infomercial on her line of jewelry, Mariah was certain the broach she ordered would look spectacular on her new evening dress. In terms of the communication process, Mariah has engaged in: a. lead generation. b. receiving. c. decoding. d. messaging. e. encoding. Answer: c Page: 471 Learning Objective: 1 Rationale: Decoding is the process of having a receiver take a set of symbols, the message, and transform them back to an idea. Receiving is not one of the elements in the communication process even though there is a receiver.18-26 DECODING APPLICATION After watching the 30-minute infomercial on Oxy-Clean, Mariah was certain the cleaning product would remove the grape juice stain from her white carpet. In terms of the communication process, Mariah is a(n): a. lead generator. b. channel of communication. c. source. d. receiver. e. encoder. Answer: d Page: 471 Learning Objective: 1 Rationale: Receivers typically engage in decoding and are the consumers who read, hear, or see the message. 18-27 DECODING DEFINITION Decoding is usually done by the: a. source. b. receiver. c. user. d. decoder. e. medium. Answer: b Page: 471 Learning Objective: 1 Rationale: Key term definition—decoding 18-28 FIELD OF EXPERIENCE CONCEPTUAL For a message to be communicated effectively, the sender and receiver must have a mutually shared: a. length and breadth of experience with a given product. b. promotional mix. c. area of expertise. d. learning curve. e. field of experience. Answer: e Page: 472 Learning Objective: 1 Rationale: Key term definition—field of experience18-29 FIELD OF EXPERIENCE DEFINITION For a message to be communicated effectively, the sender and receiver must have a mutually shared field of experience, which means a similar: a. genetic composition. b. national, regional, or ethnic origin. c. understanding and knowledge. d. talent and ability. e. taste and desire. Answer: c Page: 472 Learning Objective: 1 Rationale: Key term definition—field of experience 18-30 FIELD OF EXPERIENCE CONCEPTUAL Communication problems, which are the result of misinterpretation, can be attributed to: a. incorrect grammatical usage. b. poor photographic reproduction. c. different fields of experience. d. the use of a medium with too much noise. e. all of the above. Answer: e Page: 472 Other Locations: SG Learning Objective: 1 Rationale: For the message to be communicated effectively, the sender and receiver must have a mutually shared field of experience--similar understanding and knowledge. But, all of the alternatives describe conditions which can cause communication problems. 18-31 FIELD OF EXPERIENCE APPLICATION When an English-speaker reads the KFC slogan, ―Finger-lickin’ good!‖ he or she interprets this as an indication that the food tastes very good. When this slogan was translated into Chinese, the Chinese-speaker interprets the same words as ―eat your fingers off!‖ The different interpretations of the ad are due to differing: a. mission statements. b. fields of experience. c. channels of distribution. d. educational systems. e. views of advertising. Answer: b Page: 472 Learning Objective: 1 Rationale: For the message to be communicated effectively, the sender and receiver must have a mutually shared field of experience--similar understanding and knowledge.18-32 FIELD OF EXPERIENCE APPLICATION Cardiac Science is a California-based company that makes defibrillators, heart monitors, and other medical equipment. It is preparing to market its products in Greece. The company's marketing manager is responsible for the promotional campaign in Greece, and she wants to avoid any problems that might arise because her field of experience does not coincide with that of her Greek target audience. Which of the following is the best example of a communications problem that might arise because her field of experience is different from that of her audience? a. The name of the product, when translated into Greek, has an unintentional meaning. b. Her target audience is strongly ethnocentric. c. The trade journals in which it wants to run its ads do not accept ads from foreign companies. d. A Greek bureaucrat who is responsible for determining that the Cardiac Science products meet national standards has taken a personal dislike to her. e. The ads are in trade journals that Greek hospital administrators don't read. Answer: a Page: 472 Learning Objective: 1 Rationale: Many mistakes due to dissimilar fields of experience are merely the result of bad translations, as when KFC made a mistake when its "finger-lickin’ good" slogan was translated into Mandarin Chinese as "eat your fingers off"! 18-33 RESPONSE DEFINITION A __________ is the impact the message had on the receiver's knowledge, attitude, or behaviors. a. response b. noise filter c. source reaction d. feedback source e. decoding bottleneck Answer: a Page: 472 Learning Objective: 1 Rationale: Key term definition—response 18-34 RESPONSE APPLICATION Ann recently saw an ad for Claritin, a medicine perfect for counteracting her allergy symptoms. She called her doctor and asked for a prescription. In terms of the communication process, Ann had a __________ to the Claritin ad. a. response b. noise filter c. source reaction d. feedback source e. decoding bottleneck Answer: a Page: 472 Learning Objective: 1 Rationale: A response is the impact the message had on the receiver's knowledge, attitude, or behaviors.18-35 FEEDBACK DEFINITION The communication flow from receiver back to sender, which indicates whether the message was decoded and understood as intended, is called: a. encoding. b. a receiver response. c. feedback. d. an exchange cycle. e. a message loop. Answer: c Page: 472 Learning Objective: 1 Rationale: Key term definition—feedback 18-36 FEEDBACK APPLICATION Melissa saw an ad promoting Vermont as a tourist destination and great place to live. The ad contained a postage-paid reply card which could be used to request more information. In terms of the communication process, the mailing in of the postcard with a request for further information is an example of: a. encoding. b. a receiver response. c. feedback. d. an exchange cycle. e. a message loop. Answer: c Page: 472 Learning Objective: 1 Rationale: The communication flow from receiver back to sender, which indicates whether the message was decoded and understood as intended, is called feedback. 18-37 NOISE DEFINITION __________ is defined as extraneous factors that can work against effective communication by distorting a message or the feedback received. a. A communication barrier b. A source inconsistency c. Feedback d. Noise e. An encoding bottleneck Answer: d Page: 472 Learning Objective: 1 Rationale: Key term definition—noise18-38 NOISE APPLICATION An ad for Visible Lift makeup by L'Oréal informed prospective customers that the makeup reduced fine facial lines after 30 days of use and evened out skin tones. Marcia did not see the ad because she is 18 years old and has flawless skin. In terms of the communication process, the fact that Marcia has no need for the product acted as: a. a communication barrier. b. a source inconsistency. c. feedback. d. noise. e. an encoding bottleneck. Answer: d Page: 472 Learning Objective: 1 Rationale: Noise is defined as any extraneous factors that can work against effective communication by distorting a message or the feedback received. 18-39 NOISE APPLICATION The marketing manager from Dallas, Texas, selling for a heavy-equipment manufacturer, was attending an international trade show in Japan. During the first day of the trade show, she noticed that a number of prospective customers from different countries seemed to have trouble following her explanations of product features. The factor working against effective communication was probably: a. noise. b. culture shock. c. fatigue. d. convention overload. e. static. Answer: a Page: 472 Learning Objective: 1 Rationale: Noise can occur when a salesperson's accent or use of slang terms or communication style make hearing and understanding the message difficult. 18-40 NOISE CONCEPTUAL Within the communication channel, noise refers to: a. printing mistakes. b. a passenger in the car talking during radio commercials. c. pictures that fail to communicate. d. a salesperson smoking. e. all of the above. Answer: e Page: 472 Learning Objective: 1 Rationale: Noise includes any and all extraneous factors that can work against effective communication, such as distorting a message or the feedback received.18-41 NOISE APPLICATION Which of the following occurrences might be construed as noise? a. The secretary interrupts the sales presentation just as the salesperson was ready to ask the buyer about her color preference. b. The radio commercial gives the wrong address for the advertiser's store. c. The salesperson tells the buyer that the software he is selling contains smart tags, and the customer does not understand. d. Mack does not see the ad for the new Route 66 club because he is more interested in the news article on the opposite page. e. All of the above could be construed as noise. Answer: e Page: 472 Other Locations: web Learning Objective: 1 Rationale: Noise includes any and all extraneous factors that can work against effective communication, such as distorting a message or the feedback received. 18-42 THE COMMUNICATION PROCESS APPLICATION The marketing professor wanted to do everything possible to ensure her students understood her lectures. Accordingly, she used examples of marketing activities with which most students had recent experience. For example, the professor discussed the marketing exchanges between students and grocers, college bookstores, convenience stores and clothiers. The examples used by the professor were her attempt to __________ her message so as to encourage understanding on the part of her students. a. effectively initiate b. effectively encode c. effectively decode d. eliminate noise in e. pre-communicate Answer: b Page: 471 Other Locations: SG Learning Objective: 1 Rationale: The process of communication is designed to foster understanding between a sender and a receiver. In an attempt to increase the likelihood of successful communication between the sender and receiver, the sender attempts to encode the message in a manner that is easily decoded by the receiver. One way of accomplishing this is for the sender to use examples, language, and speaking styles that are familiar to the receiver.18-43 NOISE APPLICATION Each year, advertisers spend millions of dollars during the half-time show of the Super Bowl. Those marketers hope to reach the millions of sports enthusiasts tuned into the NFL's greatest extravaganza. Unfortunately, during the half-time festivities, many viewers dash to the kitchen for a sandwich and a soda. The persuasive promotional messages of the marketer are not received by those consumers who are busy satisfying their need for food and drink. The need for food and drink is an example of __________, which inhibits effective communication. a. feedback b. ineffective advertising c. noise d. ineffective encoding e. ineffective decoding Answer: c Page: 472 Other Locations: web Learning Objective: 1 Rationale: Noise in the channel of communication can take many forms--anything that inhibits effective communication between the marketer and the consumer. Examples of noise in the channel of communication include the use of slang terms, printing errors, rudeness on the part of a salesperson, a consumer's bad mood or high emotions, and even the need for food and drink. Noise is, in essence, anything that distracts the receiver from the sender’s intended message. 18-44 PROMOTIONAL ELEMENTS CONCEPTUAL Advertising, personal selling, sales promotion, public relations and direct marketing are marketing communications alternatives that individually or collectively make up a firm's: a. cooperative advertising. b. decoding strategy. c. message center. d. promotional elements. e. communication source. Answer: d Page: 472 Learning Objective: 2 Rationale: A company can use one or more of five promotional alternatives to communicate to its customers: advertising; personal selling; sales promotion; public relations; and direct marketing.18-45 PROMOTIONAL ELEMENTS CONCEPTUAL Which of the following is NOT a promotional element? a. advertising b. personal selling c. public relations d. sales promotion e. production line Answer: e Page: 472 Learning Objective: 2 Rationale: To communicate to consumers, a company can use one or more of the promotional alternatives: advertising, personal selling, sales promotion, public relations, and direct marketing. See Figure 18-2. 18-46 MASS SELLING CONCEPTUAL Which of the following would be LEAST likely to be used for mass selling? a. advertising b. personal selling c. public relations d. sales promotion e. publicity Answer: b Page: 473 Learning Objective: 2 Rationale: Three of these elements--advertising, sales promotion, and public relations-- are often said to use mass selling because they are used with groups of prospective buyers. Publicity is a form of public relations. See Figure 18-2. 18-47 CUSTOMIZED INTERACTION CONCEPTUAL Which of the following types of promotion uses customized interaction? a. advertising b. personal selling c. public relations d. sales promotion e. publicity Answer: b Page: 473 Learning Objective: 2 Rationale: Three of these elements--advertising, sales promotion, and public relations-- are often said to use mass selling because they are used with groups of prospective buyers. Publicity is a form of public relations. Personal selling uses customized interaction between a seller and a prospective buyer. See Figure 18-2.18-48 CUSTOMIZED INTERACTION CONCEPTUAL Which of the following types of promotion uses customized interaction? a. advertising b. direct marketing c. public relations d. sales promotion e. publicity Answer: b Page: 473 Learning Objective: 2 Rationale: Three of these elements--advertising, sales promotion, and public relations-- are often said to use mass selling because they are used with groups of prospective buyers. Publicity is a form of public relations. Direct marketing uses messages customized for specific customers. See Figure 18-2. 18-49 ADVERTISING DEFINITION Advertising is: a. nonpersonal, indirectly paid presentation of an organization, service, or product. b. a short-term inducement of value offered to arouse interest in buying a good or service. c. methods used to get a nonpersonal, indirectly paid presentation of a company or its products. d. any paid form of nonpersonal communication about an organization, good, service, or idea by an identified sponsor. e. any paid form of interpersonal presentation of goods and services. Answer: d Page: 473 Learning Objective: 2 Rationale: Key term definition—advertising 18-50 ADVERTISING DEFINITION __________ is a paid form of nonpersonal communication about an organization, good, service, or idea by an identified sponsor. a. Sales promotion b. Publicity c. Advertising d. Direct marketing e. Personal selling Answer: c Page: 473 Learning Objective: 2 Rationale: Key term definition—advertising18-51 ADVERTISING CONCEPTUAL Which element of the promotional mix has the inherent weakness of high absolute costs and difficulty in receiving good feedback? a. advertising b. personal selling c. sales promotion d. publicity e. direct marketing Answer: a Page: 473 Other Locations: SG Learning Objective: 2 Rationale: Advertising’s weaknesses are its high absolute costs and difficulty in receiving good feedback. 18-52 ADVERTISING APPLICATION When Sears places a multiple-page booklet in the local newspaper about its President's Day sale, it is an example of the use of which element of the promotional mix? a. advertising b. sales promotion c. publicity d. personal selling e. direct marketing Answer: a Page: 473 Learning Objective: 2 Rationale: Advertising is any paid form of nonpersonal communication about an organization, good, service, or idea by an identified sponsor. 18-53 ADVERTISING CONCEPTUAL Which of the following statements about advertising is true? a. Advertising allows a firm to reach a mass market. b. Advertising allows the firm to decide when and where an advertisement will be used. c. Advertisers can usually assume the same message will be sent to all receivers in the market. d. Advertising can be a very effective "attention getter" especially for new products. e. All of the above statements about advertising are true. Answer: e Page: 473 Learning Objective: 2 Rationale: All of the statements are true.18-54 ADVERTISING APPLICATION New Balance recently spent $13 million for time on television and space in selected magazines to promote its athletic shoes. What form of marketing communication did it use? a. public relations b. personal selling c. publicity d. sales promotion e. advertising Answer: e Page: 473 Learning Objective: 2 Rationale: Any paid form of nonpersonal communication about an organization, good, service, or idea by an identified sponsor is "advertising." 18-55 ADVERTISING/PUBLICITY CONCEPTUAL Which of the following statements describes a key difference between advertising and publicity? a. Publicity is more expensive on a cost-per-contact basis than advertising. b. Publicity is usually directly paid, and advertising is usually indirectly paid. c. Advertising is usually directly paid, and publicity is usually indirectly paid. d. Advertising provides an immediate feedback loop, and publicity does not. e. Publicity always has a much greater reach than advertising. Answer: c Page: 473-474 Other Locations: web Learning Objective: 2 Rationale: Advertising is more expensive on a cost-per-contact basis than publicity. Advertising is a paid form of nonpersonal communication about an organization, good, service, or idea by an identified sponsor. A nonpersonal, indirectly paid presentation of an organization, good or service is termed publicity. Bad publicity often times has a much greater reach than advertising. 18-56 PERSONAL SELLING APPLICATION When a company telephones people to ask them to contribute to the Police Benevolent Association (PBA), the calling company is using: a. advertising. b. personal selling. c. sales promotion. d. public relations. e. publicity. Answer: b Page: 474 Learning Objective: 2 Rationale: Personal selling is a two-way flow of communication between buyer and seller that usually occurs face-to-face although use of telephone sales is growing.18-57 PERSONAL SELLING CONCEPTUAL Wasted coverage can most easily be reduced by which of the methods of promotion? a. sales promotion b. public relations c. advertising d. public service announcements e. personal selling Answer: e Page: 474 Other Locations: SG Learning Objective: 2 Rationale: Wasted coverage can be reduced with personal selling because a salesperson can control to whom the presentation is made. 18-58 PERSONAL SELLING CONCEPTUAL Which promotional mix alternative has the advantage of allowing the seller to see and/or hear the potential buyer's reaction to the message? a. advertising b. personal selling c. public relations d. sales promotion e. publicity Answer: b Page: 474 Learning Objective: 2 Rationale: Personal selling allows the seller to see or hear the potential buyer's reaction to the message. If the feedback is unfavorable, the salesperson can modify the message. 18-59 PERSONAL SELLING CONCEPTUAL Which of the following statements describes a disadvantage associated with personal selling? a. Presentations often provide little opportunity for consumer feedback. b. Personal selling permits far too much wasted coverage. c. There may be inconsistency from one salesperson to another. d. A salesperson cannot control to whom a presentation is made. e. Personal selling is subject to extensive federal, state, and company regulation. Answer: c Page: 474 Learning Objective: 2 Rationale: The flexibility of personal selling can be a disadvantage. Different salespeople can change the message so that no consistent communication is given to all customers. See Figure 18-2.18-60 PERSONAL SELLING DEFINITION Personal selling is: a. a nonpersonal, indirectly paid presentation of an organization, service, or product. b. a short-term inducement of value offered to arouse interest in buying a good or service. c. the preferred method for placing nonpersonal promotions for a company and/or its products. d. a paid form of nonpersonal communication about an organization, good, service, or idea by an identified sponsor. e. the two-way flow of communication between a buyer and a seller, designed to influence a person's or group's purchase decision. Answer: e Page: 474 Other Locations: web Learning Objective: 2 Rationale: Key term definition—personal selling 18-61 PERSONAL SELLING DEFINITION The two-way flow of communication between a buyer and a seller, designed to influence a person's or group's purchase decision is called: a. sales promotion. b. publicity. c. advertising. d. public relations. e. personal selling. Answer: e Page: 474 Learning Objective: 2 Rationale: Key term definition—personal selling 18-62 PERSONAL SELLING CONCEPTUAL Which of these promotional elements has the highest cost-per-contact? a. advertising b. personal selling c. sales promotion d. publicity e. public service announcements Answer: b Page: 474 Learning Objective: 2 Rationale: On the cost-per-contact basis, personal selling is generally the most expensive of the promotional elements.18-63 PERSONAL SELLING CONCEPTUAL Which of these promotional elements has the inherent weakness of extremely high expenses per exposure? a. advertising b. personal selling c. sales promotion d. publicity e. direct marketing Answer: b Page: 474 Other Locations: SG Learning Objective: 2 Rationale: Personal selling has extremely high expenses per exposure. See also Figure 18-2. 18-64 PERSONAL SELLING APPLICATION When a representative for Pampered Chef cooking utensils invites friends to her home and spends 30 minutes demonstrating the superiority of the Pampered Chef products, she is engaging in: a. direct marketing. b. sales promotion. c. public relations. d. personal selling. e. a public service announcement. Answer: d Page: 474 Learning Objective: 2 Rationale: Personal selling is the two-way flow of communication between buyer and seller, designed to influence a person's or a group's purchase decision. 18-65 PUBLIC RELATIONS DEFINITION __________ is the form of communication management that seeks to influence the feelings, opinions, or beliefs held by customers, prospective customers, stockholders, suppliers, employees, and other publics about a company and its products or services. a. Sales promotion b. Publicity c. Advertising d. Public relations e. Personal selling Answer: d Page: 474 Learning Objective: 2 Rationale: Key term definition—public relations18-66 PUBLIC RELATIONS DEFINITION When companies use tools such as special events, lobbying efforts, and annual reports for communication, they are using: a. advertising. b. sales promotion. c. direct marketing. d. public relations. e. personal selling. Answer: d Page: 474 Learning Objective: 2 Rationale: Key term definition—public relations 18-67 PUBLIC RELATIONS DEFINITION When companies use tools such as press conferences and image management, they are using: a. advertising. b. sales promotion. c. direct marketing. d. public relations. e. personal selling. Answer: d Page: 474 Learning Objective: 2 Rationale: Key term definition—public relations 18-68 PUBLICITY DEFINITION Publicity is: a. a nonpersonal, indirectly paid presentation of an organization, good, or service. b. a short-term inducement of value offered to arouse interest in buying a good or service. c. methods used to get a nonpersonal, directly paid presentation of a company or its products. d. a paid form of nonpersonal communication about an organization, good, service, or idea, by an identified sponsor. e. any paid form of interpersonal presentation of goods and services. Answer: a Page: 474 Learning Objective: 2 Rationale: Key term definition—publicity18-69 PUBLICITY DEFINITION __________ is a nonpersonal, indirectly paid presentation of an organization, good, or service that can take the form of a news story, editorial, or product announcement. a. Direct sales b. Publicity c. Direct marketing d. Public service announcement e. Personal selling Answer: b Page: 474 Learning Objective: 2 Rationale: Key term definition—publicity 18-70 PUBLICITY APPLICATION The local radio station broadcast a story about the dry-cleaners that requested coat donations. They would clean the coats and deliver them to people in need. The various addresses of the dry-cleaner chain were also broadcast so that donations could be dropped off. Since this featured business did not pay for this exposure, it is benefiting from: a. publicity. b. advertising. c. direct marketing. d. personal selling. e. a public service announcement. Answer: a Page: 474 Learning Objective: 2 Rationale: A difference between publicity and both advertising and personal selling is the ―indirectly paid‖ dimension. An advantage of publicity is credibility. 18-71 PUBLICITY CONCEPTUAL When a news story covers a terrible disaster, and viewers are asked to send donations to the American Red Cross, the American Red Cross is receiving: a. publicity. b. advertising. c. direct marketing. d. personal selling. e. a public service announcement. Answer: a Page: 474 Learning Objective: 2 Rationale: Publicity is a nonpersonal, indirectly paid presentation of an organization, good, or service that can take the form of a news story, editorial, or product announcement.18-72 PUBLIC RELATIONS CONCEPTUAL __________ is rarely the main element of a promotional campaign. a. Advertising b. Personal selling c. Consumer promotion d. Publicity e. Trade promotion Answer: d Page: 475 Learning Objective: 2 Rationale: Publicity is rarely the main element of a promotional campaign because there is little control over what is said, to whom, or when. 18-73 PUBLICITY CONCEPTUAL An advantage of publicity is its: a. credibility. b. control. c. empathy. d. intrusiveness. e. high cost. Answer: a Page: 474 Learning Objective: 2 Rationale: An advantage of publicity is credibility. For example, when you read a favorable story or review of a product, there is a tendency to believe it. 18-74 PUBLICITY CONCEPTUAL The lack of __________ is a disadvantage of publicity. a. credibility b. control c. exposure d. intuitive reasoning e. color Answer: b Page: 474 Learning Objective: 2 Rationale: A disadvantage of publicity is lack of control over what is said, to whom, or when.18-75 PUBLICITY APPLICATION When the food critic publishes a restaurant review it is an example of: a. direct selling. b. publicity. c. advertising. d. direct marketing. e. personal selling. Answer: b Page: 474 Learning Objective: 2 Rationale: Publicity is a nonpersonal, indirectly paid presentation of an organization, good, or service. A disadvantage of publicity such as restaurant reviews is the lack of control over what is said. 18-76 SALES PROMOTION DEFINITION __________ is a short-term inducement of value offered to arouse interest in buying a good or service. a. A public service announcement b. Publicity c. Advertising d. Sales promotion e. Personal selling Answer: d Page: 475 Other Locations: SG Learning Objective: 2 Rationale: Key term definition—sales promotion 18-77 SALES PROMOTION CONCEPTUAL Which of the following is an example of a sales promotion? a. coupons b. sweepstakes c. rebates d. samples e. all of the above Answer: e Page: 475 Learning Objective: 2 Rationale: Sales promotion is a short-term inducement of value offered to arouse interest in buying a good or service. Coupons, sweepstakes, rebates and samples are all examples.18-78 SALES PROMOTION APPLICATION You are being influenced by __________ when you redeem a 50-cents-off coupon for Crest toothpaste at your local supermarket. a. advertising b. sales promotion c. public relations d. publicity e. personal selling Answer: b Page: 475 Learning Objective: 2 Rationale: Sales promotion is a short-term inducement of value offered to arouse interest in buying a good or service. 18-79 SALES PROMOTION CONCEPTUAL Sales promotions cannot be the sole basis for a promotional campaign because: a. sales promotions are too costly. b. sales promotions alone have very limited reach. c. all sales promotions are regulated by law. d. gains from sales promotion are often temporary and sales drop off when the deal ends. e. all of the above. Answer: d Page: 475 Learning Objective: 2 Rationale: Sales promotions are effective at changing behavior in the short run and stimulating sales for the duration of the promotion. 18-80 SALES PROMOTION CONCEPTUAL If used continuously, which of the promotional elements will lose their effectiveness? a. advertising b. personal selling c. sales promotion d. publicity e. direct marketing Answer: c Page: 475 Learning Objective: 2 Rationale: If sales promotions are conducted continuously, they lose their effectiveness. Customers begin to delay purchase until a coupon is offered, or they question the product’s value.18-81 SALES PROMOTION CONCEPTUAL Which of the promotional elements has the inherent weaknesses of being temporary, losing effectiveness in time, and causing customers to question the product's value? a. advertising b. personal selling c. sales promotion d. publicity e. direct marketing Answer: c Page: 475 Learning Objective: 2 Rationale: If sales promotions are conducted continuously, they lose their effectiveness. Customers begin to delay purchase until a coupon is offered, or they question the product’s value. 18-82 SALES PROMOTION APPLICATION Allegra is an antihistamine that is only available through prescription, but to create brand awareness, it is offering people who request information about the product a cushion to use at their favorite sporting event plus a coupon for $10 off their next purchase of the medication. This free cushion and coupon are examples of: a. advertising. b. personal selling. c. sales promotions. d. publicity. e. direct sales. Answer: c Page: 475 Learning Objective: 2 Rationale: Sales promotion is a short-term inducement of value offered to arouse interest in buying a good or service. 18-83 DIRECT MARKETING DEFINITION __________ uses direct communication with consumers to generate a response in the form of an order, a request for further information, or a visit to a retail outlet. a. Advertising b. Personal selling c. Sales promotion d. Publicity e. Direct marketing Answer: e Page: 475 Other Locations: SG Learning Objective: 2 Rationale: Key term definition—direct marketing18-84 DIRECT MARKETING CONCEPTUAL Which of the promotional elements requires expensive database management and is experiencing a declining response rate? a. advertising b. personal selling c. sales promotion d. publicity e. direct marketing Answer: e Page: 475 Learning Objective: 2 Rationale: Direct marketing has the inherent weaknesses of having expensive database management and declining customer response. 18-85 DIRECT MARKETING CONCEPTUAL Like personal selling, __________ often consists of interactive communication. a. direct marketing b. advertising c. a sales promotion d. publicity e. a public service announcement Answer: a Page: 475 Learning Objective: 2 Rationale: Direct marketing uses direct communication with consumers and can take many forms, including face-to-face selling. 18-86 DIRECT MARKETING CONCEPTUAL Like personal selling, __________ has the advantage of being customized to match the needs of specific target markets. Messages can be developed and adapted quickly to facilitate one-to-one relationships with customers. a. direct marketing b. advertising c. a sales promotion d. publicity e. a public service announcement Answer: a Page: 475 Learning Objective: 2 Rationale: Direct marketing has the advantage of being customized to match the needs of specific target markets.18-87 SALES PROMOTION APPLICATION When Procter & Gamble introduced Old Spice High Endurance antiperspirant, targeted to teenaged boys who don’t watch much TV, it knew it had to achieve a high brand awareness among its potential consumers. P & G does grassoots marketing including handing out samples at skateboarding events and sponsoring a contest for high-school football player of the year. Which promotional element does P&G emphasize? a. advertising b. personal selling c. sales promotion d. public relations e. all of the above equally Answer: c Page: 475 Learning Objective: 2 Rationale: Sales promotion is a short-term inducement of value offered to arouse interest in buying a good or service. Samples and contests are examples of sales promotion. 18-88 PERSONAL SELLING APPLICATION Companies vary as to the amount of security they require or can afford for their computer files. Firewalls are a type of software that protects computer files from unauthorized entry. A company that had developed a complete line of firewalls from a no-frills version to a version that uses retinal scans for admittance would most likely need to employ which promotional element? a. advertising b. sales promotion c. public relations d. personal selling e. all of the above equally Answer: d Page: 474 Learning Objective: 2 Rationale: Personal selling is a very persuasive communication method that can transmit complex information. 18-89 PERSONAL SELLING APPLICATION Lenox China Co. would like to get its annual Christmas ornament series into the Federated Department Stores. Federated has a buying office in New York City that makes decisions on its giftware buys. Which promotional element would be most appropriate for Lenox to use to reach the Federated buyers? a. advertising b. personal selling c. sales promotion d. public relations e. all of the above equally Answer: b Page: 474 Learning Objective: 2 Rationale: Personal selling is appropriate when there is a need to persuade select groups with different information and different techniques.18-90 PUBLICITY APPLICATION A small film company is releasing a documentary based on the efforts of a group dedicated to saving endangered species. The company believes the credibility of its film is critical to its financial success. Which promotional element should it employ? a. Invite members of the group to speak to local school children. b. Use publicity. c. Give away free posters to all movie attendees. d. Use direct sales. e. Send postcards to all people within a 25-mile radius of a theater showing the movie. Answer: b Page: 474 Learning Objective: 2 Rationale: To the consumer, publicity is often the most credible source of information. 18-91 PUBLICITY APPLICATION Imagine a small agrichemical laboratory with a very small marketing budget develops a seed that produces grass, which grows two-inches high and no higher. Which promotional element should it use to communicate its discovery? a. advertising b. personal selling c. sales promotion d. publicity e. all of the above equally Answer: d Page: 474 Learning Objective: 2 Rationale: Publicity is appropriate when there is a limited budget, and there is a need for a credible source. 18-92 SALES PROMOTION APPLICATION A food warehouse store gets a very good buy on a brand of frozen orange juice and, rather than maintain it as extra inventory, would like to sell it quickly to consumers. Which promotional element should be used? a. advertising b. personal selling c. sales promotion d. publicity e. direct marketing Answer: c Page: 475 Learning Objective: 2 Rationale: Sales promotions are short-term inducements used to stimulate sales.18-93 SALES PROMOTION APPLICATION The Hair Cuttery, a hair salon chain, is opening a new store in an area where there are already five independently owned hair salons operating. To draw people into the store for its grand opening, the Hair Cuttery can use: a. some form of advertising. b. some form of sales promotion. c. some form of publicity. d. some form of personal selling. e. any of the above equally since all have the same effect on the customers at this stage of the new store's life. Answer: b Page: 475 Learning Objective: 2 Rationale: Sales promotion is used to stimulate sales in the short run. 18-94 MARKETING NEWSNET CONCEPTUAL Generation Y is often found listening to the radio, looking at Internet advertising, and using a magazine to locate Web addresses. This ability to multitask means advertisers that want to reach this market segment must use a simultaneous media approach. This means the advertising must be: a. empathetic. b. entropic. c. limited and well-timed. d. targeted to achieve time and place utility. e. pervasive. Answer: e Page: 477 Learning Objective: 3 Rationale: Members of Gen Y typically do not give their full attention to anything. Therefore, marketers must communicate with them through a variety of promotional tools that echo the same message. 18-95 BUSINESS BUYERS CONCEPTUAL Which promotional element is particularly important to business buyers? a. advertising b. personal selling c. publicity d. sales promotion e. rebates Answer: b Page: 476 Other Locations: SG Learning Objective: 3 Rationale: Because business buyers often have specialized needs or technical questions, personal selling is particularly important.18-96 PRODUCT LIFE CYCLE: INTRODUCTION STAGE CONCEPTUAL At which stage in the product life cycle would a company's promotional objective most likely be to increase the level of consumer awareness? a. introduction b. growth c. maturity d. decline e. harvesting Answer: a Page: 476 Learning Objective: 3 Rationale: Informing consumers in an effort to increase their level of awareness is the primary promotional objective in the introduction stage of the product life cycle. 18-97 PRODUCT LIFE CYCLE: INTRODUCTION STAGE APPLICATION There’s a new prescription drug on the market that helps reduce common allergy symptoms. Ads for the medicine in magazines and in medical journals would be primarily used to: a. remind customers that such a product exists. b. increase the level of customer awareness of the product. c. differentiate the product from all other medications. d. support a product penetration distribution strategy. e. help in harvesting the product. Answer: b Page: 476 Learning Objective: 3 Rationale: Informing consumers in an effort to increase their level of awareness is the primary promotional objective in the introduction stage of the product life cycle. 18-98 PRODUCT LIFE CYCLE--GROWTH STAGE CONCEPTUAL At which stage in the product life cycle would your promotional objective be to persuade the consumer to buy the product rather than substitutes? a. introduction b. growth c. incubation d. decline e. maturity Answer: b Page: 476 Learning Objective: 3 Rationale: The primary promotional objective of the growth stage is to persuade the consumer to buy the product rather than substitutes.18-99 PRODUCT LIFE CYCLE: GROWTH STAGE CONCEPTUAL Which promotional element would you most likely use during the growth stage of the product life cycle to solidify channels of distribution? a. advertising b. personal selling c. sales promotion d. publicity e. direct marketing Answer: b Page: 477 Learning Objective: 3 Rationale: Sales promotion assumes less importance in this stage, and publicity is not a factor because it depends on novelty of the product. Personal selling is used to solidify the channel of distribution. 18-100 PRODUCT LIFE CYCLE: GROWTH STAGE APPLICATION Albert Corporate Searchware is a type of search engine companies use at their websites to handle customer questions. The company is trying to determine what promotional strategy should be employed with its flagship product. It has determined that search engine software is in the growth stage. Which of the following options should it employ? a. Devote 40 percent of the promotional budget to sales promotion that supply the public with demonstration diskettes to prove the merits of Albert Searchware. b. Spend 30 percent of the budget in the effort to generate publicity for Albert Searchware. c. Use the majority of its promotional budget on advertising that focuses on creating brand awareness. d. Try to use a very balanced budget and spend equally for each of the four promotional choices in the attempt to even out sales growth. e. Encourage its sales force to emphasize the superiority of Albert Searchware and Albert’s after-sale support. Answer: e Page: 477 Learning Objective: 3 Rationale: Advertising is commonly used in the growth stage to support product differentiation strategies in the consumer market. In the business market, personal selling is used.18-101 PRODUCT LIFE CYCLE--MATURITY STAGE CONCEPTUAL At which stage in the product life cycle are discounts and coupons offered to both consumers and intermediaries to maintain loyal buyers? a. introduction b. growth c. maturity d. incubation e. decline Answer: c Page: 477 Other Locations: SG Learning Objective: 3 Rationale: In the maturity stage the need is to maintain existing buyers and advertising's role is to remind the buyer of the product's existence. Sales promotion, in the form of discounts and coupons offered to both ultimate consumers and intermediaries, is important in maintaining loyal buyers. 18-102 PRODUCT LIFE CYCLE: MATURITY STAGE APPLICATION Cake mix is in the maturity stage of its product life cycle. A manufacturer selling cake mixes would most likely use advertising to: a. create product category awareness. b. differentiate one type of dessert from another. c. create selective distribution channels. d. reposition cake mixes. e. remind buyers of a product's existence. Answer: e Page: 477 Learning Objective: 3 Rationale: Reminder advertising is typically used during the maturity stage. 18-103 PRODUCT LIFE CYCLE--MATURITY STAGE CONCEPTUAL At which stage in the product life cycle is the unsatisfied customer who switches brands hard to replace? a. introduction b. growth c. maturity d. incubation e. decline Answer: c Page: 477 Learning Objective: 3 Rationale: In the maturity stage of the product lifecycle, an unsatisfied customer who switches brands is hard to replace.18-104 PRODUCT LIFE CYCLE: DECLINE STAGE CONCEPTUAL At which stage of the product life cycle is the least amount of money spent on the promotional mix? a. growth b. harvesting c. maturity d. decline e. divestment Answer: d Page: 477 Learning Objective: 3 Rationale: The decline stage of the product life cycle is usually a period of phaseout for the product, and little money is spent on the promotional mix. 18-105 PRODUCT CHARACTERISTICS CONCEPTUAL The proper blend of elements in the promotional mix depends on the type of product. The three specific characteristics to be considered are __________, risk, and ancillary services. a. complexity b. size c. durability d. accessibility e. divestment Answer: a Page: 478 Learning Objective: 3 Rationale: The proper blend of elements in the promotional mix depends on the type of product. The three specific characteristics to be considered are complexity, risk, and ancillary services. 18-106 PRODUCT CHARACTERISTICS CONCEPTUAL The proper blend of elements in the promotional mix depends on the type of product. The three specific characteristics to be considered are complexity, __________, and ancillary services. a. risk b. size c. durability d. accessibility e. divestment Answer: a Page: 478 Learning Objective: 3 Rationale: The proper blend of elements in the promotional mix depends on the type of product. The three specific characteristics to be considered are complexity, risk, and ancillary services.18-107 PRODUCT CHARACTERISTICS CONCEPTUAL The proper blend of elements in the promotional mix depends on the type of product. The three specific characteristics to be considered are complexity, risk, and__________. a. ancillary services b. size c. durability d. accessibility e. divestment Answer: a Page: 478 Learning Objective: 3 Rationale: The proper blend of elements in the promotional mix depends on the type of product. The three specific characteristics to be considered are complexity, risk, and ancillary services. 18-108 COMPLEXITY DEFINITION With regard to a product for which a promotional mix is being developed, complexity: a. refers to the degree of service or support required after the sale. b. can be assessed in terms of financial risk, social risk, and physical risk. c. refers to the technical sophistication of the product and hence the amount of understanding required to use it. d. in a product means that there should be less emphasis on personal selling. e. is irrelevant. Answer: c Page: 478 Other Locations: web Learning Objective: 3 Rationale: Text term definition—complexity 18-109 COMPLEXITY DEFINITION A product characteristic known as __________ refers to the technical sophistication of the product and the amount of understanding required to use it. a. user friendliness b. risk c. complexity d. ancillary service e. accessibility Answer: c Page: 478 Learning Objective: 3 Rationale: Text term definition—complexity18-110 COMPLEXITY APPLICATION The Olympus Eye Trek is a device which provides ―a high-quality personal TV experience.‖ It resembles a pair of glasses and when worn makes the user think he or she is watching a 52-inch television. An ad for the device contains both a telephone number that can be called and a website that can be visited for further information on how the product works. This Olympus Eye Trek is most likely high in: a. user friendliness. b. risk. c. complexity. d. synergy. e. accessibility. Answer: c Page: 478 Learning Objective: 3 Rationale: Due to the complexity of the product, the consumer typically requires more information before buying the high-tech device than is available in a single ad. 18-111 RISK DEFINITION A product characteristic known as __________ is relevant to promotional mix decisions and has financial, social, and physical components. a. risk b. complexity c. ancillary services d. empathy e. synergy Answer: a Page: 478 Learning Objective: 3 Rationale: Text term definition—risk 18-112 RISK DEFINITION With regard to a product for which a promotional mix is being developed, risk: a. refers to the degree of service or support required after the sale. b. can be assessed in terms of financial, social, and physical aspects. c. refers to the technical sophistication of the product and hence the amount of understanding required to use it. d. in a product means that there should be less emphasis on personal selling. e. is irrelevant. Answer: b Page: 478 Learning Objective: 3 Rationale: Text term definition—risk18-113 ANCILLARY SERVICES DEFINITION With respect to promotional element decisions, a product's ancillary services pertain to: a. non-warranted product features. b. the technical sophistication of the product. c. product features not originally envisioned by the manufacturer. d. warranties. e. the degree of service or support required after the sale. Answer: e Page: 478 Learning Objective: 3 Rationale: Text term definition—ancillary services 18-114 ANCILLARY SERVICES DEFINITION With regard to a product for which a promotional mix is being developed, ancillary services: a. refers to the degree of service or support required after the sale. b. can be assessed in terms of financial, social, and physical aspects. c. refers to the technical sophistication of the product and hence the amount of understanding required to use it. d. in a product means that there should be less emphasis on personal selling. e. is irrelevant. Answer: a Page: 478 Learning Objective: 3 Rationale: Text term definition—ancillary services 18-115 COMPLEXITY/RISK/ANCILLARY SERVICES APPLICATION SAP Enterprise Resource Software is a complicated and extremely expensive application used by many of the Fortune 1000 companies to link their supply chain members. When promoting the product, SAP must be aware of how __________ affect(s) which promotional elements should be used. a. the complexity of the product b. the ancillary services needed to use the product c. the financial risks associated with making such a major purchase d. the risk of making a company more vulnerable to hackers e. all of the above Answer: e Page: 478 Learning Objective: 3 Rationale: The proper blend of elements in the promotional mix also depends on the type of product. Three specific product characteristics should be considered: complexity; risk; and ancillary services.18-116 COMPLEXITY/RISK APPLICATION Personal selling would most likely be used to sell: a. dog dandruff shampoo. b. a retail website design. c. fresh produce. d. a bottle of soda. e. computer supplies. Answer: b Page: 478 Learning Objective: 3 Rationale: The proper blend of elements in the promotional mix also depends on the type of product. Three specific product characteristics should be considered: complexity; risk; and ancillary services. Highly complex and risky products like a retail website design, increase the need for an emphasis on personal selling. 18-117 STAGES OF THE BUYING DECISION CONCEPTUAL At the prepurchase stage of the consumer purchase decision process,: a. advertising is more helpful than personal selling. b. trade promotions are more effective than personal selling. c. publicity is the most effective promotion tool. d. personal selling is more effective than advertising. e. personal selling is the most effective way to communicate with potential buyers. Answer: a Page: 479 Learning Objective: 3 Rationale: In the prepurchase stage, advertising is more helpful than personal selling because advertising informs the potential customer of the existence of the product and the seller. See also Figure 18-4. 18-118 STAGES OF THE BUYING DECISION CONCEPTUAL At the purchase stage in the consumer purchase decision process,: a. all promotional elements should be used if a sale is to be made. b. the importance of personal selling is highest, and advertising is the lowest. c. direct marketing increases in importance as the buyer moves closer to the actual purchase. d. the importance of advertising is highest, and personal selling is the lowest. e. sales promotion is the most important promotional element. Answer: b Page: 479 Learning Objective: 3 Rationale: At the purchase stage, the importance of personal selling is highest to close the sale, whereas the impact of advertising is lowest. See also Figure 18-4.18-119 STAGES OF THE BUYING DECISION CONCEPTUAL During the postpurchase stage of the consumer's purchase decision, marketers want to reduce postpurchase anxiety for their customers. Which of the following would be most useful for accomplishing this objective? a. advertising b. personal selling c. sales promotion and advertising d. publicity and advertising e. personal selling and advertising Answer: e Page: 480 Learning Objective: 3 Rationale: In the postpurchase stage the salesperson is still important. In fact, the more personal contact after the sale, the more the buyer is satisfied. Advertising and personal selling help reduce the buyer's postpurchase anxiety. See also Figure 18-4. 18-120 PUSH STRATEGY DEFINITION A push strategy is when: a. a manufacturer blitzes its wholesalers, retailers, and ultimate consumers with the use of nationwide promotional and advertising campaigns. b. a manufacturer forces a retailer to promote its product by placing national ads in local newspapers. c. a manufacturer directs its efforts in the form of advertising and sales promotions to ultimate consumers to encourage them to ask their retailer for the product. d. a manufacturer directs the promotional mix to channel members to gain their cooperation in ordering and stocking the product. e. the charitable contributions of a firm are tied directly to the customer revenues produced through the promotion of one of its products. Answer: d Page: 480 Learning Objective: 4 Rationale: Key term definition—push strategy 18-121 PUSH STRATEGY DEFINITION When a manufacturer directs the promotional mix to channel members to gain their cooperation in ordering and stocking the product, it is using a(n) __________ strategy. a. push b. pull c. inertia d. exclusivity e. logistics Answer: a Page: 480 Other Locations: SG Learning Objective: 4 Rationale: Key term definition—push strategy18-122 PUSH STRATEGY APPLICATION Like many consumer products manufacturers, Hallmark Cards provides its retailers with in-store displays and various selling strategies for its products. Because of this, the Hallmark retailers are excited about selling the products. When doing this, Hallmark uses a __________ strategy. a. intense b. push c. inertia d. exclusivity e. pull Answer: b Page: 480 Learning Objective: 4 Rationale: When a manufacturer directs the promotional mix to channel members to gain their cooperation in ordering and stocking the product, it is using a push strategy. 18-123 WEB LINK APPLICATION Many prescription drugs such as Lipitor and Zocor now have their own websites to encourage patients to learn more about the drugs and ask for them by name from the doctor. The manufacturers of these drugs are using a(n) __________ promotional strategy. a. intense b. push c. pull d. inertia e. exclusivity Answer: a Page: 480 Learning Objective: 4 Rationale: When a manufacturer directs the promotional mix to channel members to gain their cooperation in ordering and stocking the product, it is using a push strategy. 18-124 PULL STRATEGY DEFINITION When a manufacturer directs its promotional mix at ultimate consumers to encourage them to ask retailers for the product, the strategy is called a: a. push strategy. b. intense strategy. c. inertia strategy. d. exclusivity strategy. e. pull strategy. Answer: e Page: 481 Learning Objective: 4 Rationale: Key term definition—pull strategy18-125 PULL STRATEGY DEFINITION A pull strategy occurs when: a. a manufacturer blitzes its wholesalers, retailers, and ultimate consumers with the use of nationwide promotional and advertising campaigns. b. a manufacturer forces a retailer to promote its product by placing national brand ads in local newspapers. c. a manufacturer directs its promotional mix at ultimate consumers to encourage them to ask retailers for the product. d. a manufacturer directs the promotional mix toward channel members to gain their cooperation in ordering and stocking its product. e. the charitable contributions of a firm are tied directly to the customer revenues produced through the promotion of one of its products. Answer: c Page: 481 Learning Objective: 4 Rationale: Key term definition—pull strategy 18-126 PULL STRATEGY APPLICATION Pharmaceutical companies historically marketed only to doctors. More recently they have spent millions of dollars to advertise prescription drugs directly to consumers. These pharmaceutical companies are using a(n) __________ strategy. a. push b. inertia c. exclusivity d. intense e. pull Answer: e Page: 481 Other Locations: web Learning Objective: 4 Rationale: A pull strategy is when a manufacturer directs its promotional mix at ultimate consumers, encouraging them to ask retailers for the product. In this case, the strategy is to encourage consumers to ask their physicians for a specific drug by name—pulling it through the channel.18-127 PULL STRATEGY APPLICATION An advertisement for Lipitor, a cholesterol medicine is shown on TV during the Super Bowl. The advertisement is an element of the promotional mix which is directed towards the ultimate consumer, not towards doctors. This is an example of a(n) __________ promotional strategy. a. push b. integration c. pull d. aggregation e. exclusivity Answer: c Page: 481 Learning Objective: 4 Rationale: A pull strategy involves promotional elements that are directed primarily towards the ultimate consumer. The strategy is designed to appeal to consumer needs and wants and to then have the consumer stimulate demand for the product by asking retailers for the advertised product. A push strategy, on the other hand, involves the use of promotional strategies directed at channel intermediaries. The strategy is designed to have wholesalers promote the product to retailers who in return will then promote the product to the ultimate consumer. 18-128 INTEGRATED MARKETING COMMUNICATIONS DEFINITION The concept of designing marketing communications programs that coordinate all promotional activities to provide a consistent message across all audiences is referred to as: a. media convergence. b. niche marketing. c. integrated marketing communications (IMC). d. marketing management. e. marketing by objectives (MBO). Answer: c Page: 470 Learning Objective: 1 Rationale: Key term definition—integrated marketing communications 18-129 INTEGRATED MARKETING COMMUNICATIONS APPLICATION Allegra is an antihistamine that is only available through prescription, but to create brand awareness, it is offering people who request information about the product a cushion to use at their favorite sporting event. Its television ad shows a woman half-heartedly watching some sporting event. The voiceover asks if she is bored or congested. Next scene, the person is having a great time and is uncongested after taking Allegra. This use of the same promotional theme throughout a company's promotion is an example of how marketers use: a. media convergence. b. niche marketing. c. integrated marketing communications (IMC). d. marketing management. e. marketing by objectives (MBO). Answer: c Page: 470 Learning Objective: 1Rationale: IMC is the concept of designing marketing communications programs that coordinate all promotional activities to provide a consistent message across all audiences. 18-130 PROMOTION DECISION PROCESS DEFINITION The promotion decision process is divided into __________, executing, and evaluating the promotion program. a. pretesting the promotion b. stating the mission. c. developing d. selecting the appeal. e. selecting the media. Answer: c Page: 482; Fig. 18-6 Learning Objective: 5 Rationale: The promotion process is divided into developing, executing, and evaluating the promotion program. 18-131 PROMOTION PROGRAM CONCEPTUAL The first decision in developing a promotion program is to: a. set the budget. b. state the mission. c. identify the target audience. d. select the appeal. e. select the media. Answer: c Page: 482; Fig. 18-6 Learning Objective: 5 Rationale: The first decision in developing the promotion program is identifying the target audience, the group of prospective buyers toward which a promotion program is directed. 18-132 PROMOTION DECISION PROCESS DEFINITION All of the following steps are part of the process used to develop an organization's promotion program EXCEPT: a. identify the target audience. b. specify the advertising objectives. c. write the advertising copy. d. pretest the advertising. e. schedule the advertising program. Answer: d Page: 482 Other Locations: SG Learning Objective: 5 Rationale: Alternative d is a part of the implementation process when the promotion program is executed. See Figure 18-6.18-133 TARGET AUDIENCE DEFINITION The group of prospective buyers toward which a promotion program is directed is called a: a. target selection. b. target audience. c. selected audience. d. prospective audience. e. media audience. Answer: b Page: 482 Learning Objective: 5 Rationale: Text term definition—target audience 18-134 TARGET AUDIENCE DEFINITION Promotional programs are specifically directed to: a. source receivers. b. diffusers. c. encoders. d. media convergences. e. target audiences. Answer: e Page: 482 Learning Objective: 5 Rationale: Text term definition—target audience 18-135 HIERARCHY OF EFFECTS DEFINITION The sequence of stages a prospective buyer goes through from initial awareness of a product to eventual action (either trial or adoption of the product) is referred to as: a. the purchase continuum. b. the hierarchy of effects. c. the consumer-product cycle. d. the consumer purchasing hierarchy. e. Maslow's hierarchy. Answer: b Page: 482 Learning Objective: 5 Rationale: Key term definition—hierarchy of effects 18-136 AWARENESS DEFINITION The first stage in the hierarchy of effects is: a. interest. b. awareness. c. consumer development. d. evaluation. e. diffusion. Answer: b Page: 482 Learning Objective: 5 Rationale: Key term definition—hierarchy of effects18-137 AWARENESS DEFINITION In the hierarchy of effects, awareness is defined as: a. the consumer's ability to recognize and remember the product or brand name. b. the consumer's appraisal of the product or brand on important attributes. c. an increase in the consumer's desire to learn about some of the features of the product or brand. d. a favorable experience on the first trial, resulting in the consumer's repeated purchase and use of the product or brand. e. the consumer's first actual purchase and use of the product or brand. Answer: a Page: 482 Learning Objective: 5 Rationale: Text term definition—awareness 18-138 HIERARCHY OF EFFECTS APPLICATION Ann's young son suffers from allergies and complains about his watery eyes and drowsiness. Ann feels bad because she thought there was nothing she could do to help him. When Ann saw the ad for a new drug that counters these symptoms in Ladies’ Home Journal magazine, she vowed to ask his doctor about this product on his next visit. At which stage in the hierarchy of effects is Ann? a. She is the trial stage and will move to the interest stage soon. b. She has moved quickly from the awareness stage to the interest stage. c. She was in the consumer development stage and will more than likely move to the transition stage. d. She is in the evaluation stage and will move to the interest stage soon. e. She is in the interest stage first and then moved quickly to the diffusion stage. Answer: b Page: 482 Learning Objective: 5 Rationale: Awareness is defined as the consumer's ability to recognize and remember the product or brand name. Interest is defined as an increase in the consumer's desire to learn about some of the features of the product or brand. Ann learned of the drug's existence and then almost immediately decided to learn more about the drug. 18-139 INTEREST DEFINITION In the hierarchy of effects, interest is defined as: a. the consumer's ability to recognize and remember the product or brand name. b. the consumer's appraisal of the product or brand on important attributes. c. an increase in the consumer's desire to learn about some of the features of the product or brand. d. a favorable experience on the first trial, resulting in the consumer's repeated purchase and use of the product or brand. e. the consumer's first actual purchase and use of the product or brand. Answer: c Page: 482 Other Locations: SG Learning Objective: 5 Rationale: Text term definition—interest18-140 EVALUATION DEFINITION In the hierarchy of effects, evaluation is defined as: a. the consumer's ability to recognize and remember the product or brand name. b. the consumer's appraisal of the product or brand on important attributes. c. an increase in the consumer's desire to learn about some of the features of the product or brand. d. a favorable experience on the first trial, resulting in the consumer's repeated purchase and use of the product or brand. e. the consumer's first actual purchase and use of the product or brand. Answer: b Page: 482 Other Locations: web Learning Objective: 5 Rationale: Text term definition—evaluation 18-141 TRIAL DEFINITION In the hierarchy of effects, trial is defined as: a. the consumer's ability to recognize and remember the product or brand name. b. the consumer's appraisal of the product or brand on important attributes. c. an increase in the consumer's desire to learn about some of the features of the product or brand. d. a favorable experience on the first trial, resulting in the consumer's repeated purchase and use of the product or brand. e. the consumer's actual first purchase and use of the product or brand. Answer: e Page: 482 Learning Objective: 5 Rationale: Text term definition—trial 18-142 TRIAL APPLICATION CoolMax Alta is a fabric made by Dupont. It is used in the manufacture of exercise clothes because it keeps the user ―cool and dry.‖ The ads for the fabric in health and fitness ads convinced Kumar to buy a pair of socks made of the material. Since he had never before owned anything made of this fabric, Kumar was in which stage of the hierarchy of effects? a. trial b. diffusion c. innovation d. evaluation e. interest Answer: a Page: 482 Learning Objective: 5 Rationale: Trial is defined as the consumer's actual first purchase and use of the product or brand.18-143 ADOPTION DEFINITION In the hierarchy of effects, adoption is defined as: a. the consumer's ability to recognize and remember the product or brand name. b. the consumer's appraisal of the product or brand on important attributes. c. an increase in the consumer's desire to learn about some of the features of the product or brand. d. through a favorable experience on the first trial, the consumer's repeated purchase and use of the product or brand. e. the consumer's actual first purchase and use of the product or brand. Answer: d Page: 482 Learning Objective: 5 Rationale: Text term definition—adoption 18-144 PROMOTION OBJECTIVES DEFINITION Promotion objectives should possess three important qualities. They should be designed for a well-defined target audience, be measurable, and: a. contain some element of appeal, such as sex, fear, or humor. b. be based on clear market research. c. stay within clearly defined budgetary constraints. d. cover a specified time period. e. retain some degree of flexibility. Answer: d Page: 482 Learning Objective: 5 Rationale: Regardless of what the specific objective of the promotion program might be, promotion objectives should be designed for a well-defined target audience, be measurable, and cover a specified time period. 18-145 PROMOTION OBJECTIVES DEFINITION No matter what the specific objective might be, from building awareness to increasing repeat purchases, promotion objectives should possess three important qualities. They should be designed for a well-defined target audience, cover a specified time period, and: a. rely on fear. b. be measurable. c. be humorous. d. appeal to intermediaries. e. be designed to win creative awards. Answer: b Page: 482 Learning Objective: 5 Rationale: Promotion objectives should be designed for a well-defined target audience, be measurable, and cover a specified time period.18-146 PERCENTAGE OF SALES BUDGETING DEFINITION Percentage of sales budgeting is a budgeting method: a. that allocates funds to promotion as a percentage of past or anticipated sales, in terms of either dollars or units sold. b. that matches the competitor's absolute level of spending or the proportion per point of market share. c. that allocates funds to promotion only after all other budget items are covered. d. whereby the company determines its promotion objectives, outlines the tasks to accomplish these objectives, and determines the advertising cost of performing these tasks. e. that allocates funds to promotion based on the greatest percentage of possible available revenue. Answer: a Page: 483 Learning Objective: 5 Rationale: Key term definition—percentage of sales budgeting 18-147 PERCENTAGE OF SALES BUDGETING APPLICATION Imagine you have overheard the owner of a medium-sized manufacturing company saying, "We had a good year, and I think next year will be even better. I'm going to raise this year's promotion budget to 4.5 percent of last year's gross sales. That will let me do more advertising than the 3.5 percent I budgeted last year.‖ From this information, you know the small manufacturer used __________ budgeting. a. percentage of sales b. competitive parity c. all-you-can-afford d. objective and task e. relative scale Answer: a Page: 483 Learning Objective: 5 Rationale: Percentage of sales is a budgeting method by which funds are allocated to promotion as a percentage of past or anticipated sales, in terms of either dollars or units sold. 18-148 PERCENTAGE OF SALES BUDGETING DEFINITION __________ budgeting is a budgeting method which allocates funds to promotion as a percentage of past or anticipated sales, in terms of either dollars or units sold. a. Percentage of sales b. Competitive parity c. All-you-can-afford. d. Objective and task e. Relative scale Answer: a Page: 483 Learning Objective: 5 Rationale: Key term definition—percentage of sales budgeting18-149 PERCENTAGE OF SALES BUDGETING CONCEPTUAL A major fallacy of __________ budgeting is that by tying budget to sales, a company may have the least amount to spend when it actually needs the greatest amount of promotion dollars. a. percentage of sales b. competitive parity c. all-you-can-afford. d. objective and task e. relative scale Answer: a Page: 483 Learning Objective: 5 Rationale: Using percentage of sales budgeting, a company may reduce its promotion budget when it needs it the most because of a downturn in past sales or a forecast downturn in future ones. 18-150 COMPETITIVE PARITY BUDGETING DEFINITION Competitive parity budgeting is a budgeting method: a. that allocates funds to promotion as a percentage of past or anticipated sales, in terms of either dollars or units sold. b. that matches the competitor's absolute level of spending or the proportion per point of market share. c. that allocates funds to promotion only after all other budget items are covered. d. whereby the company determines its promotion objectives, outlines the tasks to accomplish these objectives, and determines the promotion cost of performing these tasks. e. that allocates funds to promotion based on the greatest percentage of possible available revenue. Answer: b Page: 483 Other Locations: web Learning Objective: 5 Rationale: Key term definition—competitive parity budgeting 18-151 COMPETITIVE PARITY BUDGETING DEFINITION __________ budgeting is the allocation funds to promotion to match the competitor's absolute level of spending or proportion per point of market share. a. Percentage of sales b. Competitive parity c. All-you-can-afford d. Objective and task e. Relative scale Answer: b Page: 483 Other Locations: web Learning Objective: 5 Rationale: Key term definition—competitive parity budgeting18-152 COMPETITIVE PARITY BUDGETING DEFINITION Another name for competitive parity budgeting is __________ budgeting. a. relative scale b. all-you-can-afford c. share of market d. comparative e. matched media Answer: c Page: 483 Learning Objective: 5 Rationale: Key term definition—competitive parity budgeting 18-153 COMPETITIVE PARITY BUDGETING DEFINITION Another name for competitive parity budgeting is __________ budgeting. a. relative scale b. all-you-can-afford c. matching competitors d. comparative e. matched media Answer: c Page: 483 Learning Objective: 5 Rationale: Key term definition—competitive parity budgeting 18-154 COMPETITIVE PARITY BUDGETING APPLICATION After reading the daily newspaper, the restaurant owner said, "The owner of Fellini's House of Noodles ran a quarter-page ad in today's paper. We'll just have to find enough money to run our own ad day after tomorrow." What budgeting technique is the restaurant owner most likely using? a. relative scale budgeting b. sell you can afford budgeting c. competitive parity budgeting d. comparative budgeting e. matched media budgeting Answer: c Page: 483 Learning Objective: 5 Rationale: Competitive parity budgeting is matching the competitor's absolute level of spending or the proportion per point of market share a competitor has.18-155 COMPETITIVE PARITY BUDGETING APPLICATION In which of the following situations would use of the competitive parity budget-setting method be most appropriate? a. Two or more companies are competing with similar products and similar promotional goals. b. Two or more companies are introducing a totally new product to the market. c. Two or more companies exist in an oligopoly, and are planning on a product diversification strategy. d. Two or more companies exist in pure competition and compete on the basis of product differentiation. e. Two or more companies are in direct competition with products in all stages of the product life cycle. Answer: a Page: 483 Learning Objective: 5 Rationale: Competitive parity makes sense if the competitors have similar promotional goals. 18-156 ALL-YOU-CAN-AFFORD BUDGETING DEFINITION __________ budgeting is the allocation of funds to promotion only after all other budget items are covered. a. Percentage of sales b. Competitive parity c. All-you-can-afford d. Objective and task e. Relative scale Answer: c Page: 484 Learning Objective: 5 Rationale: Key term definition—all-you-can-afford budgeting 18-157 ALL-YOU-CAN-AFFORD BUDGETING CONCEPTUAL Which method of promotion budgeting would most likely be used by small businesses? a. percentage of sales budgeting b. competitive parity budgeting c. all-you-can-afford d. objective and task budgeting e. relative scale budgeting Answer: c Page: 484 Learning Objective: 5 Rationale: Common to many small businesses, is all-you-can-afford budgeting in which money is allocated to promotion only after all other budget items are covered.18-158 ALL-YOU-CAN-AFFORD BUDGETING APPLICATION Imagine a small retailer saying, "Well, after budgeting for all of our expenses for next year, we still have about $7500 remaining for emergencies. How about if we budget 20 percent of that amount for advertising?" What budgeting technique is the small retailer using? a. percentage of sales budgeting b. competitive parity budgeting c. all-you-can-afford budgeting d. objective and task budgeting e. relative scale budgeting Answer: c Page: 484 Learning Objective: 5 Rationale: Common to many small businesses, is all-you-can-afford budgeting in which money is allocated to promotion only after all other budget items are covered. 18-159 OBJECTIVE AND TASK BUDGETING DEFINITION The best approach to promotion budgeting is __________ budgeting method whereby the company determines its promotion objectives, outlines the tasks to accomplish these objectives, and determines the promotion cost of performing these tasks. a. percentage of sales b. competitive parity c. all-you-can-afford d. objective and task e. relative scale Answer: d Page: 484 Learning Objective: 5 Rationale: Key term definition—objective and task budgeting 18-160 OBJECTIVE AND TASK BUDGETING DEFINITION The best approach to budgeting is objective and task budgeting, whereby the company determines its promotion objectives, outlines the tasks to accomplish those objectives, and: a. asks the ad agency for an estimate. b. asks the media to propose a program. c. determines the promotion cost of performing those tasks. d. determines what spending level top management will allow for the proposed program. e. surveys customers to determine what spending levels they think appropriate. Answer: c Page: 484 Learning Objective: 5 Rationale: Key term definition—objective and task budgeting18-161 OBJECTIVE AND TASK BUDGETING CONCEPTUAL Which of the following is the best approach to promotion budgeting? a. percentage of sales budgeting b. competitive parity budgeting c. all-you-can-afford d. objective and task budgeting e. relative scale budgeting Answer: d Page: 484 Learning Objective: 5 Rationale: The best approach to promotion budgeting is objective and task budgeting, whereby the company (1) determines its promotion objectives, (2) outlines the tasks to accomplish these objectives, and (3) determines the promotion cost of performing these tasks. This method takes into account what the company wants to accomplish and requires that the objectives be specified. 18-162 OBJECTIVE AND TASK BUDGETING CONCEPTUAL Which form of promotion budgeting most closely relates to the marketing concept? a. percentage of sales budgeting b. competitive parity budgeting c. all-you-can-afford d. objective and task budgeting e. relative scale budgeting Answer: d Page: 484 Learning Objective: 5 Rationale: The marketing concept assesses customer needs and then takes the necessary steps to satisfy them. Objective and task budgeting assesses what needs to be done and then identifies the method and (budget) by which to achieve them. 18-163 OBJECTIVE AND TASK BUDGETING CONCEPTUAL Which of the following steps in the objective and task approach to promotion budgeting must be done correctly in order for any of the others to have the proper effect? a. accurately estimate costs of tasks b. identify appropriate objectives c. accurately estimate what task will accomplish each objective d. accurately total the budget from costs of separate tasks e. perform tasks as intended Answer: b Page: 484 Learning Objective: 5 Rationale: The difficulty with objective and task budgeting is the objectives are wrong, everything that follows will be misguided.18-164 DESIGNING THE PROMOTION CONCEPTUAL The design of the promotion will play a primary role in determining the message that is communicated to the audience. Successful designs are often the result of __________ a. accurately estimate costs of tasks. b. identifying appropriate objectives. c. accurately estimating what task will accomplish each objective. d. insight regarding consumer’s interests and behavior. e. insight regarding task performance. Answer: d Page: 485 Learning Objective: 5 Rationale: The design of the promotion will play a primary role in determining the message that is communicated to the audience. Successful designs are often the result of insight regarding consumer’s interests and behavior. 18-165 EXECUTING AND EVALUATING PROMOTION CONCEPTUAL Which of the following statements about executing and evaluating the promotion program is true? a. The most sophisticated pretests and posttests are used with public relations. b. Most IMC programs rely on posttests and use no pretests. c. The most sophisticated pretests and posttests have been developed for advertising. d. The ideal IMC program does not need any evaluation if it is executed according to plan. e. Most IMC programs rely on pretests and use no posttests. Answer: c Page: 485 Learning Objective: 5 Rationale: The most sophisticated pretests and posttests are used with advertising. It is recommended that pretests as well as posttests be used. 18-166 IMC AUDIT DEFINITION An IMC audit: a. evaluates customer databases. b. Analyzes the internal communication network of the company. c. Identifies key audiences. d. Assesses messages in recent ads, public relations releases, packaging, video news releases, signage, sales promotion pieces, and direct mail. e. is accurately described by all of the above. Answer: e Page: 486 Learning Objective: 5 Rationale: The IMC audit analyzes the internal communication network of the company; identifies key audiences; evaluates customer databases; assesses messages in recent ads, public relations releases, packaging, video news releases, signage, sales promotion pieces, and direct mail; and determines the IMC expertise of company and agency personnel.18-167 DIRECT MARKETING APPLICATION Amazon.com, a successful online retailer, manages an extensive database, which includes customers' names and their tastes in books and music. This information is used to determine which products are suggested to each customer. This is an example of how Amazon.com uses: a. advertising. b. sales promotion. c. publicity. d. personal selling. e. direct marketing. Answer: e Page: 475 Learning Objective: 6 Rationale: Direct marketing involves using a database to customize offerings to customers. 18-168 DIRECT MARKETING CONCEPTUAL Which of the following are benefits of direct marketing for consumers? a. They don’t have to go to a store. b. Buying direct saves time. c. They avoid hassles with salespeople. d. There is more privacy than in-store shopping. e. All of the above are benefits of direct marketing for consumers. Answer: e Page: 488 Learning Objective: 6 Rationale: Customers report many benefits, including the following: They don’t have to go to a store, they can usually shop 24 hours a day, buying direct saves time, they avoid hassles with salespeople, they can save money, it’s fun and entertaining, and direct marketing offers more privacy than in-store shopping. Many consumers also believe that direct marketing provides excellent customer service. 18-169 DIRECT MARKETING CONCEPTUAL Which of the following are benefits of direct marketing for consumers? a. They can usually shop 24 hours a day. b. It’s fun and entertaining. c. They can save money. d. Direct marketing provides great customer service. e. All of the above are benefits of direct marketing for consumers. Answer: e Page: 488 Learning Objective: 6 Rationale: Customers report many benefits, including the following: They don’t have to go to a store, they can usually shop 24 hours a day, buying direct saves time, they avoid hassles with salespeople, they can save money, it’s fun and entertaining, and direct marketing offers more privacy than in-store shopping. Many consumers also believe that direct marketing provides excellent customer service.18-170 DIRECT ORDERS DEFINITION With direct marketing, __________ are the result of offers that contain all the information necessary for a prospective buyer to make a decision to purchase and complete the transaction. a. direct orders b. lead generation bottlenecks c. traffic generation problems d. indirect orders e. first mover advantages Answer: a Page: 488 Learning Objective: 6 Rationale: Key term definition—direct orders 18-171 LEAD GENERATION DEFINITION With direct marketing, ___________ is the result of an offer designed to generate interest in a product or service, and a request for additional information. a. direct order fulfillment b. lead generation c. traffic generation d. indirect order consignment e. follower generation Answer: b Page: 488 Learning Objective: 6 Rationale: Key term definition—lead generation 18-172 LEAD GENERATION APPLICATION A paid advertisement for the Texas Department of Economic Development, Tourism Division invited readers of a magazine to mail in a postage-paid reply card that was included with the ad, visit the state's website, or use a toll-free number to request more information about vacation destinations in Texas. The primary purpose of this ad was as a(n): a. direct order fulfillment. b. lead generator. c. public service announcement. d. indirect order consignment. e. follower generator. Answer: b Page: 488 Learning Objective: 6 Rationale: Lead generation is the result of an offer designed to generate interest in a product or service, and a request for additional information.18-173 TRAFFIC GENERATION APPLICATION Pauline received a postcard from a local antique mall. The card invited her to attend an invitation-only open house at the mall and receive a 10 percent discount on her first purchase that day. The antique mall was using the postcard for: a. direct order fulfillment. b. lead generation. c. traffic generation. d. indirect order consignment. e. follower generation. Answer: c Page: 488 Learning Objective: 6 Rationale: Traffic generation is the outcome of an offer designed to motivate people to visit a business. 18-174 TRAFFIC GENERATION DEFINITION ___________ is the outcome of an offer designed to motivate people to visit a business. a. Direct order consignment b. Lead generation c. Traffic generation d. Indirect order fulfillment e. Follower generation. Answer: c Page: 488 Other Locations: web Learning Objective: 6 Rationale: Key term definition—traffic generation 18-175 ETHICS AND SOCIAL RESPONSIBILITY ALERT CONCEPTUAL The two general approaches to managing unsolicited e-mail are: a. opt-in and opt-out. b. customization and generalized. c. relevant headings and blind headings. d. personalization and mass marketing. e. read and unread. Answer: a Page: 489 Learning Objective: 6 Rationale: Opt-out recipients decline further messages after the first contact. Opt-in requires advertisers to obtain e-mail addresses from registration questions on websites, business reply cards, and even sweepstakes entry forms.18-176 VIDEO CASE: UPS: REPOSITIONING A BUSINESS WITH IMC APPLICATION To convey its new capabilities and its transformation to the ―synchronized‖ commerce positioning UPS needed a(n) __________ campaign. a. information b. advertising c. integrated marketing communications d. pricing and promotion e. synchronicity Answer: c Page: 492 Learning Objective: 2 Rationale: Integrated marketing communications is a concept of designing marketing communications programs that coordinate all promotional activities—advertising, personal selling, sales promotion, public relations, and direct marketing—to provide a consistent message across all audiences. 18-177 VIDEO CASE: UPS: REPOSITIONING A BUSINESS WITH IMC APPLICATION Which of the following promotional activities did UPS engage in to reposition the company from a package carrier to a company that conducts ―synchronized commerce‖? a. UPS changed its logo. b. UPS bought Mail Boxes Etc. c. UPS developed an ad campaign called ―What Can Brown Do for You?‖ d. UPS registered two trademarks on the color brown. e. All of the above statements about UPS are true. Answer: e Page: 493 Rationale: Alternatives a, b, c, and d all describe activities that UPS engaged in to reposition the company. CHAPTER 20 Personal Selling and Sales Management MULTIPLE CHOICE QUESTIONS 20-1 CHAPTER OPENING EXAMPLE CONCEPTUAL Anne Mulcahy's task at Xerox Corporation is to: a. manage its transactional website so as to eliminate channel conflict. b. gain back its market share one customer at a time. c. limit the number of goods and services the company provides. d. increase the importance of the advertising element of its promotion mix. e. open Xerox stores around the world. Answer: b Page: 527 Learning Objective: 1Rationale: As CEO of Xerox, Anne Mulcahy sees her task as ―winning back market share one customer at a time, one sale at a time.‖ 20-2 PERSONAL SELLING APPLICATION Personal selling: a. occurs when Keith sees an advertisement in Sports Illustrated. b. is a one-way flow of communication between buyer and seller. c. occurs when Becca sees a character on Friends eating a Snickers bar. d. occurs when Girl Scouts ask you to buy a box of cookies. e. is not part of the promotion mix. Answer: d Page: 528 Learning Objective: 1 Rationale: Alternative a describes advertising. Personal selling is the two-way flow of communication, not a one-way flow, between a buyer and seller. Alternative c describes product placement. Personal selling is the two-way flow of communication between a buyer and seller, often in a face-to-face encounter, designed to influence a person’s or group’s purchase decision. The Girl Scout is doing this when selling you a box of cookies. 20-3 PERSONAL SELLING DEFINITION __________ is the two-way flow of communication between a buyer and seller, often in a face-to-face encounter, designed to influence a person's or group's purchase decision. a. Sales management b. Personal selling c. Sales promotion d. Transformational selling e. Marketing management Answer: b Page: 528 Other Locations: web Learning Objective: 1 Rationale: Key term definition—personal selling20-4 PERSONAL SELLING APPLICATION Which of the following statements is an example of personal selling? a. A Tupperware dealer demonstrates the company's products to you and your friends in the comfort of your own home. b. You purchase an 18 carat gold wristwatch through an interactive computer network. c. You watch a product demonstration through a video teleconferencing system. d. You purchase a three-year subscription to Martha Stewart Living as the result of a telephone call. e. All of the above are examples of personal selling. Answer: e Page: 528 Learning Objective: 1 Rationale: Personal selling is the two-way flow of communication between a buyer and seller, often in a face-to-face encounter, designed to influence a person's or group's purchase decision. With advances in telecommunications technology, personal selling takes place over the telephone, through video-teleconferencing, and through interactive computer networks in addition to in-person encounters. 20-5 PERSONAL SELLING APPLICATION Which of the following does NOT describe a situation in which personal selling occurs? a. a clerk at the jewelry counter b. a telemarketer selling magazine subscriptions c. a stockbroker using a video teleconference to tell customers about a new retirement plan d. a mail-order catalog featuring homemade candy e. the host of a television home shopping program demonstrating gardening tools Answer: d Page: 528 Learning Objective: 1 Rationale: Personal selling requires two-way flow of communication between buyer and seller, often in a face-to-face encounter. A mail-order catalog does not provide a twoway flow of communication. 20-6 SALES MANAGEMENT DEFINITION __________ involves planning the selling program and implementing and controlling the personal selling effort of the firm. a. Relationship marketing b. Team selling c. Personal selling d. Sales management e. Sales engineering Answer: d Page: 528 Other Locations: SG Learning Objective: 1 Rationale: Key term definition—sales management20-7 SALES MANAGEMENT DEFINITION Sales management is most accurately defined as the: a. allocation of funds for promotion and advertising. b. recruiting, hiring or firing, and training of a company's sales force. c. segmentation and selection of target markets to be addressed by a company's sales force. d. planning of the selling program and implementing and controlling of the personal selling effort of the firm. e. process of assigning territories and providing appropriate compensation for sales force performance. Answer: d Page: 528 Other Locations: web Learning Objective: 1 Rationale: Key term definition—sales management 20-8 SALES MANAGEMENT DEFINITION As part of performing their jobs, sales managers will: a. set objectives for the sales force. b. organize the sales force. c. evaluate the performance of individual salespeople. d. recruit, select, train, and compensate salespeople. e. do all of the above. Answer: e Page: 528 Learning Objective: 1 Rationale: Key term definition—sales management 20-9 SELLING CONCEPTUAL Virtually every occupation that involves customer contact has an element of personal selling in it. The Bureau of Labor Statistics reports that almost __________ people are employed in sales positions in the U.S. a. 5 million b. 10 million c. 14 million d. 18 million e. 24 million Answer: c Page: 528 Learning Objective: 1 Rationale: The Bureau of Labor Statistics reports that almost 14 million people are employed in sales positions in the U.S.20-10 SELLING CONCEPTUAL Selling often serves as a stepping-stone to top management. In fact, approximately __________ of the chief executive officers in the 1,000 largest U.S. corporations have significant sales and marketing experience in their work history. a. 5 % b. 10% c. 15% d. 20% e. 25% Answer: d Page: 529 Learning Objective: 1 Rationale: Twenty percent of the chief executive officers in the 1,000 largest U.S. corporations have significant sales and marketing experience in their work history. 20-11 PERSONAL SELLING CONCEPTUAL Which of the following statements does NOT describe a role personal selling plays in an organization's marketing effort? a. Salespeople are the critical link between organizations and their customers. b. Salespeople match company interests with customer needs to satisfy both parties. c. Salespeople play a dominant role in implementing an organization's push strategy. d. Salespeople monitor investments in R&D and production facilities. e. Salespeople are the organization in customers' eyes. Answer: d Page: 529 Learning Objective: 1 Rationale: While salespeople have an interest in new and current products, they typically are not involved in decisions to invest in R&D or production facilities. 20-12 PERSONAL SELLING CONCEPTUAL Which of the following statements describes a role personal selling plays in an organization's marketing effort? a. Salespeople are the critical link between organizations and the government. b. Salespeople match company interests with customer complaints to satisfy both parties. c. Salespeople play a dominant role in implementing an organization's pull strategy. d. Salespeople monitor investments in R&D and production facilities. e. Salespeople are the organization in customers' eyes. Answer: e Page: 529 Learning Objective: 1 Rationale: Salespeople are the critical link between the firm and its customers. This role requires that salespeople match company interests with customer needs to satisfy both parties in the exchange process. Salespeople are the company in a consumer’s eyes. They represent what a company is or attempts to be and are often the only personal contact a customer has with the company. Personal selling may play a dominant role in the firm’s marketing program, especially when the firm uses a push marketing strategy.20-13 PERSONAL SELLING CONCEPTUAL Which of the following statements describes a role personal selling plays in an organization's marketing effort? a. Salespeople are the critical link between organizations and the government. b. Salespeople match company interests with customer complaints to satisfy both parties. c. Salespeople play a dominant role in implementing an organization's push strategy. d. Salespeople monitor investments in R&D and production facilities. e. Salespeople are only part of the organization in customers' eyes. Answer: c Page: 529 Learning Objective: 1 Rationale: Salespeople are the critical link between the firm and its customers. This role requires that salespeople match company interests with customer needs to satisfy both parties in the exchange process. Salespeople are the company in a consumer’s eyes. They represent what a company is or attempts to be and are often the only personal contact a customer has with the company. Personal selling may play a dominant role in the firm’s marketing program, especially when the firm uses a push marketing strategy. 20-14 PERSONAL SELLING CONCEPTUAL Which of the following statements describes a role personal selling plays in an organization's marketing effort? a. Salespeople are the critical link between organizations and the government. b. Salespeople match company interests with customer needs to satisfy both parties. c. Salespeople play a dominant role in implementing an organization's pull strategy. d. Salespeople monitor investments in R&D and production facilities. e. Salespeople are only part of the organization in customers' eyes. Answer: b Page: 529 Learning Objective: 1 Rationale: Salespeople are the critical link between the firm and its customers. This role requires that salespeople match company interests with customer needs to satisfy both parties in the exchange process. Salespeople are the company in a consumer’s eyes. They represent what a company is or attempts to be and are often the only personal contact a customer has with the company. Personal selling may play a dominant role in the firm’s marketing program, especially when the firm uses a push marketing strategy.20-15 PERSONAL SELLING CONCEPTUAL Which of the following statements describes a role personal selling plays in an organization's marketing effort? a. Salespeople are the critical link between organizations and their customers. b. Salespeople match company interests with customer complaints to satisfy both parties. c. Salespeople play a dominant role in implementing an organization's pull strategy. d. Salespeople monitor investments in R&D and production facilities. e. Salespeople are only part of the organization in customers' eyes. Answer: a Page: 529 Learning Objective: 1 Rationale: Salespeople are the critical link between the firm and its customers. This role requires that salespeople match company interests with customer needs to satisfy both parties in the exchange process. Salespeople are the company in a consumer’s eyes. They represent what a company is or attempts to be and are often the only personal contact a customer has with the company. Personal selling may play a dominant role in the firm’s marketing program, especially when the firm uses a push marketing strategy. 20-16 RELATIONSHIP SELLING DEFINITION Relationship selling: a. makes customer value creation possible. b. builds ties to customers based on a salesperson's attention and commitment to customer needs over time. c. focuses on creating long-term sales—not one-time customers. d. involves mutual respect and trust among buyers and sellers. e. is accurately described by all of the above. Answer: e Page: 530 Learning Objective: 1 Rationale: Key term definition—relationship selling 20-17 RELATIONSHIP SELLING DEFINITION __________ is the practice of building ties to customers based on a salesperson's attention and commitment to customer needs over time. a. Order processing b. Order taking c. Customer value creation d. Relationship selling e. Transactional selling Answer: d Page: 530 Learning Objective: 1 Rationale: Key term definition—relationship selling20-18 RELATIONSHIP SELLING DEFINITION Customer value creation is made possible by __________, the practice of building ties to customers based on a salesperson's attention and commitment to customer needs over time. a. conference selling b. relationship selling c. formula selling d. seminar selling e. team selling Answer: b Page: 530 Learning Objective: 1 Rationale: Key term definition—relationship selling 20-19 RELATIONSHIP SELLING APPLICATION Salespeople at Medtronic, Inc., the world leader in the heart pacemaker market, are in the operating room for more than 90 percent of the procedures performed with their product and are on call, wearing pagers, 24 hours a day. Medtronic sales people practice: a. order processing. b. order taking. c. customer value creation. d. relationship selling. e. transactional selling. Answer: d Page: 530 Learning Objective: 1 Rationale: Relationship selling is the practice of building ties to customers based on a salesperson's attention and commitment to customer needs over time. 20-20 RELATIONSHIP SELLING CONCEPTUAL How does relationship selling create customer value? a. by expressing periodic concerns about sizes of orders b. by providing discounts based on the length of the customer relationship c. by using a common sales promotion for each sales call d. by tailoring solutions to customer problems e. by doing all of the above Answer: d Page: 530 Learning Objective: 1 Rationale: Customer value creation is made possible by relationship selling, which involves mutual respect and trust among buyers and sellers. It focuses on creating longterm customers, not a one time sale. Relationship selling emphasizes the importance of learning about customer needs and wants and tailoring solutions to customer problems as a means to customer value creation.20-21 PARTNERSHIP SELLING DEFINITION With __________, buyers and sellers combine their expertise and resources to create customized solutions; commit to joint planning; and share customer, competitive, and company information for their mutual benefit, and ultimately the customer's benefit. a. channel selling b. cross-functional selling c. partnership selling d. seminar selling e. customized ordering Answer: c Page: 530 Learning Objective: 1 Rationale: Key term definition—partnership selling 20-22 PARTNERSHIP SELLING DEFINITION Partnership selling is sometimes called: a. transactional marketing. b. strategic pairing. c. creative selling. d. synergistic marketing. e. enterprise selling. Answer: e Page: 530 Learning Objective: 1 Rationale: Key term definition—partnership selling 20-23 PARTNERSHIP SELLING APPLICATION IBM has 30 information technology hardware and software specialists, business consultants, and engineers working at Charles Schwab, a large brokerage firm, all under the direction of a senior IBM sales executive. They are creating and managing a complex financial planning system that helps Schwab clients with their retirement planning. This is an example of: a. transactional marketing. b. strategic pairing. c. creative selling. d. synergistic marketing. e. partnership selling. Answer: e Page: 530 Learning Objective: 1 Rationale: Partnership selling allows buyers and sellers to combine their expertise and resources to create customized solutions; commit to joint planning; and share customer, competitive, and company information for their mutual benefit, and ultimately the customer.20-24 TYPES OF PERSONAL SELLING CONCEPTUAL Which of the following does NOT have a type of sales job? a. salesclerk b. outside order taker c. order getter d. sales engineer e. account supervisor Answer: e Page: 530-533 Learning Objective: 2 Rationale: Text term definitions - salesclerk, outside order taker. Key term definitions - order getter, sales engineer 20-25 ORDER TAKER DEFINITION An order taker is a: a. salesperson who specializes in identifying, analyzing, and solving customer problems, but who does not actually sell products and services. b. salesperson who processes routine orders or reorders for products that were already sold by the company. c. salesperson who identifies prospective customers, provides customers with information, persuades customers to buy, closes sales, and follows up on a customer's use of a product or service. d. person on the selling team who are responsible for obtaining qualified leads. e. member of the sales support team who does not directly solicit orders but rather concentrates on performing promotional activities and introducing new products. Answer: b Page: 531 Other Locations: SG Learning Objective: 2 Rationale: Key term definition—order taker 20-26 ORDER TAKER DEFINITION A(n) __________ is a salesperson who processes routine orders or reorders for products that were already sold by the company. a. order taker b. order getter c. missionary salesperson d. sales engineer e. team seller Answer: a Page: 531 Learning Objective: 2 Rationale: Key term definition—order taker20-27 ORDER TAKER DEFINITION Which type of salesperson would routinely be involved in an industrial straight rebuy situation? a. an order taker b. an outside order getter c. a missionary salesperson d. a sales engineer e. all of the above Answer: a Page: 531 Learning Objective: 2 Rationale: Key term definition—order taker 20-28 ORDER TAKER CONCEPTUAL Which form of personal selling has the lowest requirement for problem solving? a. order taker b. order getter c. sales engineer d. missionary salesperson e. partnership selling Answer: a Page: 531 Learning Objective: 2 Rationale: Order takers, for the most part, do little selling in a conventional sense and engage in little problem solving with customers. 20-29 ORDER TAKER CONCEPTUAL Which of the following activities is NOT typically a responsibility of an order taker? a. processing of routine orders b. replenishing inventory of resellers c. soliciting new accounts d. answering simple questions e. completing customer transactions Answer: c Page: 531 Other Locations: web Learning Objective: 2 Rationale: The primary responsibility of order takers is to preserve an ongoing relationship with existing customers and maintain sales. Order solicitation is typically the responsibility of order getters.20-30 OUTSIDE ORDER TAKERS DEFINITION Salespeople called outside order takers visit customers and __________ of resellers, such as retailers and wholesalers. a. survey the technical problems b. identify targets of opportunity c. replenish inventory stocks d. investigate materials handling procedures e. discreetly observe personnel management Answer: c Page: 531 Learning Objective: 2 Rationale: Text term definition—outside order takers 20-31 INSIDE ORDER TAKERS DEFINITION Inside order takers are also called: a. managers. b. directors. c. missionaries. d. salesclerks. e. go-getters. Answer: d Page: 531 Other Locations: SG Learning Objective: 2 Rationale: Text term definition—inside order takers 20-32 INBOUND TELEMARKETING DEFINITION __________ is the use of toll-free telephone numbers that customers call to obtain information about products and make purchases. a. Inbound telemarketing b. Outbound telemarketing c. Outbound videoconferencing d. Interactive marketing e. Multichannel selling Answer: a Page: 531 Learning Objective: 2 Rationale: Text term definition—inbound telemarketing20-33 INBOUND TELEMARKETING APPLICATION On the television show West Wing, the president called the Butterball hotline to learn how to prepare his Thanksgiving turkey and dressing. The toll-free number that Butterball uses each holiday season to provide information on how to prepare turkey is an example of: a. inbound telemarketing. b. outbound telemarketing. c. outbound videoconferencing. d. interactive marketing. e. multichannel selling. Answer: a Page: 531 Learning Objective: 2 Rationale: Inbound telemarketing is the use of toll-free telephone numbers that customers call to obtain information about products and make purchases, what the president was doing. 20-34 INBOUND TELEMARKETING APPLICATION When Margot called the toll-free number to order one dozen water lilies from the Van Ness Water Gardens, she was using: a. inbound telemarketing. b. outbound telemarketing. c. outbound videoconferencing. d. interactive marketing. e. multichannel selling. Answer: a Page: 531 Learning Objective: 2 Rationale: Inbound telemarketing is the use of toll-free telephone numbers that customers call to obtain information about products and make purchases, exactly what Margot was doing. 20-35 INBOUND TELEMARKETING APPLICATION When Carol called the toll-free number to order two children’s books from the Chinaberry catalog, she was using: a. inbound telemarketing. b. outbound telemarketing. c. outbound videoconferencing. d. interactive marketing. e. multichannel selling. Answer: a Page: 531 Learning Objective: 2 Rationale: Inbound telemarketing is the use of toll-free telephone numbers that customers call to obtain information about products and make purchases, exactly what Margot was doing.20-36 ORDER TAKER APPLICATION On a recent shopping excursion at the local Target store, Jim Krause went from aisle to aisle selecting the products he needed. He bought a variety of products, including shampoo, toothpaste, a green plant for his office, and several pair of socks. Interestingly, the only salesperson Krause encountered was the person at the checkout counter. The checkout person at Target is an example of a(n): a. inside order taker. b. outside order taker. c. inside order getter. d. outside order getter. e. missionary salesperson. Answer: a Page: 531 Learning Objective: 2 Rationale: Inside order takers are also called sales clerks or order clerks. Inside order takers are not actively involved in the creative personal selling process. Rather, these salespeople answer simple questions of the consumer, check out the customer's purchases at the cash register, and otherwise facilitate the completion of marketing exchange. 20-37 ORDER GETTER DEFINITION An order getter is a: a. salesperson who specializes in identifying, analyzing, and solving customer problems, but who does not actually sell products and services. b. salesperson who processes routine orders or reorders for products that are presold by the company. c. salesperson who identifies prospective customers, provides customers with information, persuades customers to buy, closes sales, and follows up on a customer's use of a product or service. d. person on the selling team who are responsible for obtaining qualified leads. e. member of the sales support team who does not directly solicit orders but rather concentrates on performing promotional activities and introducing new products. Answer: c Page: 531 Learning Objective: 2 Rationale: Key term definition—order getter 20-38 ORDER GETTER DEFINITION A(n) __________ is a salesperson who sells in a conventional sense and identifies prospective customers, provides customers with information, persuades customers to buy, closes sales, and follows up on a customer's use of a product or service. a. order taker b. order getter c. missionary salesperson d. sales engineer e. team seller Answer: b Page: 531 Learning Objective: 2 Rationale: Key term definition—order getter 20-39 ORDER GETTER CONCEPTUALWhich of the following statements about order getters is true? a. Order getters often replenish a retailer’s inventories. b. Order getters handle orders obtained on inbound telemarketing. c. Order getters require considerable product knowledge. d. Order getters typically process reorders for products already sold by the company. e. All of the above statements about order getters are true. Answer: c Page: 531 Learning Objective: 2 Rationale: Order getters can be inside or outside. Order getting involves a high degree of creativity and customer empathy and is typically required for selling complex or technical products with many options, so considerable product knowledge and sales training are necessary. In modified rebuy or new-buy purchase situations an order getter acts as a problem solver who identifies how a particular product may satisfy a customer’s need. Order getting is expensive. The average cost of a single field sales call on a business customer is about $350. 20-40 ORDER GETTER CONCEPTUAL Which of the following statements about order getters is true? a. Order getters often replenish a retailer’s inventories. b. Order getters handle orders obtained on inbound telemarketing. c. Order getters need a high degree of creativity. d. Order getters typically process reorders for products already sold by the company. e. All of the above statements about order getters are true. Answer: c Page: 531 Learning Objective: 2 Rationale: Order getters can be inside or outside. Order getting involves a high degree of creativity and customer empathy and is typically required for selling complex or technical products with many options, so considerable product knowledge and sales training are necessary. In modified rebuy or new-buy purchase situations an order getter acts as a problem solver who identifies how a particular product may satisfy a customer’s need. Order getting is expensive. The average cost of a single field sales call on a business customer is about $350. 20-41 ORDER GETTER CONCEPTUAL Which of the following statements about order getters is true? a. Order getters often replenish a retailer’s inventories. b. Order getters handle orders obtained on inbound telemarketing. c. Order getters need a high degree of customer empathy. d. Order getters typically process reorders for products already sold by the company. e. All of the above statements about order getters are true. Answer: c Page: 531 Learning Objective: 2 Rationale: Order getters can be inside or outside. Order getting involves a high degree of creativity and customer empathy and is typically required for selling complex or technical products with many options, so considerable product knowledge and sales training are necessary. In modified rebuy or new-buy purchase situations an order getter acts as a problem solver who identifies how a particular product may satisfy a customer’s need. Order getting is expensive. The average cost of a single field sales call on abusiness customer is about $350. 20-42 ORDER GETTER CONCEPTUAL Which of the following statements about order getters is true? a. Order getters often replenish a retailer’s inventories. b. Order getters handle orders obtained on inbound telemarketing. c. Order getters are used in modified rebuy situations. d. Order getters typically process reorders for products already sold by the company. e. All of the above statements about order getters are true. Answer: c Page: 531-532 Learning Objective: 2 Rationale: Order getters can be inside or outside. Order getting involves a high degree of creativity and customer empathy and is typically required for selling complex or technical products with many options, so considerable product knowledge and sales training are necessary. In modified rebuy or new-buy purchase situations an order getter acts as a problem solver who identifies how a particular product may satisfy a customer’s need. Order getting is expensive. The average cost of a single field sales call on a business customer is about $350. 20-43 ORDER GETTER CONCEPTUAL Which of the following statements about order getters is true? a. Order getters often replenish a retailer’s inventories. b. Order getters handle orders obtained on inbound telemarketing. c. Order getters are the most expensive type of personal selling. d. Order getters typically process reorders for products already sold by the company. e. All of the above statements about order getters are true. Answer: c Page: 531-532 Learning Objective: 2 Rationale: Order getters can be inside or outside. Order getting involves a high degree of creativity and customer empathy and is typically required for selling complex or technical products with many options, so considerable product knowledge and sales training are necessary. In modified rebuy or new-buy purchase situations an order getter acts as a problem solver who identifies how a particular product may satisfy a customer’s need. Order getting is expensive. The average cost of a single field sales call on a business customer is about $350. 20-44 OUTBOUND TELEMARKETING DEFINITION __________ is the practice of using the telephone rather than personal visits to contact customers. a. Cross-docking b. Cold canvassing c. Buttonholing d. Outbound telemarketing e. Lobbying Answer: d Page: 532 Other Locations: SG Learning Objective: 2 Rationale: Text term definition—outbound telemarketing20-45 MISSIONARY SALESPEOPLE DEFINITION Missionary salespeople are: a. salespeople who specialize in identifying, analyzing, and solving customer problems, but who do not actually sell products and services. b. salespeople who process routine orders for products that are presold by the company. c. salespeople who identify prospective customers, provide customers with information, persuade customers to buy, close sales, and follow up on a customer's use of the product or service. d. people on the selling team who are responsible for obtaining qualified leads. e. sales support personnel who do not directly solicit orders but rather concentrate on performing promotional activities and introducing new products. Answer: e Page: 532 Learning Objective: 2 Rationale: Key term definition—missionary salespeople 20-46 MISSIONARY SALESPEOPLE DEFINITION __________ are sales support personnel who do NOT directly solicit orders but rather concentrate on performing promotional activities and introducing new products. a. Inside order takers b. Outside order getters c. Missionary salespeople d. Sales engineers e. Outside order getters Answer: c Page: 532 Learning Objective: 2 Rationale: Key term definition—missionary salespeople 20-47 MISSIONARY SALESPEOPLE CONCEPTUAL Which type of sales support personnel concentrate on performing promotional activities but generally do not solicit actual sales orders? a. missionary salespeople b. sales engineers c. outside order getters d. inside order getters e. sales managers Answer: a Page: 532 Learning Objective: 2 Rationale: Missionary salespeople do not directly solicit orders but rather concentrate on performing promotional activities and introducing new products.20-48 MISSIONARY SALESPEOPLE APPLICATION Norma Adler works for Tyco Healthcare. Her job is to visit hospitals and meet with staff to explain the equipment that Tyco manufactures for use in operating rooms. Although Adler is part of her company's sales force, she does not directly solicit orders. Adler is what type of salesperson? a. an inside order taker b. an outside order getter c. a missionary salesperson d. a sales engineer e. a sales team coordinator Answer: c Page: 532 Learning Objective: 2 Rationale: Missionary salespeople do not attempt to make sales directly to clients. Rather, these salespeople call on clients and provide information about the products offered by the salesperson's company. 20-49 SALES ENGINEER DEFINITION A(n) __________ is a salesperson who specializes in identifying, analyzing, and solving customer problems and brings know-how and technical expertise to the selling situation, but often does not actually sell products and services. a. order taker b. order getter c. missionary salesperson d. sales engineer e. sales manager Answer: d Page: 532 Learning Objective: 2 Rationale: Key term definition—sales engineer 20-50 SALES ENGINEER DEFINITION A sales engineer is a(n): a. salesperson who specializes in identifying, analyzing, and solving customer problems and brings know-how and technical expertise to the selling situation, but often does not actually sell products and services. b. salesperson who processes routine orders or reorders for products that are presold by the company. c. salesperson who identifies prospective customers, provides customers with information, persuades customers to buy, closes sales, and follows up on a customer's use of a product or service. d. person on the selling team who are responsible for supervising his or her company's R&D expenditures. e. member of the sales support team who does not directly solicit orders but rather concentrates on performing promotional activities and introducing new products. Answer: a Page: 532 Other Locations: web Learning Objective: 2 Rationale: Key term definition—sales engineer20-51 TEAM SELLING APPLICATION TransWave International is a company that markets patented electronic sensors as an early warning device for locating potential problems with buried pipelines. TransWave sends an environmental expert, a safety engineer, a legal representative to explain new regulations enacted by the U.S. Office of Pipeline Safety, and an experienced pipeline expert when it meets with a prospect. This is an example of how TransWave uses: a. order taking. b. order getting. c. need-satisfaction selling. d. sales engineering. e. team selling. Answer: e Page: 532 Learning Objective: 2 Rationale: Team selling is the practice of using an entire team of professionals in selling to and serving major customers. 20-52 TEAM SELLING DEFINITION __________ is the practice of using an entire team of professionals in selling to and serving major customers. a. Cooperative selling b. Missionary sales c. Sales engineering d. Team selling e. Value selling Answer: d Page: 532 Learning Objective: 2 Rationale: Key term definition—team selling 20-53 TEAM SELLING APPLICATION Team selling would most likely be used when a company is selling a(n): a. file cabinet. b. washing machine. c. dining room table. d. four-wheel drive sports utility vehicle (SUV). e. numerically-controlled milling machine. Answer: e Page: 532 Learning Objective: 2 Rationale: Team selling is used when specialized knowledge is needed to satisfy the different interests of individuals in a buying center, such as a numerically-controlled milling machine purchased by a business.20-54 TEAM SELLING CONCEPTUAL When specialized knowledge is needed by members of a customer's buying center, selling companies often rely on: a. order taking. b. order getting. c. need-satisfaction selling. d. sales people. e. team selling. Answer: e Page: 532 Learning Objective: 2 Rationale: Team selling is the practice of using an entire team of professionals in selling to and serving major customers. 20-55 MARKETING NEWSNET APPLICATION DuPont assigned chemists, sales and marketing executives, and regulatory specialists to create an herbicide for corn growers that recorded sales of $57 million in its first year. This type of sales approach is called: a. adaptive selling. b. missionary selling. c. personal selling. d. team selling. e. formula selling. Answer: d Page: 533 Learning Objective: 2 Rationale: The DuPont team developed the herbicide together for their customers, corn growers. This is called team selling, the practice of using an entire team of professionals in selling to and servicing major customers. 20-56 MARKETING NEWSNET DEFINITION The increasing importance of nurturing long-term and widespread relationships with customers has led many firms to adopt a selling approach, which uses several professionals to make a sale and win a contract. This approach is called: a. cooperative selling. b. team selling. c. missionary selling. d. account management. e. the augmented sales force approach. Answer: b Page: 533 Other Locations: SG Learning Objective: 2 Rationale: Key term definition—team selling20-57 CONFERENCE SELLING/SEMINAR SELLING DEFINITION Two types of team selling are: a. conference selling and seminar selling. b. augmented selling and integrated selling. c. enterprise partnerships and strategic alliances. d. cross-functional teams and cross-hierarchical teams. e. network selling and matrix selling. Answer: a Page: 532-533 Learning Objective: 2 Rationale: Text term definitions—conference selling and seminar selling 20-58 SEMINAR SELLING APPLICATION FloNetwork, Inc. is a company that has developed automation solutions for electronic marketing. Its software is able to handle all aspects of permission marketing-based campaigns from list generation and e-mail deployment to real-time tracking and in-depth analysis. To sell its system, the company conducts educational programs targeted to the technical staff in a prospective customer's information technology (IT) department. In this situation, FloNetworks uses: a. trial close selling. b. seminar selling. c. conference selling. d. sales managed selling. e. need-satisfaction selling. Answer: b Page: 533 Learning Objective: 2 Rationale: Seminar selling is a type of team selling that involves conducting an educational program for technical people in the buying organization. 20-59 CONFERENCE SELLING DEFINITION __________ is a method of selling in which a salesperson and other company resource people meet with buyers to discuss problems and opportunities. a. Conference selling b. Team selling c. Seminar selling d. Outbound telemarketing e. Mass selling Answer: a Page: 533 Learning Objective: 2 Rationale: Text term definition—conference selling20-60 SEMINAR SELLING DEFINITION Seminar selling is a method of personal selling in which: a. the company invests time in the eighty percent of its customers that make up twenty percent of its sales to try to increase its market share. b. a group of the organization's resource people conducts a product demonstration and training seminar for all major customers. c. salespeople and other company resource people meet with buyers to discuss problems and opportunities. d. a company sales team conducts an educational program for a customer's technical staff to describe state-of-the-art developments. e. a company selling services tries to overcome the problems associated with the intangibility of service. Answer: d Page: 533 Learning Objective: 2 Rationale: Text term definition—seminar selling 20-61 PERSONAL SELLING APPLICATION John Whitaker works for American Greetings. Included in his job description are the following responsibilities: (1) stock and arrange point-of-purchase displays of present customers—60 percent of his work week; and (2) receive orders from customers and complete the transactions—40 percent of his work week. What form of personal selling is Whitaker engaged in? a. outside order taking b. relationship selling c. inside order taking d. order getting e. all of the above Answer: a Page: 531 Learning Objective: 2 Rationale: The person's job description involves outside order taking, stacking inventory and routine order taking. 20-62 PERSONAL SELLING PROCESS DEFINITION __________ consists of the following six stages: prospecting, preapproach, approach, presentation, close, and follow-up. a. The product marketing process b. The strategic marketing process c. The personal selling process d. The consumer purchase decision process e. Relational selling. Answer: c Page: 533 Learning Objective: 3 Rationale: Key term definition personal selling process20-63 PROSPECTING DEFINITION At which stage in the personal selling process does a salesperson search for and qualify potential customers? a. prospecting b. preapproach c. introduction d. initial canvassing e. planning stage Answer: a Page: 534 Learning Objective: 3 Rationale: Text term definition—prospecting 20-64 PROSPECTING APPLICATION In the personal selling process, a telemarketer who calls and asks the head of the household, ―If you were to die tomorrow, would your family be cared for?‖ is engaged in: a. stimulus-response selling. b. closing the sale. c. prospecting. d. order taking. e. creating a preapproach. Answer: c Page: 534 Learning Objective: 3 Rationale: The telemarketer is looking for leads, or ―prospecting,‖ which is the first step of the personal selling process. 20-65 PROSPECTING APPLICATION Encyclopedia Britannica pays to have a business reply card bound into magazines adjacent to its advertisement. The ad asks people to return the card for more information on how its encyclopedias can help children do better in school. Encyclopedia Britannica is engaging in: a. cold-canvassing. b. order taking. c. sales follow-up. d. gold-mining. e. prospecting. Answer: e Page: 534 Other Locations: web Learning Objective: 3 Rationale: Encyclopedia Britannica is looking for leads, or ―prospecting,‖ which is the first step of the personal selling process.20-66 PROSPECTING CONCEPTUAL During the prospecting stage of the personal selling process, salespeople will deal with: a. leads, prospects, and customers. b. leads, prospects, and clients. c. leads, prospects, and qualified prospects. d. leads, qualified prospects, and competitors' salespeople. e. customers, qualified prospects, and competitors' salespeople. Answer: c Page: 534 Learning Objective: 3 Rationale: A lead is the name of a person who may be a possible customer. A prospect is a customer who wants or needs the product. If an individual wants the product, can afford to buy it, and is the decision maker, this individual is a qualified prospect. When the individual becomes a customer or client, the process has moved beyond the prospecting stage. Competitors' salespeople are not involved. 20-67 PROSPECTING CONCEPTUAL Which of the following statements describes the major difference between a prospect and a qualified prospect? a. Prospects are more likely than qualified prospects to become customers. b. During the sales presentation, prospects are more likely to raise objections than qualified prospects. c. There are far more qualified prospects than prospects. d. Qualified prospects have not only the need or desire for your product, but they have the ability and authority to purchase it; prospects are missing either ability, or the authority to purchase. e. The only difference between a prospect and a qualified prospect is that a qualified prospect has purchased your product in the past, and a prospect has not. Answer: d Page: 534 Learning Objective: 3 Rationale: A qualified prospect wants the product, is the decision maker, and has the ability to buy it. 20-68 QUALIFIED PROSPECT DEFINITION A(n) __________ is an individual or organization that wants a product, can afford to buy it, and is the decision maker: a. opinion leader b. lead c. prospect d. qualified prospect e. gatekeeper Answer: d Page: 534 Learning Objective: 3 Rationale: Text term definition—qualified prospect20-69 LEAD DEFINITION A(n) __________ is the name of a person who may be a possible customer. a. opinion leader b. lead c. prospect d. qualified prospect e. gatekeeper Answer: b Page: 534 Learning Objective: 3 Rationale: Text term definition—lead 20-70 PROSPECT DEFINITION A(n) __________ is a customer who wants or needs the product. a. opinion leader b. lead c. prospect d. qualified prospect e. gatekeeper Answer: c Page: 534 Learning Objective: 3 Rationale: Text term definition—prospect 20-71 COLD CANVASSING APPLICATION Louisa wanted to make some extra money, so she went door-to-door in her neighborhood asking people if they had any small jobs that they could hire her to perform. Louisa had no idea of whether anyone had any jobs for her, and she picked the doors she knocked on randomly. In terms of the selling process, Louisa was engaged in __________ when she knocked on a door. a. stimulus response selling b. the preapproach c. cold canvassing d. closing e. traffic generation Answer: c Page: 534 Learning Objective: 3 Rationale: Louisa is doing cold canvassing, an approach to generating leads.20-72 PROSPECTING CONCEPTUAL During the prospecting stage of personal selling, a salesperson might be encouraged which of the following? a. create a desire for the product or service b. gain the prospect’s attention c. try to find out the customers' important buying criteria d. use cold canvassing approach e. stimulate the customer’s interest Answer: d Page: 534 Learning Objective: 3 Rationale: In the prospecting stage the objective is to search for and qualify prospects using several sources: advertising with a coupon or a toll-free number; exhibits at trade shows and conferences; using the Internet including websites, e-mail, bulletin boards, and newsgroups; and cold canvassing. 20-73 PROSPECTING CONCEPTUAL During the prospecting stage of personal selling, a salesperson might be encouraged which of the following? a. create a desire for the product or service b. gain the prospect’s attention c. try to find out the customers' important buying criteria d. advertise with a coupon that includes a toll-free number e. stimulate the customer’s interest Answer: d Page: 534 Learning Objective: 3 Rationale: In the prospecting stage the objective is to search for and qualify prospects using several sources: advertising with a coupon or a toll-free number; exhibits at trade shows and conferences; using the Internet including websites, e-mail, bulletin boards, and newsgroups; and cold canvassing. 20-74 PROSPECTING CONCEPTUAL During the prospecting stage of personal selling, a salesperson might be encouraged which of the following? a. create a desire for the product or service b. gain the prospect’s attention c. try to find out the customers' important buying criteria d. set up an exhibit at a trade show e. stimulate the customer’s interest Answer: d Page: 534 Learning Objective: 3 Rationale: In the prospecting stage the objective is to search for and qualify prospects using several sources: advertising with a coupon or a toll-free number; exhibits at trade shows and conferences; using the Internet including websites, e-mail, bulletin boards, and newsgroups; and cold canvassing.20-75 COLD CANVASSING APPLICATION Russ Berry Company is a company that makes gifts and collectibles. When its southeastern sales rep is driving through a community on her way to make a sales call, she looks for small independent florists and gift shops. When she finds a retailer she knows is not carrying Russ products, she stops and makes a sales call. The company's sales rep uses _________ to find prospects. a. stimulus response selling b. the preapproach c. cold canvassing d. cross-docking e. traffic generation Answer: c Page: 534 Learning Objective: 3 Rationale: Cold canvassing is a form of prospecting in which the salesperson makes a sales call without any previous knowledge of the person upon which the call is made. 20-76 PROSPECTING APPLICATION Alice Faulkner is a professional salesperson. She earns her living by selling advertising for The New York Times newspaper. In addition to selling advertising to her regular accounts, Alice is responsible for generating new advertising accounts for the newspaper. In order to fulfill her responsibilities, Faulkner works hard to make sure the potential customers she sells to are qualified prospects. How can Faulkner know if the prospects she is selling to are qualified prospects? a. Qualified prospects have an interest in buying display advertising in the paper. b. Qualified prospects have the money to buy display advertising in the paper. c. Qualified prospects have the authority to make the decision to buy the advertising. d. Qualified prospects have a need for the advertising, can afford to buy it, and have the authority to make the purchase decision. e. Qualified prospects read the newspaper daily and recognize that it is a good advertising medium. Answer: d Page: 534 Learning Objective: 3 Rationale: A qualified prospect wants the product, can afford to buy it, and has the authority to decide to buy it.20-77 COLD CANVASSING CONCEPTUAL Which of the following statements about cold canvassing is true? a. Federal regulations of cold canvassing require complete disclosure, curb early morning or late night calling, and impose fines for violations. b. Some 75 percent of U.S. consumers consider cold canvassing an intrusion on their privacy. c. The refusal rate is high, but this approach can be successful. d. Cold calling is frowned upon in most Asian and Latin American societies. e. All of the above statements about cold canvassing are true. Answer: e Page: 535 Learning Objective: 3 Rationale: Alternatives a, b, and d describe concerns about cold convassing while alternative c describes the main reason for it. 20-78 PREAPPROACH DEFINITION At which stage in the personal selling process would the salesperson obtain further information on the prospect and decide on the best method of approach? a. prospecting b. preapproach c. approach d. presentation e. close Answer: b Page: 534; Fig. 20-3 Learning Objective: 3 Rationale: Text term definition—preapproach 20-79 PREAPPROACH CONCEPTUAL What would occur at the preapproach stage in an industrial selling situation? a. The order getter would make initial contact with the order taker. b. The search for and qualification of prospects. c. The initial meeting would occur and business would be discussed. d. A decision would be made concerning whether the sale was to be a straight rebuy, a modified rebuy, or a new buy. e. The buying role of the prospect, important buying criteria, and the prospect's receptivity to a presentation would be determined. Answer: e Page: 535 Learning Objective: 3 Rationale: For industrial products the preapproach involves identifying the buying role of a prospect, important buying criteria, and the prospect's receptivity to a formal or informal presentation.20-80 PREAPPROACH CONCEPTUAL Identifying the buying role of the prospect would be typically done at the __________ stage of the personal selling process a. prospecting b. preapproach c. approach d. presentation e. closing Answer: b Page: 535 Learning Objective: 3 Rationale: The preapproach stage focuses on determining the proper approach and presentation procedure. 20-81 PREAPPROACH APPLICATION During the __________ stage of personal selling, a salesperson would learn if her prospect liked to talk about sports before getting down to business or preferred to waste no time with idle chatter. a. prospecting b. preapproach c. approach d. presentation e. closing Answer: b Page: 535 Learning Objective: 3 Rationale: The preapproach stage focuses on determining the proper approach and presentation procedure. 20-82 APPROACH DEFINITION At the __________ stage in the personal selling process, a salesperson gains a prospect's attention, stimulates interest, and builds the foundation for the sales presentation itself. a. prospecting b. preapproach c. approach d. qualifying e. trial close Answer: c Page: 536 Other Locations: SG Learning Objective: 3 Rationale: Text term definition—approach20-83 APPROACH DEFINITION In the __________ stage of the personal selling process the first impression is critical. a. prospecting b. preapproach c. approach. d. close e. follow-up Answer: c Page: 536 Learning Objective: 3 Rationale: Text term definition—approach 20-84 APPROACH APPLICATION At the __________ stage in the personal selling process, a salesperson's physical appearance, speech habits, personality, and even hygiene will have the greatest effect. a. prospecting b. preapproach c. approach d. presentation e. close Answer: c Page: 536 Learning Objective: 3 Rationale: The approach stage involves the initial meeting between the salesperson and prospect. The first impression is critical at this stage. 20-85 PRESENTATION DEFINITION At the __________ stage in the personal selling process, a salesperson begins converting a prospect into a customer by creating a desire for the product or service he or she is selling. a. preapproach b. approach c. presentation d. close e. follow-up Answer: c Page: 536 Other Locations: web Learning Objective: 3 Rationale: Text term definition—presentation20-86 PRESENTATION DEFINITION Three major presentation formats exist: (1) __________, (2) formula selling format, and (3) need-satisfaction format. a. cold call format b. stimulus-response format c. stimulus-satisfaction format d. stimulus-selling format e. persuasive sales format Answer: b Page: 536 Learning Objective: 3 Rationale: Three major presentation formats exist: (1) stimulus-response format, (2) formula selling format, and (3) need-satisfaction format. 20-87 PRESENTATION DEFINITION Three major presentation formats exist: (1) stimulus-response format, (2) __________, and (3) need-satisfaction format. a. cold call format b. formula selling format c. stimulus-satisfaction format d. stimulus-selling format e. persuasive sales format Answer: b Page: 536 Learning Objective: 3 Rationale: Three major presentation formats exist: (1) stimulus-response format, (2) formula selling format, and (3) need-satisfaction format. 20-88 PRESENTATION DEFINITION Three major presentation formats exist: (1) stimulus-response format, (2) formula selling format, and (3) __________. a. cold call format b. need-satisfaction format c. stimulus-satisfaction format d. stimulus-selling format e. persuasive sales format Answer: b Page: 536 Learning Objective: 3 Rationale: Three major presentation formats exist: (1) stimulus-response format, (2) formula selling format, and (3) need-satisfaction format.20-89 STIMULUS-RESPONSE PRESENTATION DEFINITION The __________ is a selling format based on the assumption that if given the appropriate stimulus by the salesperson, the prospect will buy. a. formula selling presentation b. stimulus-response presentation c. stimulus -satisfaction presentation d. stimulus-selling presentation e. persuasive sales presentation Answer: b Page: 536 Learning Objective: 3 Rationale: Key term definition—stimulus-response presentation 20-90 STIMULUS-RESPONSE PRESENTATION DEFINITION Suggestive selling is a type of: a. formula selling presentation. b. stimulus-response presentation. c. needs-satisfaction presentation. d. hard sell presentation. e. formalized sales presentation. Answer: b Page: 536 Learning Objective: 3 Rationale: Key term definition—stimulus-response presentation 20-91 SUGGESTIVE SELLING APPLICATION A waitress at a Cracker Barrel restaurant is using __________ when she asks a family if they have left any room for dessert. a. inquiry selling b. suggestive selling c. formula selling d. method selling e. need-satisfaction selling Answer: b Page: 536 Learning Objective: 3 Rationale: Suggestive selling, a form of stimulus-response presentation, involves suggesting an initial or additional purchase.20-92 STIMULUS-RESPONSE FORMAT APPLICATION A waitress at a Chili’s restaurant is using __________ when she asks a family if they have left any room for dessert. a. stimulus-response selling b. formula-selling c. need-satisfaction d. consultative selling e. a transactional sales presentation Answer: a Page: 536 Learning Objective: 3 Rationale: The stimulus-response format assumes that given the appropriate stimulus by the salesperson, the prospect will buy. Offering the dessert is suggestive selling, a form of stimulus response format. 20-93 FORMULA SELLING PRESENTATION DEFINITION A selling format that assumes a presentation consists of information that must be provided in an accurate, thorough, and step-by-step manner to inform the prospect is called a: a. formula selling presentation. b. stimulus-response presentation. c. needs-satisfaction presentation. d. hard sell. e. straight rebuy pitch. Answer: a Page: 536-537 Learning Objective: 3 Rationale: Key term definition—formula selling presentation 20-94 FORMULA SELLING PRESENTATION APPLICATION When Tracy went to work as a new sales rep for Paradise Candles, she was told to use the following speech in her sales presentations: ―Hello, __(Mr./Mrs. customer name.__, my name is __(your name here)__. I'm calling for Paradise Candles. We carry the best waxburning mechanical candles available in the commercial decorating industry. . . ." Paradise instructed Tracy to use: a. a formula selling presentation. b. a stimulus-response presentation. c. a needs-satisfaction presentation. d. suggestive selling. e. consultative selling. Answer: a Page: 536-537 Learning Objective: 3 Rationale: Formula selling is a format that consists of providing information in an accurate, thorough, step-by-step manner to inform the prospect. One form of formula selling is the canned sales presentation, which is a memorized, standardized message, conveyed to every prospect—what Tracy is using here.20-95 CANNED SALES PRESENTATION DEFINITION A memorized, standardized message conveyed to every prospect is called a: a. stimulus-response presentation. b. straight rebuy pitch. c. canned sales presentation. d. regulated sales format. e. standardized sales format. Answer: c Page: 538 Rationale: Text term definition—canned sales presentation 20-96 CANNED SALES PRESENTATION CONCEPTUAL Which type of sales presentation would be suitable for an inexperienced, less knowledgeable salesperson? a. need-satisfaction presentation b. canned sales presentation c. stimulus-response presentation d. cold canvassing e. assumptive close Answer: b Page: 537 Learning Objective: 3 Rationale: Canned sales presentations can be advantageous when the differences between prospects are unknown, or with novice salespeople who are less knowledgeable about the product and selling process than experienced salespeople. 20-97 CANNED SALES PRESENTATION CONCEPTUAL Which of the following statements describes a major drawback associated with canned sales presentations? a. There is too little information provided with a canned sales presentation. b. A canned sales presentation is difficult for inexperienced salespeople to use. c. A canned sales presentation allows little room for customer feedback. d. A canned sales presentation is too expensive and time consuming. e. With a canned sales presentation, there is a lack of consistency if more than one salesperson calls on the same customer. Answer: c Page: 537 Learning Objective: 3 Rationale: Although a canned sales presentation guarantees a comprehensive presentation, it lacks flexibility and spontaneity, and more importantly, does not provide feedback from the prospective buyer, a critical component of the communication process.20-98 NEED-SATISFACTION PRESENTATION DEFINITION The __________ is a selling format that emphasizes probing and listening by salespeople to identify what prospective buyers are interested in, want, and need. a. formula selling presentation b. stimulus-response presentation c. need-satisfaction presentation d. modified rebuy presentation e. straight rebuy presentation Answer: c Page: 537 Other Locations: SG Learning Objective: 3 Rationale: Key term definition—need-satisfaction presentation 20-99 NEED-SATISFACTION PRESENTATION CONCEPTUAL Which type of personal selling presentation is the most consistent with the marketing concept? a. stimulus-response presentation b. formula selling presentation c. need-satisfaction presentation d. straight rebuy presentation e. canned sales presentation Answer: c Page: 537 Learning Objective: 3 Rationale: The need-satisfaction presentation emphasizes probing and listening by the salesperson to identify needs and interests of prospective buyers. This format, which emphasizes problem solving, is the most consistent with the marketing concept. 20-100 NEED-SATISFACTION PRESENTATION CONCEPTUAL Two selling styles associated with the need-satisfaction presentation format are: a. adaptive selling and confrontational selling. b. suggestive selling and supportive selling. c. adaptive selling and suggestive selling. d. adaptive selling and consultative selling. e. suggestive selling and consultative selling. Answer: d Page: 537 Learning Objective: 3 Rationale: Adaptive selling and consultative selling are used for industrial products such as computers and heavy equipment. Many consumer product firms also use these approaches.20-101 NEED-SATISFACTION PRESENTATION APPLICATION The car salesman was overheard having the following conversation with a prospective customer: "What type of driving do you do?‖ ―How many people will you usually have riding in your car?‖ ―Maybe, you should look at vans instead of sedans." From this information, you should recognize the car salesman was using a: a. stimulus-response presentation. b. formula selling presentation. c. need-satisfaction presentation. d. persuasive selling presentation. e. canned sales presentation. Answer: c Page: 536 Learning Objective: 3 Rationale: The need-satisfaction presentation emphasizes identifying needs and interests of prospective buyers and problem solving. 20-102 NEED-SATISFACTION PRESENTATION APPLICATION Bob Doe, known as "Battery Bob", is the national sales manager for Duracell batteries. Duracell has lost its market share lead to Eveready and the "Energizer Bunny". At present, Wal-Mart only carries Eveready batteries. Battery Bob has "knocked on the door" for three years trying to get a meeting with the Wal-Mart buyer for consumer electronics products. Last week, she agreed to one presentation of a new marketing and advertising program developed by Duracell to "make mince-meat out of that rabbit!" Based on the relationship developed thus far, Battery Bob believes Wal-Mart requires a unique presentation to convince it that Duracell markets not only a better battery, but that Duracell has the marketing savvy and creativity to surpass Eveready and resume its position as the market leader. Which of the following sales presentations would have the greatest likelihood of converting Wal-Mart into a customer? a. suggestive selling b. consultative selling c. formula selling d. need-satisfaction selling e. adaptive selling Answer: d Page: 536 Learning Objective: 3 Rationale: Alternative a is not correct because Battery Bob will only have one chance to present to Wal-Mart; he does not have the opportunity to suggest appeal after appeal. Alternative b is incorrect because Battery Bob already has diagnosed the problem and its solution. Alternative c is not correct because a systematic recitation of product information is not the purpose of the sales presentation. Alternative e is incorrect because Battery Bob already knows he can offer only one solution and will not have the opportunity to ask for more information to tailor the sales presentation to fit the selling situation.20-103 ADAPTIVE SELLING DEFINITION __________ involves adjusting the presentation to the selling situation, such as knowing when to offer solutions and when to ask for more information. a. Suggestive selling b. Relationship selling c. Adaptive selling d. Consultative selling e. Proactive selling Answer: c Page: 537 Other Locations: web Learning Objective: 3 Rationale: Key term definition—adaptive selling 20-104 ADAPTIVE SELLING APPLICATION As a salesperson asks questions about a prospect's transportation system, the prospect asks, "What I really want is reliable transportation at the lowest price I can get." The salesperson stops asking questions and pulls out a comparative price list that shows her company's transportation is the lowest priced and most reliable on the market. The salesperson has engaged in: a. adaptive selling. b. suggestive selling. c. formula selling. d. consultative selling. e. relationship selling. Answer: a Page: 537 Learning Objective: 3 Rationale: Adaptive selling involves being flexible enough to know when to offer solutions and when to ask for more information—the situation here. 20-105 CONSULTATIVE SELLING DEFINITION Consultative selling: a. focuses on problem identification, where the salesperson serves as an expert on problem recognition and resolution. b. involves hiring sales experts or consultants to help an organization in its personal selling efforts. c. is the activity involved in team selling. d. emphasizes probing and listening by the salesperson to identify needs and interests of prospective buyers. e. involves adjusting the presentation by knowing when to offer solutions and when to ask for more information. Answer: a Page: 537 Learning Objective: 3 Rationale: Key term definition—consultative selling20-106 NEED SATISFACTION FORMAT APPLICATION Davidson-Uphoff & Company sells ironware accessories for home and garden to retailers. The salespeople for this company are trained to ask probing questions such as ―What are the decorating trends in this region?‖ and ―What are you doing to take advantage of this trend?‖ This company trains its salespeople to develop a sales presentation style that emphasizes the needs and wants of its retailers. Once key needs have been uncovered, the salesperson is taught to tailor his or her sales presentation so that the retailer can see why he or she should carry Davidson-Uphoff products. Davidson-Uphoff's salespeople are learning the __________ selling format. a. need-satisfaction b. formula c. stimulus-response d. creative e. problem resolution Answer: a Page: 537 Learning Objective: 3 Rationale: Salespeople using the need-satisfaction presentation format ask questions and listen and then build their presentation around the customer's needs as indicated by their responses to the questions—the situation in this case. 20-107 OBJECTIONS DEFINITION Excuses for not making a purchase commitment or decision are called: a. rationalizations. b. constraints. c. objections. d. refusals. e. qualifications. Answer: c Page: 537 Learning Objective: 3 Rationale: Text term definition—objections 20-108 HANDLING OBJECTIONS APPLICATION Which of the following statements should the salesperson use to acknowledge and convert the prospect's objection into a reason for buying? a. "I think I might be able to explain that better to you after showing you this diagram." b. "Yes, you're right, it is lighter, but that is done intentionally to make your work easier." c. "That's true. It does have a shorter shelf life, but that hasn't really been a problem. It is so popular it never gets to stay on the shelf that long anyway." d. "Where did you hear that? Your source must have erroneous information." e. "As I was saying, . . . " Answer: b Page: 537 Learning Objective: 3 Rationale: This technique involves using the objection as a reason for buying, the situation with alternative b.20-109 HANDLING OBJECTIONS APPLICATION Which of the following statements should the salesperson use to postpone a prospect's objection? a. "I think I might be able to explain that better to you after showing you this diagram." b. "Yes, you're right, it is lighter, but that is done intentionally to make your work easier." c. "That's true. It does have a shorter shelf life, but that hasn't really been a problem. It is so popular it never gets to stay on the shelf that long anyway." d. ―Where did you hear that? Your source must have erroneous information.‖ e. "As I was saying, . . . " Answer: a Page: 538 Learning Objective: 3 Rationale: The postpone technique described in alternative a is used when the objection will be dealt with later in the presentation. 20-110 HANDLING OBJECTIONS APPLICATION During the sales presentation, the prospect interrupted the salesperson's presentation and said, "Wait a minute; this looks like it's going to cost too much." The salesperson responded, "I think you'll be delighted with how relatively inexpensive this program is. I'll address the subject of price in just a moment." Which objection-handling technique has the salesperson used? a. Acknowledge and convert the objection b. Postpone c. Agree and neutralize d. Denial e. Ignore the objection Answer: b Page: 538 Learning Objective: 3 Rationale: ―Postponing,‖ as a way of handling objections, is described in this example. 20-111 HANDLING OBJECTIONS APPLICATION Which of the following statements should the salesperson use to agree with and neutralize an objection? a. "I think I might be able to explain that better to you after showing you this diagram." b. "Yes, you're right, it is lighter, but that is done intentionally to make your work easier." c. "That's true. It does have a shorter shelf life, but that hasn't really been a problem. It is so popular it never gets to stay on the shelf that long anyway." d. "Where did you hear that? Your source must have erroneous information." e. "As I was saying, . . . " Answer: c Page: 537 Other Locations: SG Learning Objective: 3 Rationale: A salesperson agrees with the objection and then shows that it is unimportant with the ―agree and neutralize‖ method, used here.20-112 HANDLING OBJECTIONS APPLICATION Which of the following statements should the salesperson use to accept the objection? a. "I think I might be able to explain that better to you after showing you this diagram." b. "I think you have a point there; do you have any idea how we can improve that situation?" c. "That's completely misconstrued. It does have a shorter shelf life, but I would say it was an advantage because it never gets to stay on the shelf very long." d. "Where did you hear that? Your source must have erroneous information." e. "As I was saying, . . . " Answer: b Page: 538 Learning Objective: 3 Rationale: Sometimes an objection is valid. The salesperson should allow the prospect to express those views and attempt to stimulate further discussion on the objection in the ―accept the objection‖ strategy used here. 20-113 HANDLING OBJECTIONS APPLICATION " You respond by saying courteously, "You're absolutely right, and I am going to make it my business to be sure that never happens again." Which method have you used to handle the customer's objection? a. postponing b. denying c. agreeing and neutralizing d. ignoring e. converting Answer: c Page: 538 Other Locations: web Learning Objective: 3 Rationale: The salesperson agrees with the objection, then shows that it is unimportant in the ―agreeing and neutralizing‖ strategy used here. 20-114 HANDLING OBJECTIONS APPLICATION Which of the following statements should the salesperson use as a denial response to a prospect's objection? a. "I think I might be able to explain that better to you after showing you this diagram." b. "I think you have a point there; do you have any idea how we can improve that situation?" c. "That's true. It does have a shorter shelf life, but that hasn't really been a problem. It is so popular it never gets to stay on the shelf that long anyway." d. "Where did you hear that? Your source must have erroneous information." e. "As I was saying, . . . " Answer: d Page: 538 Learning Objective: 3 Rationale: When the prospect's objection is clearly untrue, it is wise to meet the objection head on with a firm denial, the ―denial‖ strategy in alternative d.20-115 HANDLING OBJECTIVES APPLICATION Which of the following statements should the salesperson use if he wished to ignore the objection? a. "I think I might be able to explain that better to you after showing you this diagram." b. "I think you have a point there; do you have any idea how we can improve that situation?" c. "That's true. It does have a shorter shelf life, but that hasn't really been a problem. It is so popular it never gets to stay on the shelf that long anyway." d. "Where did you hear that? Your source must have erroneous information." e. "As I was saying, . . . " Answer: e Page: 538 Learning Objective: 3 Rationale: This technique of ―ignore the objection‖ is used when it appears that the objection is a stalling mechanism or is clearly not important to the prospect. 20-116 HANDLING OBJECTIONS APPLICATION Doug Ames sells Mercedes Benz automobiles. While making his sales presentation to a newly qualified prospect, the prospect said, "Doug, I would really like to buy the car, but, you know, the price of the automobile is just too high". In order to answer the prospect's objection, Ames responded, "Sir, you are correct. The price of the Mercedes Benz automobile is high because of what you are getting for that price. . . . ". Ames then proceeded to describe the quality of the materials used in the car, the high resale value of the car, the dependability, and the prestige associated with the Mercedes Benz. What technique did Ames use to handle the prospect's objection? a. the postpone technique b. the agree and neutralize technique c. the denial technique d. the accept the objection technique e. the acknowledge and convert technique Answer: e Page: 538 Learning Objective: 3 Rationale: In this situation, ―acknowledge and convert,‖ the salesperson attempts to turn the client's objection into a reason for buying. This is accomplished by acknowledging the reason for the objection and then providing information that shows the consumer that the reason for the objection is actually a reason to buy.20-117 MARKETING NEWSNET CONCEPTUAL When marketing to Asian countries, global marketers must be aware that a "yes" may have multiple meanings in these countries. A ―yes‖ used by a prospect from an Asian culture can: a. convey that a presentation is understood and agreed to. b. convey that a presentation is understood but not agreed to. c. simply an acknowledgment that the other person is talking but the listener does not understand the communication. d. convey that a presentation is understood but other people must be consulted before any commitment is possible. e. mean any or all of the above. Answer: e Page: 538 Other Locations: SG Learning Objective: 3 Rationale: The Marketing NewsNet cites alternatives a through d as examples of the need to communicate effectively in other cultures—such as East Asia. 20-118 CLOSING DEFINITION At which stage of the personal selling process would a salesperson obtain a purchase commitment from the prospect? a. approach b. presentation c. close d. follow-up e. sale Answer: c Page: 538 Learning Objective: 3 Rationale: Text term definition—closing 20-119 CLOSING CONCEPTUAL Three closing techniques are used when a salesperson believes a buyer is about ready to make a purchase. They are __________ closes. a. assumptive, trial, and presumptive b. presumptive, trial, and final c. trial, assumptive, and urgency d. trial, final, and urgency e. assumptive, presumptive, and final Answer: c Page: 538 Learning Objective: 3 Rationale: The close itself can take three forms: (1) trial close, (2) assumptive close, and (3) urgency close.20-120 CLOSING APPLICATION When a salesperson in the computer store asks, "Will that be a charge or cash?" he has executed which stage of the selling process? a. approach b. presentation c. handling objections d. closing e. follow-up Answer: d Page: 538 Learning Objective: 3 Rationale: ―Closing‖ in the selling process involves obtaining a purchase commitment from the prospect—what the computer salesperson is doing in the example. 20-121 CLOSING APPLICATION Russ Berry Company sells stuffed animals and holiday gifts. When its salesperson asks a retailer, ―Do you want to order the two dozen assorted bears or two dozen white-only bears‖ he has executed which stage of the selling process? a. approach b. presentation c. handling objections d. close e. follow-up Answer: d Page: 538 Learning Objective: 3 Rationale: ―Closing‖ in the selling process involves obtaining a purchase commitment from the prospect—what the refrigerated display case salesperson is doing in the example. 20-122 TRIAL CLOSE DEFINITION A trial close: a. asks the prospect to make a decision on some aspect of the purchase. b. allows the prospect to use or lease the item on a limited temporary basis before making a final commitment of purchase. c. commits the prospect quickly by making references to the time limits of the purchase. d. makes an exchange of money or other unit of value. e. asks the prospect to make choices concerning delivery, warranty, or financing terms. Answer: a Page: 538 Learning Objective: 3 Rationale: Text term definition—trial close20-123 ASSUMPTIVE CLOSE DEFINITION An assumptive close: a. asks the prospect to make a decision on some aspect of the purchase. b. allows the prospect to use or lease the item on a limited temporary basis before making a final commitment of purchase. c. commits the prospect quickly by making references to the time limits of the purchase. d. makes an exchange of money or other unit of value. e. asks the prospect to make choices concerning delivery, warranty, or financing terms. Answer: e Page: 539 Learning Objective: 3 Rationale: Text term definition—assumptive close 20-124 ASSUMPTIVE CLOSE APPLICATION At the end of her sales presentation, the salesperson asks, ―Will you want to make monthly payments of $75 with a 10 percent down payment or will you be writing a check for the full amount today?‖ She has just executed a(n): a. assumptive close. b. consultative close. c. proactive close. d. urgency close. e. adaptitve. Answer: a Page: 539 Learning Objective: 3 Rationale: An assumptive close asks the prospect to make choices concerning delivery, warranty, or financing terms, the situation here. 20-125 URGENCY CLOSE DEFINITION An urgency close: a. asks the prospect to make a decision on some financial aspect of the purchase. b. allows the prospect to use or lease the item on a limited temporary basis before making a final commitment of purchase. c. commits the prospect quickly by making references to the time limits of the purchase. d. makes an exchange of money or other unit of value. e. asks the prospect to make choices concerning delivery, warranty, or financing terms. Answer: c Page: 539 Learning Objective: 3 Rationale: Text term definition—urgency close20-126 URGENCY CLOSE APPLICATION Davidson-Uphoff & Company sells ironware accessories for home and garden to retailers. When its salesperson told the prospect, ―For this week only, we will pay the all the shipping costs for new customers,‖ the salesperson was using a(n): a. reactive close. b. assumption close. c. urgency close. d. consultative close. e. definitive close. Answer: c Page: 539 Learning Objective: 3 Rationale: An urgency close is used to commit the prospect quickly by making reference to the time limits of the purchase, the situation described in this example. 20-127 FOLLOW-UP CONCEPTUAL At which stage in the personal selling process would the salesperson ensure the customer is satisfied with the product? a. assumptive close b. final close c. urgency close d. follow-up e. postpurchase Answer: d Page: 539 Learning Objective: 3 Rationale: The follow-up stage includes making certain the customer's purchase has been properly delivered and installed and difficulties experienced with the use of the item are addressed, the situation described here. 20-128 FOLLOW-UP CONCEPTUAL The final stage in the personal selling process is the: a. presentation. b. assumptive close. c. trial close. d. urgency close. e. follow-up. Answer: e Page: 539 Learning Objective: 3 Rationale: The selling process does not end with the closing of a sale. Rather, professional selling requires customer follow-up, the final stage of the personal selling process.20-129 SALES MANAGEMENT PROCESS CONCEPTUAL Sales management consists of three interrelated functions: (1) sales plan formulation, (2)__________, and (3) evaluation and control of the salesforce. a. compensating the salesforce b. identifying the target market that most closely meets the special skills of the sales force c. determining the size of a sales force that integrates the number of customers served, call frequency, call length, and available selling time to arrive at a sales force size figure d. sales plan implementation e. times and places for direct communications between salespeople and their supervisor Answer: d Page: 539; Fig. 20-4 Learning Objective: 4 Rationale: The sales management process consists of three interrelated functions: (1) sales plan formulation, (2) sales plan implementation, and (3) evaluation and control of the salesforce. 20-130 SALES MANAGEMENT PROCESS CONCEPTUAL Sales management consists of three interrelated functions: (1) __________, (2) sales plan implementation, and (3) evaluation and control of the salesforce. a. compensating the salesforce b. identifying the target market that most closely meets the special skills of the sales force c. determining the size of a sales force that integrates the number of customers served, call frequency, call length, and available selling time to arrive at a sales force size figure d. sales plan formulation e. times and places for direct communications between salespeople and their supervisor Answer: d Page: 539; Fig. 20-4 Learning Objective: 4 Rationale: The sales management process consists of three interrelated functions: (1) sales plan formulation, (2) sales plan implementation, and (3) evaluation and control of the salesforce. 20-131 SALES MANAGEMENT PROCESS CONCEPTUAL Sales management consists of three interrelated functions: (1) sales plan formulation, (2) sales plan implementation, and (3) __________. a. compensating the salesforce b. identifying the target market that most closely meets the special skills of the sales force c. determining the size of a sales force that integrates the number of customers served, call frequency, call length, and available selling time to arrive at a sales force size figure d. evaluation and control of the salesforce e. times and places for direct communications between salespeople and their supervisor Answer: d Page: 539; Fig. 20-4 Learning Objective: 4 Rationale: The sales management process consists of three interrelated functions: (1)sales plan formulation, (2) sales plan implementation, and (3) evaluation and control of the salesforce.20-132 SALES PLAN DEFINITION A sales plan is a(n): a. method of determining a fair and equitable compensation plan that considers more than simply sales revenue; it includes a weighted system for different types of items or different sized territories to cover. b. method of identifying the target market that most closely meets the special skills of the sales force. c. formula-based method for determining the size of a sales force that integrates the number of customers served, call frequency, call length, and available selling time to arrive at a sales force size figure. d. statement describing what is to be achieved and where and how the selling effort of salespeople is to be deployed. e. evaluation methodology that specifies times and places for direct communications between salespeople and their supervisor. Answer: d Page: 540 Other Locations: web Learning Objective: 4 Rationale: Key term definition—sales plan 20-133 SALES PLAN DEFINITION Formulating the sales plan involves three tasks. The first step is setting objectives. It is following by __________ and developing account management policies. a. hiring sales reps b. developing the marketing plan c. establishing the budget d. organizing the sales force e. strategic planning Answer: d Page: 540 Learning Objective: 4 Rationale: Key term definition—sales plan 20-134 SALES PLAN CONCEPTUAL Which of the following is NOT a sales manager's task in the implementation stage of the sales management process? a. sales force organization b. sales force recruitment c. sales force training d. sales force motivation e. sales force compensation Answer: a Page: 539; Fig. 20-4 Learning Objective: 4 Rationale: Sales force organization occurs in the sales plan formulation stage of the sales management process, not in the implementation phase.20-135 SALES PLAN DEFINITION Which of the following tasks are involved in the formulation stage of the sales management process? a. recruiting and selecting the sales force, training the sales force, and compensating the sales force b. developing account management policies, implementing the account management policies, correcting the account management policies c. setting sales objectives, organizing the sales force, and developing account management policies d. organizing the sales force, quantitative assessment, and follow-up e. organizing the sales force, setting motivational sales quotas, and evaluating the individual members of the sales force Answer: c Page: 539; Fig. 20-4 Learning Objective: 4 Rationale: Formulating the sales plan involves three tasks: (1) setting objectives, (2) organizing the salesforce, and (3) developing account management policies. 20-136 OUTPUT-RELATED SALES OBJECTIVES DEFINITION Output-related sales objectives focus on: a. dollar or unit sales volume. b. product knowledge. c. number of sales calls. d. sales expenses. e. selling and communication skills. Answer: a Page: 540 Learning Objective: 4 Rationale: Output-related sales objectives focus on dollar or unit sales volume, number of new customers added, and profit. 20-137 OUTPUT-RELATED SALES OBJECTIVES CONCEPTUAL The sales manager told the salesperson, "Increase sales volume for the second quarter 5 percent over the sales volume of the first quarter." The sales manager used a __________ sales objective. a. output-related b. input-related c. behavior-related d. canvassing e. market-related Answer: a Page: 540 Learning Objective: 4 Rationale: Output-related sales objectives focus on dollar or unit sales volume, number of new customers added, and profit.20-138 ETHICS AND SOCIAL RESPONSIBILITY ALERT CONCEPTUAL Research indicates that 25% of U.S. salespeople engaged in __________ selling consider it unethical to explicitly ask customers about competitor strategies such as pricing practices, product development efforts, and trade and promotion programs. a. order-taking b. business-to-business c. trial-close d. missionary e. partnership Answer: b Page: 540 Learning Objective: 4 Rationale: Asking about competitors’ strategies is a potential problem especially in business-to-business selling where close customer-salesperson relationships often develop. 20-139 INPUT-RELATED SALES OBJECTIVES CONCEPTUAL The sales manager instructed the salesperson to "make five hundred customer contacts between January 1st and July 1st." The sales manager used a(n) __________ sales objective. a. output-related b. input-related c. behavior-related d. canvassing e. market-related Answer: b Page: 540 Other Locations: SG Learning Objective: 4 Rationale: Input-related sales objectives emphasize the number of sales calls and sales expenses. 20-140 BEHAVIORALLY-RELATED SALES OBJECTIVES CONCEPTUAL Which of the following is an example of a behaviorally-related sales objective? a. to improve communication skills b. to increase product knowledge c. to improve selling skills d. to provide a higher level of customer service e. all of the above Answer: e Page: 540 Other Locations: web Learning Objective: 4 Rationale: Behaviorally related objectives are specific for each salesperson and include product knowledge, customer service, and selling and communication skills.20-141 SALES PLAN OBJECTIVES CONCEPTUAL An effective sales plan objective should be: a. precise, measurable, time specific. b. general, measurable, and flexible. c. profitable, subjective, and measurable. d. precise, profitable, and flexible. e. general, flexible, and profitable. Answer: a Page: 540 Learning Objective: 4 Rationale: Whatever objectives are set, they should be precise and measurable and specify the time period over which they are to be achieved. 20-142 INDEPENDENT AGENTS CONCEPTUAL Which of the following statements describes an advantage achieved when replacing independent sales agents with an internal sales force? a. With independent agents, the selling company has greater flexibility in scheduling and transferring salespeople. b. Independent agents are more motivated to work on nonselling duties. c. The use of an internal sales force is usually less costly with a lower sales volume. d. With an internal sales force, there are additional types of rewards available for salespeople, beyond just money, such as health and retirement benefits. e. All of the above statements describe advantages achieved when replacing independent sales agents with an internal sales force. Answer: d Page: 541 Other Locations: SG Learning Objective: 4 Rationale: Internal sales forces give the selling company greater flexibility in scheduling and transfers and enable the company to motive salespeople to do non-selling duties so alternatives a and b are incorrect. Independent agents are usually cheaper for the selling company at lower sales volumes so alternative c is incorrect. Alternative d is true. 20-143 SALES FORCE VERSUS INDEPENDENT AGENTS APPLICATION An insurance company is considering using independent sales agents who would receive 7 percent sales commission on sales or its own insurance salespeople who would receive 5 percent commission, salaries, and benefits. Additionally, with a company sales force, sales administration costs would be incurred for a total fixed cost of $650,000 per year. At what level of sales would independent salespeople be less costly? a. $650,000 b. $5,416,667 c. $32,500,000 d. $35,200,000 e. cannot be calculated given the information provided Answer: c Page: 541 Learning Objective: 4 Rationale: This figure results from equating the two options to one another as follows: Total Cost of Company Salespeople = Total Cost of Independent Agent, or .05(x) + 650,000 = .07(x), or $32,500,000.20-144 SALES FORCE ORGANIZATIONAL STRUCTURE CONCEPTUAL According to the text, the three organizational sales force structures a company may use if it chooses to employ its own sales force are based on: a. dollar volume, geography, and customer. b. geography, customer, and product. c. geography, market size, and product. d. market size, product, and customer. e. dollar volume, market size, and product. Answer: b Page: 541; Fig. 20-6 Learning Objective: 4 Rationale: If a company elects to employ its own salespeople, then it must choose an organizational structure based on (1) geography, (2) customer, or (3) product. 20-145 CUSTOMER SALES ORGANIZATION CONCEPTUAL Which sales force organizational structure requires specialized customer knowledge? a. management b. customer c. product d. geographical e. market Answer: b Page: 543 Learning Objective: 4 Rationale: When different types of buyers have different needs, a customer sales organizational structure is used. 20-146 GEOGRAPHIC SALES ORGANIZATION APPLICATION The office memo read, "Sales representatives from Kansas, Nebraska, Iowa, and Missouri will report directly to the regional manager." From this information, it would appear the company that issued the memo uses a ___________ organization for its sales force. a. profit b. customer c. product d. geographical e. market Answer: d Page: 541, 543 Learning Objective: 4 Rationale: Geographical sales organization takes a total area on the globe such as the United States and divides it into regions and then divides each region into districts or territories, the situation described in the example.20-147 CUSTOMER SALES ORGANIZATION CONCEPTUAL The best organizational structure to use when different buying organizations have different needs is a __________ sales organization. a. geographic b. customer c. product d. profit-based e. market size Answer: b Page: 543 Learning Objective: 4 Rationale: When different types of buyers have different needs, a customer sales organizational structure is used. In practice, this means that a different sales force calls on each separate type of buying organization in different industries, such as auto, farm implement, and computer industries. 20-148 CUSTOMER SALES ORGANIZATION APPLICATION Kodak recently switched from a geographical to a marketing channel structure with different sales teams serving specific retail channels with different needs: mass merchandisers, photo specialty outlets, and food and drug stores. Kodak uses which type of sales organization structure? a. production b. market size c. customer d. profit-based e. geographic Answer: c Page: 543 Learning Objective: 4 Rationale: When different types of buyers in different industries have different needs, a customer sales organizational structure is used. 20-149 PRODUCT SALES ORGANIZATION APPLICATION ABB is a Swiss-based manufacturer of industrial equipment with annual sales of $30 billion. At one time, ABB had a sales force that sold only generators, one that only sold boilers, another that only sold transformers, and so forth. Each of its salespeople was an expert on the items he or she sold. Its sales force was organized by: a. workload. b. customer type. c. geography. d. product. e. customer size. Answer: d Page: 543 Other Locations: SG Learning Objective: 4 Rationale: Organizing the sales force by product, alternative d, enables the salesperson to develop special technical expertise in a product line, the situation here.20-150 MAJOR ( KEY) ACCOUNT MANAGEMENT DEFINITION __________ is the practice of using team selling to focus on important customers so as to build mutually beneficial, long-term relationships. a. Relationship marketing b. Relationship selling c. Customer account management d. Key account management e. Team selling Answer: d Page: 543 Learning Objective: 4 Rationale: Key term definition—major account management 20-151 MAJOR ACCOUNT MANAGEMENT CONCEPTUAL __________ involves teams of sales, service, and often technical personnel who work with purchasing, manufacturing, engineering, logistics, and financial executives in customer organizations. a. Sales management b. Formula selling c. Adaptive selling d. Consultative selling e. Major account management Answer: e Page: 543 Learning Objective: 4 Rationale: Major account management involves teams of sales, service, and often technical personnel who work with purchasing, manufacturing, engineering, logistics, and financial executives in customer organizations. 20-152 WORKLOAD METHOD DEFINITION The workload method of determining the size of a sales force is a: a. method of determining a fair and equitable compensation plan that includes more than simply sales revenue; it includes a weighted system for different types of items or different-sized territories. b. method of identifying the target market that most closely meets the special skills of the sales force. c. formula-based method for determining the size of a sales force that integrates the number of customers served, call frequency, call length, and available selling time to arrive at a sales force size figure. d. statement describing what is to be achieved and where and how the selling effort of salespeople is to be deployed. e. graph-based method for determining when an internal sales force becomes more profitable than independent sales agents to sell a company's product(s). Answer: c Page: 543 Learning Objective: 4 Rationale: Key term definition—workload method20-153 WORKLOAD METHOD DEFINITION The __________ is a common formula-based approach for determining the size of a sales force. a. sales response function b. account management method c. workhorse method d. reach-frequency method e. workload method Answer: e Page: 543 Learning Objective: 4 Rationale: Key term definition—workload method 20-154 WORKLOAD METHOD CONCEPTUAL Which of the following is NOT a variable used in the workload method of determining sales force size? a. number of customers b. length of an average call c. average yearly salary d. average amount of selling time available per year e. number of salespeople Answer: c Page: 543-544 Learning Objective: 4 Rationale: The fifth factor used in the workload method is the frequency of calls necessary to serve a customer each year. 20-155 WORKLOAD METHOD APPLICATION Diamond Line is a distributor of everything a florist needs to create a beautiful arrangement except the flowers. It sells to 10,000 flower and gift shops and 3,000 supermarkets nationwide. Each florist is called on four times a month, and each supermarket is called on twice a month. A sales call to a florist takes one hour, and a sales call to a supermarket takes two hours of selling time. An average salesperson spends 1,000 hours per year making sales calls. Calculate the number of salespeople Diamond Line needs to cover its account base. a. 52 b. 262 c. 312 d. 624 e. 879 Answer: d Page: 543-544 Learning Objective: 4 Rationale: NS = [(10,000 x 48 x 1) + (3,000 x 24 x 2)] / 1000 = 624 salespeople20-156 ACCOUNT MANAGEMENT POLICIES CONCEPTUAL __________ policies might state which individuals in a buying organization should be contacted, the amount of sales and service effort that different customers should receive, and the kinds of information salespeople should collect before or during a sales call. a. Sales-response b. Territorial management c. Account management d. Customer contact e. Relationship upgrade Answer: c Page: 544 Learning Objective: 4 Rationale: Account management policies might state which individuals in a buying organization should be contacted, the amount of sales and service effort that different customers should receive, and the kinds of information salespeople should collect before or during a sales call. 20-157 ACCOUNT MANAGEMENT POLICIES CONCEPTUAL Which of the following activities is NOT a part of account management policies? a. specifying whom salespeople should contact b. determining the types of selling activities c. preparing a job analysis d. deciding how sales activities will be carried out e. determining the types of customer services Answer: c Page: 544 Learning Objective: 4 Rationale: Preparing a job analysis is part of the sales plan implementation, not account management. 20-158 ACCOUNT MANAGEMENT POLICY GRID CONCEPTUAL When using an account management policy grid, an account would typically be assigned a light personal selling call frequency if it has a: a. high opportunity rating, and the sales organization has a strong position. b. low opportunity rating, and sales organization has a strong position. c. high opportunity rating, and there is a likelihood that a strong sales position can be achieved. d. low opportunity rating, and the sales organization has a low competitive position. e. high opportunity rating, and the sales organization has strong position. Answer: d Page: 544; Fig. 20-7 Learning Objective: 4 Rationale: For accounts, which fall into Cell 4 (low account opportunity and low competitive position) of the policy grid, consideration should be given to replacing personal calls with telephone sales or direct mail. This is the situation in the example here.20-159 ACCOUNT MANAGEMENT POLICY GRID CONCEPTUAL When using an account management policy grid, an account would typically be assigned a high personal selling call frequency if it has a: a. high opportunity rating, and the sales organization has a strong position. b. low opportunity rating, and sales organization has a strong position. c. high opportunity rating, and there is a likelihood that a strong sales position can be achieved. d. low opportunity rating, and the sales organization has a low competitive position. e. high opportunity rating, and the sales organization has strong position. Answer: a Page: 544; Fig. 20-7 Learning Objective: 4 Rationale: For accounts, which fall into Cell 1 (high account opportunity and high competitive position) of the policy grid, consideration should be given to high level of sales calls and service to retain and possible build accounts. This is the situation in the example here. 20-160 SALES PLAN IMPLEMENTATION DEFINITION The three major tasks involved in the implementation stage of the sales management process are: a. sales force recruitment and selection, sales force training, and sales force motivation and compensation. b. developing account management policies, implementing the account management policies, correcting the account management policies. c. setting sales objectives, organizing the sales force, and developing account management policies. d. organizing the sales force, quantitative assessment, and follow-up. e. organizing the sales force, setting motivational sales quotas, and evaluating the individual members of the sales force. Answer: a Page: 539; Fig. 20-4 Other Locations: web Learning Objective: 4 Rationale: The tasks in alternative a comprise the implementation stage of the sales management process. 20-161 WEBLINK: EMOTIONAL INTELLIGENCE DEFINITION Emotional intelligence has five dimensions. They are __________, self-awareness, the ability to manage one's emotions and impulses, empathy, and social skills. a. self-motivation b. the ability to psychoanalyze others c. personal hygiene d. personal habits e. a desire for power Answer: a Page: 545 Learning Objective: 4 Rationale: Emotional intelligence has five dimensions. They are self-motivation, selfawareness, the ability to manage one's emotions and impulses, empathy, and social skills.20-162 JOB ANALYSIS CONCEPTUAL Information from the __________ is used to write a job description. a. job compensation plan b. sales plan c. job analysis d. performance contract e. personal performance plan Answer: c Page: 545 Learning Objective: 4 Rationale: Information from the job analysis is used to write a job description. 20-163 JOB DESCRIPTION CONCEPTUAL Applied to recruiting and selecting salespeople, a __________ explains to whom a salesperson reports and how a salesperson interacts with other company personnel. a. job description b. sales plan c. job analysis d. performance contract e. personal performance plan Answer: a Page: 545 Learning Objective: 4 Rationale: A job description explains to whom a salesperson reports, how a salesperson interacts with other company personnel, the customers to be called on, the specific activities to be carried out, the physical and mental demands of the job, and the types of products and services to be sold. 20-164 JOB DESCRIPTION CONCEPTUAL Applied to recruiting and selecting salespeople, a job description explains: a. to whom a salesperson reports. b. how a salesperson interacts with other company personnel. c. the customers to be called on. d. the types of products and services to be sold. e. all of the above. Answer: e Page: 545 Learning Objective: 4 Rationale: A job description explains to whom a salesperson reports, how a salesperson interacts with other company personnel, the customers to be called on, the specific activities to be carried out, the physical and mental demands of the job, and the types of products and services to be sold.20-165 EMOTIONAL INTELLIGENCE DEFINITION The ability to understand one's own emotions and the emotions of people with whom one interacts on a daily basis is termed: a. empathetic intelligence. b. emotional empathy. c. emotional intelligence. d. subliminal intelligence. e. symbiotic empathy. Answer: c Page: 545 Learning Objective: 4 Rationale: Key term definition—emotional intelligence 20-166 SALES FORCE MOTIVATION CONCEPTUAL To produce a motivated salesperson, research suggests all of the following need to be present EXCEPT: a. clear superior-subordinate relationships with supervisor. b. sense of achievement. c. effective sales management practices. d. proper compensation, incentives, or rewards. e. clear job description. Answer: a Page: 546 Learning Objective: 4 Rationale: Research suggests that (1) a clear job description, (2) effective sales management practices, (3) a personal need for achievement, and (4) proper compensation, incentives, or rewards will produce a motivated salesperson. 20-167 SALES FORCE MOTIVATION DEFINITION Research on salesperson motivation suggests that what produces motivated salespeople is a __________, effective sales management practice, a sense of achievement, and proper incentives and rewards. a. a swift kick in the butt now and then b. freedom to do one's own thing c. an unlimited expense account d. clear job description e. a higher-than-average salary Answer: d Page: 546 Learning Objective: 4 Rationale: Research suggests that (1) a clear job description, (2) effective sales management practices, (3) a personal need for achievement, and (4) proper compensation, incentives, or rewards will produce a motivated salesperson.20-168 STRAIGHT SALARY COMPENSATION PLAN DEFINITION With a __________, a salesperson is paid a fixed fee per week, month, or year. a. sales response compensation plan b. combination compensation plan c. straight salary compensation plan d. straight commission compensation plan e. sales function compensation plan Answer: c Page: 546 Learning Objective: 4 Rationale: Text term definition—straight salary compensation plan 20-169 STRAIGHT SALARY COMPENSATION PLAN APPLICATION When Joshua was hired to work for Bush Refrigeration Company he was told, "The sales training program is 18 weeks, and we'll pay you $750 per week during that time." While in training, the company used a __________ to compensate Joshua for his time and effort. a. sales response compensation plan b. combination compensation plan c. straight salary compensation plan d. straight commission compensation plan e. sales function compensation plan Answer: c Page: 546 Learning Objective: 4 Rationale: Under a straight salary compensation plan, a salesperson is paid a fixed fee per week, month or year. This is the sales compensation plan used for Joshua. 20-170 STRAIGHT COMMISSION COMPENSATION PLAN DEFINITION A straight commission compensation plan is a compensation plan: a. that assigns the same percentage of commission regardless of a product's size or value, frequency of sale, or difficulty level of sales effort. b. in which a salesperson is paid a specified salary plus a commission and/or bonus on sales or profits he or she generates. c. for determining fair and equitable compensation that includes a weighted system for different types of items or different sized territories. d. in which the salesperson is paid a fixed amount per week, month, or year. e. in which a salesperson's earnings are directly tied to the sales or profits he or she generates. Answer: e Page: 546 Learning Objective: 4 Rationale: Text term definition—straight commission compensation plan20-171 STRAIGHT COMMISSION COMPENSATION PLAN DEFINITION With a __________, a salesperson's earnings are directly tied to sales or profits generated. a. sales response compensation plan b. combination compensation plan c. straight sales compensation plan d. straight commission compensation plan e. sales function compensation plan Answer: d Page: 546 Learning Objective: 4 Rationale: Text term definition—straight commission compensation plan 20-172 STRAIGHT COMMISSION COMPENSATION PLAN APPLICATION When after completing an 18-week sales training program, Joshua was told, "You will be paid 4 percent on net dollar volume up to $10 million. Sales in excess of $10 million command a rate of 6 percent." The company Joshua works for is using a __________ for him after he completes his sales training program. a. sales response compensation plan b. combination compensation plan c. straight sales compensation plan d. straight commission compensation plan e. sales function compensation plan Answer: d Page: 546 Learning Objective: 4 Rationale: A compensation plan where a salesperson's earnings are directly tied to his sales or profit generated is called a straight commission compensation plan, the situation for Joshua after he completes sales training. 20-173 COMBINATION COMPENSATION PLAN DEFINITION With a __________, a salesperson is paid a specified salary plus a commission on sales or profits generated. a. sales response compensation plan b. combination compensation plan c. straight sales compensation plan d. straight commission compensation plan e. sales function compensation plan Answer: b Page: 546 Learning Objective: 4 Rationale: Text term definition—combination compensation plan20-174 COMBINATION COMPENSATION PLAN CONCEPTUAL The most frequently used type of compensation plan for salespeople is a: a. straight salary compensation plan. b. straight commission compensation plan. c. combination compensation plan. d. weighted compensation plan. e. delayed compensation plan. Answer: c Page: 546 Learning Objective: 4 Rationale: Combination compensation plans are used by a majority of companies today. 20-175 COMBINATION COMPENSATION PLAN APPLICATION White Chemical Company is examining its selling strategy and one of the issues it believes needs attention is the role its sales staff has in undertaking sales support (nonselling) activities; yet it wants to keep the salespeople directed towards increasing sales for the next year. If you did NOT know which plan it presently uses, what advice would you give? a. Give a raise to every salesperson as a motivating tool. b. Provide a base salary and a commission on sales generated. c. Provide year-end bonuses to reward the sales force personnel who perform the best. d. Offer straight salaries and give raises if the sales go up. e. Offer straight commission and if sales improve, raise the commission rates. Answer: b Page: 546 Learning Objective: 4 Rationale: Since not all desired results can be measured by sales generated, a salary base is needed to encourage the nonselling activities of the sales force, so the combination compensation plan in alternative b is the best alternative. 20-176 QUANTITATIVE ASSESSMENTS CONCEPTUAL Quantitative assessments of sales performance may be based on input-related objectives set forth in the sales plan, such as those involving: a. number of new accounts generated. b. selling expenses. c. orders produced compared with sale calls made. d. sales produced. e. all of the above. Answer: b Page: 547 Learning Objective: 4 Rationale: Quantitative assessments of sales performance may be based on input-related objectives set forth in the sales plan, such as those involving sales calls, selling expenses, and account management policies. Alternatives a, c, and d describe output-related objectives.20-177 QUANTITATIVE ASSESSMENTS CONCEPTUAL Quantitative assessments of sales performance may be based on input-related objectives set forth in the sales plan, such as those involving: a. number of new accounts generated. b. sales calls. c. orders produced compared with sale calls made. d. sales produced. e. all of the above. Answer: b Page: 547 Learning Objective: 4 Rationale: Quantitative assessments of sales performance may be based on input-related objectives set forth in the sales plan, such as those involving sales calls, selling expenses, and account management policies. Alternatives a, c, and d describe output-related objectives. 20-178 QUANTITATIVE ASSESSMENTS CONCEPTUAL Quantitative assessments of sales performance may be based on input-related objectives set forth in the sales plan, such as those involving: a. number of new accounts generated. b. number of reports submitted to superiors. c. orders produced compared with sale calls made. d. sales produced. e. all of the above. Answer: b Page: 547 Learning Objective: 4 Rationale: Quantitative assessments of sales performance may be based on input-related objectives set forth in the sales plan, such as those involving sales calls, selling expenses, and account management policies. Alternatives a, c, and d describe output-related objectives. 20-179 QUANTITATIVE ASSESSMENTS CONCEPTUAL Quantitative assessments of sales performance may be based on output-related measures, such as: a. sales produced. b. accounts generated. c. profit achieved. d. sales of specific products. e. all of the above. Answer: e Page: 547 Learning Objective: 4 Rationale: Quantitative assessments of sales performance may be based on outputrelated objectives set forth in the sales plan, such as dollar or unit sales volume, last year/current sales ratio, sales of specific products, new accounts generated, and profit achieved are typical goals.20-180 QUANTITATIVE ASSESSMENTS CONCEPTUAL Quantitative assessments of sales performance may be based on output-related measures, such as: a. sales calls made. b. selling expenses. c. number of reports submitted to superiors. d. sales of specific products. e. all of the above. Answer: d Page: 547 Learning Objective: 4 Rationale: Quantitative assessments of sales performance may be based on outputrelated objectives set forth in the sales plan, such as dollar or unit sales volume, last year/current sales ratio, sales of specific products, new accounts generated, and profit achieved are typical goals. 20-181 QUANTITATIVE ASSESSMENTS CONCEPTUAL Quantitative assessments of sales performance may be based on output-related measures, such as: a. sales calls made. b. selling expenses. c. number of reports submitted to superiors. d. last year/current year sales ratio. e. all of the above. Answer: d Page: 547 Learning Objective: 4 Rationale: Quantitative assessments of sales performance may be based on outputrelated objectives set forth in the sales plan, such as dollar or unit sales volume, last year/current sales ratio, sales of specific products, new accounts generated, and profit achieved are typical goals. 20-182 QUANTITATIVE ASSESSMENTS CONCEPTUAL Quantitative assessments of sales performance may be based on output-related measures, such as: a. sales calls made. b. selling expenses. c. number of reports submitted to superiors. d. new accounts generated. e. all of the above. Answer: d Page: 547 Learning Objective: 4 Rationale: Quantitative assessments of sales performance may be based on outputrelated objectives set forth in the sales plan, such as dollar or unit sales volume, last year/current sales ratio, sales of specific products, new accounts generated, and profit achieved are typical goals.20-183 QUANTITATIVE ASSESSMENTS CONCEPTUAL Quantitative assessments of sales performance may be based on output-related measures, such as: a. sales calls made. b. selling expenses. c. number of reports submitted to superiors. d. profit achieved. e. all of the above. Answer: d Page: 547 Learning Objective: 4 Rationale: Quantitative assessments of sales performance may be based on outputrelated objectives set forth in the sales plan, such as dollar or unit sales volume, last year/current sales ratio, sales of specific products, new accounts generated, and profit achieved are typical goals. 20-184 SALES QUOTA DEFINITION A __________ contains specific goals assigned to a salesperson, sales team, branch sales office, or sales district for a stated time period. a. sales call report b. selling expense report c. sales quota d. last year/current year sales ratio report e. income statement Answer: c Page: 547 Learning Objective: 4 Rationale: Key term definition—sales quota 20-185 BEHAVIORAL EVALUATION DEFINITION Behavioral measures used to evaluate salespeople include assessments of a salesperson’s __________, attention to customers, product knowledge, selling and communication skills, appearance, and professional demeanor. a. IQ b. attitude c. values d. beliefs e. family Answer: b Page: 547 Learning Objective: 4 Rationale: Behavioral measures used to evaluate salespeople include assessments of a salesperson’s attitude, attention to customers, product knowledge, selling and communication skills, appearance, and professional demeanor.20-186 SALES FORCE AUTOMATION APPLICATION Hewlett-Packard recently shifted its entire U.S. sales force into home offices and saved $10 million in staff salaries and office rent despite spending $8,000 to equip each home office with a notebook computer, fax/copier, cellular phone, two phone lines, and office furniture. Such decreased selling costs are among the benefits of: a. personal selling. b. direct marketing. c. sales force automation. d. decentralization. e. account management policies. Answer: c Page: 548 Learning Objective: 4 Rationale: Sales force automation (SFA) is the use of technology designed to make the sales function more effective and efficient, the situation described here with Compaq. 20-187 SALES FORCE AUTOMATION DEFINITION The use of technologies to make the sales function more effective and efficient is called __________. a. personal selling. b. direct marketing. c. sales force automation. d. decentralization. e. account management policies. Answer: c Page: 548 Learning Objective: 4 Rationale: Key term definition—salesforce automation 20-188 SALES FORCE AUTOMATION DEFINITION Which of the following is an example of a form of salesforce automation? a. account analysis software b. time management software c. order processing software d. proposal generation software e. all of the above Answer: e Page: 548 Learning Objective: 4 Rationale: Sales force automation (SFA) is the use of technology designed to make the sales function more effective and efficient. All of the items listed are examples of salesforce automation.20-189 SALES FORCE COMPUTERIZATION APPLICATION Salespeople for Godiva Chocolates use their laptop computers to process orders, plan time allocations, forecast sales, and communicate with Godiva personnel and customers. The use of __________ helps the Godiva salesforce provide customer service. a. salesforce computerization b. time management software c. order processing software d. proposal generation software e. all of the above Answer: a Page: 548 Learning Objective: 4 Rationale: Salesforce computerization is described in the example above. 20-190 VIDEO CASE APPLICATION Reebok's commitment to relationship selling is evident in its: a. frequent sales calls on its retailers to build trust. b. continuous innovative activities. c. gathering of competitive intelligence. d. reactive approach to establishing channels of distribution. e. use of the unplanned sales call. Answer: a Page: 552 Learning Objective: 1 Rationale: Reebok’s selling involves building trust with the retailer, providing them with the information needed to sell Reebok products, and after-sale support—all characteristics of relationship selling. 20-191 VIDEO CASE CONCEPTUAL Which of the following statements about Reebok International Ltd. is true? a. Reebok is the second largest athletic shoe manufacturer behind the market leader, Nike. b. Reebok also sells Rockport, Greg Norman Collection, and Ralph Lauren Footwear shoes. c. Reebok is unique in that it emphasizes relationships with retailers as an integral part of its marketing strategy. d. Reebok has recently issued laptop computers to its entire salesforce that enable the salespeople to check inventories in the warehouses. e. All of the above statements about Reebok International Ltd. are true. Answer: e Page: 552-553 Rationale: Alternatives a through d describe characteristics of Reebok’s marketing operations today. 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