BUS 360 Chapter 14 Exam Questions with Verified Solutions Graded A+
Company Objectives - Answers The firm's pricing goals (e.g., profit, sales, market share, or
positioning) that guide how prices are set.
Customers - Answers How customers perceive value and what they are willing to pay based on
perceived benefits vs. price.
Costs - Answers The firm's expenses (fixed, variable, and total) that must be covered when
setting price to ensure profitability.
Competition - Answers How many competitors exist and how they price their products,
influencing whether the firm matches, avoids, or beats competitor pricing.
Channel Members - Answers Wholesalers and retailers that help distribute the product and may
affect pricing decisions due to markups and negotiations.
Value - Answers The perceived trade-off between what the customer receives (benefits) and
what they gives up (price).
Profit orientation - Answers Focusing specifically on target profit pricing, maximizing profits, or
target return pricing.
Target profit pricing - Answers Implemented when a firm has a particular profit goal as its
overriding concern; to meet this targeted profit objective, firms use price to stimulate a certain
level of sales at a certain profit per unit.
Maximizing profits - Answers A strategy that relies primarily on economic theory; if a firm can
accurately specify a mathematical model that captures all the factors required to explain and
predict sales and profits, it should be able to identify the price at which its profits are maximized.
Target return pricing - Answers Pricing strategies designed to produce a specific return on their
investment, usually expressed as a percentage of sales.
Sales orientation - Answers Firms believe that increasing sales will help the firm more than will
increasing profits, focusing on unit sales, dollar sales, or market share, and often willing to
accept lower profit at first to generate more sales.
Premium Pricing - Answers A competitor-based pricing method by which the firm deliberately
prices a product above the prices set for competing products to capture those consumers who
always shop for the best or for whom price does not matter.
Competitor orientation - Answers Firms strategize according to the premise that they should
measure themselves primarily against their competition.
Competitive parity - Answers Setting prices that are similar to those of their major competitors.
, Customer orientation - Answers Setting pricing strategy based on how the firm can add value to
its products or services, focusing on how consumers develop their perceptions of value.
Demand Curve - Answers Shows how many units of a product or service consumers will
demand during a specific period at different prices.
prestige products or services - Answers Products and services that consumers purchase for
status rather than functionality.
Price elasticity of demand - Answers Measures how changes in a price affect the quantity of the
product demanded; it is the ratio of the percentage change in quantity demanded to the
percentage change in price. Price elasticity of demand = % Change in quantity demanded / %
Change in price
Elastic - Answers The market for a product or service is price sensitive when the price elasticity
is less than −1; small changes in price generate fairly large changes in the quantity demanded.
Inelastic - Answers The market for a product is price insensitive when its price elasticity is
greater than −1; changes in price result in relatively small changes in the quantity demanded.
Dynamic pricing - Answers Also known as individualized pricing; refers to the process of
charging different prices for goods or services based on the type of customer, time of day, week,
or even season, and level of
Demand. - Answers
Income effect - Answers Refers to the change in the quantity of a product demanded by
consumers due to changes in their incomes; as incomes increase, consumers shift demand
from lower-priced products to higher-priced alternatives, and when incomes drop, they shift to
less expensive alternatives or purchase less.
Substitution effect - Answers Refers to consumers' ability to substitute other products for the
focal brand; the greater the availability of substitute products, the higher the price elasticity of
demand for a product will be.
Cross-price elasticity - Answers The percentage change in the quantity of product A demanded
compared with the percentage change in the price of product B.
Complementary products - Answers Products for which demand tends to be positively related,
such that they rise or fall together; a percentage increase in the quantity demanded for one
results in a percentage increase in the quantity demanded for the other.
Substitute products - Answers Products for which demand is negatively related; a percentage
increase in the quantity demanded for one results in a percentage decrease in the quantity
demanded for the other.
Company Objectives - Answers The firm's pricing goals (e.g., profit, sales, market share, or
positioning) that guide how prices are set.
Customers - Answers How customers perceive value and what they are willing to pay based on
perceived benefits vs. price.
Costs - Answers The firm's expenses (fixed, variable, and total) that must be covered when
setting price to ensure profitability.
Competition - Answers How many competitors exist and how they price their products,
influencing whether the firm matches, avoids, or beats competitor pricing.
Channel Members - Answers Wholesalers and retailers that help distribute the product and may
affect pricing decisions due to markups and negotiations.
Value - Answers The perceived trade-off between what the customer receives (benefits) and
what they gives up (price).
Profit orientation - Answers Focusing specifically on target profit pricing, maximizing profits, or
target return pricing.
Target profit pricing - Answers Implemented when a firm has a particular profit goal as its
overriding concern; to meet this targeted profit objective, firms use price to stimulate a certain
level of sales at a certain profit per unit.
Maximizing profits - Answers A strategy that relies primarily on economic theory; if a firm can
accurately specify a mathematical model that captures all the factors required to explain and
predict sales and profits, it should be able to identify the price at which its profits are maximized.
Target return pricing - Answers Pricing strategies designed to produce a specific return on their
investment, usually expressed as a percentage of sales.
Sales orientation - Answers Firms believe that increasing sales will help the firm more than will
increasing profits, focusing on unit sales, dollar sales, or market share, and often willing to
accept lower profit at first to generate more sales.
Premium Pricing - Answers A competitor-based pricing method by which the firm deliberately
prices a product above the prices set for competing products to capture those consumers who
always shop for the best or for whom price does not matter.
Competitor orientation - Answers Firms strategize according to the premise that they should
measure themselves primarily against their competition.
Competitive parity - Answers Setting prices that are similar to those of their major competitors.
, Customer orientation - Answers Setting pricing strategy based on how the firm can add value to
its products or services, focusing on how consumers develop their perceptions of value.
Demand Curve - Answers Shows how many units of a product or service consumers will
demand during a specific period at different prices.
prestige products or services - Answers Products and services that consumers purchase for
status rather than functionality.
Price elasticity of demand - Answers Measures how changes in a price affect the quantity of the
product demanded; it is the ratio of the percentage change in quantity demanded to the
percentage change in price. Price elasticity of demand = % Change in quantity demanded / %
Change in price
Elastic - Answers The market for a product or service is price sensitive when the price elasticity
is less than −1; small changes in price generate fairly large changes in the quantity demanded.
Inelastic - Answers The market for a product is price insensitive when its price elasticity is
greater than −1; changes in price result in relatively small changes in the quantity demanded.
Dynamic pricing - Answers Also known as individualized pricing; refers to the process of
charging different prices for goods or services based on the type of customer, time of day, week,
or even season, and level of
Demand. - Answers
Income effect - Answers Refers to the change in the quantity of a product demanded by
consumers due to changes in their incomes; as incomes increase, consumers shift demand
from lower-priced products to higher-priced alternatives, and when incomes drop, they shift to
less expensive alternatives or purchase less.
Substitution effect - Answers Refers to consumers' ability to substitute other products for the
focal brand; the greater the availability of substitute products, the higher the price elasticity of
demand for a product will be.
Cross-price elasticity - Answers The percentage change in the quantity of product A demanded
compared with the percentage change in the price of product B.
Complementary products - Answers Products for which demand tends to be positively related,
such that they rise or fall together; a percentage increase in the quantity demanded for one
results in a percentage increase in the quantity demanded for the other.
Substitute products - Answers Products for which demand is negatively related; a percentage
increase in the quantity demanded for one results in a percentage decrease in the quantity
demanded for the other.
