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From a marketing management perspective, what is the meaning of a total product offer? What are the important elements in the total product offer of your college or university? Consumer goods and services are generally classified into four specific categories. What are the four categories, and how do they differ? Illustrate by giving examples of products that are often included in each category. Discuss the role of packaging in a firms total product offer. What is a brand? What is a brand name? What is meant by brand equity?
Chapter 14 - Developing and Pricing Goods and Services TEST PLANNING TABLE FOR CHAPTER 14 Learning Objective LL:1 Knows Basic Terms and Facts LL:2 Understands Concepts and Principles LL:3 Applies Principles 1,2,3,4,5,6,7,8,9,10,11,12, 13,14,15,16,17,18,19,20, 21,22, 185,186,187,188,189,190, 191 31,32,33,34,35,36,37,38, 39,40,41,42,43,44,45,46, 47,48,49,50,51,52,53,54, 55,56, 203,204,205,206,207,208, 209,210,211 23,24,25,26~,27~, 192,193,194~ Summarize the functions of packaging 68,69,70,71,72,73,74,75, 76,77,78, 226,227,228,229 79,80,81, 230,231,232, 82, 233,234,235,236, 351 Contrast brand, brand name, and trademark, and show the value of brand equity 83,84,85,86,87,88,89,90, 91,92,93,94,95,96,97,98, 99,100,101,102,103,104, 105,106,107,108, 237,238,239,240,241,242, 243,244,245,246,247,248, 249,250,251,252,253 116,117,118,119,120,121, 122,123,124,125, 272,273,274,275 109,110,111~, 254,255,256,257,258, 259,260,261~ 112,113,114,115, 262,263,264,265,266, 267,268,269,270,271, 352, 355* 126,127, 276,277,278 128, 279,280,281 129,130,131,132,133,134, 135,136, 282,283,284,285,286,287, 288,289,290 140,141,142,143,144,145, 146,147,148,149,150,151, 152,153,154,155,156,157, 158,159,160,161,162,163, 164,165,166,167,168,169, 170,171,172,173, 304,305,306,307,308,309, 310,311,312,313,314,315, 316,317,318,319,320,321, 322,323,324,325 137,138, 291,292,293,294,295, 296,297,298 139, 299,300,301,302,303 174, 326,327,328,329,330, 331,332,333,334,335, 336 175,176,177,178,179, 180,181,182,183,184 337,338,339,340,341, 342,343,344,345,346, 347,348, 356*,357* Describe a total product offer Identify the various kinds of consumer and industrial goods Explain the steps in the new-product development process Describe the product life cycle Identify various pricing objectives and strategies 57,58,59,60, 212,213,214,215,216, 217 Total number of test items: 357 True/false questions are in plain text Multiple choice questions are in bold text Questions on boxed material are in bold text with a tilde~ Essay questions are in bold underlined text Minicase questions are in bold with an asterisk* 14-1 28,29,30, 195,196,197,198,199, 200,201,202, 349, 353* 61,62,63,64,65,66,67, 218,219,220,221,222, 223,224,225, 350, 354* Chapter 14 - Developing and Pricing Goods and Services Chapter 14 Developing and Pricing Goods and Services Answer Key True / False Questions When consumers calculate the value of a product, they look at the benefits and then subtract the cost Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process Successful businesses constantly monitor consumer wants and needs Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process To satisfy consumers managers must learn to listen better than they now and to adapt constantly to changing market demands Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process Once an organization surveys the consumer's wants and needs, has designed a group of products to meet those needs, and begun to market them in stores, the organization is assured of success Answer: False AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process 14-2 Chapter 14 - Developing and Pricing Goods and Services Fast-food organizations must constantly monitor all sources of information for newproduct ideas Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process McDonald's prides itself on offering precisely the same menu around the world so that customers know exactly what to expect when they eat at a McDonald's Answer: False AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process Product development is a key activity in any modern business, anywhere in the world Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process From a strategic marketing viewpoint, a total product offer includes all of the tangible attributes of a good or service, and excludes any intangible attributes Answer: False AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process The image created by advertising is part of the total product offer of a product Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process 10 The reputation of the manufacturer and the retail store surroundings are considered part of the value enhancers of a total product offer Answer: True 14-3 Chapter 14 - Developing and Pricing Goods and Services AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process 11 Price, store surroundings, service, and brand name are all elements that consumers evaluate in a total product offer Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process 12 Successful marketers attempt to think like consumers and evaluate the total product offer as a collection of impressions created by all parts of the value package Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process 13 The critical component of a total product offer is always a low price Answer: False AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process 14 Low prices can often help retailers create an attractive total product offer Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process 15 In evaluating a total product offer, value enhancers such as service, guarantees, reputation of the seller, etc are as important to customers as the basic product Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process 14-4 Chapter 14 - Developing and Pricing Goods and Services 16 A firm's product line refers to all of the different geographic markets in which it sells the same good or service Answer: False AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process 17 A single product line may contain several competing brands Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process 18 The term product line describes the combination of product mixes offered by a manufacturer Answer: False AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process 19 A product line is a group of products that are physically similar or are intended for a similar market Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process 20 The several product lines that a company offers for sale make up that organization's product mix Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process 21 While service providers offer product lines, they are unable to offer product mixes Answer: False 14-5 Chapter 14 - Developing and Pricing Goods and Services AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Easy Topic: The Product Life Cycle and the Product Development Process 22 Whole grain breads, bagels, bread sticks, sandwiches, soup, and pastries are products that would be included in the product mix of El Trovodor's Bread Company Feedback: Different products offered by El Trovodor's make up the company's product mix that it offers to its customers Answer: True AACSB: Reflective Thinking Bloom’s: Understand Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Medium Topic: The Product Life Cycle and the Product Development Process 23 Car dealers realize that consumers focus exclusively on price and warranty Feedback: Consumers consider the total product offer of benefits that the product provides This may include many different attributes including factors other than the price and quality of the product For example, the total product offer may include the image of the product created by advertising, the brand name, the atmosphere of the store, and the guarantee Answer: False AACSB: Reflective Thinking Bloom’s: Understand Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Medium Topic: The Product Life Cycle and the Product Development Process 24 A bank's product line may include safety deposit boxes, car loans, and traveler's checks Feedback: These various services would comprise the bank's product mix, not its product line A product line is a group of products that are physically similar Answer: False AACSB: Reflective Thinking Bloom’s: Understand Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Medium Topic: The Product Life Cycle and the Product Development Process 14-6 Chapter 14 - Developing and Pricing Goods and Services 25 The concepts of product lines and product mixes apply to marketers of products and services Feedback: Service providers have product lines and product mixes as well For example, a bank may offer a variety of services from savings accounts, automatic teller machines, and computer banking Answer: True AACSB: Reflective Thinking Bloom’s: Understand Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Medium Topic: The Product Life Cycle and the Product Development Process 26 According to the Adapting to Change box, a social media presence isn’t needed for small businesses to connect with customers Feedback: Chris Dilla found out quickly that a social media presence is a valuable tool for small business Without having the money for advertising, social media can help small businesses connect with potential customers Answer: False AACSB: Reflective Thinking Bloom’s: Understand Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Medium Topic: The Product Life Cycle and the Product Development Process 27 The Spotlight on Small Business box showed us through the example of Randy Hetrick’s TRX Suspension Trainer that in order to remain successful, sometimes expanding the product mix is essential Feedback: As business grew, Hetrick launched Fitness Anywhere and began providing classes, instructional videos, and other services This growth expanded the product mix and allowed continued success for Hetrick and his TRX Answer: True AACSB: Reflective Thinking Bloom’s: Understand Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Medium Topic: The Product Life Cycle and the Product Development Process 14-7 Chapter 14 - Developing and Pricing Goods and Services 28 A traditional McDonald's and a McCafe are examples of the McDonald's Corporation product mix Feedback: A product mix is the combination of all product lines offered by a manufacturer McDonald's Corporation has quick-service outlets that serve burgers and fries and they also have the McCafe that serves coffee and pastries, two different types of outlets Each serves a different product line to a particular market Answer: True AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Hard Topic: The Product Life Cycle and the Product Development Process 29 At Isuzu's Appliance Store, all new products are offered with an extended service contract, as well as free delivery and installation By offering these value enhancers, Isuzu's has added to their total product offer Feedback: When people buy a product, they evaluate an entire total product offer of product benefits, including such things as delivery, service, warranty, image, and package Answer: True AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Hard Topic: The Product Life Cycle and the Product Development Process 30 Miller Light Beer, Maxwell House Coffee, Jell-O brand gelatin, Kraft mayonnaise, and Marlboro Cigarettes, were all at one time products of the Philip Morris Company These products represented a part of the product line Philip Morris offered Feedback: A product line is a group of products that are physically similar or are intended for a similar market These brands were part of the Philip Morris product mix Answer: False AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Hard Topic: The Product Life Cycle and the Product Development Process 31 In order for product differentiation to be effective, real product differences must be identified so that one product is clearly better than others Answer: False 14-8 Chapter 14 - Developing and Pricing Goods and Services AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-02 Identify the various kinds of consumer and industrial goods Level of Difficulty: Easy Topic: Classification of Products 32 Marketers use pricing, advertising, and packaging to differentiate their products from competitors' products even when actual differences are quite small Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-02 Identify the various kinds of consumer and industrial goods Level of Difficulty: Easy Topic: Classification of Products 33 Creative product differentiation can enable a small business to increase market share Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-02 Identify the various kinds of consumer and industrial goods Level of Difficulty: Easy Topic: Classification of Products 34 The most common classification of consumer goods and services is based on producer or manufacturer behavior in the market Answer: False AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-02 Identify the various kinds of consumer and industrial goods Level of Difficulty: Easy Topic: Classification of Products 35 One common way of classifying consumer goods is based on consumer purchasing behavior Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-02 Identify the various kinds of consumer and industrial goods Level of Difficulty: Easy Topic: Classification of Products 36 The uniqueness of convenience goods and services stimulates consumers to make an extra effort to purchase them Answer: False AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-02 Identify the various kinds of consumer and industrial goods Level of Difficulty: Easy Topic: Classification of Products 14-9 Chapter 14 - Developing and Pricing Goods and Services 37 Convenience goods are products that the consumer wants to purchase frequently and with a minimum of effort Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-02 Identify the various kinds of consumer and industrial goods Level of Difficulty: Easy Topic: Classification of Products 38 The characteristics of specialty goods restrict their effective sale over the Internet Answer: False AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-02 Identify the various kinds of consumer and industrial goods Level of Difficulty: Easy Topic: Classification of Products 39 Unsought goods and services fail to provide the benefits consumers expect Answer: False AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-02 Identify the various kinds of consumer and industrial goods Level of Difficulty: Easy Topic: Classification of Products 40 Unsought goods and services are products consumers not actively seek out for purchase on a regular basis Answer: True AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-02 Identify the various kinds of consumer and industrial goods Level of Difficulty: Easy Topic: Classification of Products 41 The marketing efforts for convenience and specialty goods are essentially the same Answer: False AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 14-02 Identify the various kinds of consumer and industrial goods Level of Difficulty: Easy Topic: Classification of Products 42 Shopping goods and services are purchased only after consumers compare value, quality, style, and price of competing goods and services Answer: True 14-10 Chapter 14 - Developing and Pricing Goods and Services AACSB: Reflective Thinking Bloom’s: Understand Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Medium Topic: Pricing Objectives and Strategies 331 Which of the following is a potential problem with a high-low pricing strategy? A It confuses and frustrates customers B It places too much emphasis on nonprice competition C It teaches customers to wait for sales, and therefore reduces profits D It is difficult to implement Feedback: Firms that use a high-low pricing strategy set regular prices relatively high, but have many special sales where prices are lowered below those of the competition This is a strategy used by many department stores One problem with this approach is that customers soon learn not to buy anything at the "regular" price, but to wait instead for a sale Answer: C AACSB: Reflective Thinking Bloom’s: Understand Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Medium Topic: Pricing Objectives and Strategies 332 Shopping online allows customers to compare prices of many goods and services This technology will likely: A cause businesses to increase their focus on nonprice aspects of their promotional message B bring about more emphasis on demand-oriented pricing C diminish in importance as quickly as other fads D focus government attention on the collusive pricing practices of firms in specific industries Feedback: Price competition is likely to heat up as consumers have access to prices from all around the world In response to this trend, nonprice competition is likely to increase Answer: A AACSB: Reflective Thinking Bloom’s: Understand Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Medium Topic: Pricing Objectives and Strategies 14-96 Chapter 14 - Developing and Pricing Goods and Services 333 Many products are promoted by emphasizing their key benefits, rather than setting the price lower than that of competitive goods This emphasis on the product's benefits illustrates a(n) _ strategy A penetration B nonprice competition C industry leader D bundled package Feedback: Nonprice competition is often used because prices are easy to match Few competitors can match the image of a friendly, responsive, consumer-oriented company Answer: B AACSB: Reflective Thinking Bloom’s: Understand Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Medium Topic: Pricing Objectives and Strategies 334 Which of the following statements about nonprice competition is most accurate? A While still important, nonprice competition is becoming less critical as a result of the Internet B Marketers often rely on nonprice differences in their competitive strategy to enhance a relatively homogeneous product C Nonprice competition is much more important to large firms than it is to small firms D As microeconomic theory suggests, firms have found that nonprice competition plays a secondary role that supplements the more important competition based on price Feedback: The idea of nonprice competition is to enhance a relatively homogeneous product Answer: B AACSB: Reflective Thinking Bloom’s: Understand Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Medium Topic: Pricing Objectives and Strategies 14-97 Chapter 14 - Developing and Pricing Goods and Services 335 American Building Products is the largest cement company in the Midwest When the firm raised its prices by percent, all of its competitors soon announced they too were raising their prices by percent It appears this industry is influenced by a strategy A price skimming B price leadership C market pricing D price discrimination Feedback: Price leadership is an industry practice in which all the firms in a specific industry follow the pricing leadership of one or more dominant firms Answer: B AACSB: Reflective Thinking Bloom’s: Understand Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Medium Topic: Pricing Objectives and Strategies 336 Phar-out Pharmacy will advertise a price of an over-the-counter drug at or below their cost The intended goal of this loss leader strategy is to: A achieve a target profit B reduce the break-even quantity C build traffic and increase the customer base D create an upscale image Feedback: Charging low prices for certain products is a way firms attempt to entice customers to visit their stores and build a base of customers Answer: C AACSB: Reflective Thinking Bloom’s: Understand Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Medium Topic: Pricing Objectives and Strategies 337 Phil asks you to calculate the break-even point for his firm You respond that you will need the following information: A the values for all assets and liabilities B total fixed costs, selling price per unit, and variable costs per unit C forecasted sales volume, operating expenses, and asset values D sales revenue and total liabilities Feedback: The break-even point is found by dividing total fixed costs by the difference between selling price minus variable costs per unit Answer: B 14-98 Chapter 14 - Developing and Pricing Goods and Services AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Hard Topic: Pricing Objectives and Strategies 338 Virtual Electronics is considering a strategy to charge a very high introductory price for their automobile video theater After identifying that their rival firms did not carry this new product, they chose this pricing strategy to achieve maximum profits Virtual Electronics has chosen a strategy A high-low pricing B penetration C bundling D skimming Feedback: A skimming price strategy is one where the product is priced high to make optimum profit while there is little competition Answer: D AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Hard Topic: Pricing Objectives and Strategies 339 Barker Brothers Pens utilizes a strategy of low-priced pens to attract customers and discourage competition This represents a _ strategy A high-low B bundling C skimming D penetration Feedback: A penetration strategy is one in which a product is priced low in order to attract customers and discourage competitors Answer: D AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Hard Topic: Pricing Objectives and Strategies 14-99 Chapter 14 - Developing and Pricing Goods and Services 340 Derek’s company was bidding on the construction of a new penguin display at a world-famous zoo When putting together his bid, Derek began by determining what the zoo would be willing to pay for the structure, and then subtracting a reasonable profit for the company The result would be the cost of production For example: If price to zoo = $6 million, and company profit margin = $2 million, the cost to produce cannot exceed $4 million [$6 million – $2 million = $4 million.] The demand-based pricing strategy in this example is called _ A target costing B penetration pricing C cost-based pricing D volume pricing Feedback: Target costing is a demand-based pricing strategy where the marketer first determines what the customer is willing to pay He/she then subtracts a reasonable profit desired by the company The remaining amount is the target cost, or the amount that costs for the product or service cannot exceed Answer: A AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Hard Topic: Pricing Objectives and Strategies 341 In the fall semester, Alex noticed that the plastic cola bottles in the vending machines at his university had changed shape Upon further investigation, he realized that each bottle contained ounces less beverage than previous bottles, even though he paid the same price as last semester The pricing objective of the beverage company is to: A increase profits by reducing the amount provided in each bottle B build traffic at the vending machines by changing the shape of the bottle C undercut the competition by changing the shape of the bottle D increase market share by reducing the amount provided in each bottle Feedback: Target costing is a demand-based pricing strategy where the marketer first determines what the customer is willing to pay He/she then subtracts a reasonable profit desired by the company The remaining amount is the target cost, or the amount that costs for the product or service cannot exceed Answer: A AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Hard Topic: Pricing Objectives and Strategies 14-100 Chapter 14 - Developing and Pricing Goods and Services 342 What does a break-even point of 100 units mean to a firm? A The firm must sell 100 units to maximize its profits B Fixed costs plus variable costs equals 100 units C By producing 100 units, the firm can ensure that variable costs completely cancel its fixed costs D If the firm sells 100 units, its total revenues will equal its total costs Feedback: The break-even point is the sales volume where revenues from sales equal all costs Answer: D AACSB: Analytical Thinking Bloom’s: Analyze Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Hard Topic: Pricing Objectives and Strategies 343 Jian has entered into a contract with the federal government to design a computer simulation model for training helicopter pilots The contract calls for the final price to be set at a fixed percentage profit over and above her cost of production This seems to represent a: A cost-based pricing strategy B supply and demand formula C demand-based pricing strategy D price leadership pricing strategy Feedback: Cost-based pricing is based on production costs plus some margin of profit Answer: A AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Hard Topic: Pricing Objectives and Strategies 14-101 Chapter 14 - Developing and Pricing Goods and Services 344 Helen is considering adding a rack of greeting cards to her product offerings at Litton Books Unlimited Her fixed costs associated with adding the greeting cards would be $300 Variable costs per card are $1 each The greeting cards will sell for $2 each Helen's break-even point would occur at cards sold A 125 B 150 C 300 D 600 Feedback: The break-even point is calculated by dividing the total fixed costs by the difference between the selling price and the variable costs per card In this case, Helen would need to sell 300 cards Answer: C AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Hard Topic: Pricing Objectives and Strategies 345 Felicia wants to know how many units she must sell to cover all of her costs She indicates to you that her selling price is $20 per unit, her fixed costs are $6,000, and the variable costs per unit are $15 What is her break-even point? A 300 units B 400 units C 1,200 units D 1,100 units Feedback: $6,000 fixed costs/($20 selling price – $15 variable costs) = 1,200 units Answer: C AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Hard Topic: Pricing Objectives and Strategies 14-102 Chapter 14 - Developing and Pricing Goods and Services 346 Angie owns a small company that markets high-quality office supplies to businesses Angie faces stiff competition from some much larger firms like Office Depot Which of the following competitive strategies would probably work best for Angie? A Keep costs as low as possible by offering a no-frills approach with little or no extra services B Develop a skimming pricing strategy C Utilize a high-low approach to pricing with a higher break-even point D Focus on nonprice competition by offering better service with customers and work on building good customer relationships Feedback: It is usually difficult for small firms to compete against larger firms solely on the basis of price It is usually easy for larger firms to match price cuts, but much harder to match the image of a friendly responsive company that knows its customers on an individual basis Achieving this type of relationship, and superior service, can allow small firms to charge high enough prices to prosper Answer: D AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Hard Topic: Pricing Objectives and Strategies 347 As a graphic artist, Nate has just finished producing a new calendar His calendar cost him $1.00 for the shiny paper, $2.00 for the six color production, and $.25 for the plastic wire that holds it together at the top The labor in developing the design was hours of work at $50/hour, and labor is being added to the rest of the fixed costs of $400.00 At a price of $12.00 per calendar, how many calendars will Nate need to produce and sell in order to break even (cover all his costs, but not make a profit)? A 690 calendars B 25 calendars C 40 calendars D 69 calendars Feedback: Break-even point = total fixed costs ÷ (price per unit – variable costs per unit) In this case, BEP= $600 ÷ ($12.00 per unit – $3.25 per unit) BEP = 68.57 or 69 calendars [Variable costs in this problem = $1.00 + $2.00 + $.25 = $3.25.] Answer: D AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Hard Topic: Pricing Objectives and Strategies 14-103 Chapter 14 - Developing and Pricing Goods and Services 348 Operating in the southwestern states, Lancer Airlines hopes to avoid entering the price war that currently is taking place between several airlines on the east coast The best strategy to avoid severe price competition is to: A provide frequent travelers the added value of special fringe benefits B cut costs and services in order to maintain profit margins C reduce flights and in-flight services, and lay off employees D determine the break-even price and charge slightly more than that Feedback: It is usually difficult for small firms to compete against larger firms solely on the basis of price Nonprice competition works much better Answer: A AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Hard Topic: Pricing Objectives and Strategies 14-104 Chapter 14 - Developing and Pricing Goods and Services Essay Questions 349 From a marketing management perspective, what is the meaning of a total product offer? What are the important elements in the total product offer of your college or university? Answer: A total product offer consists of everything that consumers evaluate when deciding whether to buy something Elements in a total product offer can include: price, brand name, convenience, package, service, store surroundings, Internet access, buyers' past experience, image created by advertising, guarantee, speed of delivery, and producers' reputation Students will generally identify several important elements in their college's or university's total product offer Among them may be: ● The tuition charged by the institution ● The academic reputation of the institution ● The "name" of the college, perhaps influenced by the success of the athletic department ● The service the college offers in terms of degree programs, college placement, etc ● The past experience of friends or relatives ● The probabilities (guarantees) of getting a job after graduation ● The surroundings or support facilities of the institution AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Hard Topic: The Product Life Cycle and the Product Development Process 14-105 Chapter 14 - Developing and Pricing Goods and Services 350 Consumer goods and services are generally classified into four specific categories What are the four categories, and how they differ? Illustrate by giving examples of products that are often included in each category Answer: Consumer goods and services are classified in one of the following four groups: convenience, shopping, specialty, and unsought goods and services Convenience Goods and Services: Products consumers wish to purchase frequently with a minimum amount of effort Location is very important for marketers as are image and brand awareness Examples of convenience goods and services include newspapers, candy, snacks, and banking Shopping Goods and Services: Products that consumers buy only after comparing value, quality, and price They are products typically sold through shopping centers where consumers can make comparisons Examples of shopping goods and services include personal computers, appliances, auto repair shops, and women's clothing Specialty Goods and Services: Products that have a special attraction to consumers in that segment, so that they will go out of their way to obtain these goods Specialty goods include certain types of medical services, expensive furs, luxury automobiles, fine jewelry, and gourmet food items Unsought Goods and Services: Products that consumers are unaware of, haven't necessarily thought of buying, or find that they need to solve an unexpected problem Emergency medical treatments, the services of a plumber when pipes burst or an electrician when wires short out, or towing services after a car breaks down are all examples of unsought goods The text points out that not all consumers classify goods in the same way What is a convenience good to one consumer might be a shopping good to another Thus, when evaluating student answers to this question, some flexibility in assessing examples is a good idea AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-02 Identify the various kinds of consumer and industrial goods Level of Difficulty: Hard Topic: Classification of Products 14-106 Chapter 14 - Developing and Pricing Goods and Services 351 Discuss the role of packaging in a firm's total product offer Answer: Packaging performs several important functions in the marketing process In many cases an innovative package design has literally made the product more useful and opened up large new markets for the good The text cites several examples, such as the Morton Salt package that prevented salt from sticking together in humid weather Packaging can also make the product more attractive to retailers by making it easier to store and display, or (as when Uniform Product Codes were added) easier to track inventory Packaging performs several important functions as required by the Fair Packaging and Labeling Act It protects the contents during shipping, handling, and storage It also attracts consumer attention, describes the contents inside and gives information about the contents, provides details about product benefits, and may also describe the warranty, provide directions for use, and indicate price, value, and usage The role of packaging in attracting attention and providing information to customers has been growing in importance as goods that were once sold by salespersons are now being sold more often in self-service outlets AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-03 Summarize the functions of packaging Level of Difficulty: Hard Topic: The Importance of Branding, Packaging, and Labeling 352 What is a brand? What is a brand name? What is meant by brand equity? Answer: A brand is a name, symbol, or design (or combination of these) that identifies the goods and services of one seller or group of sellers and distinguishes them from the goods and services of competitors A brand name is that part of the brand consisting of a word, letter, or group of words or letters that differentiates a seller's goods from those of competitors Brand equity is a combination of factors, such as consumer awareness, loyalty, perceived quality, images, and emotions that people associate with a particular brand name At the heart of brand equity is brand loyalty This refers to the degree to which consumers are satisfied, like the brand, and are committed to further purchases AACSB: Knowledge Application Bloom’s: Apply Learning Objective: 14-04 Contrast brand, brand name, and trademark, and show the value of brand equity Level of Difficulty: Hard Topic: The Importance of Branding, Packaging, and Labeling 14-107 Chapter 14 - Developing and Pricing Goods and Services Multiple Choice Questions Mini-Case Gourmet Pets is an innovative competitor in the billion-dollar pet food industry In fact, two of its products, Kitty Sirloin and McDog T-bone, each claim over a 30% share in their market segments The company has done detailed research and discovered that, for a growing number of pet owners, the family pet serves as a baby substitute These owners tend to pamper their pets, and are very discriminating in what they purchase With this in mind, the company has put a great deal of effort into developing a new dog food: Prime Cuts The new product is packaged in a resealable, microwaveable container and can be purchased in a variety of flavors (including Western BBQ, Teriyaki, Australian Outback, and Hickory Smoked) Gourmet Pets promotes the product as far superior to "average" dog foods, even though the quality of meat and nutrient content of the food are virtually identical to many other brands The company faces no competition in this market segment so it plans to charge a high price for the product 353 The company currently markets McDog T-bone, Lapdog Lunchtreats, Rover's Potroast, and Puppy Porterhouse in the dog food market Prime Cuts will be an addition to the company's _ in the dog food market A product mix B product line C product time D product screen Feedback: The product line is a group of products that are physically similar or are intended for a similar market Answer: B AACSB: Analytical Thinking Bloom’s: Analyze Learning Objective: 14-01 Describe a total product offer Level of Difficulty: Hard Topic: The Importance of Branding, Packaging, and Labeling 14-108 Chapter 14 - Developing and Pricing Goods and Services 354 Gourmet Pets hopes to use its special packaging and extensive advertising to create a perception in the minds of consumers that Prime Cuts is a superior product, even though the actual quality of meat used in the product is virtually no different from competing brands The company is attempting to develop: A differential segmentation B cognitive dissonance C product differentiation D pioneer marketing Feedback: Product differentiation is the creation of real or perceived product differences Answer: C AACSB: Analytical Thinking Bloom’s: Analyze Learning Objective: 14-02 Identify the various kinds of consumer and industrial goods Level of Difficulty: Hard Topic: Classification of Products 355 Prime Cuts was the brainchild of Karen Terrier who guided all the marketing efforts of the product She selected each element of the marketing mix such as the package, brand name, pricing, promotion, and placement decisions Karen obviously serves in the job of: A marketing consultant B brand manager C operations analyst D marketing intermediary Feedback: A brand manager has direct responsibility for all the elements of the marketing mix for one brand or one product line Answer: B AACSB: Analytical Thinking Bloom’s: Analyze Learning Objective: 14-04 Contrast brand, brand name, and trademark, and show the value of brand equity Level of Difficulty: Hard Topic: The Importance of Branding, Packaging, and Labeling 14-109 Chapter 14 - Developing and Pricing Goods and Services 356 Gourmet Pets is interested in computing the break-even point for its new product Prime Cuts The fixed costs of adding this product to the product line amounts to $20,000 Variable costs to produce one package of Prime Cuts are $2 Prime Cuts will sell for $6 per package The break-even point would be: A 900 units B 2,800 units C 5,000 units D There is not enough information to find the correct answer Feedback: Fixed costs of $20,000/(selling price $6, variable costs $2) = 5000 units The break-even point is that sales volume where total sales revenue equals total costs Answer: C AACSB: Analytical Thinking Bloom’s: Analyze Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Hard Topic: Pricing Objectives and Strategies 357 Gourmet Pets feels its target market is more concerned with perceived quality than actual product cost They also feel that the newness of this concept offers an opportunity to make high profits since they are the first firm to enter this market, so they face no direct competition Their decision to charge a high price is consistent with the strategy A market pricing B price leadership C skimming price D penetration price Feedback: A skimming price strategy is one in which a new product is priced high to make optimum profit while there is little competition Answer: C AACSB: Analytical Thinking Bloom’s: Analyze Learning Objective: 14-07 Identify various pricing objectives and strategies Level of Difficulty: Hard Topic: Pricing Objectives and Strategies 14-110 ... Objective: 1 4-0 7 Identify various pricing objectives and strategies Level of Difficulty: Easy Topic: Pricing Objectives and Strategies 1 4-3 2 Chapter 14 - Developing and Pricing Goods and Services 142 ... style, and price of competing goods and services Answer: True 1 4-1 0 Chapter 14 - Developing and Pricing Goods and Services AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 1 4-0 2... to brand names Answer: True 1 4-2 2 Chapter 14 - Developing and Pricing Goods and Services AACSB: Reflective Thinking Bloom’s: Remember Learning Objective: 1 4-0 4 Contrast brand, brand name, and