Chapter 8 Products, Services, and Brands: Building Customer Value

1) Which of the following is true with regard to products?

A) The quality of products is far more difficult to measure than that of services.
B) Products do not include experiences, organizations, persons, places, and ideas.
C) Products are not meant for sale in the market.
D) Products include services, events, persons, places, organizations, ideas, or a mixture of these.
E) Products refer to only those activities that are essentially intangible.

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

2) ________ are a form of product that consists of activities, benefits, or satisfactions offered for
sale that are essentially intangible and do not result in the ownership of anything.
A) Liabilities
B) Services
C) Brands
D) Consumer products
E) Specialty products

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

3) Which of the following exemplifies a service?

A) candy
B) laptop
C) hair salon
D) car
E) laundry detergent

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate
4) Marketing mix planning begins with ________.
A) building an offering that brings value to target customers
B) finding a suitable promotion strategy for the product
C) setting a reasonable price for the product
D) selecting the right channel for distribution of the product
E) calculating the total costs involved in manufacturing the product

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate

5) Market offering includes everything from pure tangible goods to pure services, as well as
combinations of goods and services. Which of the following is NOT a product or service?
A) breakfast cereal
B) rental car
C) free concert
D) shoes
E) haircut

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate

6) Which of the following is true with regard to services?

A) Services refer to purely tangible products.
B) Services are a form of product that consists of activities, benefits, or satisfactions offered for
sale.
C) Services can be stored for later use.
D) Services can be easily separated from their providers.
E) Services are tangible product offerings whose quality can be easily measured.

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate
7) Which of the following is an example of a pure tangible good?
A) a laptop with a comprehensive warranty for three years
B) an online shoe retailer that provides free home delivery
C) an agency that offers free legal advice
D) a credit card
E) a bag of potato chips

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate

8) Which of the following product offerings is intangible?

A) a package of laundry detergent
B) an ink cartridge for a printer
C) a wool jacket
D) a gold ring
E) a taxi ride

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate

9) Which of the following is a goods-and-services combination?

A) a bicycle
B) a milk shake at an ice cream store
C) chocolate chips
D) a train ride
E) a music lesson

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate
10) Product planners need to consider products and services on three levels. Each level adds
more customer value. The most basic level is ________, which addresses the question, "What is
the buyer really buying?"
A) an actual product
B) an augmented product
C) core customer value
D) co-branding
E) exchange value

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

11) Product planners need to consider products and services on three levels. At the second level,
product planners must ________.
A) offer additional product support and after-sale services
B) identify the core customer value that consumers seek from the product
C) turn the core benefit into an actual product
D) find out how they can create the most satisfying brand experience
E) define the problem-solving benefits or services that consumers seek

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate

12) If a consumer purchases a new flat-screen "smart" television which can connect to services
like Netflix and Pandora, what is the core customer value involved?
A) connection to entertainment and information
B) state-of the art technology
C) slick and attractive packaging
D) brand name
E) tech support and warranty

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate
13) If a consumer purchases a new flat-screen "smart" television, what is the augmented product
involved?
A) connection to the world of entertainment
B) state-of the art technology
C) slick and attractive packaging
D) brand name
E) tech support and warranty

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate

14) Product planners need to consider products and services on three levels. At the third level,
product planners must build ________.
A) an actual product
B) an augmented product
C) core customer value
D) a brand personality
E) a basic product

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

15) What is the core customer value a customer might purchase when buying Urban Decay
cosmetics?
A) variety of collections
B) unique packaging
C) unusual colors
D) sense of adventure
E) long-lasting makeup

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate
16) ________ are industrial products.
A) Major appliances
B) Laundry detergents
C) Life insurance policies
D) Office supplies
E) Legal services

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

17) Consumer products refer to ________.

A) products purchased by consumers for further processing or for use in conducting a business
B) products and services bought by final consumers for personal consumption
C) primarily intangible offerings from marketers
D) raw materials as well as manufactured materials and parts
E) products that aid in the consumer's production or operations, including installations and
accessory equipment

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

18) ________ are consumer products and services that customers usually buy frequently,
immediately, and with minimal comparison and buying effort.
A) Unsought products
B) Capital items
C) Shopping products
D) Convenience products
E) Supplies and repair services

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy
19) Which of the following is an example of a convenience product?
A) fast food
B) diamond ring
C) furniture
D) life insurance
E) refrigerator

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate

20) ________ are less frequently purchased consumer products and services that customers
compare carefully on suitability, quality, price, and style.
A) Shopping products
B) Convenience products
C) Unsought products
D) Capital items
E) Supplies and repair services

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

21) Which of the following is NOT a category of consumer products?

A) unsought
B) specialty
C) convenience
D) luxury
E) shopping

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy
22) Erica wants to replace her old washing machine with a new one. In order to get the
maximum value for her money, she plans to spend substantial time and effort in gathering
information and making product comparisons before making the actual purchase. In this
instance, Erica is planning to buy a(n) ________ product.
A) convenience
B) unsought
C) specialty
D) shopping
E) exclusive

AACSB: Application of knowledge

Skill: Application
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate

23) ________ are consumer products and services with unique characteristics or brand
identification for which a significant group of buyers is willing to make a special purchase effort.
A) Shopping products
B) Unsought products
C) Specialty products
D) Capital items
E) Convenience products

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

24) A hickory rocking chair, handmade by an Amish woodcarver in Lancaster, Pennsylvania,

from locally grown wood, is an example of a ________.
A) convenience product
B) capital item
C) service
D) specialty product
E) product attribute

AACSB: Application of knowledge

Skill: Application
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate
25) ________ are consumer products that the consumer either does not know about or knows
about but does not normally think about buying.
A) Specialty products
B) Convenience products
C) Unsought products
D) Shopping products
E) Capital items

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

26) ________ products are those products purchased for further processing or for use in
conducting a business.
A) Unsought
B) Specialty
C) Shopping
D) Industrial
E) Convenience

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

27) ________ are the major marketing factors in the sale of most manufactured materials and
parts.
A) Branding and advertising
B) Price and service
C) Sales promotion and advertising
D) Branding and packaging
E) Public relations and brand management

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy
28) ________ are industrial products that aid in the buyer's production or operations, including
installations and accessory equipment.
A) Unsought products
B) Convenience products
C) Capital items
D) Specialty items
E) Repair items

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

29) Installations consist of ________.

A) highly priced luxury goods such as Rolex watches
B) portable office equipment such as computers
C) major purchases such as elevators
D) portable factory equipment such as hand tools
E) products such as insurance

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate

30) Lubricants, coal, paper, and pencils are examples of ________.

A) operating supplies
B) capital items
C) raw materials
D) specialty products
E) installations

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate
31) Industrial products and services include raw materials, buildings, fixed equipment, supplies,
services, and ________.
A) computers and desks
B) electricity
C) groceries
D) insurance
E) employees

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

32) ________ marketing consists of activities undertaken to create, maintain, or change the
attitudes and behaviors of target consumers toward an organization.
A) Social network
B) Organization
C) Niche
D) Location
E) Concentrated

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

33) The advertising slogan, "We bring good things to life," used by General Electric to market
itself, is an example of ________ marketing.
A) person
B) corporate image
C) internal
D) place
E) niche

AACSB: Analytical thinking

Skill: Application
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate
34) ________ marketing consists of activities undertaken to create, maintain, or change attitudes
toward particular people. People ranging from presidents, entertainers, and sports figures to
professionals such as doctors, lawyers, and architects use it to build their reputations.
A) Corporate image
B) Person
C) Social
D) Organization
E) Place

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

35) A company that uses well-known celebrities to help sell its products is using ________
marketing.
A) interactive
B) internal
C) social
D) person
E) organization

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate

36) ________ marketing involves activities undertaken to create, maintain, or change attitudes
toward particular cities, states, or regions.
A) Idea
B) Place
C) Organization
D) Social
E) Interactive

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy
37) Tourism Australia's global marketing campaign, "There's nothing like Australia" is an
example of ________ marketing.
A) corporate image
B) person
C) organization
D) internal
E) place

AACSB: Analytical thinking

Skill: Application
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate

38) Advertising campaigns involving issues ranging from health care, education, and
environmental sustainability to human rights and personal safety can be classified under
________ marketing.
A) corporate image
B) internal
C) social
D) place
E) person

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

39) Elmo Inc., a Michigan-based manufacturer of athletic shoes, uses professional athletes in its
ad campaigns to help sell its products. This is an example of ________ marketing.
A) person
B) place
C) social
D) organization
E) internal

AACSB: Analytical thinking

Skill: Application
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate
40) Public health campaigns designed to reduce alcoholism, drug abuse, smoking, and obesity
are all examples of ________ marketing.
A) internal
B) social
C) organization
D) person
E) place

AACSB: Ethical understanding and reasoning

Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate

41) Rhodia invites tourists from all over the world to experience its pristine nature, clear skies,
and beautiful summertime climate. This exemplifies ________.
A) corporate image marketing
B) social marketing
C) place marketing
D) social engineering
E) negative brand equity

AACSB: Analytical thinking

Skill: Application
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate
Refer to the scenario below to answer the following question(s).

Ruben Delgado built his enterprise on the faithful patronage of four specialty shops and a large
contract from Elmore Distributors. But after two years, the maker of novelty pens and pencils
had to rethink his strategy when his contract with Elmore ended.

Ruben built a company reputation on the manufacturing and distribution of a variety of wooden
writing utensils with customized engravings. Specialty shops loved to display the products in
their fancy, lighted showcases, but such specialty shops alone were not profitable. Ruben
Delgado established a brand name, known merely as Delgado, and decided to expand on it.

Ruben extended his writing utensil lines to include quills, felt-tip pens, and multiple-cartridge
pens that write in different colors. He even added a line of various grades of personalized
stationery and business cards. Perhaps Ruben's biggest added touch, however, was the addition
of two salespeople who would work to explain the diverse array of products offered by Delgado,
as well as nurture existing accounts.

"We make an excellent product," Ruben Delgado stated, "and we honor a good guarantee on
everything we sell. But let's face it–we face hundreds of competitors! We need Delgado
representatives out there to help prospects understand what they should demand in something as
simple as a writing tool." The Delgado brand was fast-becoming synonymous with top-notch
customer service. Part of the purchase package brought personal visits from the Delgado
representative, before the purchase and long after.

42) An easier, more comfortable, more stylish transfer of thought onto paper refers to the
________ of Ruben's offerings.
A) tangible element
B) core customer value
C) actual product
D) augmented product
E) service variability

AACSB: Analytical thinking

Skill: Application
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Challenging
43) Which type of product does Delgado manufacture?
A) industrial
B) convenience
C) specialty
D) shopping
E) unsought

AACSB: Analytical thinking

Skill: Application
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Challenging

44) A service refers to an activity, benefit, or satisfaction offered for sale that is essentially
intangible and does not result in the ownership of anything.
Answer: TRUE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

45) Unsought products are products that the customer usually buys frequently, immediately, and
with a minimum of comparison and buying effort.
Answer: FALSE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate

46) Convenience products are less frequently purchased consumer products and services that
customers compare carefully on suitability, quality, price, and style.
Answer: FALSE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy
47) The augmented product is the actual product plus the various services and benefits offered
with it, such as a warranty, free delivery, installation, and maintenance.
Answer: TRUE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

48) Specialty products are consumer products and services that customers evaluate on suitability,
quality, price, and style, by gathering information and making comparisons.
Answer: FALSE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

49) Give examples of pure tangible goods.

xamples will vary. A company's market offering often includes both tangible goods and services.
Examples of pure tangible goods include soap, toothpaste, or salt; no services accompany these
products.
AACSB: Application of knowledge
Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

50) What is a product?

nything that can be offered to a market for attention, acquisition, use, or consumption that might
satisfy a want or need is known as a product.
AACSB: Written and oral communication
Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

51) How do consumers perceive products?

onsumers see products as complex bundles of benefits that satisfy their needs.
AACSB: Written and oral communication
Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy
52) Name some common convenience products.
Answer: Student examples may vary. Convenience products include laundry detergent, candy,
magazines, and fast food.
AACSB: Written and oral communication
Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

53) Give three examples of shopping products.

Answer: Student examples may vary. Shopping products include clothing, used cars, and
furniture.
AACSB: Written and oral communication
Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Easy

54) How are specialty products distributed?

Answer: Specialty products are distributed through only one or a few exclusive outlets per
market area. Special effort is required to purchase these products.
AACSB: Application of knowledge
Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate

55) Explain the difference between a consumer product and an industrial product. Include an
example.
Answer: The distinction between a consumer product and an industrial product is based on the
purpose for which the product is purchased. If a consumer buys a lawn mower for use around
home, the lawn mower is a consumer product. If the same consumer buys the same lawn mower
for use in a landscaping business, the lawn mower is an industrial product.
AACSB: Application of knowledge
Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate
56) Products and services fall into two broad classes based on the types of consumers that use
them. Name these two broad classes and describe how they are different from each other.
Answer: The two broad classes are consumer products and industrial products. Consumer
products and services–those bought by final consumers–are usually classified according to
consumer shopping habits. Consumer products include convenience products, shopping products,
specialty products, and unsought products.
Industrial products, on the other hand, are those that are purchased for further processing or for
use in conducting a business. These products include the three broad categories of materials and
parts, capital items, and supplies and services.
AACSB: Application of knowledge
Skill: Concept
Objective: LO 8.1: Define product and describe the major classifications of products and
services.
Difficulty: Moderate

57) Developing a product or service involves defining the benefits that it will offer. These
benefits are communicated and delivered by ________.
A) product labels
B) product attributes
C) support services
D) product packaging
E) branding

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

58) Product attributes include all of the following EXCEPT ________.

A) style
B) design
C) price
D) features
E) quality

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy
59) ________ refers to the characteristics of a product or service that bear on its ability to satisfy
stated or implied customer needs.
A) Brand equity
B) Product quality
C) Product labeling
D) Brand image
E) Brand personality

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

60) ________ is an approach in which all the company's people are involved in constantly
improving the quality of products, services, and business processes.
A) Business intelligence
B) Quality function deployment
C) Total quality management
D) Brand equity management
E) Product positioning

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

61) What are the two dimensions of product quality?

A) consistency and level
B) performance and conformance
C) design and innovation
D) conformance and style
E) feature and design

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy
62) ________ refers to freedom from defects and consistency in delivering a targeted level of
performance.
A) Performance quality
B) Product style
C) Branding
D) Conformance quality
E) Product design

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

63) Features are a competitive tool for differentiating a company's product from competitors'
products. Which question are companies LEAST likely to ask in a survey of buyers regarding
product features?
A) Which features could we add to improve the product?
B) Which specific features of the product do you like most?
C) How much would (a certain new feature) be worth to you?
D) Which features of the product do you like the least?
E) How do you like the product?

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

64) Style simply describes the ________ of a product.

A) quality
B) appearance
C) utility
D) durability
E) long-term benefits

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy
65) ________ contributes to a product's usefulness as well as to its looks.
A) Sensational style
B) Good design
C) Quality
D) Consistency
E) Packaging

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

66) A good design begins with ________.

A) brainstorming new product ideas
B) making prototypes of the planned product
C) identifying the most suitable and aesthetic packaging
D) brainstorming technical product specifications
E) observing and understanding customers and shaping their product-use experience

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Moderate

67) Which of the following questions is most important for product designers to consider while
developing a product?
A) Which specific features of the product do customers like most?
B) How does the product appear to buyers?
C) What are the product's technical specifications?
D) How would customers use and benefit from the product?
E) How can the product be packaged to stimulate instant purchase?

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Moderate
68) A ________ is a name, term, sign, symbol, design, or a combination of these, that identifies
the maker or seller of a product or service.
A) feature
B) brand
C) line extension
D) package
E) value chain

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

69) ________ involves designing and producing the container or wrapper for a product.
A) Packaging
B) Patenting
C) Servicing
D) Co-branding
E) Labeling

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

70) A product's ________ identifies the product or brand, describes several things about the
product, and promotes the brand.
A) line extension
B) portfolio
C) label
D) design
E) feature

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Moderate
71) Which of the following has become a major packaging concern in recent years?
A) underpackaging
B) legibility of print
C) colors used
D) product safety
E) durability

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

72) A label can identify, promote, and ________ the product.

A) sell
B) assemble
C) package
D) brand
E) describe

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

73) The ________ requires sellers to provide detailed nutritional information on food products.
A) Fair Packaging and Labeling Act of 1966
B) Nutritional Labeling and Educational Act of 1990
C) Glass-Steagall Act
D) Commodity Futures Modernization Act of 2000
E) Federal Trade Commission Act of 1914

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy
74) The first step in designing support services is to ________.
A) add new services that will both delight customers and yield profits to the company
B) closely observe the product and pricing strategies of consumers
C) survey customers to assess the value of current services and obtain ideas for new ones
D) prevent brand dilution
E) encourage customers to try new products

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

75) A ________ is a group of products that are closely related because they function in a similar
manner, are sold to the same customer groups, are marketed through the same type of outlets, or
fall within given price ranges.
A) product line
B) line extension
C) private brand
D) multibrand
E) new brand

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

76) The major product line decision involves product ________, the number of items in the
product line.
A) features
B) line depth
C) line conformance
D) line length
E) packaging

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy
77) ________ involves adding more items within the present range of the product line.
A) Market diversification
B) Brand extension
C) Product line filling
D) Upward product line stretching
E) Downward product line stretching

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

78) Titan Inc., an automobile manufacturer based in Utah, recently added two new models to its
existing line of sedans in order to increase profits and satisfy dealers. This is an example of
________.
A) line filling
B) social marketing
C) market diversification
D) negative brand equity
E) person marketing

AACSB: Analytical thinking

Skill: Application
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Moderate

79) ________ occurs when a company lengthens its product line beyond its current range.
A) Product line filling
B) Product line stretching
C) Co-branding
D) Niche marketing
E) Market diversification

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy
80) Proton Corp. is an automobile manufacturer known for producing efficient, durable, and low-
priced cars. Recently, the company launched a new range of luxury cars to broaden its market
appeal and to add prestige to its existing line of cars. This is an example of ________.
A) social marketing
B) product line filling
C) product line stretching
D) internal marketing
E) cannibalization

AACSB: Analytical thinking

Skill: Application
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Challenging

81) A ________ consists of all the product lines and items that a particular seller offers for sale.
A) product mix
B) store brand
C) supply chain
D) value chain
E) line extension

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

82) Product mix ________ refers to the number of different product lines the company carries.
A) length
B) height
C) width
D) consistency
E) depth

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy
83) Product mix ________ refers to the total number of items a company carries within its
product lines.
A) length
B) depth
C) height
D) width
E) consistency

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

84) Product mix ________ refers to the number of versions offered for each product in the line.
A) length
B) depth
C) height
D) width
E) consistency

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

85) The ________ of the product mix refers to how closely related the various product lines are
in end use, production requirements, distribution channels, or some other way.
A) length
B) depth
C) consistency
D) width
E) height

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy
86) A well-known cosmetic company in New York City added new product lines in order to
increase its business. In other words, it ________.
A) lengthened its existing product line
B) decreased its product line consistency
C) widened its product mix
D) engaged in market diversification
E) engaged in social marketing

AACSB: Analytical thinking

Skill: Application
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Moderate
Refer to the scenario below to answer the following question(s).

Ruben Delgado built his enterprise on the faithful patronage of four specialty shops and a large
contract from Elmore Distributors. But after two years, the maker of novelty pens and pencils
had to rethink his strategy when his contract with Elmore ended.

Ruben built a company reputation on the manufacturing and distribution of a variety of wooden
writing utensils with customized engravings. Specialty shops loved to display the products in
their fancy, lighted showcases, but such specialty shops alone were not profitable. Ruben
Delgado established a brand name, known merely as Delgado, and decided to expand on it.

Ruben extended his writing utensil lines to include quills, felt-tip pens, and multiple-cartridge
pens that write in different colors. He even added a line of various grades of personalized
stationery and business cards. Perhaps Ruben's biggest added touch, however, was the addition
of two salespeople who would work to explain the diverse array of products offered by Delgado,
as well as nurture existing accounts.

"We make an excellent product," Ruben Delgado stated, "and we honor a good guarantee on
everything we sell. But let's face it–we face hundreds of competitors! We need Delgado
representatives out there to help prospects understand what they should demand in something as
simple as a writing tool." The Delgado brand was fast-becoming synonymous with top-notch
customer service. Part of the purchase package brought personal visits from the Delgado
representative, before the purchase and long after.

87) The new felt-tip pens, multiple-cartridge pens, and quills offered by Ruben Delgado are
examples of ________.
A) product line filling
B) multibranding
C) megabranding
D) product line inconsistencies
E) co-branding

AACSB: Analytical thinking

Skill: Application
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Challenging

88) Companies frequently try to offer the highest possible performance quality level.
Answer: FALSE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Moderate
89) Style is a larger concept than design. Design simply describes the appearance of a product.
Answer: FALSE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Moderate

90) Branding decisions include determining a product price.

Answer: FALSE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

91) For few companies, the package itself has become an important promotional medium.
Answer: FALSE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Moderate

92) Labels range from simple tags attached to products to complex graphics that are part of the
packaging.
Answer: TRUE
Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Moderate

93) A product line consists of unrelated products that are sold to diverse customer groups.
Answer: FALSE
Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

94) Product line filling is overdone if it results in cannibalization and customer confusion.
Answer: TRUE
Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy
95) A company cannot stretch its product line downward.
Answer: FALSE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

96) Product mix width refers to the total number of items a company carries within its product
lines.
Answer: FALSE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

97) Companies stretch downward to add prestige to their current products.

Answer: FALSE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

98) A company's product mix has four important dimensions: width, length, depth, and
consistency.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Easy

99) How does branding help buyers?

randing helps buyers in many ways. Brand names help consumers identify products that might
benefit them. Brands also say something about product quality and consistency–buyers who
always buy the same brand know that they will get the same features, benefits, and quality each
time they buy.
AACSB: Application of knowledge; Written and oral communication
Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Moderate
100) When does product line stretching occur?
Answer: Product line stretching occurs when a company lengthens its product line beyond its
current range.
AACSB: Analytical thinking
Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Moderate

101) Define consistency of the product mix.

Answer: The consistency of the product mix refers to how closely related the various product
lines are in end use, production requirements, distribution channels, or some other way.
AACSB: Written and oral communication
Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Moderate

102) Name and describe the principal decisions companies make regarding their individual
products and services.
Answer: Individual product decisions involve: 1) product attributes, 2) branding, 3) packaging,
4) labeling, and 5) product support services.
Product attribute decisions involve product quality, features, and style and design. Branding
decisions include selecting a brand name and developing a brand strategy. Package decisions
often include designing labels, which identify, describe, and possibly promote the product.
Labeling identifies the product and may describe and promote the product and brand. Companies
also develop product support services that enhance customer service and satisfaction and
safeguard against competitors.
AACSB: Application of knowledge; Written and oral communication
Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Moderate

103) Describe the principal functions of packaging.

Answer: Packaging involves designing and producing the container or wrapper for a product.
Traditionally, the primary function of the package was to hold and protect the product. In recent
times, however, packaging has become an important marketing tool as well. Increased
competition and clutter on retail store shelves means that packages must now perform many sales
tasks–from attracting buyers, to communicating brand positioning, to closing the sale.
AACSB: Application of knowledge; Written and oral communication
Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Moderate
104) Briefly describe the history of legal concerns about packaging and labels.
Answer: The Federal Trade Commission Act of 1914 held that false, misleading, or deceptive
labels or packages constitute unfair competition. Labels can mislead consumers, fail to describe
important ingredients, or fail to include needed safety warnings. As a result, several federal and
state laws regulate labeling. The most prominent is the Fair Packaging and Labeling Act of 1966,
which set mandatory labeling requirements, encouraged voluntary industry packaging standards,
and allowed federal agencies to set packaging regulations in specific industries. The Nutritional
Labeling and Educational Act of 1990 requires sellers to provide detailed nutritional information
on food products, and recent sweeping actions by the Food and Drug Administration (FDA)
regulate the use of health-related terms such as low fat, light, high fiber, and organic.
AACSB: Ethical understanding and reasoning
Skill: Application
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Moderate

105) What are the different dimensions of a company's product mix? Briefly describe each
dimension.
company's product mix has four important dimensions: width, length, depth, and consistency.
Product mix width refers to the number of different product lines the company carries.
Product mix length refers to the total number of items a company carries within its product lines.
Product mix depth refers to the number of versions offered for each product in the line.
Finally, the consistency of the product mix refers to how closely related the various product lines
are in end use, production requirements, distribution channels, or some other way.
AACSB: Application of knowledge; Written and oral communication
Skill: Concept
Objective: LO 8.2: Describe the decisions companies make regarding their individual products
and services, product lines, and product mixes.
Difficulty: Moderate

106) Service ________ means that services cannot be seen, tasted, felt, heard, or smelled before
they are bought.
A) inseparability
B) variability
C) intangibility
D) perishability
E) heterogeneity

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.3: Identify the four characteristics that affect the marketing of services and the
additional marketing considerations that services require.
Difficulty: Easy
107) Which of the following actions is a restaurant owner most likely to take in order to reduce
problems associated with service intangibility?
A) increase entree prices after 6:00 p.m.
B) provide clean tablecloths and fresh napkins for each new customer
C) empower employees to handle customer complaints
D) offer discounted prices for appetizers ordered during happy hour
E) hold regular employee workshops focusing on customer service

AACSB: Reflective thinking

Skill: Critical Thinking
Objective: LO 8.3: Identify the four characteristics that affect the marketing of services and the
additional marketing considerations that services require.
Difficulty: Challenging

108) Tristan and Juliet, a newly married couple who intend to go to Egypt for their honeymoon,
bought a Europe travel package on Jizo Inc., an online travel site. As they have never seen
Europe or used the services of Jizo before, they were largely dependent on other customers'
feedback and signals for service quality. Which of the following characteristics of service is
highlighted in this instance?
A) service intangibility
B) service inseparability
C) service variability
D) service perishability
E) service distinction

AACSB: Analytical thinking

Skill: Application
Objective: LO 8.3: Identify the four characteristics that affect the marketing of services and the
additional marketing considerations that services require.
Difficulty: Challenging

109) If a service employee provides the service, then the employee becomes a part of the service.
This is an example of service ________.
A) intangibility
B) inseparability
C) variability
D) perishability
E) heterogeneity

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.3: Identify the four characteristics that affect the marketing of services and the
additional marketing considerations that services require.
Difficulty: Easy
110) Service ________ means that the quality of services depends on who provides them as well
as when, where, and how they are provided.
A) intangibility
B) inseparability
C) variability
D) perishability
E) heterogeneity

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.3: Identify the four characteristics that affect the marketing of services and the
additional marketing considerations that services require.
Difficulty: Easy

111) The customers of Parry's Hair Salon have noticed that the quality of a haircut depends on
who provides it as well as when, where, and how the service is provided. Which of the following
characteristics of service is evident in this instance?
A) service intangibility
B) service inseparability
C) service perishability
D) service variability
E) service distinction

AACSB: Analytical thinking

Skill: Application
Objective: LO 8.3: Identify the four characteristics that affect the marketing of services and the
additional marketing considerations that services require.
Difficulty: Challenging

112) Service ________ means that services cannot be stored for later sale or use.
A) consistency
B) perishability
C) variability
D) intangibility
E) inseparability

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.3: Identify the four characteristics that affect the marketing of services and the
additional marketing considerations that services require.
Difficulty: Easy
113) Alex Smith rents storage space to college students who go home for the summer but do not
want to haul all of their property home and back. The business is profitable during the summer
months, but when the storage space is unoccupied in the off-season, Alex loses money. Which of
the following characteristics of service is most likely the source of Alex's problem?
A) intangibility
B) perishability
C) inconsistency
D) variability
E) inseparability

AACSB: Analytical thinking

Skill: Application
Objective: LO 8.3: Identify the four characteristics that affect the marketing of services and the
additional marketing considerations that services require.
Difficulty: Challenging

114) According to the service profit chain, superior internal service quality results in ________.
A) lesser service value
B) increased word-of-mouth sales
C) reduced after-sale services
D) more satisfied, loyal, and hardworking employees
E) negative brand equity of newly launched products

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.3: Identify the four characteristics that affect the marketing of services and the
additional marketing considerations that services require.
Difficulty: Moderate

115) The service profit chain includes internal service quality, satisfied and productive service
employees, greater service value, healthy service profits and growth, and ________.
A) higher market share
B) better paid employees
C) satisfied and loyal customers
D) increased manufacturing efficiency
E) higher morale

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.3: Identify the four characteristics that affect the marketing of services and the
additional marketing considerations that services require.
Difficulty: Moderate
116) Through ________, a service firm orients and motivates its customer-contact employees
and supporting service people to work as a team to provide customer satisfaction.
A) service inseparability
B) social marketing
C) service variability
D) internal marketing
E) corporate image marketing

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.3: Identify the four characteristics that affect the marketing of services and the
additional marketing considerations that services require.
Difficulty: Moderate

117) ________ means that service quality depends on the quality of buyer-seller interaction
during the service encounter.
A) Interactive marketing
B) Service differentiation
C) Service productivity
D) Corporate image marketing
E) Traditional external marketing

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.3: Identify the four characteristics that affect the marketing of services and the
additional marketing considerations that services require.
Difficulty: Moderate

118) Service companies can differentiate their offering by ________.

A) having a lower price than their competitors
B) designing a superior delivery process
C) offering a stellar physical environment in which the product is delivered
D) developing innovative features
E) adopting a recognizable image

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.3: Identify the four characteristics that affect the marketing of services and the
additional marketing considerations that services require.
Difficulty: Moderate
119) Service companies can differentiate their service delivery by ________.
A) using symbols and logos
B) instituting a hierarchical organizational structure
C) offering innovative product features
D) de-emphasizing branding
E) having more able and reliable customer-contact people

AACSB: Application of knowledge

Skill: Concept
Objective: LO 8.3: Identify the four characteristics that affect the marketing of services and the
additional marketing considerations that services require.
Difficulty: Moderate

120) Apollo Couriers, a company providing international express mail services, has a proactive
customer communications team. The primary job of this team is to identify situations that led to
customer dissatisfaction, and then provide quick remedies to fix the problems. To a great extent,
this has helped Apollo in winning customer loyalty. In this instance, Apollo has benefitted from
________.
A) product differentiation
B) good service recovery
C) multibranding
D) place marketing
E) co-branding

AACSB: Analytical thinking

Skill: Application
Objective: LO 8.3: Identify the four characteristics that affect the marketing of services and the
additional marketing considerations that services require.
Difficulty: Challenging

121) Service productivity can be increased by hiring new employees who will work harder, by
giving up some quality, or by ________.
A) using technology more effectively
B) outsourcing portions of the process to other firms
C) creating more self-serve opportunities for customers
D) reducing the number of products offered
E) increasing the price on some of the product line

AACSB: Analytical thinking

Skill: Concept
Objective: LO 8.3: Identify the four characteristics that affect the marketing of services and the
additional marketing considerations that services require.
Difficulty: Moderate

Principles of Marketing, 18e, Global Edition (Kotler)

Chapter 9 Developing New Products and Managing the Product Life Cycle
1) Which of the following is a significant challenge presented by the product life cycle?
A) increased expenses
B) increased competition
C) new product development
D) evaluation of results
E) recognizing the stages as a product goes through them

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.1: Explain how companies find and develop new product ideas.
Difficulty: Easy

2) Acquisition refers to ________.

A) the buying of a whole company, a patent, or a license to produce someone else's product
B) an agreement between two or more commercial companies to produce a common product
C) a partnership between two companies to produce a product in different countries by sharing
risks
D) investments made in a country's businesses by foreign citizens, often in the form of stocks
E) the development of original products, product improvements, product modifications, and new
brands through the firm's own product development strategies

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.1: Explain how companies find and develop new product ideas.
Difficulty: Easy

3) Electron Corp. purchased Proton Corp. by buying all of its assets and ownership equity. This
is an example of a(n) ________.
A) new product development
B) acquisition
C) joint venture
D) licensing contract
E) divestment

AACSB: Application of knowledge

Skill: Application
Objective: LO 9.1: Explain how companies find and develop new product ideas.
Difficulty: Moderate
4) Product improvements, product modifications, and original products can all be classified as
________.
A) blueprints
B) new products
C) prototypes
D) product extensions
E) test products

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.1: Explain how companies find and develop new product ideas.
Difficulty: Easy

5) Which of the following is a common reason for new product failure?

A) incorrect estimation of the market size
B) low product development costs
C) ineffective social marketing campaigns
D) low selling prices of products
E) patent ownership exclusively held by the company

AACSB: Application of knowledge

Skill: Concept
Objective: LO 9.1: Explain how companies find and develop new product ideas.
Difficulty: Moderate

6) A particular firm added three new products earlier this year to increase variety for customers.
Two of the products failed to reach the minimal sales quota. Which of the following is LEAST
likely to have been the cause of their failure?
A) The products were priced too high.
B) The products were advertised incorrectly.
C) Competitors fought back harder than expected.
D) Product research was too extensive.
E) The product development costs were high.

AACSB: Analytical thinking

Skill: Application
Objective: LO 9.1: Explain how companies find and develop new product ideas.
Difficulty: Challenging
7) The product life cycle presents challenges. Which of the following is LEAST likely to require
a company to adapt its marketing strategies?
A) developments in technology
B) decreased manufacturing costs
C) competition
D) changing tastes of consumers
E) aging of products

AACSB: Analytical thinking

Skill: Application
Objective: LO 9.1: Explain how companies find and develop new product ideas.
Difficulty: Challenging

8) A firm can obtain new products through acquisition or new product development efforts.
Answer: TRUE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 9.1: Explain how companies find and develop new product ideas.
Difficulty: Easy

9) Acquisition involves the purchase of a whole company, a patent, or a license to produce

someone else's product.
Answer: TRUE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 9.1: Explain how companies find and develop new product ideas.
Difficulty: Easy

10) Adapting marketing strategies is not a challenge faced in the product life cycle.
Answer: FALSE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 9.1: Explain how companies find and develop new product ideas.
Difficulty: Easy
11) Explain common reasons for the failure of new products. What must be the goals for a
company to create successful new products?
lthough an idea may be good, the market size may have been overestimated. Other possible
reasons for failure include the following: the actual product was not designed as well as it should
have been; the product may have been incorrectly positioned in the market, priced too high, or
advertised poorly; a high-level executive might have pushed a favorite idea despite poor
marketing research findings; the costs of product development were higher than expected; or
competitors fought back harder than expected. To create successful new products, a company
must understand its customers, markets, and competitors and deliver superior value to customers.
AACSB: Analytical thinking; Written and oral communication
Skill: Concept
Objective: LO 9.1: Explain how companies find and develop new product ideas.
Difficulty: Moderate

12) New product development starts with ________.

A) concept development
B) idea screening
C) idea generation
D) concept testing
E) test marketing

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

13) John's fascination for his grandmother's sherbet recipes inspired him to come up with a
recipe for SherBetter, a gourmet sherbet for the American market. Which of the following stages
of the new product development process does this exemplify?
A) idea screening
B) idea generation
C) concept testing
D) product development
E) product manufacturing

AACSB: Analytical thinking

Skill: Application
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Challenging
14) Which of the following is an internal source for new product ideas?
A) competitors
B) company employees
C) marketing research firms
D) trade magazines
E) government agencies

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

15) Many companies have developed ________ programs that encourage employees to develop
new product ideas.
A) management
B) incentive
C) entrepreneurial
D) intrapreneurial
E) crowdsourcing

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

16) Why are customers often considered the most important sources of new product ideas?
A) Customers are close to the market and can pass along information about problems and new
product possibilities.
B) The company can analyze customer questions and complaints to find new products that better
solve consumer problems.
C) Customers buy competing new products, take them apart to see how they work, analyze sales,
and then decide to purchase.
D) Customers review the sales, costs, and profit projections for a new product to find out
whether the product satisfies the company's objectives.
E) Customers estimate the minimum and maximum sales to assess the range of risk.

AACSB: Application of knowledge

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Moderate
17) Which of the following is an external source for ideas?
A) project managers
B) engineers
C) salespeople
D) manufacturing staff
E) suppliers

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

18) Who can pass along information about new concepts or techniques to use in new products?
A) competitors
B) salespeople
C) customers
D) suppliers
E) distribution channels

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

19) Which of the following is the practice of inviting broad communities of customers,
employees, independent researchers, and members of the public into the new product innovation
process?
A) brainstorming
B) idea screening
C) crowdsourcing
D) outsourcing
E) concept testing

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy
20) Which of the following statements is true of the idea generation stage in the new product
development process?
A) The purpose of idea generation is to reduce the number of ideas to the least possible number.
B) Truly innovative companies rely exclusively on a single source for new product ideas.
C) Customers are the least important sources of new product ideas.
D) Truly innovative companies develop extensive innovation networks that capture ideas and
inspiration from every possible source.
E) Truly innovative companies seldom rely on customers and the general public for ideas.

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Moderate

21) In the new product development process, the first idea-reducing stage is ________.
A) business analysis
B) idea generation
C) concept development
D) crowdsourcing
E) idea screening

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

22) Executives at an automobile manufacturing company conducted a brainstorming session for

selected employees. This session resulted in a large number of ideas for developing new cars
after extensive R&D. The executives then planned to filter out the best ideas during the
________ stage.
A) business analysis
B) idea generation
C) concept testing
D) idea screening
E) concept development

AACSB: Analytical thinking

Skill: Application
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Moderate
23) Which of the following would most likely be included in an executive's write up of a new
product idea to be presented to a new product committee?
A) the proposed customer value proposition
B) the product image
C) the marketing strategy
D) the business analysis
E) the pricing strategy

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

24) Which of the following is NOT likely to be a question asked in the new product screening
process?
A) Is there a real need and desire for the product?
B) Is there a clear product concept?
C) Does the product offer a sustainable advantage?
D) How many items will the company sell in the first two years?
E) Does the product fit the company's overall growth strategy?

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

25) Which of the following statements best explains why idea screening may be the most
important step of new product development?
A) It increases the number of ideas generated.
B) It provides an opportunity for the marketer to test the prototype in a simulated market.
C) It helps forecast the products' sales and profits accurately for a specific period.
D) It gives research and development team members an opportunity to gather consumer
feedback.
E) It saves the company money in product development costs by going ahead with only the
product ideas that are likely to be profitable.

AACSB: Application of knowledge

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Moderate
26) A product idea is ________.
A) the way consumers perceive an actual or potential product
B) the knowledge and awareness of a product among consumers
C) a possible product that the company can see itself offering to the market
D) a detailed version of the new product idea stated in meaningful consumer terms
E) the testing of new product concepts with groups of target consumers

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

27) A detailed version of a new idea stated in meaningful customer terms is called a product
________.
A) solution
B) concept
C) image
D) proposal
E) lining

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

28) An attractive product idea must be developed into a ________.

A) concept alternative
B) product concept
C) brand personality
D) brand placement
E) product strategy

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy
29) A ________ is the way consumers perceive an actual or potential product.
A) product idea
B) product concept
C) product image
D) brand personality
E) concept test

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

30) JoAnn Fabrics Inc. has created a new combination of colors and fabric types. The firm wants
to know how consumers will perceive the new product. The firm is concerned with the product
________.
A) idea
B) displacement
C) image
D) activation
E) placement

AACSB: Analytical thinking

Skill: Application
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Challenging

31) Which of the following groups do marketers involve for the process of concept testing new
products?
A) suppliers
B) employees
C) target consumers
D) manufacturers
E) competitors

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy
32) For concept test, companies will frequently present customers with ________ of the concept
for a reliable concept test.
A) a verbal description
B) a PowerPoint slide
C) a picture
D) a physical presentation
E) a printed paragraph

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

33) Which of the following stages in the new product development would a firm engage in
immediately after the completion of concept testing?
A) idea screening
B) marketing strategy development
C) business analysis
D) product development
E) idea generation

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

34) What is included in the first part of a marketing strategy statement?

A) distribution strategy
B) product longevity
C) long-run sales goals
D) promotional mixes
E) target market description

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy
35) Which of the following is included in the second part of the marketing strategy statement?
A) advertising tagline
B) promotional mix
C) planned price
D) customer segmentation
E) operational excellence

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

36) Which of the following is included in the third part of the marketing strategy statement?
A) the planned value proposition
B) distribution strategy
C) the product's planned price
D) marketing budget
E) the planned long-run sales

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

37) A review of the sales, costs, and profit projections for a new product to find out whether they
satisfy the company's objectives is called a ________.
A) business feasibility plan
B) marketing strategy development
C) business analysis
D) product acceptance
E) business proposal

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy
38) Which stage of new product development requires management to estimate minimum and
maximum sales to assess the range of risk in launching a new product?
A) concept testing
B) marketing strategy development
C) business analysis
D) product development
E) test marketing

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

39) Once managers of The Grecian Urn have decided on their product concept and marketing
strategy, they can evaluate the business attractiveness of the proposal in the ________ stage of
the new product development process.
A) business transformation
B) test marketing
C) business analysis
D) business process reengineering
E) concept testing

AACSB: Application of knowledge

Skill: Application
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

40) Which of the following statements is true of the new product development process?
A) The purpose of the idea screening stage is to create a large number of ideas.
B) Under the business analysis stage, if the new product satisfies the company's objectives, the
product then moves to the product development stage.
C) A product concept is the way consumers perceive an actual or potential product.
D) The concept testing stage is the stage at which the product and its proposed marketing
program are introduced into realistic market settings.
E) Commercialization is the process of inviting broad communities of people such as customers,
employees, and scientists into the new product innovation process.

AACSB: Application of knowledge

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Moderate
41) Neutron Inc. is conducting a business analysis to determine which of the many newly
developed apps should be released. To estimate sales, the company must ________.
A) conduct surveys of competitors
B) exclusively consider the government's opinions
C) consider the sales history of similar products
D) apply the PLC concept to industry sales
E) opt for business process reengineering

AACSB: Application of knowledge

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Moderate

42) Which figures does the company use to analyze the new product's financial attractiveness?
A) size of population
B) expected market share
C) number of competitors
D) anticipated number of options
E) sales and costs

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

43) Which of the following stages of the new product development process occurs immediately
after the completion of the business analysis for the product or service?
A) idea screening
B) product development
C) product activation
D) marketing strategy development
E) product design

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy
44) The product development stage requires ________.
A) a huge jump in investment
B) salespeople to contact potential customers
C) financial analysis
D) a few hours
E) management approval

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

45) In the ________ stage of the new product development process, products undergo rigorous
tests to make sure that they perform safely and effectively, or that consumers will find value in
them.
A) product design
B) idea generation
C) concept development and testing
D) product development
E) product activation

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

46) A group of business entrepreneurs who worried about their teenage children
drinking and driving decided there must be some way to approach this problem proactively.
They came up with an idea for a pair of blurry goggles. They believed looking through the
goggles would simulate what the world looks like when someone is seriously intoxicated. They
developed a crude pair of blurry goggles to show prospective customers. This crude pair of
goggles is known as a ________.
A) prototype
B) concept test
C) product concept
D) product image
E) product idea

AACSB: Analytical thinking

Skill: Application
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Challenging
47) Once the prototype of Wainwright Industries' new riding lawnmower, made especially for
women, passes product tests, the next step is ________.
A) test marketing
B) focus group surveys
C) commercialization
D) concept testing
E) business analysis

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Moderate

48) In a ________, new products and marketing tactics are tested online in a virtual shopping
environment.
A) controlled test market
B) simulated test market
C) standard test market
D) focus group
E) survey

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

49) Starbucks introduced a less-than-perfect mobile payments app, then worked out the flaws
after the launch. The company chose speed to market over a perfect app at introduction. This
illustrates ________.
A) why many companies engage in crowdsourcing
B) the influence of fast-changing market developments
C) why prototypes are so important
D) how idea screening can make a product a commercial success
E) the importance of different sources for idea generation

AACSB: Analytical thinking

Skill: Application
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Challenging
50) Yummy Peanut Butter created a new coconut-flavored peanut butter that it tested in a small
number of representative cities. The company plans to use the results to forecast national sales
and profits. Which of the following did the firm use?
A) controlled test markets
B) simulated test markets
C) standard test markets
D) ambush marketing
E) affinity marketing

AACSB: Analytical thinking

Skill: Application
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Challenging

51) In a(n) ________, consumers interact with new products and marketing tactics in laboratory
stores or virtual online shopping environments.
A) standard test market
B) focus group
C) controlled test market
D) simulated test market
E) individual survey

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

52) In a(n) ________, new products and marketing tactics are tested among specifically
identified groups of customers and stores.
A) controlled test market
B) simulated test market
C) standard test market
D) systematic sample
E) accidental sample

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy
53) All of the following are disadvantages of test marketing EXCEPT that test marketing
________.
A) is typically expensive
B) can be time consuming
C) enables competitors to gain advantages
D) encourages dishonesty among participants
E) fails to guarantee product success in the market

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Moderate

54) Which of the following is the most likely circumstance for a company to decide to do little or
no test marketing?
A) when the new product requires a major investment
B) when management lacks confidence in the new product
C) when management lacks confidence in the marketing strategy
D) when the product has no substitutes and is new in its category
E) when the costs of developing and introducing the product are low

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Moderate

55) Which of the following statements is true of test marketing?

A) The amount of test marketing needed remains constant for each new product.
B) When the costs of developing and introducing the product are low, the company will have to
do significant test marketing.
C) Test marketing is seldom done on products that are risky.
D) Test marketing is seldom done when management is not sure of the product or its marketing
program.
E) Test marketing costs can be high, and it takes time that may allow competitors to gain
advantages.

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Moderate
56) The major purpose of test marketing is to provide management with the information needed
to make a final decision about ________.
A) the entire marketing program
B) which market to compete in
C) whether to launch the new product
D) how to compete in the market
E) how long to compete in the market

AACSB: Application of knowledge

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Moderate

57) Introducing a new product into the market is called ________.

A) test marketing
B) simulation
C) co-marketing
D) commercialization
E) segmentation

AACSB: Analytical thinking

Skill: Concept
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Easy

58) P&G introduced its Duncan Hines ready-to-spread frosting in a small geographic area. When
General Mills became aware of the product, it rushed to market its own Betty Crocker ready-to-
spread frosting, which eclipsed the Duncan Hines product introduction. General Foods was able
to enter the ________ stage of the new product development process before P&G could.
A) commercialization
B) co-marketing
C) idea generation
D) idea screening
E) simulation

AACSB: Analytical thinking

Skill: Application
Objective: LO 9.2: List and define the steps in the new product development process and the
major considerations in managing this process.
Difficulty: Challenging
59) Which of the following involves costs that most likely occur during the commercialization
stage of new product development?
A) building or renting a manufacturing facility
B) paying target customers for product feedback
C) determining the product's planned distribution
D) developing a prototype of the product
E) identifying target markets

Principles of Marketing, 18e, Global Edition (Kotler)

Chapter 10 Pricing: Understanding and Capturing Customer Value

1) ________ refers to the amount of money charged for a product or service.

A) Value
B) Cost
C) Price
D) Wage
E) Salary

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.1: Answer the question "What is a price?" and discuss the importance of
pricing in today's fast-changing environment.
Difficulty: Easy

2) ________ is the only element in the marketing mix that produces revenue.
A) Price
B) Product
C) Place
D) Fixed costs
E) Variable costs

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.1: Answer the question "What is a price?" and discuss the importance of
pricing in today's fast-changing environment.
Difficulty: Easy

3) Which of the following is true with regard to price?

A) Historically, price has had the least perceptible impact on buyer choice.
B) Price is the least flexible element in the marketing mix.
C) Unlike product features and channel commitments, prices cannot be changed quickly.
D) Price is the sum of all the values that customers give up to gain the benefits of having a
product.
E) Prices only have an indirect impact on a firm's bottom line.

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.1: Answer the question "What is a price?" and discuss the importance of
pricing in today's fast-changing environment.
Difficulty: Moderate
4) Price is important to managers ________.
A) because prices cannot be changed quickly, so must be correctly determined
B) because a small percentage improvement in price can generate a large percentage increase in
profitability
C) but other marketing mix elements create customer value and build relationships
D) but product features can be changed more quickly
E) but has little impact on a firm's market share

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.1: Answer the question "What is a price?" and discuss the importance of
pricing in today's fast-changing environment.
Difficulty: Challenging

5) Prices have a direct impact on a firm's bottom line.

Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Objective: LO 10.1: Answer the question "What is a price?" and discuss the importance of
pricing in today's fast-changing environment.
Difficulty: Easy

6) Price is the most inflexible of the marketing mix elements.

Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Objective: LO 10.1: Answer the question "What is a price?" and discuss the importance of
pricing in today's fast-changing environment.
Difficulty: Easy

7) List some important characteristics of price.

Answer: Price is the only element in the marketing mix that produces revenue; all other
elements represent costs. Price is also one of the most flexible marketing mix elements. Unlike
product features and channel commitments, prices can be changed quickly.
AACSB: Application of knowledge; Written and oral communication
Skill: Concept
Objective: LO 10.1: Answer the question "What is a price?" and discuss the importance of
pricing in today's fast-changing environment.
Difficulty: Moderate

8) Why is price considered one of the most flexible elements of the marketing mix?
Answer: Unlike product features and channel commitments, prices can be changed quickly.
AACSB: Application of knowledge
Skill: Concept
Objective: LO 10.1: Answer the question "What is a price?" and discuss the importance of
pricing in today's fast-changing environment.
Difficulty: Easy

9) Define price. Discuss its importance.

Answer: In the narrowest sense, price is the amount of money charged for a product or a service.
More broadly, price is the sum of all the values that customers give up to gain the benefits of
having or using a product or service. Historically, price has been the major factor affecting buyer
choice. In recent decades, however, nonprice factors have gained increasing importance. Even
so, price remains one of the most important elements that determines a firm's market share and
profitability.
Price is the only element in the marketing mix that produces revenue; all other elements
represent costs. Price is also one of the most flexible marketing mix elements. Unlike product
features and channel commitments, prices can be changed quickly. At the same time, pricing is
the number one problem facing many marketing executives, and many companies do not handle
pricing well. Some managers view pricing as a big headache, preferring instead to focus on other
marketing mix elements. However, smart managers treat pricing as a key strategic tool for
creating and capturing customer value. Prices have a direct impact on a firm's bottom line. A
small percentage improvement in price can generate a large percentage increase in profitability.
More important, as part of a company's overall value proposition, price plays a key role in
creating customer value and building customer relationships.
AACSB: Analytical thinking; Written and oral communication
Skill: Concept
Objective: LO 10.1: Answer the question "What is a price?" and discuss the importance of
pricing in today's fast-changing environment.
Difficulty: Moderate

10) What sets the ceiling for product prices?

A) product manufacturing costs
B) sellers' perceptions of the product's value
C) customer perceptions of the product's value
D) variable costs
E) break-even volume

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy
11) What sets the floor for product prices?
A) consumer perceptions of the product's value
B) product costs
C) competitors' strategies
D) advertising budgets
E) market competition

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

12) Effective ________ pricing involves understanding how much value consumers place on the
benefits they receive from the product and setting a price that captures that value.
A) competition-oriented
B) cost-based
C) time-based
D) customer-oriented
E) marketer-oriented

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

13) ________ pricing uses buyers' perceptions of value as the key to pricing.
A) Customer value-based
B) Cost-based
C) Time-based
D) Markup
E) Target return

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy
14) Factors a company considers in setting its price include all of the following EXCEPT
________.
A) competitors' strategies and prices
B) product costs
C) overall marketing strategy and mix
D) value of the product on the pre-owned market
E) nature of the market and demand

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate

15) Which of the following is true of value-based pricing?

A) The targeted value and price drive decisions about what costs can be incurred and the
resulting product design.
B) Value-based pricing is mostly product driven.
C) Value-based pricing involves setting prices based on the costs of producing, distributing, and
selling the product plus a fair rate of return for its effort and risk.
D) The marketer usually designs a product and marketing program and then sets the price.
E) A company using value-based pricing designs what it considers to be a good product, adds up
the costs of making the product, and sets a price that covers costs plus a target profit.

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate

16) What is usually the first step in cost-based pricing?

A) testing the product concept with potential customers
B) determining the marketing mix strategy
C) setting a price that covers costs plus a target profit
D) designing a good product
E) adding up the costs of making the product

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate
17) Which of the following processes does value-based pricing reverse?
A) high-low pricing
B) everyday low pricing
C) cost-based pricing
D) good-value pricing
E) value-added pricing

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

18) A pharmaceutical company in Utah recently released a new and expensive anti-ulcer drug in
the market. The company justifies the high price of the drug by claiming that it is highly
effective for treating all kinds of ulcers. The company also claims that the new drug will help
bring down the need for invasive surgeries, an additional benefit for patients. Which of the
following pricing strategies is the pharmaceutical company most likely using in this instance?
A) target pricing
B) markup pricing
C) cost-based pricing
D) value-based pricing
E) break-even pricing

AACSB: Analytical thinking

Skill: Application
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Challenging

19) A restaurant wants to use value-based pricing. It knows the costs of the ingredients in the
food. It must also factor in ________ in determining customer satisfaction and value.
A) wages of employees
B) costs of utilities of the restaurant
C) atmosphere and décor of the restaurant
D) travel distance for customers
E) percentage of bar patrons versus dining patrons

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate
20) The perceived value of different product offers can be reasonably assessed by ________.
A) conducting a SWOT analysis
B) preparing demand curves
C) conducting surveys and experiments
D) collecting data about competitors' offers
E) setting a benchmark for product quality

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

21) Underpriced products ________.

A) produce less revenue than they would if they were priced at the level of perceived value
B) sell poorly in the global marketplace
C) produce more revenue than they would if they were priced at the level of perceived value
D) mostly offer higher value than those with a high markup price
E) are characterized by rapidly declining demand

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

22) The Great Recession of 2008 to 2009 triggered a shift in consumer attitudes toward
________.
A) variety and price
B) perceptions of value
C) locations of stores
D) price and quality
E) economic data

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy
23) Which of the following involves introducing less-expensive versions of established, brand
name products?
A) markup pricing
B) good-value pricing
C) time-based pricing
D) cost-based pricing
E) target profit pricing

AACSB: Application of knowledge

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

24) ________ pricing refers to offering just the right combination of quality and gratifying
service at a fair price.
A) Markup
B) Good-value
C) Cost-plus
D) Target profit
E) Break-even

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

25) When McDonald's and other fast food restaurants offer "value menu" items at surprisingly
low prices, they are most likely using ________ pricing.
A) break-even
B) target profit
C) good-value
D) cost-plus
E) target return

AACSB: Application of knowledge

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy
26) Azure Air, an airline company, offers attractive prices to customers with tighter budgets. A
no-frills airline, it charges for all other additional services, such as baggage handling and in-
flight refreshments. Which of the following best describes Azure Air's pricing method?
A) target profit pricing
B) good-value pricing
C) cost-based pricing
D) break-even pricing
E) penetration pricing

AACSB: Application of knowledge

Skill: Application
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate

27) Retailers such as Costco and Walmart charge a constant, daily low price with few or no
temporary price discounts. This is an example of ________ pricing.
A) competition-based
B) everyday low
C) cost-plus
D) break-even
E) penetration

AACSB: Application of knowledge

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

28) Bon Vivant offers an assortment of exclusive French wines at incredibly low prices. These
prices are neither limited-time offers nor special discounts, but represent the daily prices of
products sold by Bon Vivant. This reflects Bon Vivant's ________ pricing strategy.
A) everyday low
B) markup
C) penetration
D) break-even
E) cost-based

AACSB: Application of knowledge

Skill: Application
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate
29) ________ pricing involves charging higher prices on an everyday basis but running frequent
promotions to lower prices temporarily on selected items.
A) High-low
B) Everyday low
C) Cost-plus
D) Break-even
E) Penetration

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

30) Department stores such as Kohl's and JCPenney's practice high-low pricing by ________.
A) charging a constant, everyday low price
B) providing few or no temporary price discounts
C) increasing prices temporarily on select products
D) having frequent sale days for store credit-card holders
E) underpricing most consumer items

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate

31) Companies that adopt value-added pricing ________.

A) consider value-added features as a fitting substitute for aggressive cost cutting
B) set incredibly low prices to meet competition
C) attach value-added features and services to differentiate their offers and support their higher
prices
D) overprice their products without any apparent justification
E) underprice their products and lower quality to boost demand in the short-run

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy
32) Which of the following is true with regard to value-added pricing?
A) Companies that practice value-added pricing typically match the competition by cutting
prices.
B) Companies practicing value-added pricing differentiate their offers by attaching value-added
features to offerings that, in turn, justify higher prices.
C) The intrinsic value of products sold by companies practicing value-added pricing is far less
than their actual selling price.
D) Companies practicing value-added pricing primarily rely on cost differentiation.
E) Value-added pricing is the most suitable pricing strategy in pure monopolies.

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate

33) In an effort to differentiate its offerings from its competitors, Pegasus Computers decided to
add an extra USB port in all its laptops besides providing a free pair of Delphi power bass
headphones with every Pegasus laptop. Although the additional features increased the price of
the laptops by $500, Pegasus was confident that the strategy would help boost demand for its
laptops substantially. This is an example of ________.
A) good-value pricing
B) markup pricing
C) break-even pricing
D) value-added pricing
E) cost-based pricing

AACSB: Analytical thinking

Skill: Application
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Challenging
34) ________ involves setting prices based on the costs for producing, distributing, and selling
the product plus a fair rate of return for effort and risk.
A) Value-based pricing
B) Competition-based pricing
C) Cost-based pricing
D) Penetration pricing
E) Break-even pricing

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

35) Companies with lower costs ________.

A) specialize in selling products with value-added features
B) usually market products with inferior quality, thereby justifying the low selling price
C) can set lower prices that result in smaller margins but greater sales and profits
D) tend to overprice products owing to their monopolistic advantage
E) usually set higher prices that result in higher margins

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate

36) Companies with higher costs ________.

A) can drive out competitors through their pricing strategy
B) intentionally pay higher costs so that they can add value through higher quality and claim
higher prices and margins
C) can set lower prices that result in increased sales though with lower margins
D) specialize in selling products without value-added features
E) are more financially successful

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate
37) A company must pay each month's bills for rent, heat, interest, and executive salaries
regardless of the company's level of output. This exemplifies its ________ costs.
A) overhead
B) variable
C) target
D) total
E) unit

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate

38) Overhead costs ________ as the number of units produced increases.

A) decrease
B) increase steadily
C) fluctuate
D) remain the same
E) increase rapidly

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

39) Which of the following is most likely a fixed cost?

A) sales representative commissions
B) product distribution costs
C) manufacturing input costs
D) temporary worker salaries
E) facility rental payments

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy
40) Fixed costs ________.
A) are costs that do not vary with production or sales level
B) vary directly with the level of production
C) decrease with accumulated production experience
D) are the sum of the overhead and variable costs for any given level of production
E) represent the annual costs of inputs incurred by a company

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

41) Costs that change with the level of production are referred to as ________.
A) fixed costs
B) variable costs
C) target costs
D) total costs
E) overhead costs

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

42) In 2011, the fixed costs of a company were $500,000, and its variable costs equaled
$150,000. In 2010, the company made an annual profit of $200,000. It has been predicted that,
despite a steady growth, the company's variable costs will likely equal $300,000 by 2013. The
total costs of the company in 2011 were ________.
A) $350,000
B) $450,000
C) $650,000
D) $800,000
E) $950,000

AACSB: Analytical thinking

Skill: Application
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate
43) The total production costs at Kellner Machine Works are $87,000 out of which $45,000
represent fixed costs. Which of the following is representative of the variable costs incurred by
the company?
A) $35,000
B) $42,000
C) $45,000
D) $87,000
E) $132,000

AACSB: Analytical thinking

Skill: Application
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate

44) The fixed cost in manufacturing a single LED monitor is $40 and the variable cost is $12. If
the company expects to manufacture 5,000 monitors, the total costs would be ________.
A) $60,000
B) $200,000
C) $260,000
D) $420,000
E) $500,000

AACSB: Analytical thinking

Skill: Application
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate

45) As production moves up, the average cost per unit decreases because ________.
A) variable costs decrease
B) of increasing diseconomies of scale
C) fixed costs are spread over more units
D) overhead costs decrease
E) revenue increases

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate
46) A cell phone manufacturing firm produced 1,000 cell phones a day but believed that it could
reasonably step up production to 2,000 cell phones a day. Consequently, it built a larger plant
and installed efficient machinery and work arrangements to realize the projected output. Which
of the following can most likely be inferred from this information?
A) The unit cost of producing 2,000 cell phones per day would be twice that of the unit cost of
producing 1,000 units per day.
B) A production plant with the capacity of producing 5,000 cell phones a day would be most
efficient.
C) The unit cost of producing 2,000 cell phones per day would be lower than the unit cost of
producing 1,000 units per day.
D) A 2,000-capacity production plant would be less efficient because of increasing diseconomies
of scale.
E) The fixed costs of the firm are more likely to increase with the increase in output.

AACSB: Reflective thinking

Skill: Critical Thinking
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Challenging

47) The long-run average cost (LRAC) curve indicates the ________.
A) per unit cost of output in the long run
B) projected total production costs of competitors
C) variable costs incurred by a firm over time
D) fixed costs incurred by a firm over the long term
E) number of units the market will buy in a given time period, at different prices that might be
charged

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy
48) A manufacturing plant is designed to produce 2000 flat-screen TVs per day. But demand is
higher than that. If the company tries to increase its production to 2500 TVs per day, the average
costs will ________ because ________.
A) decrease; the plant becomes more efficient
B) stay the same; the plant becomes more efficient
C) decrease; the plant becomes inefficient
D) increase; the plant becomes more efficient
E) increase; the plant becomes inefficient

AACSB: Reflective thinking

Skill: Critical Thinking
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Challenging

49) The learning curve is representative of the ________.

A) per unit cost of output in the long run
B) drop in the average per-unit production cost that comes with accumulated production
experience
C) number of units the market will buy in a given time period, at different prices that might be
charged
D) total market demand resulting from different prices
E) per unit cost of output in the short run

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

50) As production workers become better organized and more familiar with equipment, the
average cost per unit tends to decrease with the ________.
A) increase in the diseconomies of scale
B) accumulated production experience
C) decrease in the economies of scale
D) increase in derived demand
E) increase in primary demand

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy
51) With accumulated production experience and a higher volume of production, companies not
only become more efficient but also ________.
A) gain economies of scale
B) incur higher overhead costs
C) create derived demand in the market
D) spend more per unit of produced output
E) tend to routinely spend less on inputs

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

52) The experience curve reveals that ________.

A) repetition in production has no visible impact on production costs
B) repetition in production enhances efficiency
C) the average cost of production remains the same with accumulated production experience
D) repetition in production adds to the costs and thereby increases the prices of outputs
E) the average cost of production increases with accumulated production experience

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate

53) A downward-sloping experience curve is indicative of ________.

A) the negative customer perception about a company's products
B) the falling demand for a company's products
C) the falling unit production cost of a company
D) the low quality of a company's products
E) slow and inadequate organizational learning

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate
54) To take advantage of a downward-sloping experience curve, a company must do all of the
following EXCEPT ________.
A) increase the product's price
B) be able to sell the higher volume of product
C) price its product lower
D) increase its production output
E) decrease its costs through experience gained

AACSB: Reflective thinking

Skill: Critical Thinking
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Challenging

55) Which of the following is most likely a risk associated with experience-curve pricing?
A) High-volume production facilities are unable to meet demand.
B) New technology often leads to productivity problems.
C) Demand for the product fluctuates unpredictably.
D) Consumers tend to prefer new brands over established ones.
E) Aggressive pricing often gives a product a cheap image.

AACSB: Application of knowledge

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

56) Experience-curve pricing assumes that ________.

A) competitors are weak and not willing to match price cuts
B) competitors are strong and invincible
C) aggressive pricing adversely affects product image
D) volume-based production slows down organizational learning
E) lower-cost technologies are almost always inferior

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate
57) The simplest pricing method is ________ pricing.
A) value-based
B) fixed cost
C) cost-plus
D) target return
E) competition-based

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

58) Cost-plus pricing ________.

A) is a complex pricing method
B) involves pricing that accurately reflects production costs
C) involves adding a standard markup for profit
D) aims at breaking even on the costs of making and marketing a product
E) is a value-based pricing method

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

59) Lawyers, accountants, and other professionals typically price by adding a standard markup
for profit. This exemplifies ________.
A) target pricing
B) cost-plus pricing
C) value-based pricing
D) break-even pricing
E) penetration pricing

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy
60) Herbie Inc., a firm manufacturing sandwich makers, has fixed costs of $250,000, variable
costs of $20 per unit of output, and expected unit sales of 50,000 units. What is the unit cost of a
sandwich maker manufactured by Herbie?
A) $15
B) $25
C) $30
D) $50
E) $75

AACSB: Reflective thinking

Skill: Application
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Challenging

61) Samsung Mobile plans to launch a new phone with a unit cost of $270 and wants to earn a 10
percent markup on its sales. Samsung's markup price is ________.
A) $275
B) $280
C) $295
D) $300
E) $335

AACSB: Reflective thinking

Skill: Application
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Challenging

62) Why is markup pricing most likely impractical?

A) Calculating costs is complicated due to fluctuations.
B) By tying the price to cost, sellers oversimplify pricing.
C) When all firms in the industry use this pricing method, prices tend to be similar.
D) The method ignores demand and competitor prices.
E) With a standard markup, consumers know when they are being overcharged.

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate
63) Why is markup pricing most likely popular?
A) Sellers are more certain about demand than about costs.
B) Markup pricing tends to maximize market competition.
C) Markup pricing affords buyers greater bargaining power.
D) Sellers do not need to make frequent adjustments as demand changes.
E) Markup pricing is designed to set prices to break even on the costs of making and marketing a
product.

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate

64) Which of the following is a cost-based approach to pricing?

A) value-based pricing
B) high-low pricing
C) target return pricing
D) good value pricing
E) EDLP

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

65) Target return pricing is a variation of which of the following cost-oriented pricing
approaches?
A) cost-plus pricing
B) break-even pricing
C) markup pricing
D) value-based pricing
E) fixed cost pricing

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy
66) Target return pricing uses the concept of a(n) ________, which shows the total cost and total
revenue expected at different sales volume levels.
A) BCG matrix
B) break-even chart
C) SWOT analysis
D) demand curve
E) experience curve

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

67) John assured his venture capitalists an earning of 25-percent return on equity when he began
his IT startup. In order to achieve this result, he will most likely use which of the following
pricing approaches?
A) value-based pricing
B) markup pricing
C) EDLP
D) customer-based pricing
E) target return pricing

AACSB: Analytical thinking

Skill: Application
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate

68) The break-even volume is the point at which ________.

A) the total revenue and total cost curves intersect
B) demand equals supply
C) the production of one more unit will not lead to increase in demand
D) the company can pay off all its long-term debt
E) a firm exceeds the sales forecast

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate
69) Which of the following statements about break-even analysis is true?
A) It is used to determine how much production experience a company must have in order to
achieve desired efficiencies.
B) It is a technique used to calculate fixed costs.
C) It determines the amount of retained earnings a company will have during a given accounting
period.
D) It is a technique marketers use to determine the relationship between supply and demand.
E) It is calculated by using variable costs, the unit price, and fixed costs.

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate

70) A company faces fixed costs of $100,000 and variable costs of $8 per unit. It plans to
directly sell its product in the market for $12. How many units must it produce and sell to break
even?
A) 20,000
B) 25,000
C) 30,000
D) 35,000
E) 40,000

AACSB: Analytical thinking

Skill: Application
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Challenging

71) As a manufacturer increases the price, ________.

A) efficiency drops
B) the break-even volume drops
C) competition is minimized
D) the total costs increase
E) the profit margin shrinks

AACSB: Application of knowledge

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy
72) Mansfield Pharmaceuticals markets Zipro, an antibiotic. The firm has fixed costs of
$1,000,000 and variable costs of $2 per bottle of 50 tablets priced at $10 per bottle. What is the
break-even volume?
A) 25,000
B) 55,000
C) 100,000
D) 115,000
E) 125,000

AACSB: Analytical thinking

Skill: Application
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Challenging

73) A manufacturer has fixed costs of $100,000, a variable cost of $10 per unit of output, and
break-even volume of 50,000 units. What should the manufacturer's unit cost be in order to break
even?
A) $10
B) $12
C) $14
D) $16
E) $20

AACSB: Analytical thinking

Skill: Application
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Challenging

74) When performing a break-even analysis, the manufacturer should consider all of the
following EXCEPT ________.
A) probable demand
B) likely profits
C) competitors' pricing
D) estimated break-even volumes
E) different prices

AACSB: Analytical thinking

Skill: Application
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Challenging
75) Which of the following involves setting prices based on a rival firm's strategies, costs, prices,
and market offerings?
A) target return pricing
B) good-value pricing
C) competitor value-added pricing
D) market-based pricing
E) competition-based pricing

AACSB: Application of knowledge

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Easy

76) Companies can legitimately charge a higher price if ________.

A) consumers perceive that the company's product offers greater value
B) the demand for products manufactured by a firm is highly elastic
C) the cost of advertising is minimal
D) derived demand remains constant
E) consumers de-emphasize quality

AACSB: Analytical thinking

Skill: Concept
Objective: LO 10.2: Define price, identify the three major pricing strategies, and discuss the
importance of understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.
Difficulty: Moderate

Principles of Marketing, 18e, Global Edition (Kotler)

Chapter 11 Pricing Strategies: Additional Considerations

1) Companies set not a single price, but a pricing ________ that covers different items in its line
and changes over time as products move through their life cycles.
A) by-product
B) structure
C) loop
D) cycle
E) bundle

AACSB: Analytical thinking

Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Easy

2) Companies facing the challenge of setting prices for the first time can choose between two
broad strategies: market-penetration pricing and ________ pricing.
A) comparative
B) competitive
C) market-skimming
D) market-segmentation
E) cost-plus

AACSB: Analytical thinking

Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Easy

3) A market-skimming pricing strategy should NOT be used for a new product when ________.
A) the product's quality and image support its higher price
B) enough buyers want the products at that price
C) competitors are unable to enter the market
D) competitors can undercut prices easily
E) producing a smaller number of goods is feasible

AACSB: Application of knowledge

Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Easy
4) When a company sets a high price for a new product with the intention of reducing the price
in the future, it is using the ________ pricing strategy.
A) market-skimming
B) cost-plus
C) market-segmentation
D) market-penetration
E) competitive

AACSB: Application of knowledge

Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Easy

5) Midnight Magic, a perfume manufacturing company, plans to release a new fragrance during
the holiday season at $99 per bottle. The company intends to bring the price down to $49 within
six months of its release to attract buyers who couldn't afford the initial price. Which of the
following pricing strategies is Midnight Magic using?
A) market-penetration pricing
B) market-skimming pricing
C) competitive pricing
D) cost-plus pricing
E) product-line pricing

AACSB: Application of knowledge

Skill: Application
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Moderate

6) Which of the following is true of price skimming?

A) It is effective in situations in which competitors are able to undercut prices easily.
B) It can be profitably used when the product's quality and image support its price.
C) It involves underpricing products so that companies make larger sales.
D) It is ineffective in situations in which competitors are unable to enter the market easily.
E) It leads to a situation in which the company completes more, though less profitable, sales.

AACSB: Analytical thinking

Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Moderate
7) Companies that set a low price for a new product in order to attract a large number of buyers
and a large market share are using the ________ strategy.
A) market-skimming pricing
B) market-penetration pricing
C) cost-plus pricing
D) inclusive pricing
E) exclusive pricing

AACSB: Application of knowledge

Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Easy

8) A market-penetration pricing policy should LEAST likely be used for a new product when
________.
A) the market is highly price sensitive
B) production and distribution costs fall as sales volume increases
C) the product's quality and image support a high price
D) a high price helps keep out the competition
E) there are few or no competitors in the market

AACSB: Application of knowledge

Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Moderate

9) Which of the following is true of market-penetration pricing?

A) It should be used when the product's quality and image support a high price.
B) It involves setting a high price for a new product to appeal to the elite in society.
C) It results in drawing in large numbers of buyers quickly, winning a large market share.
D) It is best used in conjunction with a market-skimming pricing strategy.
E) It results in the company making fewer and less profitable sales.

AACSB: Application of knowledge

Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Moderate
10) In a bid to attract more customers in a market that has several competitors, Barrymore's
Bakery slashed the prices of all its products by 50 percent. Managers at the firm reasoned that
lower prices would draw in even more customers, making up for the reduction in price several
times over. Which of the following pricing strategies are they using?
A) market-skimming pricing
B) market-penetration pricing
C) captive-product pricing
D) cash discount pricing
E) by-product pricing

AACSB: Application of knowledge

Skill: Application
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Challenging

11) Whizz Corp. wishes to introduce a new hybrid car into mature markets in developed
countries with the goal of gaining mass-market share quickly. Which of the following pricing
strategies would help the firm meet its goal?
A) market-skimming pricing
B) market-penetration pricing
C) market-segmentation pricing
D) cost-plus pricing
E) captive-product pricing

AACSB: Application of knowledge

Skill: Application
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Challenging

12) Electrowhip, a company that manufacturers blenders and electric whisks, has decided to use
a market penetration pricing strategy. Which of the following, if true, proves their decision to be
a wise one?
A) Electrowhip's competitors utilize social media for marketing their products.
B) Electrowhip sells products whose image and quality support high prices.
C) Electrowhip operates in a market with many competitors.
D) Electrowhip does not operate in a price sensitive market.
E) Electrowhip's products are intended to appeal to the elite in society.

AACSB: Reflective thinking

Skill: Application
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Challenging
13) For a market penetration-price strategy to succeed, which of the following is LEAST likely
to be true?
A) Production costs decrease as sales volume increases.
B) A low price triggers market growth.
C) Distribution costs decrease as sales volume increases.
D) Low prices must inhibit competition from entering the market.
E) The strategy can be changed quickly, to a higher-priced position, with no negative impact.

AACSB: Analytical thinking

Skill: Application
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Moderate

Refer to the scenario below to answer the following question(s).

Champion, Inc. is a manufacturer of lunch boxes, school bags, and school stationery. Charles
Payton, the CEO of Champion, hopes to sell the products at a low price to penetrate the market
quickly.

14) Which of the following best supports a market-penetration strategy for Champion?
A) Production costs increase as sales volume increases.
B) It is very difficult for competitors to enter the market.
C) The cost of producing a smaller volume is negligible.
D) The quality of the products supports high initial prices.
E) The market for the products is highly price sensitive.

AACSB: Reflective thinking

Skill: Critical Thinking
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Challenging

15) Pricing strategies tend to change and evolve as the average product passes through its life
cycle.
Answer: TRUE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Easy

16) For market skimming to be successful, the costs of producing a smaller volume cannot be so
high that they cancel the advantage of charging more.
Answer: TRUE
AACSB: Analytical thinking
Skill: Concept
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Easy
17) When The Candy Store sets a low initial price in order to get its "foot in the door" and to
quickly attract a large number of buyers, the company is using market-skimming pricing.
Answer: FALSE
AACSB: Analytical thinking
Skill: Application
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Moderate

18) After entering a market by using market-penetration pricing, a company can easily raise its
price and maintain its market share.
Answer: FALSE
AACSB: Analytical thinking
Skill: Application
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Moderate

19) Differentiate between market-skimming and market-penetration pricing strategies. Explain

the conditions within which they are effective.
Answer: Market-skimming is used to skim revenues layer by layer from the market by entering
the market with high initial prices. The product's quality and image must support its higher price,
and enough buyers must want the product at that price. The costs of producing a smaller volume
cannot be so high that they cancel the advantage of charging more. Competitors should not be
able to enter the market easily and undercut the high price. Market penetration is used to
penetrate the market quickly and deeply to attract a large number of buyers quickly and win a
large market share by setting a low price initially when it enters the market. The market must be
highly price sensitive so that a low price produces more market growth. Production and
distribution costs must fall as sales volume increases. Also, the low price must help keep out
competition and be maintained over time.
AACSB: Application of knowledge; Written and oral communication
Skill: Synthesis
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Challenging

20) For what types of products might marketers use market-skimming pricing?
Answer: Market-skimming pricing works when the product's quality and image support the
higher price. For example, companies selling high-tech electronics may use market-skimming
pricing successfully.
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Moderate
21) Why might marketers use market-penetration pricing?
Answer: Marketers use such pricing when attempting to attract a large number of buyers quickly
and win a large market share; such pricing may be common when competition for products is
high.
AACSB: Application of knowledge
Skill: Application
Objective: LO 11.1: Describe the major strategies for pricing new products.
Difficulty: Moderate

22) Which of the following product mix pricing strategies involves setting prices across an entire
product range based on cost differences between the products, customer evaluations of different
features, and competitors' prices?
A) by-product pricing
B) product bundle pricing
C) optional product pricing
D) captive product pricing
E) product line pricing

AACSB: Analytical thinking

Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Easy

23) Go Zone plans to introduce four tablet models over the next year. These models range from
basic readers at $99 per unit, to more sophisticated tablets at $399 per unit. The more features a
model has, the more expensive it is. What pricing strategy is Tone Zone using for its range of
tablets?
A) product line pricing
B) product bundle pricing
C) captive product pricing
D) by-product pricing
E) optional product pricing

AACSB: Analytical thinking

Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Moderate
24) Which of the following is true of product line pricing?
A) The price steps take cost differences between products in the line into account.
B) The pricing strategy cannot be used by companies in developed countries.
C) The price steps do not account for the prices of similar products from competitors.
D) The pricing strategy involves overpricing products so that they appeal to the elite.
E) The customer's perception of the value of different features is considered irrelevant.

AACSB: Analytical thinking

Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Moderate

25) Which of the following companies is most likely to use product line pricing?
A) Photo Genie, which sells inexpensive cameras that run only on their own expensive batteries
B) Mobile Point, which launched a range of cell phone models, each priced according to its
features
C) Penguin's Parlor, which offers customers a 20-percent discount on their birthdays and certain
holidays
D) Green Thumb, which gives away free watering cans with the purchase of certain potted plants
E) Panizza, whose combo meals are priced lower than the individual components sold together

AACSB: Analytical thinking

Skill: Application
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Challenging

26) Which of the following product mix pricing strategies involves pricing additional or
accessory products sold along with the main product?
A) inclusive product pricing
B) exclusive product pricing
C) by-product pricing
D) product bundle pricing
E) optional-product pricing

AACSB: Analytical thinking

Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Easy
27) Which of the following is true of optional-product pricing?
A) It involves capitalizing on low value by-products.
B) It involves pricing products that can be added to the base product.
C) It is used to price a company's main product.
D) It involves setting geographically specific prices.
E) It is used to price products that must be used with the company's main product.

AACSB: Analytical thinking

Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Moderate

28) Which of the following product mix pricing strategies involves pricing products that can only
be used with the main product?
A) by-product pricing
B) product bundle pricing
C) captive product pricing
D) product line pricing
E) optional product pricing

AACSB: Analytical thinking

Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Easy

29) Multiprint, a printer manufacturing firm, sells ink cartridges for each of its specific models.
Only Multiprint cartridges are compatible with Multiprint printers, and no two models share the
same specifications. What type of pricing does Multiprint use?
A) product line pricing
B) captive product pricing
C) optional product pricing
D) by-product pricing
E) product bundle pricing

AACSB: Application of knowledge

Skill: Application
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Challenging
30) Which of the following product mix pricing strategies did Polaroid use when it set the
general price range of its cameras low and the markup on its film high?
A) product-segmented pricing
B) by-product pricing
C) customer-segmented pricing
D) captive product pricing
E) product bundling pricing

AACSB: Application of knowledge

Skill: Application
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Challenging

31) In the case of services, captive product pricing is called ________ pricing.
A) by-product
B) optional product
C) two-part
D) bundle
E) segmented

AACSB: Analytical thinking

Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Easy

32) Which of the following companies is most likely to use captive product pricing?
A) Photo Genie, which sells inexpensive cameras that run only on their own expensive batteries
B) Go Zone, which launched a range of tablet models, each priced according to its features
C) Penguin's Parlor, which offers customers a 20-percent discount on their birthdays
D) Sportsprint, which prices sports equipment according to customer evaluations
E) Burger Den, whose combo meals are priced lower than its individual components sold
together

AACSB: Application of knowledge

Skill: Application
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Challenging
33) When amusement parks charge customers for admission and later for food and beverages,
they are following a ________ pricing strategy.
A) by-product
B) product line
C) penetration
D) skimming
E) two-part

AACSB: Application of knowledge

Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Moderate

34) Beach Heaven uses two-part pricing for its holiday resort charges. Because this is a service,
the price is broken into a fixed fee for the room plus a(n) ________ usage rate for activities,
including kite-sailing and child care.
A) fixed
B) variable
C) standard
D) market
E) optional

AACSB: Application of knowledge

Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Moderate

35) Using ________ pricing, companies are able to turn their trash into cash, allowing them to
make the price of their main product more competitive.
A) product bundle
B) optional product
C) captive product
D) by-product
E) product line

AACSB: Application of knowledge

Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Easy
36) A lumber mill takes in logs, turns them into 2 x 4's and other sizes needed for building
construction. Wood chips created in the milling process are a(n) ________ that can be sold.
A) bundled product
B) captive product
C) by-product
D) optional product
E) primary product

AACSB: Application of knowledge

Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Moderate

37) Which of the following product mix pricing strategies involves pricing multiple products to
be sold together?
A) product line pricing
B) product bundle pricing
C) optional product pricing
D) by-product pricing
E) captive product pricing

AACSB: Analytical thinking

Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Easy

38) Which of the following is true of product bundle pricing?

A) It promotes the sale of products that consumers might not otherwise buy.
B) It is used to set prices across an entire product range based on customer evaluations.
C) It forces customers to buy product parts that are only compatible with the main product.
D) It results in companies making fewer–though more profitable–sales.
E) It involves pricing the main product low and setting high markups on the supplies.

AACSB: Analytical thinking

Skill: Concept
Objective: LO 11.2: Explain how companies find a set of prices that maximizes the profits from
the total product mix.
Difficulty: Moderate