Marketing Strategy Text and Cases 6th Edition Ferrell Test Bank

Marketing Strategy Text and Cases 6th
Edition Ferrell Test Bank

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Chapter 6 The Marketing Program
MULTIPLE CHOICE
1. __________ refers to the strategic combination of the four basic marketing mix elements.
a. The marketing plan d. The strategic mix
b. The marketing program e. Implementation
c. Strategic control
ANS: B PTS: 1 DIF: Difficulty: Easy
NAT: BUSPROG: Analytic STA: DISC: Strategy
TOP: A-Head: Introduction KEY: Bloom's: Knowledge
2. Most firms today compete in mature markets characterized by commoditization. In these cases, the
__________ typically becomes incapable of differentiating the product offering from those of the
competition.
a. extended product d. experiential products
b. core product e. tangible products
c. supplemental products
ANS: B PTS: 1 DIF: Difficulty: Moderate
TOP: A-Head: Introduction KEY: Bloom's: Knowledge
3. Although the product is at the heart of the marketing program, it is important to remember that product
offerings in and of themselves have little value to customers. An offering’s real value comes from:
a. its superiority to competing products.
b. its ability to further the image of the organization.
c. its value (good quality at a low price).
d. its ability to deliver benefits that solve a customer’s problems.
e. its easy of use and convenience.
ANS: D PTS: 1 DIF: Difficulty: Challenging
NAT: BUSPROG: Analytic STA: DISC: Product
TOP: A-Head: Product Strategy KEY: Bloom's: Analysis
4. Mallory is an avid collector of antiques. In fact, she spends practically every weekend traveling to
small towns and antique shops in search of unique antique treasures. For Mallory, antiques are a
perfect example of a:
a. convenience product. d. influential product.
b. shopping product. e. specialty product.
c. supplemental product.
ANS: E PTS: 1 DIF: Difficulty: Easy
TOP: A-Head: Product Strategy KEY: Bloom's: Application
5. Which of the following is the best example of an unsought product?

a. gasoline d. luxury products
b. clothing e. insurance
c. antiques
TOP: A-Head: Product Strategy KEY: Bloom's: Knowledge
6. For laptop computers, processor chips, memory chips, and hard drives are examples of __________
because they are finished items that become a part of the computer after assembly.
a. raw materials d. component parts
b. process materials e. specialty products
c. installations
ANS: D PTS: 1 DIF: Difficulty: Moderate
TOP: A-Head: Product Strategy KEY: Bloom's: Comprehension
7. Firestone carefully watches the automotive market to ascertain the demand for cars, SUVs, and trucks.
Firestone does this because the demand for its products is dependent on the demand for automobiles.
This situation describes __________.
a. synergistic demand d. product line demand
b. shopping demand e. price elasticity
c. derived demand
ANS: C PTS: 1 DIF: Difficulty: Easy
8. Why would a firm offer a deep assortment of products in its product portfolio?
a. To attract a wide range of customers and market segments.
b. To capitalize on the firm’s reputation.
c. To diversify its risk.
d. To maximize differentiation across its product lines.
e. None of the above.
ANS: A PTS: 1 DIF: Difficulty: Moderate
9. Why would a firm offer a wide variety of products in its product portfolio?
a. To attract a wide range of customers and market segments.
b. To capitalize on the firm’s reputation.
c. To diversify its risk.
d. To maximize differentiation across its product lines.
e. None of the above.
ANS: C PTS: 1 DIF: Difficulty: Moderate
10. Why is the demand for most services—such as popular restaurants—extremely time-and-place
dependent?
a. Because popular services typically lack sufficient capacity.
b. Because services cannot be stored for future use.
c. Because customers must be present for service to be delivered.
d. Because service customers are typically unsure of their needs.
e. Because competing services force customers to make tradeoffs between quality and time.
ANS: C PTS: 1 DIF: Difficulty: Challenging
11. Which of the following IS NOT an important benefit of offering a large product portfolio?
a. package differentiation d. standardization
b. economies of scale e. equivalent quality beliefs
c. sales and distribution efficiency
ANS: A PTS: 1 DIF: Difficulty: Challenging
TOP: A-Head: Product Strategy KEY: Bloom's: Analysis
12. Unlike tangible goods, virtually all services are susceptible to inconsistency and variations in quality.
Why is this so?
a. Because services depend on people for their delivery.
b. Because services cannot be managed due to their intangibility.
c. Because services are extremely time-and-place dependent.
d. Because service marketers cut corners to reduce expenses.
e. Because service marketers make unrealistic promises to customers.
ANS: A PTS: 1 DIF: Difficulty: Moderate
13. The phrase “Unused service capacity is lost forever” refers to which major challenge associated with
the marketing of services?
a. client-based relationships
b. limited standardization
c. simultaneous production and consumption
d. perishability
e. heterogeneity
TOP: A-Head: Product Strategy KEY: Bloom's: Evaluation
14. To compete in the fast-growing hybrid segment, Honda introduced the Civic Hybrid with unique
styling and great fuel economy. The Civic Hybrid was based on the traditional Honda Civic. Which
product development strategy has Honda implemented?
a. repositioning d. product improvement
b. new product line e. product line extension
c. product innovation
15. Assume Kia has developed a new product idea to launch a midsize pickup. Currently, Kia is
developing a prototype and working on projected costs, revenues, and profit potential. Kia is currently
at what stage of the new product development process?
a. idea generation d. test marketing
b. development e. commercialization
c. screening and evaluation
16. Why are firms so obsessed with the pricing element of the marketing mix?
a. Because pricing is the most difficult element of the marketing mix to change.
b. Because the firm’s pricing has a direct bearing on its ability to increase revenue.
c. Because pricing is the only marketing element that matters to customers.
d. Because pricing is the best part of the marketing mix in which to make an educated guess
about the most appropriate strategy.
e. Because pricing is directly responsible for demand.
NAT: BUSPROG: Analytic STA: DISC: Pricing
TOP: A-Head: Pricing Strategy KEY: Bloom's: Evaluation
17. Although break-even analysis and cost-plus pricing are important tools in setting prices based on the
firm’s cost structure, they should never be the driving force behind pricing strategy. Why?
a. Because firms want to make a profit, not just break even.
b. Because customer expectations are far more important in setting prices.
c. Because prices should be based on demand, not costs.
d. Because different firms have different cost structures.
e. Because competitor’s prices are far more important in setting prices.
18. __________ is defined as a customer’s subjective evaluation of benefits relative to costs to determine
the worth of a firm’s product offering relative to other product offerings.
a. Quality d. Breakeven cost
b. Value e. Opportunity cost
c. Price
TOP: A-Head: Pricing Strategy KEY: Bloom's: Knowledge
19. Which of the following statements is TRUE with respect to the relationship between price and
revenue?
a. When business is good, a price increase will increase revenue.
b. When business is bad, a price increase will increase revenue.
c. Price cuts must be offset by an increase in sales volume to keep the same level of revenue.
d. In highly differentiated markets, price cuts will capture greater market share.
e. In highly commoditized markets, price cuts will increase revenue.
TOP: A-Head: Pricing Strategy KEY: Bloom's: Comprehension
20. Which pricing objective is associated with the phrase “charging what the market will bear”?
a. volume-oriented d. market demand
b. profit-oriented e. status quo
c. cash flow
TOP: A-Head: Pricing Strategy KEY: Bloom's: Comprehension
21. Price elasticity is defined as:

a. a situation where prices routinely move up and down in a short period of time.
b. customers’ responsiveness or sensitivity to changes in price.
c. the impact on a product’s demand when customers are in unique buying situations.
d. the relative ease with which prices can be changed.
e. price flexibility—a pricing strategy used by startup firms.
22. Which of the following IS NOT a situation that can cause customers to be less sensitive to price
increases?
a. When customers have few product choices.
b. When products are highly differentiated.
c. When the product is a real or a perceived necessity.
d. When the total expenditure is high.
e. When the product is considered to be “worth it”.
TOP: A-Head: Pricing Strategy KEY: Bloom's: Analysis
23. The inherent goal of product differentiation is to make the demand curve for a product more inelastic.
This happens because increased differentiation:
a. reduces the number of perceived substitutes for a product.
b. makes the product more expensive than its competitors.
c. increases the quality of the product making it worth the expense.
d. reduces the time and effort required to obtain the product.
e. increases the just noticeable differences among competing products.
ANS: A PTS: 1 DIF: Difficulty: Challenging
24. Because service capacity is perishable and service demand is highly time dependent, service firms
employ yield management strategies in an effort to:
a. control costs.
b. control demand through effective advertising strategies.
c. establish fair guidelines for overbooking capacity.
d. shift customer demand to other firms that can handle the excess business.
e. balance price and revenue considerations with their need to fill unused capacity.
ANS: E PTS: 1 DIF: Difficulty: Moderate
TOP: A-Head: Pricing Strategy KEY: Bloom's: Analysis
25. The goal of __________ is to maximize sales, gain widespread market acceptance, and capture a large
market share quickly by setting a relatively low initial price.
a. price skimming d. first-mover pricing
b. odd pricing e. market acceptance pricing
c. penetration pricing
26. The Fairmont Hotel is widely known for its exceptional quality and impeccable customer service. Not
surprisingly, the Fairmont sets prices at the top end of all competing hotels. Which pricing strategy is
the Fairmont using?
a. exclusive pricing d. prestige pricing
b. image pricing e. service-based pricing
c. psychological pricing
ANS: D PTS: 1 DIF: Difficulty: Easy
TOP: A-Head: Pricing Strategy KEY: Bloom's: Application
27. Firms such as IKEA and The Home Depot are known for their use of __________ because they set
reasonably low prices but still offer high-quality products and adequate customer services.
a. penetration pricing d. relational pricing
b. market equity pricing e. value-based pricing
c. prestige pricing
28. The Club is a local hair salon and day spa that caters to an upper-middle class clientele. Although price
competition in the local area has been increasing, the owners of The Club have decided to focus their
marketing efforts on quality, service, and value, and to resist the temptation to compete on price. In
pursuing this non-price strategy, managers of The Club are ascribing to which of the following
assumptions?
a. Customers see all salons as being about the same.
b. The market for salon services is very price sensitive.
c. Customers of The Club are so loyal that price competition is not necessary.
d. It is difficult for competitors to copy The Club’s differentiating characteristics.
e. The managers are ascribing to all of these assumptions.
29. Retailers use __________ extensively. This occurs when the retailer compares sale prices to regular
prices, such as when Best Buy promotes a DVD player as “Regularly $99, Now $49.”
a. reference pricing d. value-based pricing
b. EDLP e. sale pricing
c. odd pricing
ANS: A PTS: 1 DIF: Difficulty: Easy
TOP: A-Head: Pricing Strategy KEY: Bloom's: Application
30. In business markets, __________ is used to quote prices in terms of reductions or increases based on
transportation costs or the actual physical distance between the buyer and the seller.
a. transfer pricing d. logistics pricing
b. countertrade e. GPS pricing
c. geographic pricing
31. A __________ is an organized system of marketing institutions through which products, resources,
information, funds and/or product ownership flow from the point of production to the final user.
a. marketing network d. marketing channel
b. distribution hub e. product network
c. supply chain
NAT: BUSPROG: Analytic STA: DISC: Distribution
TOP: A-Head: Supply Chain Strategy KEY: Bloom's: Knowledge
32. Ensuring the availability of products in the right place in the right quantities at the right time in a cost
efficient manner is the main focus of:
a. physical distribution. d. channel management.
b. marketing networks. e. network management.
c. supply chain management.
TOP: A-Head: Supply Chain Strategy KEY: Bloom's: Comprehension
33. The creation of an extended enterprise in the supply chain depends heavily on the ability of channel
members to integrate their operations. Which of the following IS NOT a key factor in successful
supply chain integration?
a. trust d. mutual benefit
b. interdependence e. coercive power
c. cooperation
TOP: A-Head: Supply Chain Strategy KEY: Bloom's: Knowledge
34. The most basic benefit of marketing channels is __________ where channels reduce the number of
contacts necessary to exchange products.
a. contraction d. contact creation
b. time efficiency e. accumulation
c. contact efficiency
35. In terms of marketing channel functions, which of the following statements describes the concept of
discrepancy of quantity?
a. Manufacturers make one or a few product(s)—customers need variety and assortment.
b. Channels must make products available in convenient locations.
c. Channels add value to products by standardizing the exchange process.
d. Channels must provide for the storage of products for future purchase and use.
e. Manufacturers produce large quantities; customers usually want only one item.
36. Which member of the marketing channel has the primary responsibility of fulfilling the channel’s main
functions?
a. manufacturers d. customers
b. wholesalers e. It does not matter.
c. retailers
37. In the Mercedes dealer network, individual dealers are given the sole right to sell Mercedes vehicles
within a defined geographic area. What type of distribution does Mercedes employ?
a. exclusive distribution d. limited distribution
b. intensive distribution e. prestige-based distribution
c. selective distribution
TOP: A-Head: Supply Chain Strategy KEY: Bloom's: Application
38. What is the most appropriate type of distribution to use when customers need the opportunity to
comparison shop, or when after-sale services are important?
a. exclusive distribution d. comparative distribution
b. service-based distribution e. selective distribution
c. intensive distribution
39. Many products, such as candy, soft drinks, and gum are sold via intensive distribution. However, this
strategy has a major drawback. What is it?
a. It maximizes profit margin rather than sales volume.
b. It encourages customers to shop around for the lowest price.
c. It promotes a very high degree of brand switching.
d. The manufacturer must give up a good degree of control over pricing and product display.
e. It gives customers fewer opportunities to find the product.
40. Because the company was angered by the actions of its resellers, Acme Manufacturing decided to slow
down deliveries and postpone product availability to these resellers. What type of power is Acme
wielding in the channel?
a. legitimate power d. reward power
b. coercive power e. logistical power
c. referent power
TOP: A-Head: Supply Chain Strategy KEY: Bloom's: Application
41. Which of the following statements best describes the term “slotting allowances”?
a. The amount of shelf space that a retailer grants to a specific brand or product.
b. The amount of product from a specific manufacturer that a wholesaler agrees to carry.
c. A fee, paid by manufacturers to retailers, to get a product placed on retail shelves.
d. A fee, paid by retailers to wholesalers, to get them to carry the retailer’s private label
brand.
e. The amount of product from a specific manufacturer that a retailer agrees to carry.
42. In most marketing channels for consumer products, the balance of power has shifted to __________
due to their size and buying power.
a. consumers d. brokers and distributors
b. mass merchandise retailers e. manufacturers
c. wholesalers
43. Today, though cutting expenses is still a main factor, the desire of many firms to focus on core
competencies is a driving force behind the increase in:
a. category management. d. product differentiation.
b. channel integration. e. outsourcing.
c. referent power.
44. Hallmark is a good example of a company that uses __________ distribution as a means of offering
two or more lines of the same merchandise through two or more channels
a. direct d. dual
b. secondary e. complementary
c. split
45. Overall, the trends occurring in marketing channels today (growth in e-commerce, outsourcing, growth
of nontraditional channels) have one major theme in common. What is that theme?
a. Enhancing the reputation of the supply chain.
b. Reducing the risk of legal action in the supply chain.
c. Increasing channel efficiency by reducing waste, overhead, and other costs.
d. Securing more power and control for manufacturers.
e. All of the above are common themes.
ANS: C PTS: 1 DIF: Difficulty: Challenging
TOP: A-Head: Supply Chain Strategy KEY: Bloom's: Synthesis
46. Which of the following statements about integrated marketing communications (IMC) is FALSE?
a. IMC refers to the strategic, coordinated use of promotion to create one consistent message.
b. IMC takes a 360-degree view of the customer.
c. The role of mass television advertising is growing more important to IMC strategy.
d. IMC reduces costs and increases efficiency because it can reduce or eliminate
redundancies and waste.
e. The key to IMC is consistency and uniformity of message across all elements of
promotion.
NAT: BUSPROG: Analytic STA: DISC: Promotion
TOP: A-Head: Integrated Marketing Communications KEY: Bloom's: Comprehension
47. To be successful, firms must move potential customers beyond mere interest in the product. Good
promotion will stimulate __________ by convincing potential customers of the product’s superiority
and its ability to satisfy specific needs.
a. dedication d. action
b. investigation e. desire
c. attention
48. In terms of the AIDA model, mass communication elements such as advertising and public relations
tend to be very effective at:
a. stimulating awareness of and interest in a product.
b. explaining highly complex and technical products.
c. stimulating immediate purchase of a product.
d. marketing high priced products.
e. closing the sale.
TOP: A-Head: Integrated Marketing Communications KEY: Bloom's: Analysis
49. When firms use a(n) __________ strategy, they focus their promotional efforts toward stimulating
demand among final customers, who then exert pressure on the supply chain to carry the product.
a. pressurization d. guerilla
b. IMC e. push
c. pull
TOP: A-Head: Integrated Marketing Communications KEY: Bloom's: Knowledge
50. In launching its new line of power tools, Black and Decker spent a considerable amount of time and
resources to educate, motivate, and compensate members of its supply chain. By investing heavily in
these types of promotions, Black and Decker hopes its __________ strategy will lead to a more
effective product launch.
a. pull d. push
b. AIDA e. placement
c. institutional
TOP: A-Head: Integrated Marketing Communications KEY: Bloom's: Application
51. Which of the following is perhaps the main advantage associated with the use of advertising?
a. It takes little time to develop an advertising campaign.
b. The total dollar layout in advertising is usually low.
c. It is an extremely cost efficient way to reach a large number of people.
d. It can quickly convey a large amount of technical information.
e. It can be quite memorable.
TOP: A-Head: Integrated Marketing Communications KEY: Bloom's: Evaluation
52. In the context of IMC strategy, what is the difference between public relations and publicity?
a. Public relations deals with positive information; publicity deals with controlling negative
information.
b. Publicity deals with many stakeholders; public relations deals only with customers.
c. Publicity is normally done via an in-house staff; public relations is typically outsourced to
a specialist.
d. Publicity is more narrowly defined and focused on gaining media attention.
e. There is no difference between public relations and publicity.
TOP: A-Head: Integrated Marketing Communications KEY: Bloom's: Analysis
53. Overall, what is the major disadvantage associated with the use of public relations and publicity?
a. It is normally very expensive.
b. The amount of negative publicity always outweighs the good.
c. Few, if any, customers pay attention to public relations messages.
d. Most people find it to be less credible than advertising.
e. The firm has limited control over how the message will be delivered or interpreted.
54. __________ is paid personal communication that attempts to inform customers about products and
persuade them to purchase those products.
a. Personal selling d. Public relations
b. Sales promotion e. Advertising
c. Publicity
55. In today’s economy, personal selling has evolved to take on elements of customer service and
marketing research. Why is this the case?
a. It is less expensive to deliver service and conduct research with the sales staff.
b. It is more time efficient because salespeople are already interacting with customers.
c. Personal selling focuses more on developing customer relationships than on generating
transactions.
d. It allows salespeople to earn higher commissions for doing more work.
e. None of the above is correct.
56. Which sales force compensation system is best suited to situations where salespeople are responsible
for pre- and post-sale service and sales managers want maximum control over selling expenses?
a. straight commission d. geographic allocation
b. a combination approach e. straight salary
c. direct compensation
57. Despite conventional thinking, __________ accounts for the bulk of promotional spending in many
firms. This is especially true for firms selling consumer products in grocery stores and
mass-merchandise retailers.
a. personal selling d. sales promotion
b. advertising e. publicity
c. public relations
58. Which of the following statements best represents the universal goal of all sales promotion activities?
a. To increase sales volume in the long term.
b. To stimulate customer interest and attention.
c. To induce product trial and purchase.
d. To enhance the image of the firm.
e. To gain the attention of members of the supply chain.
59. Which of the following sales promotion methods would you recommend to a packaged goods marketer
who wants to stimulate trial of a new product?
a. a contest or sweepstake d. a rebate
b. a coupon e. a point-of-purchase display
c. a free sample of the product
60. A price reduction offered to channel intermediaries for purchasing specified quantities of a product at a
single time is called a:
a. merchandise credit. d. push money allowance.
b. buying allowance. e. cooperative incentive.
c. selling incentive.
ESSAY
1. Discuss the four types of consumer products and explain how marketing strategy changes across these
product types. Be sure to use examples.
ANS:
The four types of consumer products are:
· Convenience Products—Inexpensive, routinely purchases products that consumers spend little

time and effort acquiring. Examples include soft drinks, candy, and gasoline.
· Shopping Products—Products that consumers will spend time and effort to obtain. Consumers
shop different options to compare prices, features and service. Examples include appliances,
furniture, and clothing.
· Specialty Products—Unique, one-of-a-kind products that consumers will spend considerable time,
effort, and money to acquire. Examples include sports memorabilia, antiques, and luxury products.
· Unsought Products—Products that consumers are unaware of or a product that consumers do not
consider purchasing until a need arises. Examples include repair services, emergency medicine,
and insurance.
Although the distinction among these four categories may seem simplistic, it is important in a strategic
sense because the type of product in question can influence its pricing, distribution, or promotion. For
example, marketing strategy for consumer convenience products must maximize availability and ease
of purchase—both important distribution considerations. The strategy associated with consumer
shopping products often focuses more on differentiation through image and symbolic attributes—both
important branding and promotion issues. Strategy for specialty products deals more with outstanding
service and customer awareness that the product or provider exists—important service and IMC issues.
Finally, strategy for unsought products must clearly educate customers on why they need the product
and the best way of obtaining it—important advertising and personal selling issues.
PTS: 1 DIF: Difficulty: Easy NAT: BUSPROG: Analytic

STA: DISC: Pricing TOP: A-Head: Pricing Strategy
KEY: Bloom's: Analysis
2. Discuss the benefits associated with offering a large portfolio of products. What are some of the key
issues involved in managing the product portfolio?
ANS:
Although offering a large portfolio of products can make the coordination of marketing activities more
challenging and expensive, it also creates a number of important benefits:
· Economies of Scale—Offering many different product lines can create economies of scale in
production, bulk buying, and promotion. Many firms advertise using an umbrella theme for all
products in the line. Nike’s “Just Do It” and Maxwell House’s “Good to the Last Drop” are
examples of this. The single theme covering the entire product line saves considerably on
promotional expenses.
· Package Uniformity—When all packages in a product line have the same look and feel, customers
can locate the firm’s products more quickly. It also becomes easier for the firm to coordinate and
integrate promotion and distribution. For example, Duracell batteries all have the same copper
look with black and copper packaging.
· Standardization—Product lines often use the same component parts. For example, Toyota’s
Camry and Highlander use many of the same chassis and engine components. This greatly reduces
Toyota’s manufacturing and inventory handling costs.
· Sales and Distribution Efficiency—When a firm offers many different product lines, sales
personnel can offer a full range of choices and options to customers. For the same reason, channel
intermediaries are more accepting of a product line than they are of individual products.
· Equivalent Quality Beliefs—Customers typically expect and believe that all products in a product
line are about equal in terms of quality and performance. This is a major advantage for a firm that
offers a well-known and respected line of products. For example, Crest’s portfolio of oral care
products all enjoys the same reputation for high quality.
A firm’s product portfolio must be carefully managed to reflect changes in customers’ preferences and
the introduction of competitive products. Product offerings may be modified to change one or more
characteristics that enhance quality and/or style, or lower the product’s price. Firms may introduce
product line extensions that allow it to compete more broadly in an industry. Sometimes, a firm may
decide that a product or product line has become obsolete or is just not competitive against other
products. When this happens, the firm can decide to contract the product line.

KEY: Bloom's: Comprehension
3. Identify the unique characteristics of services (relative to tangible goods) and list the marketing
challenges created by each characteristic.
ANS:
1. Intangibility
· It is difficult for customers to evaluate quality, especially before purchase and consumption.
· It is difficult to convey service characteristics and benefits in promotion. As a result, the firm
is forced to sell a promise.
· Many services have few standardized units of measurement. Therefore, service prices are
difficult to set and justify.
· Customers cannot take possession of a service.
2. Simultaneous Production and Consumption
· Customers or their possessions must be present during service delivery.
· Other customers can affect service outcomes including service quality and customer
satisfaction.
· Service employees are critical because they must interact with customers to deliver service.
· Converting high-contact services to low-contact services will lower costs but may reduce
service quality.
· Services are often difficult to distribute.
3. Perishability
· Services cannot be inventoried for later use. Therefore, unused service capacity is lost
forever.
· Service demand is very time-and-place sensitive. As a result, it is difficult to balance supply
and demand, especially during periods of peak demand.
· Service facilities and equipment sit idle during periods of off-peak demand.
4. Heterogeneity
· Service quality varies across people, time, and place, making it very difficult to deliver good
service consistently.
· There are limited opportunities to standardize service delivery.
· Many services are customizable by nature. However, customization can dramatically increase
the costs of providing the service.
5. Client-based Relationships
· Most services live or die by maintaining a satisfied clientele over the long term.
· Generating repeat business is crucial for the service firm’s success.
KEY: Bloom's: Comprehension
4. Identify and discuss reasons why firms become so infatuated with pricing.
ANS:
There is no other component of the marketing program that firms become more infatuated with than
pricing. There are at least four reasons for the attention given to pricing. First, the revenue equation is
pretty simple: Revenue equals the price times quantity sold. There are only two ways for a firm to
grow revenue: increase prices or increase the volume of product sold. Rarely can a firm do both
simultaneously. Although there are literally hundreds of ways to increase profit by controlling costs
and operating expenses, the revenue side has only two variables—one being price and the other being
heavily influenced by price.
A second reason that firms become enamored with pricing is that it is the easiest of all marketing
variables to change. Although changing the product and its distribution or promotion can take months
or even years, changes in pricing can be executed immediately in real time. Likewise, product,
distribution, or promotion changes can also be quite expensive, especially if research and development
(R&D) or production must be rescheduled. Conversely, changing prices is a very low-cost option.
The third reason for the importance of pricing is that firms take considerable pains to discover and
anticipate the pricing strategies and tactics of other firms. Salespeople learn to read a competitor’s
price sheet upside down at a buyer’s desk. Retailers send “secret shoppers” into competitors’ stores to
learn what they charge for the same merchandise. In this age of e-commerce, tracking what
competitors charge for their goods and services has become so daunting that an entire price-tracking
industry has emerged.
Finally, pricing is given a great deal of attention because it is considered to be one of the few ways to
differentiate a product in commoditized and mature markets. When customers see all competing
products as offering the same features and benefits, their buying decisions are primarily driven by
price.
PTS: 1 DIF: Difficulty: Moderate NAT: BUSPROG: Analytic

KEY: Bloom's: Synthesis
5. In many (if not most) circumstances, cutting prices to increase sales volume is not a good idea. Explain
why this is so. What are some alternatives that are preferable to cutting prices?
ANS:
All marketers understand the relationship between price and revenue. However, firms cannot charge
high prices without good reason. In fact, virtually all firms face intense price competition from their
rivals, which tends to hold prices down. In the face of this competition, it is natural for firms to see
price cutting as a viable means of increasing sales. Price cutting can also move excess inventory and
generate short-term cash flow. However, all price cuts affect the firm’s bottom line. When setting
prices, many firms hold fast to these two general pricing myths:
Myth 1: When business is good, a price cut will capture greater market share.
Myth 2: When business is bad, a price cut will stimulate sales.
Unfortunately, the relationship between price and revenue challenges these assumptions and makes
them a risky proposition for most firms. The reality is that any price cut must be offset by an increase
in sales volume just to maintain the same level of revenue. Let’s look at an example. Assume that a
consumer electronics manufacturer sells 1,000 high-end stereo receivers per month at $1,000 per
system. The firm’s total cost is $500 per system, which leaves a gross margin of $500. When the sales
of this high-end system decline, the firm decides to cut the price to increase sales. The firm’s strategy
is to offer a $100 rebate to anyone who buys a system over the next three months. The rebate is
consistent with a 10 percent price cut, but it is in reality a 20 percent reduction in gross margin (from
$500 to $400). To compensate for the loss in gross margin, the firm must increase the volume of
receivers sold. The question is by how much. We can find the answer using this formula:
Percent Change Gross Margin %

= –1
in Unit Volume Gross Margin % ± Price Change %
0.50
0.25 = –1
0.50 – 0.10
As the calculation indicates, the firm would have to increase sales volume by 25 percent to 1,250 units
sold in order to maintain the same level of total gross margin. How likely is it that a $100 rebate will
increase sales volume by 25 percent? This question is critical to the success of the firm’s rebate
strategy. In many instances, the needed increase in sales volume is too high. Consequently, the firm’s
gross margin may actually be lower after the price cut.
Rather than blindly use price cutting to stimulate sales and revenue, it is often better for a firm to find
ways to build value into the product and justify the current price, or even a higher price, rather than
cutting the product’s price in search of higher sales volume. In the case of the stereo manufacturer,
giving customers $100 worth of music or movies for each purchase is a much better option than a $100
rebate. The cost of giving customers these free add-ons is low because the marketer buys them in bulk
quantities. This added expense is almost always less costly than a price cut. And the increase in value
may allow the marketer to charge higher prices for the product bundle.

6. Discuss the challenges associated with pricing services. How do service firms use yield management
systems to balance price with revenue and maximize capacity utilization?
ANS:
When it comes to buying services, customers have a difficult time determining quality prior to
purchase. Consequently, service pricing is critical because it may be the only quality cue that is
available in advance of the purchase experience. If the service provider sets prices too low, customers
will have inaccurate perceptions and expectations about quality. If prices are too high, customers may
not give the firm a chance. In general, services pricing becomes more important—and more
difficult—when:
Ÿ Service quality is hard to detect prior to purchase.

Ÿ The costs associated with providing the service are difficult to determine.
Ÿ Customers are unfamiliar with the service process.
Ÿ Brand names are not well established.
Ÿ The customer can perform the service themselves.
Ÿ Advertising within a service category is limited.
Ÿ The total price of the service experience is difficult to state beforehand.
Most services suffer from the challenges associated with determining costs because intangible
expenses such as labor, insurance, and overhead must be taken into account. When the firm offers
services that customers can do for themselves—such as lawn maintenance, oil changes, or house
painting—it must be especially mindful of setting the correct price. In these instances, the firm is
competing with the customer’s evaluation of his or her time and ability, in addition to other competing
service providers.
Setting prices for professional services (lawyers, accountants, consultants, doctors, and mechanics) is
especially difficult because they suffer from a number of the conditions in the list above. Customers
often balk at the high prices of these service providers because they have a limited ability to evaluate
the quality or total cost until the service process has been completed. The heterogeneous nature of
these services limits standardization; therefore, customer knowledge about pricing is limited.
Heterogeneity also limits price comparison among competing providers. The key for these firms is to
be up-front about the expected quality and costs of the service. This is often done through the use of
binding estimates and contractual guarantees of quality.
Due to the limited capacity associated with most services, service pricing is also a key issue with
respect to balancing supply and demand during peak and off-peak demand times. In these situations,
many service firms use yield management systems to balance pricing and revenue considerations with
their need to fill unfilled capacity. Yield management allows the service firm to simultaneously control
capacity and demand in order to maximize revenue and capacity utilization. This is accomplished in
two ways. First, the service firm controls capacity by limiting the available capacity at certain price
points. Second, the service firm controls demand through price changes over time and by overbooking
capacity. These activities ensure that service demand will be consistent and that any unused capacity
will be minimized. These practices are common in services characterized by high fixed costs and low
variable costs, such as airlines, hotels, rental cars, cruises, transportation firms, and hospitals. Because
variable costs in these services are quite low, the profit for these firms directly relates to sales and
capacity utilization. Consequently, these firms will sell some capacity at reduced prices in order to
maximize utilization.
PTS: 1 DIF: Difficulty: Challenging NAT: BUSPROG: Analytic

7. Explain why distribution and supply chain management are critical to achieving a sustainable
competitive advantage and true differentiation in the marketplace. How are these issues related to other
elements of the marketing program in determining competitive advantage?
ANS:
Distribution and supply chain relationships are among the most important strategic decisions for many
marketers. Throughout most of the twentieth century, distribution was the forgotten element of
marketing strategy. Distribution and supply chain management have remained essentially invisible to
customers because the process occurs behind the scenes. Customers rarely appreciate how
manufacturers connect to their supply lines, how goods move from manufacturers to retailers, or how
the retailers’ shelves become filled. Customers take this and other supply chain issues for granted and
only notice when supply lines are interrupted. Although the nature of today’s economy has forced
customers to notice and appreciate distribution to a much greater extent, most remain naive about
distribution activities and the complex nature of supply chain relationships.
The picture of distribution is drastically different from the firm’s perspective. Beginning in the late
1980s and into today, firms have learned the extreme importance of distribution and supply chain
management. These concerns now rank at the top of the list for achieving a sustainable advantage and
true differentiation in the marketplace. Prices can be copied easily, even if only for the short term.
Products can become obsolete almost overnight. Good promotion and advertising in September can
easily be passé when the prime selling season in November and December comes around. The lesson
is clear: Distribution is vital to the success and survival of every firm.
Although costly in both money and time to construct, a solid distribution system will generate profits
for years or decades. With great distribution, a firm can overcome some weaknesses in pricing,
products, and promotion. However, a poor distribution strategy will certainly kill a firm’s efforts to
market a superior product, at a good price, using effective marketing communication. Top managers of
North American manufacturing firms realize the importance of this; they nearly unanimously rank
supply chain management as critical or very important to their firms’ successes.

STA: DISC: Distribution TOP: A-Head: Supply Chain Strategy
KEY: Bloom's: Evaluation
8. Identify and discuss the three major structural options for distribution. In your answer, identify the
major advantages and disadvantages of each option.
ANS:
There are three basic structural options for distribution in terms of the amount of market coverage and
level of exclusivity between vendor and retailer: exclusive distribution, selective distribution, and
intensive distribution.
· Exclusive Distribution—Exclusive distribution is the most restrictive type of market coverage.

Firms using this strategy give one merchant or outlet the sole right to sell a product within a
defined geographic region. This channel structure is most commonly associated with prestige
products, major industrial equipment, or with firms that attempt to give their products an exclusive
or prestige image. Companies sometimes use exclusive distribution for specialty products and can
be occasionally seen in shopping goods like furniture or clothing. Firms that pursue exclusive
distribution usually target a single, well-defined market segment. Buyers in this segment must be
willing and able to search or travel to buy the product, and will typically do so given the prestige
or exclusivity of the product or brand. Exclusive distribution is a necessity in cases where the
manufacturer demands a significant amount of input regarding the presentation of their products to
buyers. This added control also allows the firm to influence pricing to a much greater degree than
the other distribution options.
· Selective Distribution—Firms using selective distribution give several merchants or outlets the
right to sell a product in a defined geographic region. Selective distribution is desirable when
customers need the opportunity to comparison shop, and after-sale services are important. This
broad distribution coverage allows shoppers to collect information on competitive products,
compare prices, shop at their favorite store, use a variety of means of payment, and get the product
they want, even when one location is out of stock. Companies widely use selective distribution
across many product categories, including clothing (Tommy Hilfiger), cosmetics (Clinique),
electronics (Bose), and premium pet food (Science Diet). In each case, selective distribution
allows the manufacturer to have more control over prices, product display, and selling techniques.
Companies carefully screen the image and selling practices of merchants and outlets to ensure that
they match those of the manufacturer and its products.
· Intensive Distribution—Intensive distribution makes a product available at the maximum number
of merchants or outlets in each area to gain as much exposure and as many sales opportunities as
possible. This distribution strategy is the option of choice for most consumer convenience goods,
such as candy, soft drinks, over-the-counter drugs, or cigarettes; and with business office supplies
like paper and toner cartridges. To gain this visibility and sales volume, the manufacturer must
give up a good degree of control over pricing and product display. Given the sheer number of
intensively distributed products, manufacturers often have difficulty convincing channel members,
particularly retailers, to handle and stock another product that is distributed in the same manner.
Firms that employ a mass marketing approach to segmentation often opt for an intensive
distribution strategy. If customers cannot find one firm’s products in a given location, they will
simply substitute another brand to fill the need. As products age over the life cycle, they often
move toward more intensive distribution.

9. Compare and contrast the traditional use of power in a marketing channel versus today’s notion of
integrated and collaborative supply chains. Do the five traditional power bases still play a role in
today’s era of collaboration? Explain.
ANS:
Power can be defined as the influence that one channel member has over others in the supply chain.
Powerful channel members have the ability to get other firms to do things that they otherwise would
not do. Depending on how the channel member uses its influence, power can create considerable
conflict, or it can make the entire supply chain operate more smoothly and effectively. There are five
basic sources of power in a supply chain:
· Legitimate Power—This power source has to do with the firm’s position in the supply chain.
· Reward Power—The ability to help other parties reach their goals and objectives is the crux of
reward power.
· Coercive Power—In contrast to reward power, coercive power is the ability to take positive
outcomes away from other channel members or the ability to inflict punishment on other channel
members.
· Information Power—Having and sharing knowledge is the root of information power. Such
knowledge makes channel members more effective and efficient.
· Referent Power—Referent power has its basis in personal relationships and the fact that one party
likes another party.
The sources of power or influence change as a supply chain moves toward integration and
collaboration. Traditional marketing channels have made heavy use of legitimate, reward, and coercive
power sources. The use of these types of power is consistent with the high level of conflict that exists
in such channels. Firms want to sell a product for as much as possible, provide as few additional
services as it can get away with, obtain payment in advance, and deliver the product at its own
convenience. By contrast, buyers want to purchase a product for as little as possible, get a large
number of additional services both now and in the future, pay months or even years later with no
interest, and get immediate delivery. Collaborative supply chains focus on win–win outcomes and
work to get past these natural sources of confrontation. Here, reward and referent power become used
most frequently, with the most important source of influence being information. Successfully
confronting the problems that naturally materialize in a supply chain depends on the effective
development, communication, and utilization of information.

10. Discuss the issues associated with the increasing fragmentation of mass media audiences. How are
advertisers and media companies coping with the issue?
ANS:
The increasing fragmentation of consumer audiences has forever changed the way both media and
advertisers do business. The problem is that consumers’ attention is being spread across an increasing
array of media and entertainment choices, including the Internet, targeted cable programming,
video-on-demand, DVR, iPods/iPads, video games, movies, and mobile devices such as smartphones.
Today, mass audiences are dwindling fast as consumers spend less time with traditional media such as
television, magazines, and newspapers. Consumers now expect to use media whenever and wherever
they want, and on any device. They are no longer wed to full-length television programming or to
leisurely reading the newspaper. For advertisers, the trend is alarming because their traditional
bread-and-butter demographic is fragmenting the most. For example, the number of 18- to 34-year-old
men who watch primetime television has declined steadily since 2000. Those who do watch television
increasingly use DVR devices to skip advertising. Today, DVR usage accounts for 8 percent of all
U.S. TV viewing time, which is higher than both video games and DVDs.
These changes are forcing marketers to adapt by finding newer, more effective ways to reach their
target audiences. One way marketers are countering the trend is by linking sales promotion to target
markets through strategic integration into related media programming. Company sponsorship of
programming or events can allow a close connection between brand and target market. For example,
Bravo’s Top Chef has successfully partnered with Toyota, Clorox, Food & Wine Magazine, Campbell
Soup, Diet Dr Pepper, and Quaker. Sponsorship opportunities like these work better than traditional
advertising, especially with respect to brand recall. Bank of America, for example, achieves an
astounding 39 percent average recall when it sponsors a sporting event. Nike (21 percent), Buick (14
percent), American Express (13 percent), and FedEx (11 percent) have reported similar successes with
sports sponsorships.
In addition to outright sponsorship of popular programs, marketers also make deals with television and
cable networks, as well as movie studios, to place their products into actual programs and films.
In-program product placements have been successful in reaching consumers as they are being
entertained, rather than during the competitive commercial breaks. Reality programming in particular
has been a natural fit for product placement because of the close interchange between the participants
and the products (e.g. Coca Cola and American Idol; Sears and Extreme Makeover: Home Edition).
Furthermore, sixteen brands were prominently featured in the recent hit movie, The Avengers. Acura,
in particular, signed a multi-picture deal with Marvel to showcase its cars in upcoming films.
Media companies themselves have also been forced to adapt, most notably by fragmenting their
content and business models to match their fragmented audiences. One way that companies have
addressed the problem is by making their content available on multiple platforms. CBS, for example,
first experimented with its broadcast of the 2008 NCAA Basketball Tournament by broadcasting live
action on the Internet. The service, called March Madness on Demand, attracted roughly 5 million
different online viewers and over $30 million in advertising revenue during the tournament. More
recently, CBS switched to a paid model with March Madness Live. For $3.99, fans could watch high
quality streams on their Apple and Android devices. The games were still available for free on
CBSSports.com. As these and other examples illustrate, the key to meeting the demands of fragmented
audiences is to disaggregate content and make it available a la carte style. Consumers prefer to access
content (songs, movies, TV shows, news) when, where, and how they want it without having to
purchase entire albums, programs, or networks.
Despite the challenges of reaching fragmented audiences, the trend actually has a big side benefit. The
science behind traditional broadcast television ratings and audience measurement has always been
uncertain. With on-demand services, advertisers are able to precisely measure audience characteristics
whether the content is delivered via the Internet, cable, or wireless devices. This one-two punch of
profits and precise measurement may mark the death of the traditional 30-second primetime television
spot.

STA: DISC: Promotion TOP: A-Head: Integrated Marketing Communications
11. Discuss the steps involved in the AIDA model of outlining promotional goals. How does IMC strategy
shift from one step to the next in the model? How does the important of various promotional elements
vary across the steps?
ANS:
Ultimately, the goals and objectives of any promotional campaign culminate in the purchase of goods
or services by the target market. The classic model for outlining promotional goals and achieving this
ultimate outcome is the AIDA model—attention, interest, desire, and action:
· Attention—Firms cannot sell products if the members of the target market do not know they exist.
As a result, the first major goal of any promotional campaign is to attract the attention of potential
customers.
· Interest—Attracting attention seldom sells products. Therefore, the firm must spark interest in the
product by demonstrating its features, uses, and benefits.
· Desire—To be successful, firms must move potential customers beyond mere interest in the
product. Good promotion will stimulate desire by convincing potential customers of the product’s
superiority and its ability to satisfy specific needs.
· Action—After convincing potential customers to buy the product, promotion must then push them
toward the actual purchase.
The role and importance of specific promotional elements varies across the steps in the AIDA model.
Mass-communication elements, such as advertising and public relations, tend to be used more heavily
to stimulate awareness and interest due to their efficiency in reaching large numbers of potential
customers. Along with advertising, sales promotion activities, such as product samples or
demonstrations, are vital to stimulating interest in the product. The enhanced communication
effectiveness of personal selling makes it ideally suited to moving potential customers through internal
desire and into action. Other sales promotion activities, such as product displays, coupons, and
trial-size packaging, are well suited to pushing customers toward the final act of making a purchase.

12. Discuss the role of sales promotion in consumer markets. In your answer, identify several types of
consumer sales promotion activities and how they might be used in an overall IMC program.
ANS:
Any member of the supply chain can initiate consumer sales promotions, but manufacturers and
retailers typically offer them. For manufacturers, sales promotion activities represent an effective way
to introduce new products or promote established brands. Coupons and product sampling are
frequently used during new product launches to stimulate interest and trial. Retailers typically offer
sales promotions to stimulate customer traffic or increase sales at specific locations. Coupons and free
products are common examples, as are in-store product demonstrations. Many retailers are known for
their sales promotions such as the free toys that come with kid’s meals at McDonald’s, Burger King,
and other fast food establishments.
A potentially limitless variety of sales promotion methods can be used in consumer markets.
Truthfully, developing and using these methods is limited only by the creativity of the firm offering
the promotion. However, firms will typically offer one or more of the following types of sales
promotions to consumers:
· Coupons—Coupons reduce the price of a product and encourage customers to try new or
established brands. Coupons can be used to increase sales volume quickly, to attract repeat
purchasers, or even to introduce new product sizes or models. While coupon cutting (cutting
coupons from newspapers or direct mail) was once quite common, the practice declined over the
years. This mentality changed with the latest economic recession as many consumers returned to
using coupons, especially new mobile coupons.
· Rebates—Rebates are very similar to coupons except that they require more effort on the
consumer’s part to obtain the price reduction. Although consumers prefer coupons because of the
ease of use, most firms prefer rebates for several reasons. First, firms have more control over
rebates because they can be launched and ended very quickly. Second, a rebate program allows the
firm to collect important consumer information that can be used to build customer databases. The
best reason is that most consumers never bother to redeem rebate offers. This allows a firm to
entice customers to purchase a product with only a minimal loss of profit.
· Samples—Free samples are one of the most widely used consumer sales promotion methods.
Samples stimulate trial of a product, increase volume in the early stages of the product’s life cycle,
and encourage consumers to actively search for a product. Samples can be distributed through the
mail, attached to other products, and given out through personal selling efforts or in-store displays.
Samples can also be distributed via less direct methods. For example, free samples of soap,
shampoo, coffee, or sunscreen might be placed in hotel rooms to create consumer awareness of
new products.
· Loyalty Programs—Loyalty programs, or frequent-buyer programs, reward loyal customers who
engage in repeat purchases. These programs are popular in many industries due to their potential to
dramatically increase profits over the long term. We are all familiar with the frequent-flier
programs offered by major airlines. Other companies, such as hotels, auto rental agencies, and
credit card companies, offer free goods or services for repeat purchases. For instance, the Discover
Card provides a one percent cash-back bonus to each cardholder at the end of the year, and
Hallmark rewards loyal customers with the Hallmark Gold Crown Card, which allows frequent
buyers to accrue points that are redeemable for merchandise and discounts.
· Point-of-Purchase Promotion—Point-of-purchase (POP) promotion includes displays, in-store
demonstrations, counter pieces, display racks, or self-service cartons that are designed to build
traffic, advertise a product, or induce impulse purchases. POP promotions are highly effective
because they are used in a store where consumers make roughly 70 to 80 percent of all purchase
decisions.
· Premiums—Premiums are items offered free or at a minimum cost as a bonus for purchasing a
product. Examples of premiums include a free car wash with a gasoline fill-up, a free toothbrush
with a purchase of a tube of toothpaste, and the toys offered inside a McDonald’s Happy Meal.
Premiums are good at increasing consumption and persuading consumers to switch brands.
· Contests and Sweepstakes—Consumer contests, games, and sweepstakes encourage potential
consumers to compete for prizes or try their luck by submitting their names in a drawing for
prizes. In addition to being valuable information collection tools, contests and sweepstakes are
good at attracting a large number of participants and generating widespread interest in a product.
Because they require no skill to enter, sweepstakes are an effective way to increase sales or market
share in the short term.
· Direct Mail—Direct mail, which includes catalog marketing and other printed material mailed to
individual consumers, is a unique category because it incorporates elements of advertising, sales
promotion, and distribution into a coordinated effort to induce customers to buy. The use of direct
mail has grown tremendously in recent years due to consumer time constraints, relatively low cost,
and the advent of sophisticated database management tools.
Firms can use any one or all of these consumer promotion methods in their overall IMC program.
However, the choice of one or more methods must be made in consideration of the firm’s IMC
objectives. Furthermore, the choice must also consider the use of sales promotions by competitors and
whether a particular method involves ethical or legal dimensions. Consumer sweepstakes, in particular,
have specific legal requirements to ensure that each entrant has an equally likely chance of winning.


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Marketing Strategy Text and Cases 6th

Edition Ferrell Test Bank

5. Which of the following is the best example of an unsought product?

21. Price elasticity is defined as:

· Convenience Products—Inexpensive, routinely purchases products that consumers spend little

PTS: 1 DIF: Difficulty: Easy NAT: BUSPROG: Analytic

PTS: 1 DIF: Difficulty: Easy NAT: BUSPROG: Analytic

PTS: 1 DIF: Difficulty: Moderate NAT: BUSPROG: Analytic

Percent Change Gross Margin %

PTS: 1 DIF: Difficulty: Moderate NAT: BUSPROG: Analytic

Ÿ Service quality is hard to detect prior to purchase.

PTS: 1 DIF: Difficulty: Challenging NAT: BUSPROG: Analytic

PTS: 1 DIF: Difficulty: Challenging NAT: BUSPROG: Analytic

· Exclusive Distribution—Exclusive distribution is the most restrictive type of market coverage.

PTS: 1 DIF: Difficulty: Moderate NAT: BUSPROG: Analytic

PTS: 1 DIF: Difficulty: Challenging NAT: BUSPROG: Analytic

PTS: 1 DIF: Difficulty: Moderate NAT: BUSPROG: Analytic

PTS: 1 DIF: Difficulty: Moderate NAT: BUSPROG: Analytic

PTS: 1 DIF: Difficulty: Moderate NAT: BUSPROG: Analytic

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