Entrepreneurship and Effective Small Business Management Chapter 9 PDF

Entrepreneurship and Effective Small Business Management, 11e (Scarborough) Chapter 9 Building a Bootstrap Marketing Plan 1) A business plan for the small business owner: A) is of relatively little importance due to the dynamic nature of the marketplace. B) is synonymous with the marketing plan. C)...

Entrepreneurship and Effective Small Business Management, 11e (Scarborough) Chapter 9 Building a Bootstrap Marketing Plan 1) A business plan for the small business owner: A) is of relatively little importance due to the dynamic nature of the marketplace. B) is synonymous with the marketing plan. C) tends to stress how the entrepreneur will operate rather than detailing what he/she wants to accomplish. D) contains both a marketing plan and a financial plan. Answer: D 2) is the process of creating and delivering desired goods and services to customers, and involves all of the activities associated with winning and retaining loyal customers. A) Marketing B) Personal selling C) Promotion D) Advertising and public relations Answer: A 3) Small businesses can compete with larger rivals with bigger budgets by employing unconventional, low-cost creative techniques known as: A) market research. B) astonishing customer service. C) bootstrap marketing techniques. D) psychographics. Answer: C 4) The focus of the small company's marketing plan is: A) its product or service. B) the customer. C) attracting capital. D) an evaluation of key competitors. Answer: B 1 Copyright © 2015 Pearson Education, Inc. 5) The marketing plan builds a strategy for success: A) from the customer's point of view. B) as described by the marketing manager. C) based on eliminating all competition. D) by focusing on product development and market management. Answer: A 6) The marketing plan should include certain key objectives, such as: A) determining product costs through market research. B) pinpointing the specific target markets a small business will serve. C) determining what costing strategies to use. D) discovering what the company's ETDB index is. Answer: B 7) Shifting patterns in the age, income, education, race, and other characteristics of the population are the subject of and exert a potent force on a company's marketing plan. A) psychographics B) geographics C) demographics D) geo-demographics Answer: C 8) Entrepreneurs who recognize demographic, social, and cultural trends as they emerge have the opportunity to their companies from the competition in meaningful ways. A) integrate B) differentiate C) placate D) mediate Answer: B 2 Copyright © 2015 Pearson Education, Inc. 9) Market research: A) provides the information that is foundational to the marketing plan. B) is the process used to set the goals and objectives of the marketing plan. C) is prohibitively expensive for the small business owner. D) is relatively unimportant to the small business owner if the owner is close to his/her customers. Answer: A 10) Market research answers what important question for the small business owner? A) How shall I set up my distribution system? B) What should my goals and objectives be in my marketing plan? C) Who are my customers and what are they looking for? D) What form of business ownership would be most effective in this market? Answer: C 11) The primary goal of marketing research is to: A) discover potential competitors. B) reduce the risks associated with business decisions. C) determine how to allocate distribution resources. D) help management choose the appropriate promotional tool. Answer: B 12) The marketing goal of a small business is to treat each customer as a(n): A) individual. B) group. C) profit center. D) cost center. Answer: A 3 Copyright © 2015 Pearson Education, Inc. 13) John wants to answer the question, "What drives my customers' buying behavior?" The best information to address this question comes from: A) demo/geographics data. B) geographics data. C) demographics data. D) psychographics data. Answer: D 14) When it comes to gathering market research on customers, most small companies tend to be: A) as good at it as large companies. B) at a severe disadvantage in comparison to large companies. C) data rich, lots of facts, but information poor, little in a useful form. D) less effective at defining the research problem than larger companies. Answer: C 15) One-to-one marketing is a marketing strategy that: A) gathers data on individual customers and then tailors an appeal to their needs and tastes. B) uses technology to make customers feel like they are being treated special. C) focuses on the use of personal selling and consultative advising of customers. D) relies heavily on geographic data but ignores demographic and psychographic data. Answer: A 16) Market research for a small business can be: A) arbitrary. B) informal. C) random. D) haphazard. Answer: B 4 Copyright © 2015 Pearson Education, Inc. 17) Effective one-to-one marketing involves: A) identifying your best customers. B) treating each customer as an individual. C) developing a marketing plan designed specifically to appeal to their customer needs, tastes and preferences. D) All of these Answer: D 18) is a process in which computer software that uses statistical analysis, database technology, and artificial intelligence finds hidden patterns, trends, and connections in data so that business owners can make better marketing decisions and predictions about customer's behavior. A) Customer relationship management B) Data mining C) Data discovery D) Simulation Answer: B 19) Most marketing experts contend that the greatest marketing mistake small businesses make is: A) failing to identify the target market. B) spending too little on advertising. C) underpricing their products and services. D) spending too little on quality improvement. Answer: A 20) When it comes to the target market, most successful businesses: A) have broad target markets, permitting them to offer a wide variety of products. B) have little concern for the image of their company, focusing solely on how their products meet target market needs. C) have well-defined "portraits" of the customers they want to attract. D) don't have a clue as to their target market but put forth enough effort to succeed anyway. Answer: C 5 Copyright © 2015 Pearson Education, Inc. 21) The key to marketing success is: A) economy of scale in promotion by creating broad-based ad campaigns. B) understanding customers' unique needs, wants and preferences. C) the use of direct-marketing and e-commerce. D) catering to teenagers. Answer: B 22) Clementine, DataScope Pro, GoldMine, and MineSet are what type of software packages? A) Customer relationship management B) Data mining C) Data discovery D) Word processing Answer: B 23) A company's competitive edge is: A) dependent on the availability of its products. B) largely a function of its pricing strategies. C) the superiority of its market research. D) based on customers' perception of its products and services. Answer: D 24) One "natural" advantage small businesses have over large businesses, which can be a significant competitive advantage, is: A) relationship marketing. B) their ability to conduct market research. C) their lower costs. D) their ability to serve many highly diverse target markets. Answer: A 25) The worst marketing catastrophe to befall any business would be to: A) encourage customers to complain and have employees give management feedback on the complaints. B) have great advertising and poor quality products. C) have poor customer service and a highly effective promotional campaign. D) have a great product and an inaccessible location. Answer: B 26) The total quality management (TQM) concept: A) strives to achieve quality not just in the product or service itself, but in every aspect of the business and its relationship with the customer. B) relies on quality inspections through an army of quality control inspectors. C) focuses on reducing the time it takes to fulfill a customer's request for a product. D) is built on market research. Answer: A 6 Copyright © 2015 Pearson Education, Inc. 27) recognizes that any improvement in quality may improve a company's competitive ability. A) Customer service B) Return on quality C) Total quality management D) Total customer satisfaction Answer: B 28) Companies with strong reputations for quality follow certain guidelines, such as: A) establishing long-term relationships with suppliers. B) fostering individual effort and pride of workmanship. C) rewarding employees for compliance to rules and procedures. D) building an extensive quality inspection system with many quality inspectors. Answer: A 29) Studies show that customers want from businesses almost more than anything else. A) quality B) low cost C) cutting edge technology D) convenience Answer: D 30) TCM is the acronym for: A) total customer management. B) time compression management. C) total customer marketing. D) total compression management. Answer: B 7 Copyright © 2015 Pearson Education, Inc. 31) Small businesses are able to maintain a leadership role in innovation by: A) using their size, flexibility, and speed to their advantage. B) spending much more money on R & D than large companies do. C) foreseeing trends better and far enough in advance that they can spread innovation costs over several years. D) making better use of technology than large companies. Answer: A 32) A key to effective innovation by the entrepreneur is: A) dedicating at least 20% of pre-tax revenues to R & D. B) always looking for new product and service ideas. C) hiring managers with a track record for innovation. D) None of these Answer: B 33) Small companies with limited financial resources can often use as a way to differentiate themselves from larger competitors. A) innovation B) lower prices with higher quality C) high price and high quality D) customer service Answer: D 34) Numerous surveys have concluded that the most important element of service is: A) the personal touch. B) convenient business hours. C) speedy transactions. D) innovative product design. Answer: A 8 Copyright © 2015 Pearson Education, Inc. 35) Time compression management (TCM) involves: A) speeding new products to market. B) enhancing the quality of existing products. C) decreasing the time it takes a product to move from introduction to the maturity stage of the product life cycle. D) shortening the sales clerks' response time to customers entering the retail store and then being served. Answer: A 36) The primary opportunity for time compression management (TCM) lies in its application to: A) the purchasing process. B) the production process. C) the administrative process. D) the marketing process. Answer: C 37) refers to developing, maintaining, and managing long-term relationships with customers so that they will want to keep coming back. A) Customer relationship management B) Customer retention management C) Customer management software D) Customer reassurance management Answer: A 38) Which strategy allows a small company to maximize the advantages of its smallness and to compete effectively even in industries dominated by giants? A) Grand market strategy B) Mass strategy C) Niche strategy D) None of the above Answer: C 9 Copyright © 2015 Pearson Education, Inc. 39) The product life cycle concept means that small businesses must: A) constantly be involved in product innovation. B) track demographic and psychographic trends carefully. C) create both place and time utility if they are to survive. D) use a market penetration strategy if they are to be successful. Answer: A 40) The most common channel of distribution for consumer goods is: A) manufacturer → consumer. B) manufacturer → retailer → consumer. C) manufacturer → wholesaler → retailer → consumer. D) manufacturer → broker → consumer. Answer: C 10 Copyright © 2015 Pearson Education, Inc. 41) The right price for a product depends on which factors? A) A small company cost structure B) The desired image the company wants to create in its customers' minds C) An assessment of what the market will bear D) All of the above Answer: D 42) Free trial offers, free delivery, lengthy warranties, and money back guarantees are examples of: A) promotion. B) product differentiation. C) non-price competition. D) customer discounts. Answer: C 43) is the process of creating and delivering desired goods and services to customers and involves all of the activities associated with winning and retaining loyal customers. A) Retailing B) Selling C) Marketing D) None of the above Answer: C 44) Bootstrap marketing also is sometimes known as: A) ambush marketing. B) target marketing. C) customer marketing. D) guerilla marketing. Answer: D 11 Copyright © 2015 Pearson Education, Inc. 45) One of the objectives of a bootstrap marketing plan is to find the in the market. A) "pain points" B) "entry point" C) "skimming point" D) "unique point" Answer: A 46) One of the objectives that a bootstrap marketing plan should accomplish is: A) it should pinpoint the target market. B) it should determine customer needs, wants and characteristics. C) it should identify company vendor potential. D) Both A and B Answer: D 47) One of the first steps in building a marketing plan is identifying a small company's , the group of customers at whom the company aims its products and services. A) target market B) competitors C) customers D) Both A and C Answer: A 48) is the vehicle for gathering the information that serves as the foundation for the marketing plan. A) Target market identification B) Market research C) Banker identification D) Competitive analysis Answer: B 12 Copyright © 2015 Pearson Education, Inc. 49) A is a small number of customers who give you feedback on specific issues in your business—quality, convenience, hours of operation, service, and so on. A) survey B) questionnaire C) focus group D) All of the above Answer: C 50) Customer surveys and questionnaires should: A) be short. B) not give biased results. C) use simple ranking systems. D) All of the above Answer: D 51) Surveys, questionnaires, and focus groups are considered to be: A) primary research. B) secondary research. C) data collation. D) All of the above Answer: A 52) is a process in which computer software that uses statistical analysis, database technology, and artificial intelligence finds hidden patterns, trends, and connections in data so that business owners can make better marketing decisions and predictions about their customers' behavior. A) Demographic collection B) Target marketing C) Data mining D) None of the above Answer: C 13 Copyright © 2015 Pearson Education, Inc.  53) What drives my customers' buying behavior? Are they receptive to new products or are they among the last to accept them? What values are most important to them? These questions are to identify: A) psychographic data. B) geographic data. C) demographic data. D) All of the above Answer: A -------- 54) What are the objectives of a bootstrap marketing plan? Answer: A bootstrap marketing plan should pinpoint the target market, determine customer needs, wants, and characteristics through market research (find the "pain points" in the market), analyze the company's competitive advantage and build a strong value proposition and an effective strategy around it, and finally create a marketing mix that meets customer needs and wants. 55) What is the value of market research to the small business owner? How can he/she use it? Answer: Market research is the vehicle for gathering the information that serves as the foundation of the marketing plan. Good research does not have to be complex and expensive to be useful. Sound market research helps the owner pinpoint his target market. The most successful businesses have well-defined portraits of the customers they are seeking to attract. 14 Copyright © 2015 Pearson Education, Inc. 56) What is market research? Answer: Market research is the vehicle for gathering the information that serves as the foundation for the marketing plan. It involves systematically collecting, analyzing, and interpreting data pertaining to a small company's market, customers, and competitors. 57) How is the target market important to the small business? What does this concept signify about changes in marketing? Answer: One of the first steps in building a marketing plan is identifying a small company's target market, the group of customers at whom the company aims its products and services. The more a business learns from market research about its local markets, its customers and their buying habits and preferences, the more precisely it can focus its marketing efforts on the group(s) of prospective and existing customers who are most likely to buy its products or services. 58) What is relationship marketing? What characterizes each of the four levels of customer involvement that is part of relationship marketing? Answer: Relationship marketing or customer relationship management (CRM)—developing, maintaining, and managing long-term relationships with customers so that they will want to keep coming back to make repeat purchases. CRM puts the customer at the center of a company's thinking, planning, and action and shifts the focus from a product or service to customers and their needs and wants. CRM requires business owners to take the following steps: ∙ Collect meaningful information about existing customers and compile it in a database. ∙ Mine the database to identify the company's best and most profitable customers, their needs, and their buying habits. In most companies, a small percentage of customers account for the majority of sales and profits. These are the customers on whom a business should focus its attention and efforts. ∙ Focus on developing lasting relationships with these customers. This often requires entrepreneurs to "fire" some customers that require more attention, time, and expense than they generate in revenue for the business. Failing to do so reduces a company's return on its CRM effort. ∙ Attract more customers who fit the profile of the company's best customers. 15 Copyright © 2015 Pearson Education, Inc. 59) What is "revenue at risk?" Answer: "Revenue at risk" is the sales revenue a company stands to lose by measuring the percentage of customers who would leave because of poor service. According to a marketing firm, the typical North American company is at risk of losing 21 percent of its customers because of high levels of dissatisfaction. 60) What characterizes companies that "get it right the first time," that have an emphasis on quality? Answer: The key to developing a successful TQM philosophy is seeing the world from the customer's point of view. Quality must reflect the needs and wants of the customer. Companies successful in capturing a reputation for top-quality products and services follow certain guidelines to "get it right the first time": ∙ Build quality into the process; don't rely on inspection to obtain quality. ∙ Emphasize simplicity in the design of products and processes; it reduces the opportunity for errors to sneak in. ∙ Foster teamwork and dismantle the barriers that divide disparate departments. ∙ Establish long-term ties with select suppliers; don't award contracts on low price alone. ∙ Provide managers and employees the training needed to participate fully in the quality improvement program. ∙ Empower workers at all levels of the organization; give them authority and responsibility for making decisions that determine quality. ∙ Have managers commit to the quality philosophy. Otherwise, the program is doomed. ∙ Reward employees for quality work. ∙ Develop a company-wide strategy for constant improvement of product and service quality. 16 Copyright © 2015 Pearson Education, Inc. 61) What can an entrepreneur do to be more effective at innovation? Answer: Innovation is the key to future success. Markets change too quickly and competitors move too fast for small companies to stand still and remain competitive; they must constantly innovate. Because of their organizational and managerial flexibility, small businesses often can detect and act on new opportunities faster than large companies. Innovation is one of the greatest strengths of entrepreneurs, and it shows up in the new products, unique techniques, and unusual approaches they introduce. To be an effective innovator, an entrepreneur should: ∙ Make innovation a strategic priority in the company by devoting management time and energy to it. ∙ Measure the company's innovative ability. Tracking the number of new products or services introduced and the proportion of sales products less than five years old generate can be useful measures of a company's ability to innovate. ∙ Set goals and objectives for innovation. Establishing targets and rewarding employees for achieving them can produce amazing results. ∙ Encourage new product and service ideas among employees. Workers have many incredible ideas, but they will lead to new products or services only if someone takes the time to listen to them. ∙ Listen to customers. ∙ Always be on the lookout for new product and service ideas. ∙ Keep a steady stream of new products and services flowing. 62) Discuss how a company can achieve stellar customer service and satisfaction. Answer: Listen to customers; define superior service, set standards and measure performance, examine your company's service cycle, hire the right employees; train employees to deliver superior service; empower employees to offer superior service; use technology to provide improved service; reward superior service; get top managers' support; give customers an unexpected (and pleasant) surprise; emphasis on speed. 63) What is time compression management and what does it involve? Answer: This philosophy of speed is called time compression management (TCM), and it involves three aspects: (1) speeding new products to market, (2) shortening customer response time in manufacturing and delivery, and (3) reducing the administrative time required to fill an order. 17 Copyright © 2015 Pearson Education, Inc. 64) Describe the product life cycle, naming and explaining what characterizes each stage. Answer: Product Life Cycle measures these stages of growth, and these measurements enable the company's management to make decisions about whether to continue selling the product, when to introduce new follow-up products, and when to introduce changes to an existing product. ∙ In the introductory stage, marketers present their product to potential consumers. Initial high levels of acceptance are rare. Generally, new products must break into existing markets and compete with established products. Advertising and promotion help the new product gain recognition among potential customers, who must get information about the product and the needs it can satisfy. The cost of marketing a product at this level of the life cycle is usually high because small businesses must overcome customer resistance and inertia. Therefore, profits are generally low, or even negative, at the introductory stage. ∙ After the introductory stage, the product enters the growth and acceptance stage. In this stage, customers begin to purchase the product in large numbers, allowing sales to rise and profits to increase. Products that reach this stage, however, do not necessarily become successful. If in the introductory or the growth stage the product fails to meet consumer needs, it does not generate adequate sales volume and eventually disappears from the marketplace. For a product to be successful, sales and profit margins must continue to rise through the growth stage. ∙ In the maturity and competition stage, sales volume continues to rise, but profit margins peak and then begin to fall as competitors enter the market. Normally, this causes a reduction in the product's selling price to meet competitor's prices and to hold its share of the market. Sales peak in the market saturation stage of the product life cycle and give the marketer fair warning that it soon will be time to introduce a new product innovation. ∙ The final stage of the product life cycle is the product decline stage in which sales continue to drop, and profit margins fall drastically. However, when a product reaches this stage of the cycle, it does not mean that it is doomed to failure. Products that have remained popular are always being revised. No company can maintain its sales position without product innovation and change. 65) Identify the four common channels of distribution, briefly explaining their use by small businesses in moving their product to the customer. Answer: ∙ Manufacturer to consumer. ∙ Manufacturer to retailer to consumer. ∙ Manufacturer to wholesaler to retailer to consumer. ∙ Manufacturer to wholesaler to wholesaler to retailer to consumer. 18 Copyright © 2015 Pearson Education, Inc. Entrepreneurship and Effective Small Business Management, 11e (Scarborough) Chapter 10 Creative Use of Advertising and Promotion 1) In reality, advertising: A) is a "luxury expense" to be undertaken only when the budget permits. B) requires a large budget to be successful. C) is an investment in the future; without steady advertising the customer base will dry up. D) is relatively ineffective in increasing sales but it does increase customer awareness. Answer: C 2) Tami is developing a promotional campaign for her small business. The first step in this process is to: A) choose an advertising agency to assist her. B) determine how much she can spend. C) identify her target audience. D) define her unique selling proposition. Answer: D 3) Effective ads are built on: A) a clear picture of the competition's products. B) a multimedia approach. C) a unique selling proposition. D) clearly defined features of the product. Answer: C 4) The most meaningful unique selling proposition: A) identifies as many product features as possible. B) stresses price. C) counters the strengths of the competition. D) describes the primary benefit of the product. Answer: D 1 Copyright © 2015 Pearson Education, Inc. 5) The choice of advertising medium is primarily determined by: A) what media the competition uses. B) what media the industry focuses on. C) the target audience and the message. D) the unique selling proposition and budget. Answer: C 6) There are a number of tips a small business owner can follow to build effective advertising, including: A) run one advertisement at a time. B) limit the content of each ad. C) focus on short-term advertising goals. D) All of these Answer: B 7) is any sales presentation that is nonpersonal in nature and is paid for by an identified sponsor. A) Promotion B) Advertising C) Personal selling D) Publicity Answer: B 8) By engaging in , entrepreneurs can support and promote a charity and raise their company's visibility at the same time. A) relationship marketing B) advertising C) personal selling D) cause marketing Answer: D 2 Copyright © 2015 Pearson Education, Inc. 9) When Chapters, a small book store, donates a dollar for each book sold to help promote reading among children, Chapters is using: A) sales promotion. B) advertising. C) cause marketing. D) personal selling. Answer: C 10) A recent study of top salespeople found that they: A) do most of the talking during the sales call. B) work from the customer's perspective and use past "success stories." C) tend to be indirect, taking their time to get to the point with the customer. D) see themselves as vendors and tend to not leave sales materials with the customer. Answer: B 11) is the personal contact between salespeople and potential customers that comes from sales efforts. A) Publicity B) Personal selling C) Specialty advertising D) Advertising Answer: B 12) The cost of an advertising medium compares the actual dollar cost of an ad with the number of potential customers it reaches. A) relative B) continuous C) absolute D) comparative Answer: A 3 Copyright © 2015 Pearson Education, Inc. 13) When selecting the advertising vehicle the small business owner should ask him/herself: A) What are the characteristics of my product? B) Who are my target customers? C) What medium will best support my sales force? D) What can I legally say in my advertisements? Answer: B 14) Which of the following media account for the greatest portion of advertising expenditures? A) Internet B) Radio C) Television D) Magazines Answer: C 15) Newspaper advertising is characterized by: A) broad territory coverage. B) high costs. C) long ad life. D) prompt responses to the ads. Answer: D 16) Newspapers have a number of disadvantages for the small business, such as: A) poor timeliness; it's already old news. B) high expense. C) lack of prominence of the ads. D) readership of primarily older women. Answer: C 4 Copyright © 2015 Pearson Education, Inc. 17) Radio has a number of advantages for the small business owner, such as: A) friendliness, in that radio ads are more active than print media ads. B) easily measurable results and testable strategies. C) long life span. D) the ability to personalize the ads to the specific customers. Answer: A 18) Radio: A) is the one medium that customers spend the most time paying attention to. B) can reach nearly any target market. C) is very susceptible to "zapping." D) is the most expensive advertising medium in terms of relative costs. Answer: B 19) Radio's power as an advertising medium comes from: A) the high production qualities available to the advertiser. B) the long life of its ads. C) its nearly universal presence in society. D) the powerful graphic abilities of the medium. Answer: C 20) One disadvantage of radio as an advertising medium is: A) lack of prominence. B) cost. C) lack of friendliness. D) the need for repetition. Answer: D 5 Copyright © 2015 Pearson Education, Inc. 21) Which of the following times would be considered radio "prime time"? A) 7 p.m. to midnight B) 6 a.m. to 10 p.m. C) 4 p.m. to 7 p.m. D) Both A and C Answer: D 22) If a small business owner wants to use television advertising, he/she should: A) go for national advertising to get the maximum absolute cost advantage. B) try to use cable which costs $200 or less for a 30 second spot. C) consider radio instead because they have identical advantages. D) remember that television is one of the least flexible media. Answer: B 23) Television ads are most commonly sold in what time increments? A) 20 seconds B) 30 seconds C) 60 seconds D) 15 seconds Answer: B 24) Flashing from one television channel to another, especially during commercials, is called: A) zapping. B) skipping. C) cluttering. D) zipping. Answer: A 6 Copyright © 2015 Pearson Education, Inc. 25) Magazines have a number of advantages for the small business owner, including: A) low cost. B) short closing time. C) high quality ad reproduction. D) prominence of the ads in the medium. Answer: C 26) Which of the following is a disadvantage of magazine ads? A) The long closing times B) Poor ad quality C) An inability to target a market D) Lack of flexibility Answer: A 27) Which advertising medium offers the greatest ability to selectively target a specific audience? A) Newspaper B) Television C) Direct mail D) Radio Answer: C 28) Direct mail ads have a number of advantages to them, such as: A) low relative costs. B) long life spans. C) flexibility. D) multiple exposure. Answer: C 7 Copyright © 2015 Pearson Education, Inc. 29) The key to the success of direct mail advertising is: A) designing the right envelope. B) the accuracy of the customer mailing list. C) creative use of color and photographs in the mailing. D) using key words such as "free," "hurry," and "savings." Answer: B 30) A successful direct mail ad is characterized by: A) text written as if it were being spoken. B) thorough text descriptions of the benefit. C) making statements rather than asking questions. D) minimal use of pictures and color, to reduce costs. Answer: A 31) Which of the following is an advantage of outdoor ads? A) Prominence of the ads B) Narrow reach C) Long exposure D) Flexibility Answer: D 32) Which of the following is a disadvantage of outdoor ads? A) High absolute and relative costs B) Legal restrictions C) Narrow reach D) Lack of flexibility Answer: B 8 Copyright © 2015 Pearson Education, Inc. 33) The best color combination for an outdoor ad is: A) blue on green. B) red on black. C) yellow on orange. D) black on white. Answer: D 34) Transit advertising's advantages include: A) its flexibility. B) the high quality color reproduction. C) its wide coverage. D) the prominence of display. Answer: C 35) Transit advertising has several disadvantages, such as: A) legal restrictions. B) high cost. C) low frequency and short exposure. D) the inability to target specific audiences. Answer: D 36) The typical household receives an average pieces of direct mail annually. A) 52 B) 624 C) 236 D) 354 Answer: B 9 Copyright © 2015 Pearson Education, Inc. 37) The form of advertising that gives the small business owner a preselected audience and an economical way to make sales calls would be: A) outdoor advertising. B) trade shows. C) directories. D) direct mail. Answer: B 38) A hardware store giving customers nail aprons and yardsticks emblazoned with its name, address, phone number, logo, and slogan is using which advertising medium? A) Point-of-purchase ads B) Cooperative advertising C) Specialty advertising D) Shared ads Answer: C 39) An important advantage of specialty advertising is its: A) ability to significantly lower the cost of sales calls. B) low specific costs. C) versatility. D) potentially broad reach. Answer: C 40) One of the disadvantages of using transit advertising is its: A) limited appeal. B) narrow exposure. C) lack of repeat exposure. D) high cost. Answer: A 10 Copyright © 2015 Pearson Education, Inc. 41) Under the method of establishing an advertising budget, the owner sees advertising as a luxury. A) what-is-affordable B) matching competitors C) percentage of sales D) objective-and-task Answer: A 42) The most commonly used method of establishing an advertising budget for a small business is: A) a percentage of sales. B) spending what competitors spend. C) objective-and-task method. D) what is affordable. Answer: A 43) The method is the most difficult and least used technique of establishing an advertising budget. A) percentage of sales B) spending what competitors spend C) objective-and-task D) what-is-affordable Answer: C 44) Under , a manufacturer splits the cost of advertising with a small retailer if the retailer features its product. A) cooperative advertising B) shared advertising C) direct advertising D) integrated marketing Answer: A 11 Copyright © 2015 Pearson Education, Inc. 45) Timex designs a set of newspaper ads promoting its watches, making them available at no cost to jewelers selling its watches so they can add their names, addresses, and phone numbers. It is using advertising. A) institutional B) generic C) cooperative D) shared Answer: C 46) In a(n) advertising program, a group of similar businesses forms a "syndicate" to produce "generic" ads that allow the individual businesses to dub in local information. A) cooperative B) shared C) direct D) integrated Answer: B 47) A successful public relations technique used by local businesses to sponsor and promote fundraising activities of nonprofit groups is called: A) cooperative advertising. B) shared advertising. C) cause marketing. D) integrated marketing. Answer: C 48) Other cost saving suggestions for advertising expenditures include: A) repeat ads that have been successful. B) hire independent copywriters, graphic designers, photographers, and other media specialists. C) use of identical ads in different media. D) All of the above Answer: D 12 Copyright © 2015 Pearson Education, Inc. 49) For advertising to work it should: A) fit into your company's overall market strategy. B) use as much financial resources as possible. C) be part of the firm's operating strategy. D) None of the above Answer: A 50) A tip for effective advertising is: A) set long-term advertising objectives. B) advertise in all media. C) include many texts in your ads. D) All of the above Answer: A 51) Before making a sales call, the salesperson sets three objectives. Which one is not an objective? A) The primary objective B) The visionary objective C) The maximum objective D) The minimum objective Answer: C 52) Floating spots are common in what type of advertising media? A) Radio B) Newspaper C) Magazine D) Television Answer: A 13 Copyright © 2015 Pearson Education, Inc. 53) Tactics that can help an entrepreneur stimulate positive publicity for the firm are: A) writing news releases and faxing them to the media. B) sponsoring a community project. C) promoting a cause. D) All of the above Answer: D 54) forces the salesperson to be open-minded and to shoot for the top. A) The primary objective B) The minimum objective C) The visionary objective D) The ultimate objective Answer: C 55) What advertising media attract a large percentage of the advertising dollars nationwide? A) Newspaper B) Radio C) Internet D) Television Answer: D 56) To a business owner, the success of a trade show depends on: A) understanding how a specific trade show might contribute to sales. B) evaluating the alternative shows based on both cost and size. C) Both A and B D) selling a lot of products or services in a trade show. Answer: C 14 Copyright © 2015 Pearson Education, Inc. 57) refers to a key customer benefits or a product or service that sets it apart from its competition. A) Unique product selling B) Unique selling proposition C) Competitive advantage D) Differentiation Answer: B 58) The becomes the heart of a company's advertising message. A) USP B) brand equity C) price D) product Answer: A 59) Which of the following statements is correct? A) Advertising, promotion, and public relations can be effective means of increasing sales by informing customers of the business and its goods and services. B) Advertising, promotion, and public relations can be effective by improving the image of the firm and its products. C) Advertising, promotion, and public relations can be effective by persuading customers to purchase the firm's goods or services. D) All of the above Answer: D 60) is any sales presentation that is nonpersonal in nature and is paid for by an identified sponsor. A) Personal selling B) Press release C) Advertising D) Marketing Answer: C 15 Copyright © 2015 Pearson Education, Inc.  61) Which of the following statements is correct? A) Do not count on sponsorships for your entire advertising campaign. B) It is not necessary to be a dominant sponsor of the event. C) Most sponsorships are free and do not cost the company anything. D) All of the above Answer: A 62) David started his business a couple of years ago. After several marketing promotions, he decided to establish direct contact between his sales people and the customers. His marketing communication is: A) advertising. B) public relations. C) sales person sponsorship. D) personal selling. Answer: D 63) One advantage of personal selling is: A) success is not measured just by sales volume but also by customer satisfaction. B) top sales people use an indirect approach to close the deal. C) the sales person knows what the company wants and works for company's perspective. D) All of the above Answer: A 64) is unsolicited commercial e-mail. A) E-mail advertising B) Banner advertising C) Spam advertising D) Cookie advertising Answer: C ---- 16 Copyright © 2015 Pearson Education, Inc. 65) What questions does the small business owner need to answer in the developing of an advertising strategy? Answer: What is the primary purpose of your ad? What USP can you offer customers? What other key benefits support your USP? At whom are we aiming the ad? What response do you want from your target audience? What image do you want to convey in your ads? 66) What is a company's USP? Answer: USP stands for unique selling proposition and it refers to the key customer benefit or a product or service that sets it apart from the competition. To be effective, a USP must actually be unique. Entrepreneurs should build their advertising messages on a USP. 67) How can a small business owner use publicity to the benefit of his/her business? Answer: Publicity is any commercial news covered by the media that boosts sales but for which the small business does not pay. "[Publicity] is telling your story to the people you want to reach—namely the news media, potential customers, and community leaders," says the head of a public relations firm. "It is not haphazard... It requires regular and steady attention." Publicity has power because it is from an unbiased source. 17 Copyright © 2015 Pearson Education, Inc. 68) List and explain the questions a small business owner needs to answer when choosing a media vehicle for the advertising message. Answer: ∙ How large is my company's trading area? How big is the geographical region from which the firm will draw its customers? The size of this area influences the choice of media. ∙ Who are my target customers and what are their characteristics? Determining a customer profile often points to the appropriate medium to use to get the message across most effectively. ∙ With which media will my target customers most likely interact? Until they know who their target audience is, business owners cannot select the proper advertising media to reach it. ∙ What budget limitations do I face? Entrepreneurs must direct their advertising programs within the restrictions of their operating budgets. Certain advertising media cost more than others. ∙ Which media do my competitors use? Is it helpful for small business owners to know the media their competitors use, although they should not automatically assume that those media are the best choices. An approach that differs from the traditional one may produce better results. ∙ How important is repetition and continuity of my advertising message? Generally, an ad becomes effective only after it is repeated several times, and many ads must be continued for some time before they produce results. Some experts suggest that an ad must be run at least six times in most mass media before it becomes effective. ∙ How does each medium compare with others in its audience, its reach, and its frequency? Audience measures the number of paid subscribers a particular medium attracts and is called circulation in most print media such as newspapers and magazines. Reach is the total number of people exposed to an ad at least once in a period of time, usually four weeks. Frequency is the average number of times a person is exposed to an ad in that same time period. ∙ What does the advertising medium cost? There are two types of advertising costs entrepreneurs must consider: the absolute cost and the relative cost. Absolute cost is the actual dollar outlay a business owner must make to place an ad in a particular medium for a specific time period. An even more important measure is an ad's relative cost, the ad's cost per potential customer reached. Relative cost is most often expressed as cost per thousand (CPM), the cost of the ad per 1,000 customers reached. 18 Copyright © 2015 Pearson Education, Inc. 69) Your small firm is considering using print media, specifically, newspapers for an advertising campaign. Explain the advantages and disadvantages of this medium. Answer: Newspapers provide several advantages to small business advertisers: ∙ Selected geographical coverage ∙ Flexibility ∙ Timeliness ∙ Communication potential ∙ Low costs ∙ Prompt responses ∙ Growing popularity of free newspapers Newspaper advertisements also have disadvantages: ∙ Wasted readership ∙ Reproduction limitations ∙ Lack of prominence ∙ Declining readership ∙ Short ad life 70) Discuss the advantages and disadvantages of using radio and television advertising. How and why would you choose one over the other? Answer: Radio advertising offers several advantages: ∙ Universal infiltration ∙ Market segmentation ∙ Flexibility and timeliness ∙ Friendliness Radio advertisements also have some disadvantages: ∙ Poor listening ∙ Need for repetition ∙ Limited message Television advertising offers a number of distinct advantages: ∙ Broad coverage ∙ Ability to focus on a target audience ∙ Visual advantage ∙ Flexibility ∙ Design assistance Television advertising also has several disadvantages: ∙ Brief exposure ∙ "Clutter" ∙ "Zapping" ∙ Fragmented audience ∙ Costs 19 Copyright © 2015 Pearson Education, Inc. 71) How could an entrepreneur use the Internet to advertise his/her business? Answer: Advertisements on the Internet take five basic forms: banner ads, display ads, contextual ads, pay-per-click ads, and e-mail ads. ∙ Banner ads are small rectangular ads that reside on Web sites, much like roadside billboards, touting a company's product or service. ∙ Another form of Web advertising that is more difficult to ignore is display ads, which include pop-up ads, interstitial ads, and contextual ads. A pop-up ad appears on a separate window that pops up spontaneously, blocking the site behind it. It is designed to grab consumers' attention for the few nanoseconds it takes them to close the window. ∙ Contextual ads appear on users' screens when they download information such as news, sports, or entertainment from another site, and the ad is correlated to the user's interest or online behavior. ∙ Pay-per-click ads require companies to bid on top search engine listings using key words that they expect Internet users to type into a search engine when they are interested in purchasing a particular product or service. The higher a company's bid is for a key word, the more prominent is the location of its ad on the results that the search engine returns. E-mail advertising, in which companies broadcast their advertising messages by e-mail, is growing rapidly because it is so effective and so inexpensive. ∙ E-mail advertising takes two forms: permission e-mail and spam. As its name suggests, permission e-mail involves sending e-mail ads to customers with their permission; spam is unsolicited commercial e-mail. 72) Why would a small business owner use direct mail in his/her advertising strategy? Why wouldn't he/she? Answer: Direct mail has long been a popular method of direct marketing and includes tools such as letters, postcards, catalogues, discount coupons, brochures, and CDs that are mailed to homes or businesses. Direct mail offers some distinct advantages to entrepreneurs: ∙ Flexibility ∙ Reader attention ∙ Rapid feedback ∙ Measurable results and testable strategies ∙ Effectiveness Direct-mail ads also suffer from several disadvantages: ∙ Inaccurate mailing lists ∙ Clutter ∙ High relative costs ∙ High throwaway rate 20 Copyright © 2015 Pearson Education, Inc. 73) What is the value of outdoor and transit advertising to the small business? Answer: A variation of out-of-home advertising is transit advertising, which includes advertising signs on the inside and outside of the public transportation vehicles such as trains, buses, and subways throughout the country's urban areas. The medium is likely to grow as more cities look to public transit systems to relieve traffic congestion. Transit ads offer a number of advantages: Wide coverage; Low cost; Flexibility. Transit ads also have several disadvantages: Generality; Limited appeal; Brief message. 74) Why would the small business owner use trade shows in his/her advertising strategy? Answer: Trade shows provide manufacturers and distributors with a unique opportunity to advertise to a pre-selected audience of potential customers who are inclined to buy. Thousands of trade shows take place each year, and carefully evaluating and selecting the right shows can produce profitable results for a business owner. Trade show success does not depend on how much an exhibitor spends; instead, success is a function of planning, preparation, and follow-up. Advantages: a natural market, pre-selected audience, new customer market, cost advantage. Disadvantages are: increasing costs, wasted effort. 75) Name and discuss the four methods of establishing an advertising budget. Answer: There are four methods of creating an advertising budget: ∙ What-is-affordable, matching competitors, percentage of sales, and objective and task. Under the what-is-affordable method, business owners see advertising as a luxury. They view it completely as an expense rather than as an investment that generates sales and profits in the future. As the name implies, entrepreneurs who use this method spend on advertising whatever their companies can afford. ∙ Another approach is to match the advertising budget of the company's competitors, either in a flat dollar amount or as a percentage of sales. This method assumes that a company's advertising needs and strategies are the same as those of its competitors, which is rarely the case. ∙ The most commonly used method of establishing an advertising budget is the simple percentage-of-sales approach. This method relates advertising expenditures to actual sales results. Tying advertising expenditure to sales rather than to profits creates greater consistency in advertising because most companies' sales tend to fluctuate less than profits. ∙ The objective-and-task method is the most difficult and least used technique for establishing an advertising budget. It also is the method most often recommended by advertising experts. With this method, an entrepreneur links advertising expenditures to specific business objectives. The objective-and-task method builds up an advertising budget from the bottom up by analyzing what it will cost to accomplish an entrepreneur's business objectives. 21 Copyright © 2015 Pearson Education, Inc. 76) How can the entrepreneur use cooperative and shared advertising to effectively advertise his/her business and products while holding down promotional costs? Answer: In cooperative advertising, a manufacturing company shares the cost of advertising with a retailer if the retailer features its products in those ads. Both the manufacturer and the retailer get more advertising per dollar by sharing expenses. Cooperative advertising not only helps small businesses stretch their advertising budgets, but it also offers another source of savings: the free advertising packages that many manufacturers supply to retailers. These packages usually include photographs and illustrations of the product as well as professionally prepared ads to use in different media. In shared advertising, a group of similar businesses forms a syndicate to produce generic ads that allow the individual businesses to dub in local information. The technique is especially useful for small businesses that sell relatively standardized products or services such as legal assistance, autos, and furniture. Because the small firms in the syndicate pool their funds, the result usually is higher-quality ads and significantly lower production costs. 22 Copyright © 2015 Pearson Education, Inc. Entrepreneurship and Effective Small Business Management, 11e (Scarborough) Chapter 11 Pricing and Credit Strategies 1) Tom is working on a pricing strategy for his company's new product line. In order to determine the price ceiling for these products, Tom needs to know: A) what price range will work best. B) what his company's cost structures are. C) what his customers are willing to pay. D) what his competitors are charging. Answer: C 2) When pricing products, it is important to remember that: A) there is an ideal price that customers will pay for a given product or service. B) once the acceptable price range is found, prices should not be changed again. C) pricing is more an intuitive than a quantitative process. D) a customer orientation in price setting is most important. Answer: D 3) Small business owners get into trouble when determining their price floor when they: A) focus on what the customer will pay. B) assume their costs are the same as their competitors'. C) begin to track financial ratios to determine what they are doing. D) use the price floor as the minimum price in their acceptable price range. Answer: B 4) The final price set by the entrepreneur for the products depends on: A) the desired image for the products. B) the cost structure. C) what customer will pay. D) what competitors are charging. Answer: A 1 Copyright © 2015 Pearson Education, Inc. 5) When small manufacturing companies face rapidly increasing raw material costs, they can adopt a number of strategies including: A) pass the increasing costs along to their customers without comment. B) absorb costs for the short term and plan for double price increases in the next pricing cycle. C) reconsider their competitive strategy and seek a niche they can service. D) emphasize the value their company provides customers. Answer: D 6) pricing strategy introduces a new product at a low price to gain quick acceptance and extensive distribution in a mass market. A) Penetration B) Skimming C) Discount D) Sliding-down-the-demand-curve Answer: A 7) pricing policy is used to introduce a relatively low-priced good into a market where no "elite segment" exists. A) Penetration B) Skimming C) Discount D) Sliding-down-the-demand-curve Answer: B 8) The basic objective of a penetration pricing policy is to: A) recover start-up costs as quickly as possible. B) transform the small firm into a discount outlet. C) gain quick access into a market to realize high sales volume quickly. D) discourage competition and gradually become a high volume producer. Answer: C 2 Copyright © 2015 Pearson Education, Inc. 9) A new product pricing strategy is often used in markets with little competition and when the company seeks to recover start-up costs quickly. A) penetration B) skimming C) discount D) sliding-down-the-demand-curve Answer: B 10) When using a skimming price strategy, small business owners should remember that: A) it is difficult to correct pricing mistakes with this strategy. B) it is a long-term policy and it will take time to see appropriate results. C) if a price is set too low initially, it can be very hard to raise it later. D) it is an excellent strategy for discouraging competitors from entering the market. Answer: D 11) The pricing strategy often reinforces the unique, prestigious image of a company. A) penetration B) introductory C) discount D) skimming Answer: D 12) A strategy works well when a company has a mature product, loyal customers, a reputation for quality, and few competitors. A) penetration B) skimming C) discount D) price lining Answer: B 3 Copyright © 2015 Pearson Education, Inc. 13) The Omega Company introduces products with a higher-than-normal price in an effort to quickly recover the initial developmental and promotional costs of the product. The Omega Company is pursuing a pricing strategy. A) fixed-price B) skimming C) penetration D) loss leader Answer: B 14) When a retailer routinely prices goods at $9.97 and $7.36 rather than $10.00 and $7.50, the retailer is using: A) variable pricing. B) penetration pricing. C) odd pricing. D) price skimming. Answer: C 15) is a technique which greatly simplifies the pricing function by setting the same price for items with similar characteristics. A) Odd pricing B) Leader pricing C) Price lining D) Geographical pricing Answer: C 16) When a small business practices price lining, it most commonly carries lined merchandise in sets of different ranges. A) 2 B) 3 C) 4 D) 5 Answer: B 4 Copyright © 2015 Pearson Education, Inc. 17) Jerry is developing a pricing strategy for an established line of home care products. His premium products are priced over $4000, his best products are in the $2540 range, and his good products are $1015 range. Jerry is using a strategy. A) penetration pricing B) leader pricing C) price lining D) geographic pricing Answer: C 18) is a technique in which a small firm marks down the price of a popular item below its normal price in an effort to increase customer traffic and to boost sales of other items. A) Odd pricing B) Leader pricing C) Price lining D) Suggested retail pricing Answer: B 19) In pricing, a type of geographical pricing, a small firm charges customers located in different territories different prices for the same products. A) FOB factory B) uniform delivered C) zone D) price lining Answer: C 20) Geographical pricing includes numerous techniques, such as: A) uniform delivered pricing. B) loss-leader pricing. C) markdowns. D) multiple pricing. Answer: A 5 Copyright © 2015 Pearson Education, Inc. 21) is a pricing strategy under which local customers "subsidize" the shipping charges the firm incurs when transporting merchandise to distant customers. A) FOB factory pricing B) Uniform delivered pricing C) Zone pricing D) Opportunistic pricing Answer: B 22) Many small business owners use a strategy to move stale, damaged, or slow moving goods or to encourage shoppers to purchase merchandise before an upcoming season. A) multiple pricing B) opportunistic pricing C) discount pricing D) price lining Answer: C 23) The Pastry Shop normally sells cheese Danishes for 60 cents each. On Mondays and Tuesdays, its slowest days, The Pastry Shop offers cheese Danishes at "4 for $2.00." This is: A) price lining. B) leader pricing. C) multiple unit pricing. D) odd pricing. Answer: C 24) Baseball cards usually sell for 10 cents each. The Card Shop advertises them at "12 for $1.00." This is: A) price lining. B) leader pricing. C) odd pricing. D) multiple unit pricing. Answer: D 6 Copyright © 2015 Pearson Education, Inc. 25) When a computer manufacturer offers its computer with software pre-installed, a printer, and Internet service, as all part of one price, the manufacturer is using a: A) bundling strategy. B) multiple pricing strategy. C) suggested retail price strategy. D) skimming pricing strategy. Answer: A 26) When a small business owner doesn't want to make a pricing decision, he/she can use a(n) pricing strategy. A) price lining B) suggested retail C) opportunistic D) multiple unit Answer: B 27) Probably the most important consideration a manufacturer has when setting the final price of its new exclusive perfume is: A) the perfume's production cost. B) competitor's prices. C) the image the company wants to create for the scent in the customer's mind. D) choosing between odd pricing and price lining. Answer: C 28) Dotty has her competitors' price information. Her most effective use of that information would be to: A) seek to match her competitors. B) undercut competitors' prices. C) create a premium image by setting her prices higher than competitors. D) use it as one variable in her pricing mix. Answer: D 7 Copyright © 2015 Pearson Education, Inc. 29) When considering the competition in price setting, the small business owner should: A) consider the competitors' location. B) consider the competitors' motives for their prices. C) consider the nature of the goods being sold. D) consider all of these. Answer: D 30) Which of the following factors is vital to determining the effects of competition on the small firm's pricing policies? A) The competitor's location B) The availability of capital for production C) The form of ownership of the small business D) The type of outlet the business is Answer: A 31) When a small business is faced with price competition from a much larger competitor, it should consider: A) going head-to-head on prices by lowering its cost structure. B) using non-price competition by offering value added service. C) make rapid, continual price changes to keep the competition off balance. D) move to a premium price strategy by offering higher scale goods and services. Answer: B 32) If a haberdasher purchases a tie for $12 and plans to sell it for $18, the percentage of retail price markup would be: A) 33%. B) 50%. C) 175%. D) 100%. Answer: A 8 Copyright © 2015 Pearson Education, Inc. 33) is the average markup required on all merchandise to cover the cost of items, incidental expenses, and a profit. A) Initial markup B) Cost plus markup C) Direct markup D) Contributing margin Answer: A 34) If an item costs a small business owner $15, and the desired markup on it is 60%, its retail price would be: A) $24.00. B) $25.00. C) $37.50. D) $43.25. Answer: C 35) A common "me-too" pricing policy by which the small business owner establishes his/her prices by monitoring competitor's prices and then matching them is called: A) follow-the-leader pricing. B) below-market pricing. C) price lining. D) variable pricing. Answer: A 36) The most commonly used pricing technique for manufacturers is: A) direct pricing. B) margin pricing. C) cost-plus. D) absorption pricing. Answer: C 9 Copyright © 2015 Pearson Education, Inc. 37) Absorption costing: A) is complete pricing in that it takes into consideration all manufacturing and overhead costs. B) guarantees the manufacturer a desired profit margin. C) does not encourage a manufacturer to operate efficiently. D) clouds the true relationship of price, volume, and costs. Answer: D 38) Cost-plus pricing has several disadvantages, including: A) it clouds the relationships among price, volume, and costs. B) it fails to consider the competition sufficiently. C) a mentality of "I-can-do-it-cheaper," leading to price competition with larger companies. D) it tends to be reactive rather than proactive in relation to competition and market forces. Answer: B 39) A reliable cost accounting system is necessary for accurate pricing. The traditional method of product costing, where the costs of direct materials, direct labor, and factory overhead are included, is called costing. A) absorption B) break-even C) direct D) variable Answer: A 40) include(s) the unit cost of a manufacturer's product under an absorption costing system. A) Opportunity costs B) Depreciation C) Insurance D) Variable costs Answer: D 10 Copyright © 2015 Pearson Education, Inc. 41) costing includes only those costs that vary directly with the volume of an item produced. A) Absorption B) Break-even C) Indirect D) Direct Answer: D 42) tells what portion of the total revenues remains after covering variable costs to contribute toward meeting fixed expenses and earning a profit. A) The full-absorption statement B) The break-even selling price C) The contribution percentage D) Cost-plus pricing Answer: C 43) Even in the short run, a small business must set the price of a product at least equal to the costs (per unit), or it must shut down. A) fixed B) variable C) total D) invariable Answer: B 44) Most service firms base their prices on: A) fairly stable pricing policies. B) the cost of the service plus an estimate of the value they add in delivering the service. C) market surveys on their respective industries. D) an hourly basis for services rendered. Answer: D 11 Copyright © 2015 Pearson Education, Inc. 45) To establish a reasonable, profitable price for service, the small business owner needs to know: A) fixed and variable costs, the break-even point, and his/her contribution percentage. B) competitors' prices, and costs of direct and indirect labor. C) the cost of materials, direct labor, and overhead for each unit of service. D) full-absorption costs, direct and indirect labor, and the break-even point. Answer: C 46) A customer who purchases a television from Ace Appliance Store and pays for it in 36 monthly payments is using: A) trade credit. B) charge account credit. C) installment credit. D) debit card credit. Answer: C 47) A firm sells small-ticket items to their regular customers on customer charge accounts and then bills the customers each month. This type of credit arrangement is called: A) trade credit. B) charge account credit. C) installment credit. D) debit card credit. Answer: A 48) A variation of geographic pricing in which the small company sells its merchandise to customers on the condition that they pay all the shipping is called: A) uniform delivered pricing. B) F.O.B. factory. C) zone pricing. D) discounts. Answer: B 12 Copyright © 2015 Pearson Education, Inc. 49) F.O.B. factory is a variation of pricing. A) opportunistic B) bundling C) geographic D) skimming Answer: C 50) When developing a marketing approach to pricing, business owners must: A) establish prices that are compatible with their customers' expectations and what they are willing to pay. B) compete solely on price. C) establish prices that are compatible with their customers' expectations and add a certain percentage to it. D) establish prices that are compatible with their customers' expectations and subtract a certain percentage to it. Answer: A 51) Price wars usually begin when: A) the economy is in turmoil. B) when there are more than 4 competitors. C) when one competitor believes that they can achieve a higher volume through lower price. D) small businesses enter the market dominated by bigger giants. Answer: C 52) Customers that sell small-ticket items frequently offer their customers: A) discounts. B) installment credit option. C) "store value" cards. D) trade credit. Answer: D 13 Copyright © 2015 Pearson Education, Inc. 53) The price that business owners set depends on the desired image they want to create for their products or services. These images are: A) discount. B) value. C) upscale. D) All of the above Answer: D 54) Brenda is starting her business by offering exclusive hand-bags. The desired image that she should set for her handbags is "exclusive." She should set the price at: A) discount. B) bargain. C) value. D) upscale. Answer: D 55) In most cases, a pricing strategy is used to introduce relatively low priced goods into the market where no elite segment and little opportunity for differentiation exist. A) skimming B) penetration C) geographic D) opportunistic Answer: B 56) Uniform delivered pricing is a variation of: A) opportunistic pricing. B) leader pricing. C) geographic pricing. D) multiple pricing. Answer: C 14 Copyright © 2015 Pearson Education, Inc. 57) Which price strategy is mostly used for moving stale, outdated, damaged merchandise? A) Markdown pricing B) Multiple pricing C) Bundling D) Skimming Answer: A 58) XYZ manufactures computer hardware. The marketing executives, in order to increase the market share, forced a business to accept a suggested retail price and not to sell the items below the stated price. A) This practice violates the Sherman Antitrust Act. B) There is no violation. According to a recent Supreme Court decision, this is fine. C) This practice violates the Fair Price Protection Act. D) As long as the manufacturer offers rebates, they can do whatever they want. Answer: B 59) For some customers, a higher price equals: A) higher quality. B) greater perceived value. C) uniqueness. D) All of the above Answer: D 60) Price usually begin(s) when one competitor believes that they can achieve a higher volume through lower price, or they believe that they can exert enough pressure on other competitors' profits to drive them out of business. A) discounts B) markdowns C) wars D) penetration Answer: C 15 Copyright © 2015 Pearson Education, Inc. 61) The problem with using is that it clouds the true relationships among price, volume, and costs by including fixed expenses in unit cost. A) full-absorption costing B) variable costing C) contribution margin costing D) break-even costing Answer: A 62) Which of the following is correct? A) Sales – variable costs – fixed costs = contribution margin B) Total revenue – variable costs = contribution margin C) Total revenue – fixed costs = contribution margin D) Total revenue – profit = contribution margin Answer: B 63) Which of the following is a fair definition of price? A) In purely economic terms, price is the monetary value of a good or service. B) Price is a measure of what a customer is required to give up to obtain a good or service. C) None of the above D) Both A and B Answer: D 64) The price floor is established: A) by the firm's total cost. B) by the consumers. C) by the government. D) None of the above Answer: A 16 Copyright © 2015 Pearson Education, Inc. 65) Businesses faced with rapidly rising raw materials costs should consider the following strategies: A) Communicate with customers and focus on improving efficiency everywhere in the company. B) Emphasize the value your company provides to customers. C) Anticipate rising materials costs and try to lock in prices early. D) All of the above Answer: D 66) Most often, small business owners their goods and services, believing that prices are the only way they can achieve a competitive advantage. A) over price; high B) under price; low C) over price; low D) under price; high Answer: B 67) Two factors are vital to studying the effects of competition on a small firm's pricing policies: A) the location of the competitors and the nature of the competing goods. B) the pricing. C) the location of the competitors and their marketing efforts. D) Both A and B Answer: D 68) Three objectives of new product pricing are: A) get the product accepted, maintain market share as competition grows, and earn a profit. B) get the product accepted, avoid price wars, and earn a profit. C) maintain market share as competition grows, earn profits, and increase sales. D) None of the above Answer: A 17 Copyright © 2015 Pearson Education, Inc. 69) Judith started her business in 1995. During the years, she sold different products she purchased from distributors and manufacturers. One day, she came up with a new product. She patented the product and got started to sell the product. What should be the objectives of her pricing strategies? A) Get the product accepted B) Maintain market share as competition grows C) Earn a profit D) All of the above Answer: D 70) A pricing strategy often is used when a company introduces a new product into a market with little or no competition. A) price war B) competitive C) skimming D) price floor Answer: C 71) As sales volume increases with the broad acceptance of the new products, the firm can lower its price. This is a characteristic of: A) price wars. B) competitive pricing. C) skimming. D) penetration. Answer: C 72) Small businesses whose pricing decisions are greatly affected by the costs of shipping merchandise to customers across a wide range of geographic regions frequently employ one of the techniques. A) opportunistic pricing B) geographic pricing C) leader pricing D) price lining Answer: B 18 Copyright © 2015 Pearson Education, Inc.  73) is grouping together several products or services, or both, into a package that offers customers extra value at a special price. A) Leader pricing B) Price lining C) Discount pricing D) Bundling Answer: D 74) pricing is when the base product is not functional without the appropriate accessory. A) Captive-product B) Optional-product C) By-product D) None of the above Answer: A ---- 75) Define and explain the terms: price, price range, price ceiling, and price floor. Why is it important to keep these terms distinct in the entrepreneur's thinking? Answer: The price range is the area between the price floor that is established by a company's total cost to produce the product or provide the service and the price ceiling, which is the most the target customers are willing to pay. An entrepreneur's goal is to position the company's prices within this acceptable price range that falls between the price floor and the price ceiling. The final price that entrepreneurs set depends on the desired image they want to create for their products or services: discount (bargain), middle-of-the road (value), or prestige (luxury). A prestige pricing strategy is not necessarily better or more effective than a no-frills, value pricing strategy. What matters most is that the company's pricing strategy matches the image the owner wants to create for it. 76) Name and explain the three basic pricing strategies a small business owner has in establishing a new product's price. Answer: There are three major pricing strategies generally used to introduce new products into the market: penetration, skimming, and life-cycle pricing. 77) There are at least eight different pricing strategies for established goods and services. Explain four of those strategies and why you'd use them. Answer: Pricing techniques for existing products and services include odd pricing, price lining, leader pricing, geographic pricing, opportunistic pricing, discounts, multiple pricing, bundling, and suggested retail pricing. 19 Copyright © 2015 Pearson Education, Inc. 78) How does price convey an image for the product or service? Answer: Company pricing policies offer potential customers important information about the firm's overall image. Accordingly, when developing a marketing approach to pricing, business owners must establish prices that are compatible with what their customers expect and are willing to pay. Too often, small business owners underprice their goods and services, believing that low prices are the only way they can achieve a competitive advantage. They fail to identify the extra value, convenience, service, and quality they give their customers—all things many customers are willing to pay for. 79) Explain the impact of competition on pricing strategy and what an entrepreneur should do about competitors' prices. Answer: An important part of setting appropriate prices is tracking competitors' prices regularly; however, what the competition is charging is just one variable in the pricing mix. When setting prices, business owners should take into account their competitors' prices, but they should not automatically match or beat them. Businesses that offer customers extra quality, value, service, or convenience can charge higher prices as long as customers recognize the "extras" they are getting. Two factors are vital to studying the effects of competition on the small firm's pricing policies: the location of the competitors and the nature of the competing goods. 80) Retailers have three pricing techniques available to them. Describe each technique, explain why a retailer would use it, and offer advantages or disadvantages that exist for each technique. Answer: Pricing for the retailer means pricing to move merchandise. Markup is the difference between the cost of a product or service and its selling price. Some retailers use retail price, but others put a standard markup on all their merchandise; more frequently, they use a flexible markup. 81) What pricing strategies are available to manufacturers? Explain each, why it is used, and what it does for the manufacturer. Answer: A manufacturer's pricing decision depends on the support of accurate cost accounting records. The most common technique is cost-plus pricing, in which the manufacturer charges a price that covers the cost of producing a product plus a reasonable profit. Every manufacturer should calculate a product's break-even price, the price that produces neither a profit nor a loss. 20 Copyright © 2015 Pearson Education, Inc. 82) Discuss pricing strategies for service firms. Answer: Service firms often suffer from the effects of vague, unfounded pricing procedures and frequently charge the going rate without any idea of their costs. A service firm must set a price based on the cost of materials used, labor involved, overhead, and a profit. The proper price reflects the total cost of providing a unit of service. 83) Explain the different kinds of credit a small business can offer its customers and the impact each has on pricing. Answer: Offering customer credit enhances a small company's reputation and increases the probability, speed, and magnitude of customers' purchases. Small firms offer three types of customer credit: credit cards, installment credit, and trade credit (charge accounts). 84) What are debit cards? Answer: Debit cards are electronic cards that automatically deduct the purchase amount immediately from a customer's checking account. 21 Copyright © 2015 Pearson Education, Inc. Entrepreneurship and Effective Small Business Management, 11e (Scarborough) Chapter 13 E-Commerce and Entrepreneurship 1) is a trend where people test products in retail stores but buy them online. A) Showboating B) Commoditizing C) Onlining D) Showrooming Answer: D 2) The items purchased most often online are: A) apparel. B) computer hardware. C) books. D) All of the above Answer: D 3) Globally, people spend billion hours online per month. A) 35 B) 25 C) 15 D) 5 Answer: A 4) One of the Internet's greatest strengths is its nature. A) efficiency B) collectivistic C) interactive D) atavistic Answer: C 1 Copyright © 2015 Pearson Education, Inc. 5) Perhaps the most visible impact of the Internet is in the world of. A) services B) manufacturing C) education D) retailing Answer: D 6) For many entrepreneurs, the barrier for launching e-commerce is: A) where and how to start an e-commerce effort. B) lack of funding. C) lack of IT staff. D) Both B and C Answer: A 7) Before launching an e-commerce, the business owner should consider: A) handling of customer service for the site. B) the impact of the Web site on the company's traditional channels of distribution. C) Both A and B D) Neither A nor B Answer: C 8) One of the myths of e-commerce is that: A) setting up a business on the Web is easy. B) setting up a business on the Web is inexpensive. C) setting up a business on the Web is impossible. D) Both A and B Answer: D 2 Copyright © 2015 Pearson Education, Inc. 9) After launching the Web site, the companies must follow-up by: A) redesigning the Web site and buying more hardware to support the Web site. B) automating or expanding the warehouse to meet customer demand. C) integrating the Web site into the inventory control system. D) All of the above Answer: D 10) The key to promoting a Web site is networking, building relationships with other companies, customers, trade associations, , and other Web sites your company's customers visit. A) on-line directories B) E-mail access C) shopping carts D) All of the above Answer: A 11) Before your Web site can become the foundation for a successful e-business, you must create it with your in mind. A) technology B) employees C) target audience D) vendors Answer: C 12) The most common reasons for leaving a site without purchasing include: A) the shopping cart was easy to find. B) checking out was easy and quick. C) the site was trustworthy. D) shipping charges were too high. Answer: D 3 Copyright © 2015 Pearson Education, Inc. 13) Perhaps the most significant actions on-line companies can take to bolster their customer service efforts are: A) providing a quick online checkout process. B) creating a well-staffed and well-trained customer response team. C) offering a simple return process. D) All of the above Answer: D 14) Sites that may never have the chance to sell because customers will click to another site. A) move quickly B) download slowly C) don't have e-mail D) don't have toll-free numbers Answer: B 15) E-Commerce requires a basic infrastructure somewhere in the channel of distribution to process orders, maintain inventory, , and handle customer service. A) fill orders B) process e-mail C) technology D) All of the above Answer: A 16) suits many e-tailers perfectly. A) Drop-shipping B) Virtual shipping C) Customer shipping D) Group shipping Answer: A 4 Copyright © 2015 Pearson Education, Inc. 17) The typical Internet user in the United States spends an average of hours a month online. A) 33 B) 125 C) 52 D) 104 Answer: D 18) What are the guidelines for building a successful Web strategy for a small e-company? A) Fill a niche B) Have a lot of products on sale C) Have advanced technology D) Bring advertising revenue by selling banners Answer: A 19) A niche can be defined in many ways, including: A) by geography. B) by customer profile. C) by product. D) All of the above Answer: D 20) KHA.com started selling sporting goods designed for senior citizens who live in retirement homes and apartments. KHA.com is selling its products using a: A) niche strategy. B) community strategy. C) mass strategy. D) senior citizens strategy. Answer: A 5 Copyright © 2015 Pearson Education, Inc. 21) E-mail lists and are powerful tools for building a community of visitors at a site. A) toll-free numbers B) discussion boards C) chat rooms D) broadcast advertising Answer: C 22) To increase customer confidence and credibility, join programs such as: A) Don and Brad Street. B) TRUSTe. C) BBBOnLine. D) Both B and C Answer: D 23) Recommended techniques for having a killer Web site are: A) avoiding clutter. B) continuous sound play. C) not to change the Web site. D) All of the above Answer: A 24) is a tool that measures a Web site's ability to attract customers, generate sales, and keep customers coming back, help entrepreneurs know what works—and what doesn't—on the Web. A) A counter B) Web analytics C) A Web designer D) A server application Answer: B 6 Copyright © 2015 Pearson Education, Inc. 25) Which one of the following is not a basic Web analytic? A) Time spent on site B) Sales revenue generated C) Number of items sold D) Which products are selling best (and which are not) Answer: A 26) The is the cost a company incurs to generate each purchase. A) CTA B) CPA C) CSA D) CMA Answer: B 27) The is the proportion of people who see a company's online ad and actually click on it to reach the company's Web site. A) AVPV B) CPA C) CTR D) None of the above Answer: C 28) Another word for browse-to-buy is: A) conversion. B) controller. C) tracker. D) browse-to-purchase. Answer: A 7 Copyright © 2015 Pearson Education, Inc. 29) The browse-to-buy rate is also called the rate. A) click-through B) browsing C) conversion D) banner Answer: C 30) In Web analytics, CPA is the acronym for: A) customers per acquisition. B) cost per account. C) customers per account. D) cost per acquisition. Answer: D 31) Conversion rates range from: A) 8-10 percent. B) 2-6 percent. C) ten plus percent. D) 1-4 percent Answer: D 32) The average conversion rate is: A) 10 percent. B) 3.2 percent. C) less than 1 percent. D) 5.8 percent. Answer: B 8 Copyright © 2015 Pearson Education, Inc. 33) Each time an ad is displayed is called a(n): A) clustering. B) filtering. C) impression. D) loading. Answer: C 34) A(n) is a statement explaining the nature of the information a company collects online, what it does with that information, and the recourse customers have if they believe the company is misusing the information. A) employment manual B) online manual C) privacy policy D) online policy Answer: C 35) What software scans computer drives for viruses and nasty programs? A) Virus detection B) Firewall C) Server application D) Detention software Answer: A 36) What software is essential for any company doing business on the Web to constantly monitor the activity on a company's network server and sound an alert if it detects someone breaking into the company's computer system? A) Firewall B) Alarm detention program C) Intrusion detection software D) Artificial intelligence Answer: C 9 Copyright © 2015 Pearson Education, Inc. 37) Which technology encrypts the customer's data as the information travels across the Internet? A) Firewall B) Secure Socket Layer C) Virus protection D) None of the above Answer: B 38) What is CVV or CVV2? A) Customer tracking technology B) Customer verification value C) Credit verification value D) Card verification value Answer: D 39) Reasons for leaving a Web site without purchasing are: A) having a phone number when encountering problems. B) insufficient product information. C) having to check back to view items in the shopping cart. D) for security purposes, multiple steps are necessary to get to the check out page. Answer: B 40) Which of the following is correct? A) Make it easy for customers to change the contents of their shopping carts. B) Give customers the option of calling to resolve problems they encounter during checkout. C) Make it easy for customers to pay for their online purchases. D) All of the above Answer: D 10 Copyright © 2015 Pearson Education, Inc. 41) Which of the following is correct? A) Although fancy graphics, bright colors, playful music, and spinning icons can attract attention, they also can be quite distracting and very slow to download. B) Sites that download slowly may never have the chance to sell because customers will click to another site. C) None of the above D) Both A and B Answer: D 42) The Web offers shoppers the ultimate in: A) convenience. B) quality. C) differentiation. D) service. Answer: A 43) The other name for virtual order fulfillment is: A) drop-shipping. B) instant shipping. C) convenience shipping. D) group shipping. Answer: A 44) Most common mistakes that entrepreneurs make once they finally decide to go online are: A) they believe they have to have a "perfect" site before they can launch it. B) few businesses get their sites "right" the first time. C) in fact, the most successful e-commerce sites are constantly changing, removing what does not work and adding new features to see what does. D) All of the above Answer: D 11 Copyright © 2015 Pearson Education, Inc. 45) Developing a community refers to: A) attracting customers and keeping them coming back. B) giving customers the chance to interact with other like-minded visitors. C) providing chat rooms. D) All of the above Answer: D 46) listings are short text advertisements with links to the sponsoring company's Web site that appear on the results pages of a search engine when a user types in a keyword or phrase. A) Drop B) Virtual C) Negotiated D) Paid Answer: D 47) Which of the following statements is true for improving a company's search placement results? A) Visit competitors' sites for key word ideas, but avoid using the exact phrases. B) Consider using less obvious key words and brand names. C) Ask customers which words and phrases they use when searching for the products and services the company sells. D) All of the above Answer: D 48) Paid listings also are called: A) pay for placement. B) pay per click. C) pay for performance ads. D) All of the above Answer: D 12 Copyright © 2015 Pearson Education, Inc.  49) The ideal domain name should be: A) short & memorable. B) indicative of a company's business or business name. C) easy to spell. D) All of the above Answer: D ---- 50) What is e-commerce and why is it important? Answer: E-Commerce is creating a new economy, one that is connecting producers, sellers, and customers via technology in ways that have never been possible before. The result is a new method of doing business that is turning traditional methods of commerce and industry on their heads. 51) What is showrooming and why is it a threat to traditional retailing? Answer: When customers go into retail outlets to test products before buying them online, they are showrooming. This is a threat to traditional retailers because of loss of business. Studies show that 7 percent of shoppers are habitual showroomers and 50 percent of online sales are driven by showrooming. 13 Copyright © 2015 Pearson Education, Inc. 52) Briefly discuss the barrier factors before launching into an e-commerce. Answer: ∙ How a company exploits the Web's interconnectivity and the opportunities it creates to transform relationships with its suppliers and vendors, its customers, and other external stakeholders is crucial to its success. ∙ Web success requires a company to develop a plan for integrating the Web into its overall strategy. The plan should address issues such as site design and maintenance, creating and managing a brand name, marketing and promotional strategies, sales, and customer service. ∙ Developing deep, lasting relationships with customers takes on even greater importance on the Web. Attracting customers on the Web costs money, and companies must be able to retain their online customers to make their Web sites profitable. ∙ Creating a meaningful presence on the Web requires an ongoing investment of resources— time, money, energy, and talent. Establishing an attractive Web site brimming with catchy photographs of products is only the beginning. ∙ Measuring the success of its Web-based sales effort is essential to remaining relevant to customers whose tastes, needs, and preferences are always changing. 53) Discuss the Ten Myths of E-Commerce. Answer: ∙ Myth 1. If I launch a site, customers will flock to it. ∙ Myth 2. Online customers are easy to please. ∙ Myth 3. Making money on the Web is easy. ∙ Myth 4. Privacy is not an important issue on the Web. Myth 5. "Strategy? I don't need a strategy to sell on the Web! Just give me a Web site and the rest will take care of itself." ∙ Myth 6. The most important part of any e-commerce effort is technology. ∙ Myth 7. On the Web, customer service is not as important as it is in a traditional retail store. ∙ Myth 8. Flashy Web sites are better than simple ones. ∙ Myth 9. It's what's up front that counts. ∙ Myth 10. It's too late to get on the Web. 54) What is social networking? Answer: Many small businesses attract potential customers to their Web sites by adding a social networking component that allows visitors to engage in "conversation" with one another through bulletin boards, blogs, and links to social Web sites such as Facebook and Twitter. 14 Copyright © 2015 Pearson Education, Inc. 55) Explain the guidelines for building a successful Web strategy for a small e-company. Answer: ∙ Focus on a niche in the market. ∙ Develop a community of online customers. ∙ Attract visitors by giving away "freebies." ∙ Make creative use of e-mail, but avoid becoming a "spammer." ∙ Make sure your Web site says "credibility." ∙ Consider forming strategic alliances with larger, more established companies. ∙ Make the most of the Web's global reach. ∙ Promote your Web site online and off-line. ∙ Develop an effective search engine optimization (SEO) strategy. 56) Discuss the criteria for an ideal domain name. Answer: The idea domain name should be short, memorable, indicative of a company's business or business name, easy to spell. 15 Copyright © 2015 Pearson Education, Inc. 57) Identify the guidelines for following a simple design. Answer: There is no surefire formula for stopping surfers in their tracks, but the following suggestions will help: ∙ Start with your target customer. ∙ Give customers what they want. ∙ Select a domain name that is consistent with the image you want to create for your company and register it. ∙ Make your Web site easy to navigate. ∙ Create a gift idea center. ∙ Build loyalty by giving online customers a reason to return to your Web site. ∙ Establish hyperlinks with other businesses, preferably those selling products or services that complement yours. ∙ Include an e-mail option and a telephone number in your site. ∙ Give shoppers the ability to track their orders online. ∙ Offer Web specials. ∙ Look for opportunities to cross-sell. ∙ Use customer testimonials. ∙ Follow a simple design for your Web page. ∙ Assure customers that their online transactions are secure. ∙ Post shipping and handling charges up front. ∙ Create a fast, simple checkout process. ∙ Confirm transactions. ∙ Keep your site updated. ∙ Consider hiring a professional to design your site. 58) What is meant by "conversion rate"? Answer: The conversion rate (or browse-to-buy rate) is the proportion of visitors to a site who actually make a purchase. Conversion rates vary dramatically across industries but usually range from 1-4 percent with an average rate of 3.2. 16 Copyright © 2015 Pearson Education, Inc. 59) Discuss some security measures that a small business owner can take in regards to the company's e-commerce. Answer: To make sure they are using the information they collect from visitors to their Web sites legally and ethically, companies should take the following steps: ∙ Take an inventory of the customer data collected. ∙ Develop a company privacy policy for the information you collect. ∙ Post your company's privacy policy prominently on your Web site and follow it. To ensure the security of the information they collect and store from Web transactions, companies should rely on virus and intrusion detection software and firewalls to ward off attacks from hackers. 17 Copyr