Chapter 11 Multiple Choice

A “profit orientation” means that a company’s primary objective is to set prices and policies that maximize profit or achieve a target return. This approach focuses on using pricing as a tool to meet financial goals rather than primarily satisfying customer needs or boosting sales volume. It contrasts with sales or marketing orientations that might emphasize market share or customer value. Therefore, when profit is the guiding principle, the objective is classified as profit orientation.

Target return pricing is used when a firm sets its price to achieve a specific rate of profit on its investments. This strategy directly ties the price to the company’s profit goals rather than simply maximizing total profits or matching competitors’ prices. It reflects a focus on return on investment rather than on sales volume or market share. Consequently, a firm that has a clear profit target will adopt target return pricing.

This description points to target return pricing, where the emphasis is on achieving a desired profit rate (return on investment) rather than simply maximizing the dollar amount of profit. Firms using this strategy set prices based on how much profit they expect relative to the costs of their investments. It prioritizes efficiency and effectiveness in profit generation. Thus, target return pricing is the strategy that best fits this description.

A maximizing profits strategy typically involves using mathematical models or profit functions to determine the price that produces the highest overall profit. This method considers factors such as cost, demand, and competitive behavior. It is analytical in nature and helps firms pinpoint the optimal price point. By predicting sales and profit outcomes, it supports data‐driven pricing decisions.

A sales orientation prioritizes increasing sales volume—often at the expense of higher per‐unit profit—because the firm believes that a larger market share or higher revenue stream is more advantageous. This approach focuses on moving as many units as possible rather than on maximizing margins. It is common when the objective is to build market presence or fend off competitors. In this case, the firm emphasizes sales over profit maximization.

A company that does not lower its prices to match competitors while offering high-quality, innovative products is often emphasizing a profit orientation. This means it is confident in its product’s value and is less willing to compromise profit margins for the sake of increased sales volume. The focus is on earning higher profits rather than competing solely on price. The pricing strategy is built around maintaining a premium positioning and desired return.

Offering a very low price to gain market share is a hallmark of a sales orientation. This strategy focuses on volume and rapid customer acquisition rather than maximizing profit per unit. The idea is that increased sales volume will eventually lead to greater overall revenues and market presence. In this case, the company prioritizes sales growth over immediate profit margins.

Competitive parity strategy is when a firm sets its prices in line with those of its major competitors. This approach is used when a company does not want to lose market share by pricing significantly higher or lower than its rivals. It assumes that competitors’ pricing reflects market realities and cost structures. The goal is to remain competitive without engaging in a price war.

Competitor orientation means that a company benchmarks its performance against the actions and results of its rivals. This approach emphasizes understanding the competitive landscape and adapting strategies accordingly. It involves monitoring competitors’ pricing, marketing, and product development closely. By focusing on rivals, the firm seeks to gain a strategic edge in the marketplace.

Prestige products are those that are bought mainly for the status or image they confer rather than for their practical features. Consumers often pay a premium for these products because they symbolize quality, exclusivity, or luxury. Such products are less about functionality and more about brand perception. They cater to a market segment that values status highly.