Deck 12: Pricing for Value

Question 1

The major cause of price increases is:

A) company desire for profit maximisation.
B) changes in consumer purchasing patterns.
C) rising costs.
D) widespread price elasticity.
E) government regulation.

Answer 1

C

Question 2

When demand changes greatly with a small change in price, then demand is said to be:

A) elastic.
B) inelastic.
C) reverse.
D) dynamic.
E) inverse.

Answer 2

A

Question 3

The corporate travel segment is often said to be relatively price insensitive. Which of the following is the MOST LIKELY explanation for price insensitivity in this market segment?

A) The cost of switching to other travel service providers including airlines and hotels is relatively low.
B) It is difficult for business executives to compare suppliers and prices.
C) Travel expenses are relatively small compared to executive salaries.
D) Some, or all, of executive travel costs are paid by their employers.
E) All of the above are possible explanations.

Answer 3

D

Question 4

The number of units that the market will buy in a given time period and at different possible prices is demonstrated by the .

A) demand curve
B) learning curve
C) scale economies curve
D) experience curve
E) supply curve

Question 5

Fred has visited several Toyota dealers looking for the best terms on a new car. He wants a great trade- in for his old car plus he is trying to negotiate a number of free accessories such as alloy wheels, air conditioning and GPS. Fred knows that he can drive a hard bargain with the Toyota dealers and that regardless of which dealer he selects, he will still qualify for the manufacturer's advertised "cash back" offer of $1,000 on every new car purchased before 30 July. Toyota's cash back offer is BEST described as a(n):

A) allowance.
B) special price.
C) discount.
D) loss leader.
E) rebate.

Question 6

When a price is broken down into a fixed fee component and a variable usage component, this is known as:

A) product line pricing.
B) optional product pricing.
C) product bundle pricing.
D) two- part pricing.
E) offset pricing.

Question 7

When a car maker offers to sell the customer accessories such as Bluetooth, GPS, alloy wheels and an array of computerised accessories, the car dealer is practising:

A) product line pricing.
B) product bundle pricing.
C) optional product pricing.
D) product mix pricing.
E) none of the above

Question 8

A pricing approach that goes beyond economics, and considers the way that consumers think about prices and use them, for example, to make judgements about product quality, is known as:

A) psychological prices.
B) reference prices.
C) reservation prices.
D) product- form pricing.
E) customer- segment pricing.

Question 9

Under which of the following market conditions are sellers MORE likely to develop differentiated offers for different customer segments and, in addition to price, freely use branding, advertising and personal selling to set their offers apart?

A) monopolistic competition
B) pure competition
C) oligopolistic competition
D) free market
E) monopoly

Question 10

The Lorne Lawn Company produces several lawn mowers and prices each of its mowers to reflect their advantages and features. This is an example of:

A) product line pricing.
B) product bundle pricing.
C) optional product pricing.
D) product mix pricing.
E) none of the above

Question 11

Select the words that BEST complete the following sentence. Most demand curves slope _ _ in either a straight or a curved line; but for luxury goods the demand curve sometimes slopes .

A) constant; dynamic
B) reverse; inverse
C) inverse; reverse
D) downward; upward
E) upward; downward

Question 12

Auckland Plastics would like to improve its cash flow by offering its customers a discount for prompt payment. The company would MOST likely use:

A) special discount.
B) quantity discount.
C) functional discount.
D) cash discount.
E) allowance.

Question 13

Companies that make products that must be used along with a main product are MORE likely to use .

A) offset pricing
B) optional product pricing
C) captive product pricing
D) by- product pricing
E) none of the above

Question 14

When demand falls by following a rise in the price of a product or service, the demand curve is said to exhibit a(n) _ relationship.

A) constant
B) reverse
C) inverse
D) converse
E) normal

Question 15

The Manly Meat Packing Company routinely sells animal parts considered unfit for human consumption to pet food manufacturers. The profits on these sales allow Manly to price its meats more attractively. The firm employs:

A) by- product pricing.
B) captive market pricing.
C) offset pricing.
D) optional product pricing.
E) none of the above

Question 16

Which of the following is a common pricing objective?

A) current profit maximisation
B) product- quality leadership
C) market- share maximisation
D) survival
E) all of the above

Question 17

Amy's Boutique is offering massive price discounts to celebrate the store's tenth year of operation. The store is using:

A) loss leader.
B) special event pricing.
C) discount.
D) allowance.
E) special price.

Question 18

In an effort to find a middle ground between free- on- board pricing and uniform delivered pricing, many companies have turned to:

A) geographic pricing.
B) freight absorption pricing.
C) basing point pricing.
D) zone pricing.
E) none of the above

Question 19

Alice Springs Collectibles sells an item and loads it onto a carrier for the customer, who pays the actual freight costs and assumes title as soon as the goods are loaded. Alice Springs Collectibles is using:

A) geographical pricing.
B) free- on- board pricing.
C) price- location discounting.
D) customer- segment discounting.
E) uniform delivered pricing.

Question 20

A product market that consists of many buyers and sellers trading in a uniform commodity such as wheat, vegetables or financial securities, this is known as:

A) monopolistic competition.
B) pure competition.
C) oligopolistic competition.
D) free market.
E) monopoly.

Question 21

A standard mark- up is added to the cost of producing a product under which of the following approaches to pricing?

A) value- based approach
B) performance- based approach
C) relationship approach
D) competition- based approach
E) cost- based approach

Question 22

All customers within a specified geographic area pay the same freight charges under a system known as:

A) free- on- board pricing.
B) uniform delivered pricing.
C) basing point pricing.
D) geographic pricing.
E) zone pricing.

Question 23

Acme Business Services offers commercial consultancy services to manufacturers and wholesalers. The company guarantees that it will improve their client's productivity by five per cent within the first year after their recommendations have been implemented. Acme's approach to pricing is BEST described as a:

A) performance- based approach.
B) cost- based approach.
C) value- based approach.
D) relationship approach.
E) competition- based approach.

Question 24

Sally has decided to buy herself a new winter coat and wants to buy from the high range, preferably a cashmere coat. Based on what Sally learned while researching coats using online sources, she figures that she won't be able to obtain the required quality for less than $300. She is willing and able to pay up to $600 for the "right" coat. This price range, $300- $600, represents Sally's:

A) psychological prices.
B) reference prices.
C) product- form prices.
D) reservation prices.
E) none of the above

Question 25

Customers are MORE likely to be price sensitive in all of the following conditions, EXCEPT:

A) switching costs are low.
B) it is difficult to compare suppliers.
C) price is used as a sign of product quality.
D) some, or all, of the price is paid by others.
E) the expenditure is small.

Question 26

For segmented pricing to be effective, certain conditions should be met. Which of the following is NOT one of the conditions necessary for effective segmented pricing?

A) Costs of segmenting and matching the market should exceed the extra revenue obtained from the price.
B) Competitors should not be able to undersell the firm in the segment being charged the higher price.
C) Members of the segment paying the lower price should not be able to resell the product to segments paying the higher price.
D) The market must be capable of being segmented on the basis of different degrees of demand or price sensitivity.
E) all of the above

Question 27

When demand hardly changes with a small change in price, then demand is said to be:

A) inverse.
B) elastic.
C) inelastic.
D) reverse.
E) dynamic.

Question 28

A manufacturer of women's hosiery offers consumers three pairs of pantihose plus a pair of leggings attractively packaged as a single unit and available for a single price. The hosiery manufacturer is using:

A) offset pricing.
B) product- bundle pricing.
C) optional product pricing.
D) by- product pricing.
E) none of the above

Question 29

When a customer takes title to goods at the point where a carrier assumes responsibility for the goods and the customer agrees to pay for the freight from the factory to the customer's preferred destination, this is known as:

A) geographical pricing.
B) free- on- board pricing.
C) price- location discounting.
D) customer- segment discounting.
E) uniform delivered pricing.

Question 30

When a company offers a client a price reduction in return for prompt payment, this is known as:

A) functional discount.
B) cash discount.
C) price discrimination.
D) segmented pricing.
E) psychological pricing.

Question 31

The pricing approach that bases its prices on how it believes competitors will price rather than on its own costs or demand estimates is known as:

A) going rate pricing.
B) sealed- bid pricing.
C) economic value pricing.
D) value- based pricing.
E) break- even pricing.

Question 32

Wangaratta Grocery Chain often features a few products priced below cost to attract customers to their stores. WGC is employing:

A) discount.
B) rebate.
C) special price.
D) allowance.
E) loss leader.

Question 33

Sellers are likely to initiate price cuts for any of the following reasons, EXCEPT:

A) to dominate the market.
B) to respond to falling market share.
C) to initiate a price war.
D) to trim excess capacity.
E) All of the above are reasons for price cuts.

Question 34

When a marketer of a new product uses a low price with a view to attracting as many buyers as possible this is known as:

A) price penetration.
B) demand based pricing.
C) price maximising.
D) sales maximisation approach to pricing.
E) price skimming.

Question 35

A temporary reduction in price, which may involve pricing at below cost, and which is designed to increase patronage is known as a(n):

A) rebate.
B) allowance.
C) loss leader.
D) discount.
E) special price.

Question 36

The approach to pricing that incorporates shared risk and reward is known as:

A) performance- based approach.
B) competition- based approach.
C) cost- based approach.
D) value- based approach.
E) relationship approach.

Question 37

Owners of Apple iPhones often complain that once they have committed to the Apple brand they must purchase apps that are only available from Apple or its dealers. When consumers point out this issue, they are referring to:

A) product- bundle pricing.
B) offset pricing.
C) captive product pricing.
D) optional product pricing.
E) none of the above

Question 38

Market skimming pricing would NOT be recommended when:

A) the product has a prestige image.
B) a high quality product is sold.
C) more efficient competitors can enter the market easily.
D) small volumes can be economically produced.
E) all of the above

Question 39

Dealers who assist a manufacturer with advertising or sales support may be offered a(n):

A) special discount.
B) functional discount.
C) allowance.
D) promotional allowance.
E) quantity discount.

Question 40

Sellers who are keen to build business with customers in a given geographic area, may consider using:

A) geographic pricing.
B) freight absorption pricing.
C) basing point pricing.
D) zone pricing.
E) none of the above

Question 41

Waverley Air Cooling Systems offers deep discounts to customers who purchase during the cooler months of May to September. The company is using:

A) an allowance.
B) functional discount.
C) seasonal discount.
D) special discount.
E) cash discount.

Question 42

The Consumer and Competition Act, 2010 prohibits a number of pricing strategies and tactics. Which of the following is NOT one of these prohibitions?

A) predatory pricing
B) price fixing
C) resale price maintenance
D) prestige pricing
E) some forms of price discrimination

Question 43

You are thirsty and crave a cola so you pop into your local supermarket to make a purchase. On the shelves, you notice that you can buy a cold 600 ml bottle for $3.20; a 1.25 litre bottle for $2.99 and a 2 litre bottle for $3.90. You want to purchase the 600 ml bottle for its convenience, but you are aware that the 2 litre bottle represents the best value for money on a price per ml basis. You are witnessing an example of:

A) product form pricing.
B) customer- segment pricing.
C) psychological pricing.
D) location- pricing.
E) time pricing.

Question 44

Which of the following statements about cost- plus pricing is FALSE?

A) Markups tend to be lower on staple goods.
B) Markups tend to be higher on goods with few substitutes.
C) Markups tend to be higher on seasonal produce and perishables.
D) Markups tend to be higher on fresh produce.
E) Markups tend to be lower on items with inelastic demand.

Question 45

Freight is charged from a specified location regardless of the location where goods are shipped under a system known as:

A) basing point pricing.
B) uniform delivered pricing.
C) location pricing.
D) free- on- board pricing.
E) zone pricing.

Question 46

There are many common mistakes in pricing. Which of the following is NOT one of the common mistakes?

A) prices that are set at overly high levels for the market
B) prices that are not varied enough for different product items and market segments
C) pricing that is too cost- oriented
D) prices that are not revised often enough to reflect market changes
E) pricing that doesn't take the rest of the marketing mix into account

Question 47

A pricing approach that is based on the buyer's perceptions rather than the seller's costs is known as which of the following?

A) performance- based approach
B) competition- based approach
C) value- based approach
D) relationship approach
E) cost- based approach

Question 48

Market penetration would NOT be recommended when:

A) production and distribution costs fall as volume increases.
B) competitors can readily undercut low prices.
C) the market is sensitive to different price levels.
D) all of the above
E) none of the above

Question 49

Budget- priced airlines have unbundled the airline service offering, stripping it right back to a basic seat with only a minimal baggage allowance. This product strategy has allowed budget airlines to charge consumers for "extras" such as refreshments, additional leg- room, check- baggage allowances, headsets, boarding passes, guaranteed window seats and in some cases reservations for seats next to each other in the case of families or couples travelling together. This pricing strategy is BEST described as:

A) optional product pricing.
B) offset pricing.
C) product- bundle pricing.
D) captive product pricing.
E) none of the above

Question 50

The Rodkin Corporation has just introduced an innovative new product. In an effort to recoup its investment in R & D, as quickly as possible, Rodkin will MOST likely consider using which approach to pricing?

A) demand based pricing
B) price penetration
C) price maximising
D) value approach to pricing
E) price skimming

Question 51

Under which of the following conditions are buyers MOST likely to be price insensitive?

A) when products are high quality or exclusive
B) when products are difficult to compare
C) when substitutes are rare
D) when products are unique
E) all of the above

Question 52

A discount available to sellers during normal periods of low demand is known as:

A) segmented pricing.
B) seasonal discounts.
C) psychological pricing.
D) functional discount.
E) price discrimination.

Question 53

To be effective, market skimming should be used under which conditions?

A) The product's quality and image should be consistent with a high price.
B) When the company has a patent or some other type of legal protection.
C) Demand should be relatively inelastic.
D) Costs of producing a small volume should not be so high that there is an inadequate margin.
E) all of the above

Question 54

The service sector's equivalent to captive product pricing is known as:

A) two- part pricing.
B) product bundle pricing.
C) product line pricing.
D) by- service pricing.
E) offset pricing.

Question 55

Cutting prices in a market loaded with excess capacity is MOST likely to result in:

A) a price war.
B) customer resentment.
C) price collusion.
D) government intervention.
E) all of the above

Question 56

The local fitness centre provides membership to senior citizens for a price well below the standard rate. The fitness centre is using:

A) product- form pricing.
B) psychological prices.
C) customer- segment pricing.
D) reservation prices.
E) reference prices.

Question 57

A product- market that consists of many buyers and sellers who trade over a range of prices rather than a single market price and where the sellers differentiate their offers, is known as:

A) monopolistic competition.
B) pure competition.
C) oligopolistic competition.
D) free market.
E) monopoly.

Question 58

Which of the following statements about pricing psychology is FALSE?

A) When consumers lack information or skill necessary to make quality judgements, price becomes a very important consideration.
B) When looking for a given product, many buyers carry around reference prices, which they have formed from noting current prices or remembering past experuiences.
C) When consumers can evaluate a product's quality, they use a combination of price and observed product features to make judgements about overall quality.
D) In the absence of tangible cues to evaluate quality, consumers often turn to price as a quality signal.
E) Even small differences in price can suggest product differences.

Question 59

Well- known Australian law firm, Slater & Gordon, specialises in compensation law by providing legal services to people who have been badly treated through the actions or negligence of others. Slater and Gordon's advertising and promotion consistently features the line "No- Win; No Pay" which means that their clients do not pay for services if their lawsuit is unsuccessful. This approach to pricing is BEST described as a:

A) relationship approach.
B) competition- based approach.
C) performance- based approach.
D) cost- based approach.
E) value- based approach.

Question 60

Firms competing in industries where prices change frequently and without notice, and where individual companies must react quickly to price changes, are likely to consider:

A) employing price leadership
B) establishing a one- price policy.
C) developing a price- reaction programme.
D) seeking government intervention.
E) all of the above

Question 61

The formula for price- elasticity attempts to show the relationship between the percentage change in quantity demanded and the percentage change in .

A) market size
B) price
C) demand
D) market share
E) costs

Question 62

Which of the following statements provides the broadest, most complete definition of price?

A) the value of the product, as defined by the marketer, and displayed on the price tag
B) the amount charged for a product or service
C) the sum of the values consumers exchange for the benefits of having or using the product or service
D) the costs associated with the consumer's acquisition and ownership of a product

Question 63

An approach to pricing that starts with the customer benefits relative to key competitors and sets prices according to these factors is BEST described as:

A) value pricing.
B) uniform delivered pricing.
C) competitive prices.
D) product- form pricing.
E) customer- segment prices.

Question 64

When a company offers to sell accessories along with the main product, this is known as:

A) product line pricing.
B) product bundle pricing.
C) optional product pricing.
D) product mix pricing.
E) none of the above

Question 65

Buyers who receive a discount for purchasing in large volumes are receiving:

A) a quantity discount.
B) a cash discount.
C) psychological pricing.
D) seasonal discounts.
E) a functional discount.

Question 66

When a company charges the same price plus freight to all customers regardless of their location, this is known as:

A) geographical pricing.
B) free- on- board pricing.
C) price- location discounting.
D) customer- segment discounting.
E) uniform delivered pricing.

Question 67

In the pricing of services, two part pricing involves which of the following?

A) a fixed fee component plus a variable usage rate
B) a fixed price plus a variable price
C) a basic service establishment fee plus an annual subscription fee
D) a low basic price with an intention to recoup on selling extra services
E) a membership fee plus a variable component

Question 68

A product- market that consists of a few sellers who are highly sensitive to each other's pricing and marketing strategies is known as:

A) monopolistic competition.
B) pure competition.
C) oligopolistic competition.
D) free market.
E) monopoly.

Question 69

When average costs of production drop as a result of a company learning how to produce items more efficiently, this is known as:

A) natural attrition.
B) scale economies.
C) scale diseconomies.
D) experience curve.
E) scope economies.

Question 70

The degree to which the price of a product affects consumers' purchasing patterns is known as:

A) economies of scale.
B) economies of scope.
C) price elasticity.
D) price sensitivity.
E) experience effects.

Question 71

In spite of its failure to account for customer value or customer demand, cost- plus pricing remains one of the most popular methods of price setting. Which of the following statements BEST accounts for its continued currency?

A) It enables sellers to earn a fair return on investment.
B) Sellers simplify the pricing decision using cost- plus approaches.
C) Sellers are more confident about costs than demand or value.
D) In markets where cost- plus pricing is widely practised, cost- plus results in competitors charging similar prices.
E) All of the above are reasons for the widespread use of cost- plus pricing methods.

Question 72

Milk is a staple product in most households. The price of milk is relatively low compared with average weekly household income. Under these conditions, the typical purchaser of milk is MOST likely to be:

A) price neutral.
B) price sensitive.
C) price insensitive.
D) price indisposed.
E) price predisposed.

Question 73

Frogmore Gardens in central Victoria specialises in mail- order supplies of bare- rooted perennial plants, herbs and cottage garden favourites to retail and wholesale customers around Australia. Frogmore Gardens sends one of the most extensive catalogues of plants to customers in late Spring each year. When customers place their orders, they must also pay a delivery fee. The schedule of delivery fees is included in the catalogue and shows that rates are based on the state where customers live and are as follows: Vic= $11.50; NSW and SA = $12.50; Queensland = $14.50; Tasmania = $17.50. Frogmore Gardens is using:

A) geographic pricing.
B) freight absorption pricing.
C) basing point pricing.
D) zone pricing.
E) none of the above

Question 74

Market segments that are willing to pay a premium for the privilege of being the first to own a new product or service are prime candidates for:

A) price maximising.
B) price penetration.
C) price skimming.
D) demand based pricing.
E) value approach to pricing.

Question 75

When sellers combine two or more of their products and offer them for sale as a single unit for a single price, that represents less than if both products were purchased separately, this is known as:

A) optional product pricing.
B) product- bundle pricing.
C) offset pricing.
D) by- product pricing.
E) none of the above

Question 76

Tiger Airways entered the Australian air passenger services market as the lowest cost operator. Its fares are priced well below competitors. Tiger operates in a market that is highly price sensitive and one in which low prices stimulate market growth. Its costs have fallen as it has become more efficient at providing airplane service to its customers. Tiger Airways is MOST likely using a pricing strategy.

A) market skimming
B) price bundling
C) penetration pricing
D) maximum current revenue
E) discounting

Question 77

Supermarkets often price one or two popular items such as butter and bread at very low prices with a view to increasing store traffic. This practice is known as a(n):

A) loss leader.
B) special price.
C) rebate.
D) allowance.
E) discount.

Question 78

In the 1980s, American company, Amana, pioneered a new technology that would become the modern micro- wave oven. Although the technology used in micro- waves was well known and well understood in industrial contexts, Amana had long experienced difficulties developing a prototype that was small enough and cheap enough for domestic applications. Just when it seemed that the product concept was doomed, along came a new company director, George Foerstner, with a sales and marketing background. He issued the design team with a seemingly impossible challenge. Before it would be commercialised, the new product concept was to be shaped like an air- conditioner, should look like an oven, have buttons like an oven and be priced around the same as a conventional oven (at the time, not more than $500). Foerstner's challenge to the design team was an example of which type of pricing strategy?

A) pricing according to what the market will bear
B) economic value pricing
C) target costing
D) relationship based pricing
E) performance based pricing

Question 79

A product- market that consists of just one seller is known as:

A) monopolistic competition.
B) pure competition.
C) oligopolistic competition.
D) free market.
E) monopoly.

Question 80

A company will place its major emphasis on competitors' prices in which of the following approaches to pricing?

A) sealed- bid pricing
B) going rate pricing
C) break- even pricing
D) value- based pricing
E) economic value pricing