Deck 12: Developing Pricing Strategies and Programs

Question 1

Costs that do not vary with production levels or sales revenue are known as ________.

A) overhead costs
B) variable costs
C) average costs
D) opportunity costs
E) total costs

Answer 1

A

Question 2

After determining its pricing objectives,what is the next logical step a firm should take in setting its pricing policy?

A) It should analyze its competitors' costs, prices, and offers.
B) It should select its pricing method.
C) It should select its final price.
D) It should determine the demand for its product.
E) It should estimate the cost of its product.

Answer 2

D

Question 3

When Apple introduced its iPhone,it was priced at $599.This allowed Apple to earn the maximum amount of revenue from the various segments of the market.Two months after the introduction,the price has come down to $399.What kind of a pricing did Apple adopt?

A) loss-leader pricing
B) market-penetration pricing
C) market-skimming pricing
D) target-return pricing
E) value pricing

Answer 3

C

Question 4

Consumers are less price sensitive when ________.

A) price is only a small part of the total cost spent on the product over its lifetime
B) they perceive the higher prices to be unjustified
C) they change their buying habits regularly
D) there are many substitutes and competitors in the market
E) they are buying high-cost items

Question 5

When consumers examine products,they often compare an observed price to an internal price they remember.This is known as a(n)________ price.

A) markup
B) reference
C) market-skimming
D) accumulated
E) target

Question 6

After estimating the demand and costs associated with alternative prices,a company has chosen to price its product in such a way that it gains the highest rate of return on its investment.The company is looking to ________.

A) maximize its market share
B) skim the market
C) become a product-quality leader
D) survive in the market
E) maximize its current profit

Question 7

Starbucks,Aveda,and BMW have been able to position themselves within their categories by combining quality,luxury,and premium prices with an intensely loyal customer base.These companies are employing a ________ strategy.

A) market-skimming
B) market-penetration
C) survival
D) market share maximization
E) product-quality leadership

Question 8

________ consist of the sum of the fixed and variable costs for any given level of production.

A) Total costs
B) Average costs
C) Opportunity costs
D) Learning costs
E) Target costs

Question 9

Companies who believe that a higher sales volume leads to lower unit costs and higher long-run profits are attempting to ________.

A) maximize their market share
B) skim the market
C) become a product-quality leader
D) merely survive in the market
E) maximize their current profits

Question 10

Companies that aim to ________ strive to be affordable luxuries.

A) survive in the market
B) partially recover their costs
C) maximize their market share
D) pursue value pricing
E) be product-quality leaders

Question 11

Many consumers are willing to pay $100 for a perfume that contains $10 worth of scent because the perfume is from a well-known brand.What kind of a pricing is the company depending on?

A) going-rate pricing
B) image pricing
C) market-skimming pricing
D) target pricing
E) markup pricing

Question 12

Costs that differ directly with the level of production are known as ________.

A) fixed costs
B) overhead costs
C) opportunity costs
D) target costs
E) variable costs

Question 13

A company that is looking to maximize its market share would do well to follow ________ pricing.

A) markup
B) market-penetration
C) market-skimming
D) survival
E) target-return

Question 14

A company must make payments each month for rent,heat,interest,and salaries.These are ________.

A) total costs
B) fixed costs
C) variable costs
D) opportunity costs
E) target costs

Question 15

If demand hardly changes with a small change in price,the demand is said to be ________.

A) strained
B) marginal
C) inelastic
D) flexible
E) unit elastic

Question 16

Market skimming pricing makes sense under all the following conditions,EXCEPT ________.

A) if a sufficient number of buyers have a high current demand
B) if the unit costs of producing a small volume are high enough to cancel the advantage of charging what the traffic will bear
C) if the high initial price does not attract more competitors to the market
D) if consumers are likely to delay buying the product until its price drops
E) if the high price communicates the image of a superior product

Question 17

Pricing cues such as sale signs and prices that end in 9 are more influential ________.

A) when customers have substantial knowledge about prices
B) when customers purchase the particular item regularly
C) when product quality is standardized
D) when product designs vary over time
E) when prices do not vary from time to time

Question 18

Which of the following is the first step in setting a pricing policy?

A) selecting a pricing method
B) selecting the pricing objective
C) determining demand
D) estimating cost
E) analyzing competitors' costs, prices, and offers

Question 19

When a company introduces a product at a very high price and then gradually drops the price over time,it is pursuing a ________ strategy.

A) market-penetration pricing
B) market-skimming pricing
C) value-pricing
D) switching cost
E) loss-leader pricing

Question 20

Consumers are less price sensitive ________.

A) to high cost items
B) when they frequently change their buying habits
C) when there are more substitutes
D) when there are more competitors
E) when they do not readily notice higher prices

Question 21

The key to perceived-value pricing is to ________.

A) reengineer the company's operations
B) deliver more unique value than competitors
C) adopt subtle marketing tactics compared to competitors
D) deliver more value but at a lower cost
E) invest heavily in advertising in order to convey superior value

Question 22

________ is the cost per unit at that level of production.

A) Target cost
B) Average cost
C) Marginal cost
D) Opportunity cost
E) Fixed cost

Question 23

Every day low pricing is most suitable if ________.

A) consumers are willing to perform activities such as clip coupons to avail of discounts
B) consumers tend to associate price with quality
C) customers are insensitive to changes in price
D) the cost of conducting frequent sales and promotions is high
E) consumers have sufficient time to find the best prices

Question 24

Deducting the desired profit margin from the price at which a product will sell,given its appeal and competitors' prices,is known as ________.

A) overhead costing
B) target costing
C) activity based costing
D) benefit analysis
E) estimate costing

Question 25

________ let would-be suppliers submit only one bid;they cannot know the other bids.

A) Descending bid auctions
B) Sealed-bid auctions
C) English auctions
D) Dutch auctions
E) Reverse auctions

Question 26

________ pricing takes into account a host of inputs,such as the buyer's image of the product performance,the channel deliverables,the warranty quality,customer support,and attributes such as the supplier's reputation,trustworthiness,and esteem.

A) Perceived-value
B) Value
C) Going-rate
D) Auction-type
E) Markup

Question 27

In which of the following auctions does the auctioneer first announce a high price for a product and then slowly decreases the price until a bidder accepts?

A) a Dutch auction with one buyer and many sellers
B) an English auction with one seller and many buyers
C) an ascending bid auction
D) a sealed-bid auction
E) a Dutch auction with one seller and many buyers

Question 28

Despite its weaknesses,markup pricing remains popular for which of the following reasons?

A) Sellers can determine demand much more easily than they can estimate costs.
B) By tying the price to cost, the pricing task becomes more sophisticated.
C) When all firms in the industry use markup pricing, price competition flourishes.
D) Sellers take advantage of buyers when the latter's demand becomes acute.
E) Many people feel that cost-plus pricing is fairer to both buyers and sellers.

Question 29

A Japanese firm is ready to sell its recent technological innovation to the U.S.government.But it has asked for 80 percent in cash and the rest in mica.The Japanese firm is looking to enter into a(n)________ with the U.S.government.

A) functional discount
B) compensation deal
C) buyback arrangement
D) offset agreement
E) barter deal

Question 30

A manufacturer has invested $750,000 in a new product and wants to set a price to earn a 15 percent ROI.The cost per unit is $18 and the company expects to sell 50,000 units in the first year.Calculate the company's target-return price for this product.

A) $20.25
B) $18.23
C) $18.10
D) $20.70
E) $25.50

Question 31

ROC Engineering,a Chinese shipbuilding company,agrees to build a fleet of submarines for the Sri Lankan navy,for which it will be paid in the local Sri Lankan currency.As per the agreement,ROC must also spend a substantial amount of the money it generates through this deal within the country.In accordance with the contract,ROC buys Sri Lankan tea at a reduced rate.This is an example of which of the following forms of countertrade?

A) descending bid
B) offset
C) barter
D) compensation deal
E) buyback arrangement

Question 32

Armac Ltd.is a sluice-box manufacturer based in China.A sluice-box is used for gold prospecting.Armac is interested in selling a few of its machines to an American mining company,but it wants 95 percent of the machines' price in gold and the rest in ores recovered by using the machines.This is an example of a ________.

A) buyback arrangement
B) functional discount
C) barter deal
D) compensation deal
E) sealed bid

Question 33

In ________,the firm bases its price largely on competitor's prices.

A) going-rate pricing
B) auction-type pricing
C) markup pricing
D) target-return pricing
E) perceived-value pricing

Question 34

In which of the following forms of countertrade do buyers and sellers directly exchange goods,when no money and no third party is involved?

A) buyback arrangements
B) offsets
C) barter
D) sealed bids
E) compensation deals

Question 35

Experience-curve pricing ________.

A) assumes competitors are weak followers
B) allows products to project a high quality image
C) is applicable only to manufacturing costs
D) focuses on reducing fixed costs
E) is generally risk-free

Question 36

Which of the following is the most elementary pricing method?

A) value pricing
B) going-rate pricing
C) markup pricing
D) target-return pricing
E) perceived-value pricing

Question 37

________ pricing is a matter of reengineering the company's operations to become a low-cost producer without sacrificing quality.

A) Value
B) Going-rate
C) Auction-type
D) Markup
E) Perceived-value

Question 38

Matt's retail store offers all its products at $2 less than its competitors throughout the year.The store never runs any promotional campaigns or offers any additional special discounts.Matt's retail store is following a(n)________.

A) auction-type pricing policy
B) target-plus pricing policy
C) everyday low pricing policy
D) high-low pricing policy
E) going-rate pricing policy

Question 39

The decline in the average cost of production with accumulated production experience is called the ________.

A) demand curve
B) supply chain
C) learning curve
D) value chain
E) indifference curve

Question 40

In a(n)________,the buyer announces something he or she wants to buy,and potential sellers compete to offer the lowest price.

A) Dutch auction with one buyer and many sellers
B) English auction with one buyer and many sellers
C) English auction with one seller and many buyers
D) sealed-bid auction
E) ascending auction

Question 41

________ are granted for turning in old item when buying a new one.

A) Promotional allowances
B) Quantity discounts
C) Functional discounts
D) Seasonal discounts
E) Trade-in allowances

Question 42

When museums charge a lower admission fee to students and senior citizens,then this form of price discrimination is known as ________.

A) location pricing
B) channel pricing
C) customer-segment pricing
D) special-customer pricing
E) loss-leader pricing

Question 43

________ are offered by a manufacturer to trade-channel members if they will perform certain functions,such as selling,storing,and record keeping.

A) Consumer promotions
B) Quantity discounts
C) Functional discounts
D) Seasonal discounts
E) Trade-in allowances

Question 44

In ________,the seller charges different amounts to different classes of buyers.

A) perceived value pricing
B) third-degree price discrimination
C) first-degree price discrimination
D) second-degree price discrimination
E) psychological discounting

Question 45

When hotels,motels,and airlines offer discounts in slow selling periods,they are said to be offering ________.

A) trade discounts
B) quantity discounts
C) functional discounts
D) seasonal discounts
E) trade-in allowances

Question 46

When examining products,consumers compare an observed price to an internal reference price they remember or an external frame of reference.

Question 47

Purchase decisions are based on how consumers perceive prices and what they consider the current actual price to be-not the marketer's stated price.

Question 48

For price discrimination to work ________.

A) the market must be segmentable and the segments must show similar intensities of demand
B) members in the lower-price segment must be able to resell the product to the higher-price segment
C) competitors must be able to undersell the firm in the higher-price segment
D) the practice must not breed customer resentment and ill will
E) the extra revenue derived from price discrimination must not exceed the cost of segmenting and policing the market

Question 49

When supermarkets and department stores drop the price on well-known brands to stimulate store traffic,they are said to be following ________.

A) value pricing
B) loss-leader pricing
C) special event pricing
D) high-low pricing
E) everyday low pricing

Question 50

When a company maintains its price but removes or prices separately one or more elements that were part of the former offer,such as free delivery or installation,it is known as ________.

A) escalating
B) differentiation
C) unbundling
D) reverse discounting
E) delayed quotation pricing

Question 51

________ reward dealers for participating in advertising and sales support programmes.

A) Functional discounts
B) Trade discounts
C) Promotional allowances
D) Rebates
E) Quantity discounts

Question 52

Madame Tussaud's wax museum is a popular tourist attraction in London.The museum charges higher entry rates for tourists compared to locals.This form of price discrimination is known as ________.

A) customer-segment pricing
B) image pricing
C) location pricing
D) special customer pricing
E) special event pricing

Question 53

In second-degree price discrimination,the seller charges ________.

A) less to buyers of larger volumes
B) different prices depending on the season, day, or hour
C) a separate price to each customer depending on the intensity of his or her demand
D) different prices for different versions of the same product
E) different prices for the same product depending on the channel through which it is sold

Question 54

Price is one of the two elements of the marketing mix that produces revenue.

Question 55

Although consumers may have fairly good knowledge of the range of prices involved,very few can accurately recall specific prices of products.

Question 56

The airline and hospitality industries use ________,by which they offer discounted but limited early purchases,higher-priced late purchases,and the lowest rates on unsold inventory just before it expires.

A) special-customer pricing
B) yield pricing
C) cash rebates
D) location pricing
E) customer-segment pricing

Question 57

When Alan bought his car,the bank gave him 24 months to repay his car loan.But when Alan made a request to increase the time frame to 36 months,the bank granted the extension.The bank was willing to offer Alan a ________.

A) longer payment term
B) warranty contract
C) service contract
D) special customer price
E) special event price

Question 58

The price of tickets to the opera vary depending on where the person would like to be seated-in the gallery or in the stalls.This is an example of ________.

A) channel pricing
B) time pricing
C) image pricing
D) product-form pricing
E) location pricing

Question 59

When hotels drop their rates on the weekends,then this form of price discrimination is known as ________.

A) channel pricing
B) image pricing
C) product-form pricing
D) time pricing
E) location pricing

Question 60

Customers usually have a lower price threshold below which prices signal inferior or unacceptable
quality,as well as an upper price threshold above which prices are prohibitive and the product appears not worth the money.

Question 61

What are the different price-setting methods? Briefly describe each of them.

Question 62

The key to effectively using perceived-value pricing is to deliver value that is on par with your competitors.

Question 63

Value pricing requires a company to reengineer its operations to become a low-cost producer.

Question 64

Companies prefer customers who are less price sensitive.

Question 65

Briefly describe the different types of pricing objectives.

Question 66

In first-degree price discrimination,the seller charges less to buyers of larger volumes.

Question 67

In the case of prestige goods,the demand curve sometimes slopes upward.

Question 68

What are the different types of promotional pricing?

Question 69

Trade-in allowances reward dealers for participating in advertising and sales support programs.

Question 70

A quantity discount is a price reduction given to those who pay their bills promptly.

Question 71

Price elasticity depends upon the magnitude and direction of the contemplated price change.

Question 72

When firms charge different prices to different customer groups for the same product or service,it is a case of second-degree price discrimination.

Question 73

In a compensation deal,the seller sells a plant,equipment,or technology to another country and agrees
to accept as partial payment products manufactured with the supplied equipment.

Question 74

Total costs consist of the sum of the fixed and variable costs for any given level of production.

Question 75

Escalator clauses are found in contracts for major industrial projects,such as aircraft construction and bridge building.

Question 76

A firm is said to be following a market-skimming pricing strategy,if it introduces a product into the market at a high price and slowly drops the price over time.

Question 77

When Sony introduced the world's first high-definition television to the Japanese market in 1990,it was priced at $43,000.This helped Sony to scoop the maximum amount of revenue from the various segments of the market.The price dropped steadily through the years-a 28-inch Sony HDTV cost just over $6,000 in 1993,but a 40-inch Sony HDTV cost only $600 in 2010.What pricing strategy did Sony use here?

Question 78

What are the different forms of countertrade?

Question 79

Companies strive to maximize their current profits if they are plagued with overcapacity,intense competition,or changing consumer wants.

Question 80

Many consumers use price as an indicator of quality and value.