Deck 14: Developing Pricing Strategies and Programs

Question 1

Research has shown that consumers tend to process prices in a "left-to-right" manner rather than by rounding. With this knowledge which of the following prices for a stereo receiver would seem to be a better physiological price?

A) $110.00
B) $109.50
C) $100.00
D) $99.99
E) $150.00

Answer 1

D

Question 2

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) market-skimming pricing
C) target pricing
D) image pricing
E) markup pricing

Answer 2

D

Question 3

Research on reference prices has found that "unpleasant surprises can have a ________ impact on purchase likelihood than pleasant surprises.

A) greater
B) more diminished
C) less significant
D) brand switching
E) lesser

Answer 3

A

Question 4

A firm has to consider many factors in setting its pricing policy. We list these as a six-step process. Which of the following steps could involve maximum market share?

A) selecting a pricing method
B) determining demand
C) selecting the pricing objective
D) researching reference prices in the target market
E) selecting the final price

Question 5

Texas Instruments builds a large plant to produce a great quantity of products, hoping that as prices decline, sales volume increases and thus costs decline. What pricing strategy has TI used in order to maximize their market share?

A) reference pricing
B) marketing skimming pricing
C) objective pricing
D) market penetration pricing
E) survival pricing

Question 6

When a retailer puts a sign on a product that says "reduced" or a retailer points a sign on a product that says "compare to XXX at $10.00 more," the retailer is encouraging what kind of pricing psychology for its shoppers?

A) price leadership
B) psychological discounting
C) reference pricing
D) going-rate pricing
E) price cues

Question 7

Companies price their products in a number of ways. Small companies prices are set by the boss, in larger companies, pricing is handled by division and product-line managers. In industries where price is a key factor, companies often establish a ________ department reporting to other internal departments.

A) financial
B) marketing
C) pricing
D) sales
E) distribution

Question 8

Some brands adopt scarcity as a means to signify quality and justify

A) EDLP.
B) "9" endings.
C) premium pricing.
D) discounting.
E) value pricing.

Question 9

To maximize market share, a firm may use ________ pricing which sits on the theory that as sales volume increases, unit costs will decrease.

A) value pricing
B) market-penetration
C) price bands
D) market-skimming
E) demand pricing

Question 10

A firm must set a price for the first time when it develops a new product, when it introduces its regular product into a new distribution channel or geographical area, and when it ________.

A) rolls out an improved product.
B) changes styles.
C) needs to increase bottom line results.
D) enters bids on new contract work.
E) raises prices due to cost escalation.

Question 11

A firm first decides where it wants to position its market offering. A company can pursue any of five major objectives through pricing. Which of the following objectives is a major one if a company is plagued with overcapacity, intense competition, or changing consumer wants?

A) product-quality leadership
B) survival
C) predatory pricing
D) maximum current profit
E) maximum market share

Question 12

________ communicates to the market the company's intended value positioning of its product or brand.

A) Physical evidence
B) Price
C) Packaging
D) Promotion
E) Place

Question 13

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

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

Question 14

Executives often complain that pricing is a big headache. One of the common mistakes made are: Price is not revised often enough to capitalize on market changes; price is set ________ of the rest of the marketing program rather than an intrinsic element of a marketing-positioning strategy.

A) independently
B) too high
C) intrinsically
D) concurrently
E) divergently

Question 15

The Internet is partially reversing the fixed pricing trend. Sellers can customize offers and prices, and buyers can compare prices through

A) chat rooms.
B) negotiation.
C) email.
D) shopbots.
E) online auctions.

Question 16

The definition of ________ prices is: In considering an observed price, consumers often compare it to an internal memory reference price or an external frame of reference (such as a posted "regular retail price").

A) historical
B) overvalued
C) reference
D) everyday low price
E) promotional

Question 17

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

A) current actual
B) current sale price
C) referent price
D) last purchased price
E) quality price

Question 18

You are introducing a new product to the market; in fact, you are first with this new product to the marketplace. In developing your pricing strategy, it was decided that the price of the product should be at the maximum the market would bear. This is an example of what type of pricing strategy?

A) going-rate pricing
B) prestige pricing
C) product-quality leadership
D) market-skimming pricing
E) market-penetration pricing

Question 19

Many consumers use price as an indicator of ________. Image pricing is especially effective with ego-sensitive products such as perfumes and expensive cars.

A) quality
B) size
C) status
D) capability
E) ability

Question 20

When a consumer buys a $100 bottle of perfume containing $10.00 worth of materials, the gift giver is communicating their high regard to the receiver and this represents the concept of ________ in pricing.

A) reference prices
B) maximum current profit
C) price leadership
D) price cues
E) price-quality relationship

Question 21

A company's costs take two forms. ________ are costs that do not vary with production or sales revenue.

A) Fixed
B) Variable
C) Attributed
D) Adjusted
E) Determined

Question 22

At 1000 calculators per day, Texas Instrument's factory is running at full capacity. This means that the cost of each calculator is now at its ________ cost.

A) lowest
B) target cost
C) highest
D) total cost
E) average

Question 23

________ costs amounts differ greatly depending upon the level of production.

A) Attributed
B) Fixed
C) Adjusted
D) Unknown
E) Variable

Question 24

Manufacturing costs such as rent, utilities, interest expense, and some salaries are considered ________ and these costs do not vary with the production or sale of the item.

A) overhead
B) variable
C) division overhead
D) corporate overhead
E) fixed costs

Question 25

In market-penetration pricing, the company's objective in pricing is to ________, believing that higher sales volume will lead to lower unit costs and higher long-run profits.

A) maximize their market share
B) minimize their market share
C) block competitive launches
D) survive
E) maximize volume

Question 26

________ sets a ceiling on the price the company can charge for its products.

A) Competition
B) Market forces
C) Demand
D) Government regulations
E) Costs

Question 27

The demand for your product fell 66 percent when the price increased by 50 percent. This is an example of what type of demand?

A) elastic
B) co-dependent
C) inelastic
D) unitary
E) coefficient

Question 28

If demand changes considerably, we say that the demand is

A) marginal.
B) consistent.
C) inelastic.
D) elastic.
E) equal.

Question 29

Market-skimming prices make sense under which of the following conditions?

A) The unit costs of producing a small number of units is low.
B) The average price communicates average value.
C) The product is a "me-too" and contains no new technology or points of difference.
D) An insufficient number of buyers have a high current demand.
E) The high initial price blocks competition from entering the market

Question 30

As the lowest cost producer in the market, your firm has decided to reduce the price of your product again by 10 percent. This price decline has the effect of driving a competitor out of the market and of attracting price sensitive shoppers to your brands. This is an example of what type of pricing strategy?

A) experience curve
B) activity-based
C) target costing
D) average
E) predatory

Question 31

Which of the following is a factor that leads to less price sensitivity?

A) Buyers can easily compare the cost of substitutes.
B) The expenditure is a larger part of the buyer's total income.
C) Buyers are less aware of substitutes.
D) Buyers can store the product.
E) The product is less distinctive.

Question 32

Price elasticity depends on the magnitude and direction of the price change. It may differ for a price cut versus a price increase. When the price changes have little or no effect there might exist a ________ for your product.

A) substitute product
B) selective price
C) price indifference band
D) collective price
E) promotional price

Question 33

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

A) Fixed costs
B) Total costs
C) Variable costs
D) Manufacturing costs
E) Delivery costs

Question 34

The concept of the lowest ________ means that a seller can charge a higher price if they can convince the customers that price is only a small part of the total cost of obtaining, operating, and servicing the product over its lifetime.

A) life cycle cost
B) convenience pricing
C) prestige pricing
D) key price points
E) total cost of ownership

Question 35

When the price of a gallon of milk increases by $0.50, consumers notice this increase immediately. This is an example of what concept in the understanding of consumer price sensitivity.

A) Customers often miss the just noticeable difference.
B) Customers are less sensitive to disposable products.
C) Customers are most sensitive to products that are bought frequently.
D) Customers are most sensitive to food products.
E) Customers are most sensitive to grocery products.

Question 36

Today's companies try to adapt their offers and terms to different buyers. ________ accounting tries to identify the real costs associated with serving each customer. It allocates indirect costs to the activities that use them and are tagged back to each customer.

A) Target costing
B) Activity-based cost
C) Direct product profitability
D) Experience cost
E) Cost accounting

Question 37

The quantity demanded of your firm's product increased only 5 percent when the price of each unit was reduced by 33 percent. This is an example of what type of demand?

A) unitary
B) supply
C) coefficient
D) inelastic
E) elastic

Question 38

When the insurance industry recently announced a "hefty" price increase in the cost of term life insurance, sales of this type of insurance did not decrease. This is an example of what concept in understanding consumer price sensitivity?

A) Insurance demand is unitary.
B) Consumers are less price sensitive to products bought infrequently.
C) Insurance sales reps can "really sell" their products.
D) Customers are most sensitive to products that are bought frequently.
E) Customers are less sensitive to disposable products.

Question 39

If demand hardly changes with a small change in price, we say that the demand is

A) profitable.
B) elastic.
C) marginal.
D) inelastic.
E) equal.

Question 40

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 determine the demand for its product.
D) It should select its final price.
E) It should estimate the cost of its product.

Question 41

The example of "2/10" net 30 is a type of cash discount and means that

A) payment is due within 30 days and that the buyer can deduct 2 percent for paying the bill within 10 days.
B) the bill is due within 30 days and the seller will add 2 percent interest for every day over the 30 days that the bill is not paid.
C) the bill is due within 30 days paid in full.
D) payment is due within 10 days and the buyer can deduct 2 percent for paying within the 10 day period.
E) payment is due within 20 days and the buyer can deduct 30% if paid within two days.

Question 42

Florida hotels discount the cost of their hotel rooms during the hot summer months. On the other hand, during the winter months, the price of these rooms increases. This is an example of what type of discounts?

A) trade allowance
B) seasonal
C) quantity
D) promotional allowance
E) functional

Question 43

In exchange for the distribution of your products overseas, your firm has accepted to receive a shipment of imported products in trade. This is an example of what type of countertrade?

A) allowance
B) buyback agreement
C) compensation deal
D) barter
E) offset

Question 44

If variable costs are $10 per unit, fixed costs are $300 000, and expected unit sales are 50 000 the unit cost is

A) $20.00.
B) $16.00.
C) $10.00.
D) $12.00.
E) $6.00.

Question 45

In ________ pricing, the company decides how to price its products to different customers in different locations and countries.

A) specialty
B) global
C) offset
D) regional
E) geographical

Question 46

When a firm bases its price largely on competitors' prices, it is using a pricing strategy that is called

A) going-rate pricing.
B) value pricing.
C) everyday low pricing.
D) perceived value pricing.
E) high-low pricing.

Question 47

The three major considerations in price setting are: costs set a "floor" to the price; ________; and customers' assessment of unique features establishes the price ceiling.

A) the price of competitors and substitutes
B) the price of substitutes establishes a "target price"
C) competitors' prices and the price of substitutes provide an orienting point
D) competitors' prices establishes a "target price" goal
E) competitors' target-costing

Question 48

An increasing number of companies now base their price on the customer's ________ of their products.

A) value proposition
B) everyday value pricing
C) perceived value
D) usage
E) EDLP pricing

Question 49

Value pricing is not a matter of simply setting lower prices; it is a matter of reengineering the company's operations to become a low-cost producer without sacrificing quality; and lowering prices significantly to attract a large number of ________ customers.

A) price-orientated
B) image-oriented customers
C) expert customers
D) product-orientated customers
E) value-conscious

Question 50

The key to perceived-value pricing is to deliver more unique value than your competitors and to ________ this to prospective buyers.

A) advertise
B) demonstrate
C) communicate
D) promote
E) convince

Question 51

Caterpillar wants to lower production costs in order to decrease its required break even volume. Which formula should they use for the break-even calculation?

A) fixed costs/(variable costs - price)
B) fixed costs/(price - variable costs)
C) fixed costs × (variable costs - price)
D) (price - variable costs)/fixed costs
E) fixed costs/unit sales

Question 52

Auction-type pricing is becoming very popular today due to the Internet. The three types of auction-types of pricing include sealed-bid auctions, descending bids auctions, and

A) value pricing.
B) high-low bids.
C) going-rate bidding.
D) ascending bids.
E) EDLP.

Question 53

In recent years, companies have adopted ________ where they try to win loyal customers by charging a fairly low price for a high-quality offering.

A) everyday low pricing
B) quantity discounts
C) high-low pricing
D) value pricing
E) EDLP

Question 54

The most elementary pricing method is to add a standard ________ to the product's cost.

A) target-return
B) target margin
C) target price
D) markup
E) margin

Question 55

________ is the result of a concentrated effort by designers, engineers, and purchasing agents to reduce the product's overall costs.

A) Target costing
B) Activity-based cost accounting
C) Learning curve
D) Least cost producer
E) Experience curve

Question 56

Pricing methods narrow the range from which the company selects its final price. In selecting that price, the company must consider additional factors, including the impact of other marketing activities, company pricing policies, gain-and-risk-sharing pricing, and the impact of price on

A) channel partners.
B) channels of distribution.
C) product quality.
D) marketing activities.
E) other parties.

Question 57

Following the industry average, your firm accepts a 20 percent markup on sales. If the unit cost of your product is $20.00 then the retail price would be

A) $44.00.
B) $25.00.
C) $24.00.
D) $22.00.
E) $40.00.

Question 58

________ is the direct exchange of goods, with no money and no third party involved.

A) Offset
B) Co-optation
C) Buyback
D) Barter
E) Compensation

Question 59

In ________ the retailer charges higher prices on an everyday basis but then runs frequent promotions in which prices are temporarily lowered below the EDLP level.

A) high-low pricing
B) EDLP pricing
C) going-rate pricing
D) value pricing
E) everyday low pricing

Question 60

Your company has invested $1 000 000 in plant and equipment and wants to ensure that it receives a 20 percent ROI on the pricing of its products. This 20 percent translates into $200 000. At a $16.00 cost and a 50 000 expected sales volume, what price must your product "go out the door" at to satisfy this ROI return?

A) $40.00
B) $24.00
C) $22.00
D) $20.00
E) $44.00

Question 61

Companies that employ ________ offer discounted but limited early purchases, higher-priced late purchases, and the lowest rates on unsold inventory just before it expires.

A) psychological pricing
B) low-interest financing
C) yield pricing
D) loss leaders
E) special event pricing

Question 62

There are ways that brand leaders can respond to competitors' price declines. Which of the following strategies involves spending money to improve perceived quality.

A) Increase price and improve quality.
B) Reduce your price.
C) Maintain your price.
D) Further differentiate the product or service.
E) Launch a low-price fighter line.

Question 63

________ occurs when a company sells a product or service at two or more prices that do not reflect a proportional difference in costs.

A) Price discrimination
B) Loss-leader pricing
C) Customer-segment pricing
D) Psychological pricing
E) Product-form pricing

Question 64

Given strong consumer resistance to price hikes, marketers go to great lengths to find alternative approaches that will allow them to postpone a price increase. Which of the following approaches would apply to the discontinuation of free delivery?

A) Shrink package sizes.
B) Reduce or eliminate some product features.
C) Demand upfront payment before shipping goods.
D) Removing or reducing product services.
E) Create new economy brands.

Question 65

Generally, consumers prefer ________ price increases on a regular basis to sudden, sharp increases.

A) reciprocal
B) consistent
C) trade
D) large
E) small

Question 66

Some of the considerations that companies face when deciding to match a competitor's price decline include the product's importance in the company's portfolio, the competitor's intentions, and the

A) ordering time frames for the product.
B) shareholder value.
C) reaction by the channels of distribution.
D) market's price and quality sensitivity.
E) ordering ease for the product.

Question 67

Companies sometimes initiate price cuts in a drive to dominate the market through lower costs. A price-cutting strategy involves possible traps. One of these "traps" is

A) consistent high quality consumer.
B) shallow-pockets.
C) secure target market customer.
D) dependence on a firm market.
E) loyal customer market.

Question 68

Evian prices a 1.4-litre bottle of its mineral water at $.200 and 50 mL of the same water in a moisturizer spray at $6.00. With which of the following types of pricing are different versions of the product priced differently but not proportionately to their respective costs?

A) customer-segment pricing
B) channel pricing
C) location pricing
D) product-form pricing
E) new product pricing

Question 69

The popularity of "early-bird" specials at restaurants is an example of what type of price discrimination?

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

Question 70

When different customer groups are charged different prices for the same product or service, it is called

A) product-form pricing.
B) customer-segment pricing.
C) price discrimination.
D) illegal.
E) channel pricing.

Question 71

The seller sells a plant, equipment, or technology to another country and agrees to accept as partial payment products manufactured with the supplied equipment in a(n)

A) co-optation.
B) buyback arrangement.
C) auction.
D) barter.
E) offset.

Question 72

When supermarkets and department stores drop the price on well-known brands to stimulate store traffic, this is called

A) special-event pricing.
B) EDLP.
C) net pricing.
D) loss-leader pricing.
E) bargain provision.

Question 73

A major circumstance provoking price increases is

A) cost inflation.
B) stock price versus target price.
C) market demand.
D) profitability versus target.
E) price versus competition.

Question 74

Your competitor has reduced prices on his entire line of products. You can interpret these price cuts by assuming that your competitor is trying to gain market share, that the competitor is doing poorly and wants to increase revenue quickly, and that

A) the competitor is matching your price change.
B) the competitor wishes to end price/promotion wars.
C) the competitor wants you to reduce your prices below his.
D) the competitor wants the whole industry to reduce prices.
E) price is no longer a competitive advantage.

Question 75

A(n) ________ is a price reduction to buyers who pay their bills promptly.

A) discount
B) functional discount
C) quantity discount
D) seasonal allowance
E) allowance

Question 76

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

A) functional discount
B) quantity discount
C) cash discount
D) volume discount
E) allowance

Question 77

Most companies will ________ their list price and give discounts and allowances for early payments, volume purchases, and off-season buying.

A) reduce
B) increase
C) adjust
D) release
E) list two prices

Question 78

In markets that are characterized by products that are highly homogenous, how should a firm react to a competitor's price decline?

A) Reduce product performance levels.
B) Reduce its services.
C) Adjust product characteristics.
D) Enhance its services.
E) Enhance its augmented product.

Question 79

One of the traps of instituting a price decrease is when that low price buys market share in the short term. The same customers will shift to any lower-priced product that may come along. This trap is called

A) low-quality trap.
B) shallow-pockets trap.
C) fragile-market-share trap.
D) low price trap.
E) market loyalty trap.

Question 80

Prices that vary by time of the day, the season of the year, or the day of the week are called

A) price discrimination.
B) time pricing.
C) channel pricing.
D) product form pricing.
E) discounting.