Deck 10: Pricing: Understanding and Capturing Customer Value

Question 1

________ uses buyers' perceptions of what a product is worth, not the seller's cost, as the key to pricing.

A)Customer value-based pricing
B)Target return pricing
C)Variable costs
D)Price elasticity
E)Product image

Answer 1

A

Question 2

Consumer perceptions of the product's value set the ________ for prices.

A)demand curve
B)floor
C)ceiling
D)variable cost
E)image

Answer 2

C

Question 3

In ________, price is considered along with the other marketing mix variables before the marketing program is set.

A)target return pricing
B)value-based pricing
C)variable costs
D)price elasticity
E)cost-based pricing

Answer 3

B

Question 4

Costs that do not vary with production or sales level are referred to as ________ costs.

A)fixed
B)variable
C)target
D)total
E)unit

Question 5

The simplest pricing method is ________.

A)value-based pricing
B)going-rate and sealed-bid pricing
C)cost-plus pricing
D)break-even analysis
E)target return pricing

Question 6

________ are the sum of the ________ and ________ for any given level of production.

A)Fixed costs; variable; total costs
B)Fixed costs; total; variable costs
C)Variable costs; fixed; total costs
D)Total costs; fixed; variable costs
E)Break-even costs; fixed; total costs

Question 7

________ involves charging a constant low price with few or no temporary price discounts.

A)High-low pricing
B)Target return pricing
C)Cost-plus pricing
D)Everyday low pricing (EDLP)
E)Penetration pricing

Question 8

Value-based pricing is the reverse process of ________ pricing.

A)variable cost
B)cost-plus
C)cost-based
D)good-value
E)value-added

Question 9

Price is the only element in the marketing mix that produces ________.

A)revenue
B)variable costs
C)expenses
D)fixed costs
E)stability

Question 10

________ pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for the company's efforts and risks.

A)Value-based
B)Fixed cost
C)Cost-based
D)Variable
E)Skimming

Question 11

Underpriced products sell very well, but they produce less revenue than they would have if price were raised to the ________ level.

A)perceived value
B)value-based
C)variable
D)demand curve
E)price-floor

Question 12

Costs that vary directly with the level of production are referred to as ________ costs.

A)fixed
B)variable
C)target
D)total
E)unit

Question 13

When there is price competition, many companies adopt ________ rather than cutting prices to match competitors.

A)pricing power
B)value-added pricing strategies
C)fixed costs
D)price elasticity
E)image pricing

Question 14

With ________ pricing, price is set to match consumers' perceptions of product value.

A)variable cost
B)cost-plus
C)cost-based
D)value-based
E)everyday low

Question 15

The company designs what it considers to be a good product, totals the expenses of making the product, and sets a price that adds a standard mark-up to the cost of the product. This approach to pricing is called ________ pricing.

A)value-based
B)fixed cost
C)cost-plus
D)variable
E)skimming

Question 16

Rent, electricity, and executive salaries are examples of ________ costs.

A)fixed
B)variable
C)total
D)accumulated
E)marketing

Question 17

Product costs set a(n)________ to a product's price.

A)demand curve
B)experience curve
C)floor
D)ceiling
E)break-even cost

Question 18

Measuring ________ can be difficult. A company might conduct surveys or experiments to test this in the different products they offer.

A)target returns
B)fixed costs
C)perceived value
D)break-even pricing
E)variable costs

Question 19

Fixed costs ________ as the number of units produced increases.

A)decrease
B)increase
C)divide in half
D)remain the same
E)increase at a diminishing rate

Question 20

________ is the amount of money charged for a product or service.

A)Experience curve
B)Demand curve
C)Price
D)Wage
E)Salary

Question 21

Price setting is usually determined by ________ in small companies.

A)top management
B)marketing departments
C)sales departments
D)divisional managers
E)cross-functional teams

Question 22

Of the following, which is a poor reason for a company to set prices low?

A)to prevent competition from entering the market
B)to stabilize the market
C)to create excitement for a product
D)to prepare for an easy exit from a market
E)to match a competitor

Question 23

If demand changes greatly with a small change in price, we say the demand is ________.

A)inelastic
B)variable
C)elastic
D)value-based
E)fixed

Question 24

Which of the following economic factors does not have a strong impact on a firm's pricing strategy?

A)an economic boom
B)the reseller's reaction to price changes
C)an economic recession
D)inflation
E)interest rates

Question 25

When companies set prices, the government and social concerns are two ________ affecting pricing decisions.

A)external factors
B)internal factors
C)economic conditions
D)demand curves
E)temporary influences

Question 26

Under ________, the market consists of many buyers and sellers trading in a uniform commodity such as wheat, copper, or financial securities.

A)pure competition
B)monopolistic competition
C)oligopolistic competition
D)a pure monopoly
E)anti-trust agreements

Question 27

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

A)variable
B)inelastic
C)value-based
D)at break-even pricing
E)market penetrating

Question 28

A company should set prices that will allow ________ to receive a fair profit.

A)resellers
B)producers
C)consumers
D)the elderly
E)competitors

Question 29

________ describes how responsive demand will be to a change in price.

A)Price elasticity
B)Break-even pricing
C)The break-even chart
D)Target costing
E)Supply

Question 30

Price setting is usually determined by ________ in large companies.

A)top management
B)divisional managers
C)finance managers
D)purchasing departments
E)suppliers

Question 31

Under ________, the market consists of many buyers and sellers who trade over a range of prices rather than a single market price.

A)pure competition
B)monopolistic competition
C)oligopolistic competition
D)a pure monopoly
E)socialism

Question 32

Under ________, the market consists of a few sellers who are highly sensitive to each other's pricing and marketing strategies.

A)pure competition
B)monopolistic competition
C)oligopolistic competition
D)a pure monopoly
E)capitalism

Question 33

With target costing, marketers will first ________ and then ________.

A)build the marketing mix; identify the target market
B)identify the target market; build the marketing mix
C)design the product; determine its cost
D)use skimming pricing; use penetrating pricing
E)determine a selling price; target costs to ensure that the price is met

Question 34

Which of the following presents the strongest reason that markup pricing is generally illogical?

A)Sellers earn a fair return on their investment.
B)By tying the price to cost, sellers simplify pricing.
C)When all firms in the industry use this pricing method, prices tend to be similar.
D)This method ignores demand.
E)With a standard markup, consumers know when they are being overcharged.

Question 35

Which of the following is a cost-based approach to pricing?

A)value-based pricing
B)going-rate pricing
C)break-even pricing
D)good-value pricing
E)EDLP

Question 36

________ that influence pricing decisions include the nature of the market and demand.

A)Internal factors
B)Elasticity factors
C)External factors
D)Target factors
E)Domestic factors

Question 37

Which of the following is an external factor that affects pricing decisions?

A)the salaries of production management
B)competition
C)the salaries of finance management
D)overall pricing objectives
E)the company's overall marketing strategy

Question 38

Which of the following statements about a break-even chart is true?

A)It is used to determine how the customer-perceived value changes with value-added pricing.
B)It is a tool used to calculate fixed costs.
C)It shows the level of earnings a company has during an accounting period.
D)It is a tool marketers use to examine the relationship between supply and demand.
E)It uses variable costs, the unit price, and fixed costs.

Question 39

Break-even pricing, or a variation called ________, is when the firm tries to determine the price at which it will break even or make the return it is seeking.

A)competition-based pricing
B)target return pricing
C)fixed cost
D)value-based pricing
E)customer-based pricing

Question 40

The relationship between the price charged and the resulting demand level can be shown as the ________.

A)demand curve
B)variable cost
C)target cost
D)break-even chart
E)experience curve

Question 41

When General Motors provides payments or price reductions to its new car dealers as rewards for participating in advertising and sales support programs, it is granting a(n)________.

A)trade discount
B)functional discount
C)allowance
D)promotional allowance
E)trade credit

Question 42

It is most typical for producers who use captive-product pricing to set the price of the main product ________ and set ________ on the supplies necessary to use the product.

A)low; low markups
B)high; low markups
C)low; high markups
D)high; high markups
E)moderately; moderate markups

Question 43

When using price steps, the seller must establish perceived ________ that support the price differences among the products in the line.

A)non-price competition
B)value differences
C)quantity levels
D)images
E)strategies

Question 44

Companies involved in deciding which items to include in the price of the main product and which to offer as options are engaged in ________ pricing.

A)product bundle
B)optional-product
C)captive-product
D)by-product
E)skimming

Question 45

When amusement parks and movie theaters charge admission plus fees for food and other attractions, they are following a(n)________ pricing strategy.

A)by-product
B)optional-product
C)captive-product
D)skimming
E)penetration

Question 46

________ pricing is the approach of setting a low initial price in order to attract a large number of buyers quickly and win a large market share.

A)Market-skimming
B)Market-penetration
C)Below-market
D)Value-based
E)Leader

Question 47

A challenge for management in product line pricing is to decide on the price steps between the ________.

A)various products in a line
B)product mixes
C)product groupings
D)product lines
E)various target markets

Question 48

Hotline Long Distance Service uses captive-product pricing for its phone call charges. Because this is a service, the price is broken into a fixed rate plus a per-call ________.

A)fixed rate usage
B)variable usage rate
C)standard usage rate
D)market usage rate
E)fixed fee

Question 49

Which of the following is not a price adjustment strategy?

A)segmented pricing
B)customer value-based pricing
C)promotional pricing
D)discount and allowance pricing
E)dynamic pricing

Question 50

By definition, this type of pricing is used when a firm sells a product or service at two or more prices, even though the difference in price is not based on differences in cost.

A)segmented pricing
B)variable pricing
C)flexible pricing
D)cost-plus pricing
E)reference pricing

Question 51

A quantity discount is a price reduction to buyers who purchase ________.

A)frequently
B)large volumes
C)close outs
D)inferior merchandise
E)superior merchandise

Question 52

The New Age Gallery has different admission prices for students, adults, and seniors. All three groups are entitled to the same services. This form of pricing is called ________.

A)time-based pricing
B)location pricing
C)customer-segment pricing
D)revenue management pricing
E)generational pricing

Question 53

Consumers usually perceive higher-priced products as ________.

A)not within reach of most people
B)having a higher quality
C)having high profit margins
D)popular brands
E)being in the introductory stage of the product life cycle

Question 54

With product bundle pricing, sellers can combine several products and offer the bundle ________.

A)as a working unit
B)at a reduced price
C)as a complete self-service package
D)as a reward to loyal customers
E)as segmented pricing

Question 55

Companies facing the challenge of setting prices for the first time can choose between two broad strategies: market-penetration pricing and ________.

A)market-level pricing
B)market-competitive pricing
C)market-skimming pricing
D)market-price lining
E)market-price filling

Question 56

Which of the following would likely be ineffective in supporting a market-skimming policy for a new product?

A)The product's quality and image must support its higher price.
B)Enough buyers must want the products at that price.
C)Competitors are not able to undercut the high price.
D)Competitors can enter the market easily.
E)The cost of producing a smaller volume is not so high that it negates the advantage of charging more per unit.

Question 57

Which of the following conditions would most likely to support market-penetration pricing?

A)The market must be highly price sensitive.
B)Production and distribution costs rise as sales volume increases.
C)The product's quality and image must support the price.
D)The low price does not affect the competition.
E)A low price does not affect market growth.

Question 58

When a firm varies its price by the season, month, day, or even hour, it is using ________ pricing.

A)revenue management
B)penetration
C)skimming
D)time-based
E)value-added

Question 59

A firm is using ________ when it charges a high, premium price for a new product with the intention of reducing the price in the future.

A)price skimming
B)trial pricing
C)value pricing
D)market-penetration pricing
E)prestige pricing

Question 60

A company sets not a single price, but rather a ________ that covers different items in its line that change over time as products move through their life cycles.

A)pricing by-product
B)pricing structure
C)pricing loop
D)pricing cycle
E)pricing bundle

Question 61

Consumers use price less to judge the quality of a product when they ________.

A)lack information
B)lack skills to use the product
C)have experience with the product
D)are shopping for a specialty item
E)cannot physically examine the product

Question 62

Which of the following is a reason for a company to raise its prices?

A)to balance out cost increases
B)to win a larger share of the market
C)to use excess capacity
D)to boost sales volume
E)to balance out decreasing costs

Question 63

Under which type of geographic pricing strategy does each customer pay the exact freight for the product from the factory to its destination?

A)basing-point pricing
B)freight-absorption pricing
C)FOB-origin pricing
D)dynamic pricing
E)zone pricing

Question 64

The Internet offers ________, where the price can easily be adjusted to meet changes in demand.

A)captive pricing
B)dynamic pricing
C)basing-point pricing
D)price bundling
E)cost-plus pricing

Question 65

What type of pricing is being used when a company temporarily prices its product below the list price or even below cost to create buying excitement and urgency?

A)segmented pricing
B)psychological pricing
C)referent pricing
D)promotional pricing
E)dynamic pricing

Question 66

In Lima, Peru, 20 stores specializing in selling the same quality and brand of wheat products are located on one street. An individual seller cannot charge more than the going price without the risk of losing business to the other stores. This is an example of what type of market?

A)pure competition
B)monopolistic competition
C)oligopolistic competition
D)pure monopoly
E)socialist

Question 67

General Motors prices its automobiles to achieve a 15 to 20 percent profit on its investment. This approach is called ________.

A)value-based pricing
B)going-rate pricing
C)cost-plus pricing
D)low-price image
E)target return pricing

Question 68

The Competition Act is the federal law that was enacted to curb the formation of ________.

A)unfair competition
B)oligopolies
C)competitive markets
D)international markets
E)limited partnerships

Question 69

When a manufacturer offers a ________, customers buy products from manufacturers' dealers within a specified time period and the manufacturer sends the customer a check.

A)cash rebate
B)special event price
C)dealer reduction
D)promotional pricing reward
E)discount allowance

Question 70

Which of the following is likely to be the least effective action that a company can take to combat a competitor's price cut on a product?

A)reduce price
B)raise perceived value
C)improve quality and increase price
D)bundle products together
E)launch a low-price "fighting brand"

Question 71

Price escalation in international markets is most likely to result from the higher costs of selling in another country and differences in market conditions or ________.

A)cultural preferences
B)selling strategies
C)regional tastes
D)customer perceptions
E)language barriers

Question 72

Which of the following is a poor reason for a company to initiate a price cut?

A)to boost sales
B)to obtain prestige
C)to dominate the market
D)to relieve excess capacity
E)to influence falling demand

Question 73

Which of the following is the opposite of FOB-origin pricing?

A)basing-point pricing
B)absorption pricing
C)uniform-delivered pricing
D)freight-absorption pricing
E)zone pricing

Question 74

Federal legislation on price-fixing requires that sellers set their prices ________.

A)based on their fixed and variable costs
B)without communication with competitors
C)to achieve a specified profit margin
D)with the intention of putting competitors out of business
E)consistently throughout a region

Question 75

________ prices are the prices that buyers carry in their mind and refers to when looking at a given product.

A)Psychological
B)Reference
C)Promotional
D)Geographical
E)Dynamic

Question 76

Xbox 360 decides to add a free subscription to XBOX magazine with every game bought in an effort to differentiate its offering from PS3 games. This is an example of ________.

A)good-value pricing
B)add-on pricing
C)product-support pricing
D)value-added pricing
E)cost-based pricing

Question 77

In a monopolistic competitive market, a company might decide to ________ if only one competitor raises its prices.

A)reduce its production costs
B)reduce its marketing costs
C)maintain its current price and profit margin
D)increase its marketing budget to raise the perceived value of its product
E)increase its production costs to improve the quality of the product

Question 78

Price discrimination is legal under which of the following conditions?

A)when a manufacturer and reseller have agreed upon a specified retail price for a product
B)when a manufacturer sells to retailers in different markets
C)if a seller can prove its costs per unit are different when selling to different retailers
D)if a seller advertises prices that are not actually available to consumers
E)if a seller has not communicated with competitors before announcing prices

Question 79

A company faces fixed costs of $100,000 and variable costs of $8.00/unit. They plan to directly sell their product to the market for $12.00. How many units must they produce and sell to break even?

A)20,000
B)25,000
C)40,000
D)50,000
E)not enough information to calculate

Question 80

Swatch surveyed the market and identified an unserved segment of watch buyers. Using these results, they created a watch at a price consumers were willing to pay. The unorthodox order of this marketing mix decision is an example of ________.

A)competition-based pricing
B)cost-plus pricing
C)target costing
D)value-based pricing
E)penetration pricing