Question 1

Which of the following statements about break-even analysis is most likely true?
A) It determines how customer-perceived value changes with value-added pricing.
B) It is a tool used to calculate fixed costs.
C) It is used to determine the maximum price that can be set on a product.
D) It is a tool marketers use to examine the relationship between supply and demand.
E) It fails to consider customer value and the relationship between price and demand.

Accepted Answer

Break-even analysis only focuses on the point where total revenue equals total costs, and does not take into account customer value or the price-demand relationship.

Question 2

When establishing prices, it's important for a manager to understand that "good value" is not the same as ________.
A) "low price"
B) "high price"
C) "bargain basement"
D) "perceived value"
E) "everyday value"

Accepted Answer

"Good value" refers to the balance between the quality and benefits of a product or service and its price, whereas "low price" simply refers to a lower cost without necessarily considering the quality or benefits.

Question 3

Lovely Skin is establishing a pricing strategy for a new moisturizer. The total cost to produce each unit is $3.50. The company has decided to add a $1.50 markup, so the unit price to distributors will be $5. Lovely Skin is using a ________ approach to price the new moisturizer.
A) value-added
B) good-value
C) cost-plus
D) competitor-based
E) break-even

Accepted Answer

The company has added a specific markup ($1.50) to cover the cost of production and generate profit. This is known as cost-plus pricing, where the cost is the main consideration while deciding on the price.

Question 4

________ costs refer to the sum of the fixed and variable costs for any given level of production.
A) Target
B) Marginal
C) Value-based
D) Total
E) Break-even

Accepted Answer

Total costs are the combination of fixed and variable costs that a company incurs to produce goods or services. This includes costs such as rent, salaries, raw materials, and production expenses. Having an understanding of total costs is important for businesses to determine their break-even point and make informed decisions about pricing and production levels.

Question 5

Everyday low pricing is a cost-based pricing strategy.

Accepted Answer

Everyday low pricing is a value-based pricing strategy where prices are set based on the perceived value of the product or service to the customer, rather than on the cost of producing it.

Question 6

________ is the only element in the marketing mix that produces revenue.
A) Price
B) Place
C) Promotion
D) Product
E) Profit

Accepted Answer

Price is the only element in the marketing mix that directly produces revenue for the company. The other elements - product, place, and promotion - are important in creating demand for the product, but ultimately it is the price that determines the amount of revenue generated.

Question 7

________ uses buyers' perceptions of what a product is worth as the key to pricing.
A) Customer value-based pricing
B) Target return pricing
C) Cost-plus pricing
D) Psychological pricing
E) Competition-based pricing

Accepted Answer

Customer value-based pricing is based on what the buyer perceives as the value of the product. The price is set based on the benefits and value that the product offers to the customer. This pricing strategy focuses on the customer's needs and wants, and it is based on the idea that customers are willing to pay for products that provide them with the most value.

Question 8

________ pricing involves setting prices based on the expenses involved in producing, distributing, and selling a product plus a fair rate of return for a company's effort and risk.
A) Competition-based
B) Value-added
C) Cost-based
D) Good-value
E) Demand-based

Accepted Answer

Cost-based pricing involves determining the total expenses of producing and selling a product and then adding a fair profit margin to arrive at the final price. This method is particularly useful for companies that have stable or predictable costs and prices, and it can help them maintain profitability while also remaining competitive in the market.

Question 9

Costs that change directly with the level of production are referred to as ________ costs.
A) fixed
B) variable
C) target
D) capital
E) payroll

Accepted Answer

Variable costs are those costs that are directly proportionate to the level of production. As the production level changes, these costs change as well. Examples of variable costs include raw materials, labor costs, and sales commissions. Fixed costs, on the other hand, do not change with production levels and include expenses such as rent, salaries of permanent employees, and insurance premiums. Target costs refer to a desired cost level set by management, while capital and payroll are not types of costs, but rather categories of expenditures. Therefore, option B is the correct answer.

Question 10

Rent, electricity, and executive salaries that do not vary with production or sales level are referred to as ________ costs.
A) fixed
B) variable
C) break-even
D) target
E) promotional

Accepted Answer

Fixed costs are those that do not vary with changes in production or sales levels. These costs remain the same regardless of how much a company produces or sells. Examples of fixed costs include rent, salaries of executives, property taxes, and insurance premiums.

Question 11

Which of the following sets the upper limit for a product's pricing?
A) profits
B) product costs
C) consumer perceptions of value
D) elements of the product mix
E) competition

Accepted Answer

Consumer perceptions of value ultimately set the upper limit for a product's pricing because a product cannot be priced higher than what consumers are willing to pay based on their perceived value of the product.

Question 12

The Fashion Store, a new startup, sets product prices so that revenues will equal manufacturing and marketing costs. The pricing strategy used by the company is referred to as ________ pricing.
A) good-value
B) value-added
C) cost-plus
D) competition-based
E) target return

Accepted Answer

The answer of The Fashion Store, a new startup, sets...

Question 13

Unlike the other marketing mix elements, price plays a minor role in creating customer value and building customer relationships.

Accepted Answer

Price is a critical component of the marketing mix and plays a significant role in creating customer value and building customer relationships. Pricing strategies can impact consumer perception of a product's quality, value, and brand image, and pricing decisions can directly affect a company's profitability and market share. Therefore, pricing is an essential element of marketing strategy and must be carefully planned and executed to support the overall goals of the organization.

Question 14

Which of the following sets the lower limit for a product's pricing?
A) product costs
B) profits
C) competition
D) elements of the product mix
E) consumer perceptions of value

Accepted Answer

Product costs serve as the lower limit for a product's pricing, as the price cannot be set below the costs incurred to produce and distribute the product.

Question 15

________ pricing is when a firm tries to determine the price at which it will break even or earn the profit it is seeking.
A) Competition-based
B) Target return
C) Cost-plus
D) Good-value
E) Value-added

Accepted Answer

Target return pricing is the method by which a business determines the price at which it will break even or make the profit it is anticipating. By calculating the total cost of production, the desired return on investment, and the number of units expected to be sold, a target price can be established.

Question 16

Retailers like Walmart and Target carry less-expensive versions of established brand name products or new lower-price lines. They have adopted a ________ pricing strategy.
A) high-low
B) target return
C) cost-plus
D) good-value
E) market-skimming

Accepted Answer

Good-value pricing strategy involves offering the right combination of quality and good service at a fair price, which can include less-expensive versions of established brand name products or new lower-price lines, as mentioned in the context of retailers like Walmart and Target.

Question 17

A ________ pricing strategy for an offering begins with an assessment of customer needs and perceptions. Then a target price is set based on customer perceptions of worth.
A) cost-based
B) target costing
C) value-based
D) value-added
E) competition-based

Accepted Answer

A value-based pricing strategy focuses on the perceived value of the product or service in the eyes of the customer. The price is set based on the customer's assessment of the product's worth, rather than the cost of production or competition in the market. This approach aims to maximize profitability by charging a price that aligns with the customer's perceived value, which can increase customer satisfaction and brand loyalty.

Question 18

Value-based pricing is often product driven, and customer value perceptions are secondary.

Accepted Answer

Value-based pricing is actually customer driven and is dependent on the value that customers place on a product or service, rather than focusing solely on the product itself. The goal is to align the price with the perceived value by the customer.

Question 19

Providing extra amenities to differentiate and support high-priced products is referred to as ________ pricing.
A) high-low
B) value-added
C) target return
D) everyday low
E) cost-plus

Accepted Answer

Value-added pricing involves adding extra amenities or features to differentiate and support high-priced products. This creates an additional perceived value for the customer and justifies the higher price point.

Question 20

________ is the sum of all the values that customers give up to gain the benefits of having or using a product or service.
A) Payroll
B) Profit
C) Price
D) Cost
E) Salary

Accepted Answer

The definition provided fits the concept of price. Price is the amount charged to the customer in exchange for a product or service and represents the total value that customers have to give up to access these benefits. Options A, B, D, and E are not suitable as they do not match the definition provided.

Quiz 9: Pricing: Understanding and Capturing Customer Value

Which of the following statements about break-even analysis is most likely true?

When establishing prices, it's important for a manager to understand that "good value" is not the same as ________.

Lovely Skin is establishing a pricing strategy for a new moisturizer. The total cost to produce each unit is $3.50. The company has decided to add a $1.50 markup, so the unit price to distributors will be $5. Lovely Skin is using a ________ approach to price the new moisturizer.

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

Everyday low pricing is a cost-based pricing strategy.

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

________ uses buyers' perceptions of what a product is worth as the key to pricing.

________ pricing involves setting prices based on the expenses involved in producing, distributing, and selling a product plus a fair rate of return for a company's effort and risk.

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

Rent, electricity, and executive salaries that do not vary with production or sales level are referred to as ________ costs.

Which of the following sets the upper limit for a product's pricing?

The Fashion Store, a new startup, sets product prices so that revenues will equal manufacturing and marketing costs. The pricing strategy used by the company is referred to as ________ pricing.

Unlike the other marketing mix elements, price plays a minor role in creating customer value and building customer relationships.

Which of the following sets the lower limit for a product's pricing?

________ pricing is when a firm tries to determine the price at which it will break even or earn the profit it is seeking.

Retailers like Walmart and Target carry less-expensive versions of established brand name products or new lower-price lines. They have adopted a ________ pricing strategy.

A ________ pricing strategy for an offering begins with an assessment of customer needs and perceptions. Then a target price is set based on customer perceptions of worth.

Value-based pricing is often product driven, and customer value perceptions are secondary.

Providing extra amenities to differentiate and support high-priced products is referred to as ________ pricing.

________ is the sum of all the values that customers give up to gain the benefits of having or using a product or service.