Deck 9: Pricing: Capturing Customer Value

Question 1

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

Answer 1

B

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

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

Answer 3

A

Question 4

The Sydney Opera House charges different prices for seats in different areas of the concert hall,even though the costs of supplying these seats are the same.What is this form of pricing called?

A)location-based pricing
B)price skimming
C)functional pricing
D)customer-segment pricing
E)dynamic pricing

Question 5

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

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

Question 6

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

A)demand curve
B)experience curve
C)floor
D)ceiling
E)breakeven cost

Question 7

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)breakeven pricing
E)variable costs

Question 8

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 9

In retail settings,________ 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 10

________ pricing involves setting prices based on the costs for producing,distributing and selling the product,plus a target profit.

A)Variable cost
B)Cost-plus
C)Cost-based
D)Good-value
E)Value-added

Question 11

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

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

Question 12

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

Question 13

In retail settings,________ involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items.

A)high-low pricing
B)target return pricing
C)cost-plus pricing
D)everyday low pricing (EDLP)
E)penetration pricing

Question 14

Which of the following is NOT an example of value-based pricing?

A)a less expensive version of an established brand
B)re-design of existing brand to offer increased quality at a fair price
C)lesser value offered at rock-bottom prices
D)everyday low prices
E)setting prices based on production costs plus a fair margin

Question 15

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

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

Question 16

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 17

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 18

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 19

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

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

Question 20

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 21

The simplest pricing method is ________.

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

Question 22

Overhead cost is another term for variable cost.

Question 23

Which of the following is a cost-oriented pricing approach?

A)value-based pricing
B)going-rate pricing
C)breakeven pricing
D)good-value pricing
E)A and C

Question 24

________ 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)Breakeven costs;fixed;total costs

Question 25

Pricing that involves setting prices based on competitors' strategies,costs,prices and market offerings is known as ________.

A)competition-based pricing
B)target return pricing
C)fixed cost
D)penetration pricing
E)price skimming

Question 26

Price is one of the most flexible marketing mix elements.

Question 27

EDLP is very similar to high-low pricing.

Question 28

Which of the following statements about a breakeven 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 29

Value-based pricing is the reverse of cost-based pricing.

Question 30

Demand and consumer value perceptions set the floor for prices.

Question 31

Prices have a direct impact on a company's bottom line.

Question 32

Which of the following presents the strongest reason that mark-up pricing generally does NOT make sense?

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 mark-up,consumers know when they are being overcharged.

Question 33

Product costs set a floor to a product's price;consumer perceptions of the product's value set the ceiling.

Question 34

Cost-based pricing relies on consumer perception of value to drive pricing.

Question 35

The simplest pricing method is breakeven pricing,which involves determining the price at which costs will be covered.

Question 36

General Motors prices its automobiles to achieve a 15 to 20 per cent 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 37

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

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

Question 38

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 39

Value-based pricing is being used when costs vary directly with the level of product.

Question 40

Which of the following is the main problem with breakeven analysis?

A)It fails to consider customer value and the relationship between price and demand.
B)It fails to consider the impact of sales volume on price.
C)The method of estimating breakeven point is highly arbitrary.
D)Variable costs cannot be estimated accurately.
E)Neither fixed nor variable costs can be accurately estimated.

Question 41

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 42

________ costs are those that vary directly with the level of production or service provision.

Question 43

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

A)the wages of production workers
B)the economy
C)the salaries of management
D)profit objectives
E)the company's marketing strategy

Question 44

________ 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 45

________ power refers to a company's ability or power to escape price competition and to justify higher prices and margins.

Question 46

Of the following,a company would be LEAST likely to set prices low to ________.

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

Question 47

It is important to remember that '________ value' is not the same as '________ price'.

Question 48

________ pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items.

Question 49

A product or service's ________ is the sum of all the values that consumers give up to gain the benefits of having or using the product or service.

Question 50

Compare cost-based pricing and value-based pricing.

Question 51

An important type of good-value pricing at the retail level is ________,and it involves charging a constant,everyday low price with few or no temporary price discounts.

Question 52

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 53

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 54

A marketer's fixed costs are $400 000,the variable cost is $16,and the company expects the product to sell for $24.What is the breakeven volume in units?

Question 55

Discuss pricing strategies and tactics used in retail contexts.Use appropriate examples to support your answer.

Question 56

________ costs are those that do not vary with production or sales levels.

Question 57

In ________ pricing,the company first assesses customer needs and value perceptions.

Question 58

Adding a standard mark-up to the cost of the product is known as cost-________ pricing.

Question 59

Briefly outline the following concepts:
(i) Price ceiling.
(ii) Price floor

Question 60

A breakeven chart shows the total cost and total revenue expected at various sales volume levels.

Question 61

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

Question 62

Target costing reverses the usual process of first designing a new product,determining its cost and then asking,'Can we sell it for that?'.

Question 63

In industrial markets,salespeople outrank top management in determining the sales price of products,as well as pricing objectives and policies.

Question 64

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

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

Question 65

When microwave ovens were being developed in the 1980s,they represented such a radical concept that the company was unsure about pricing.Early prototypes were large,cumbersome and would need a price tag of thousands of dollars simply to breakeven.With remarkable insight,a new divisional manager took over the project and issued the development team with a very clear design brief.The new microwave 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 around $500).The company would not commercialise until the development team could design a microwave at this price.This is an example of which type of costing?

A)variable costing
B)cost-plus
C)target costing
D)standard mark up
E)None of the above.

Question 66

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 67

Environmental elements that affect pricing decisions are categorised as external factors.

Question 68

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

A)Price elasticity
B)Breakeven pricing
C)The breakeven chart
D)Target costing
E)Supply

Question 69

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 70

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 71

Each of the following economic factors can have a strong impact on a firm's pricing strategy EXCEPT ________.

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

Question 72

Price setting is usually determined by ________ in large companies.

A)top management
B)divisional managers
C)product-line managers
D)purchasing departments
E)both B and C

Question 73

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 74

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 and environmental conditions change.

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

Question 75

During difficult economic times,companies are often tempted to cut prices.However,any decision to cut prices should raise a number of important questions.Which of the following is NOT a question that would normally be considered when confronted with a decision to lower prices?

A)Will deep discounts tarnish the brand?
B)How will prices be raised when the economy improves?
C)How will the company deal with narrower margins?
D)How much promotional support is required to communicate lower prices?
E)How will the competitors react?

Question 76

With an understanding of price elasticity,sellers should know that the less elastic the demand for their product is,the more advantageous it is for them to ________.

A)drop the price
B)raise the price
C)leave the price where it is
D)discontinue the item
E)bundle the product with another product

Question 77

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 78

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 79

In Lima,Peru,20 stores specialising 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 80

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)breakeven chart
E)experience curve