Deck 34: Pricing Strategies

Question 1

Most managers fail to grasp that there is a strong correlation between price and

A) product innovation.
B) product distribution.
C) brand equity.
D) brand image.
E) marketing strategy.

Answer 1

E

Question 2

When extremely low enterprise licensing fees caused potential customers to not take a company's claims about its new data-management system seriously, this clearly showed a strong relationship between

A) advertising and sales.
B) price and the company's marketing strategy.
C) brand awareness and brand image.
D) product introduction and distribution.
E) retailers and manufacturers.

Answer 2

B

Question 3

The biggest drawback of cost-plus pricing is that it does not take into account

A) fixed costs.
B) variable costs.
C) competitors' pricing.
D) the break-even point.
E) brand strategy.

Answer 3

E

Question 4

Rolex watches are priced at a premium to match a premium brand position the company wants to occupy in the marketplace. This demonstrates the

A) price sensitivity of today's consumers.
B) relationship between price and personal selling.
C) relationship between price and the company's marketing strategy.
D) relationship between the price and distribution.
E) relationship between advertising and price sensitivity.

Question 5

Strong, differentiated brands command

A) price premiums.
B) large advertising budgets.
C) national distribution.
D) a strong sales force.
E) an emphasis on product development.

Question 6

Strong brands such as lululemon command price premiums because its customers

A) cannot differentiate the brand from competitors' offerings.
B) are affluent and price doesn't matter.
C) are motivated by traditional advertising.
D) are price-sensitive.
E) are price-insensitive.

Question 7

The practice of a firm taking its cost and attaching a certain margin to arrive at the final price is known as

A) cost-plus pricing.
B) target costing.
C) value-based pricing.
D) price skimming.
E) price penetration.

Question 8

A price that is 1% less than optimal results in _______ less operating profit.

A) 1%
B) 3%
C) 5%
D) 8%
E) 11%

Question 9

The right way to approach the pricing decision is to start with

A) variable costs.
B) fixed costs.
C) customer needs.
D) competitors' prices.
E) desired profit margins.

Question 10

An example of a fixed cost would be

A) shipping.
B) raw materials.
C) labour.
D) monthly rent on office space.
E) overtime.

Question 11

Organizations that use an internally focused approach to pricing start with the

A) customer.
B) offer.
C) product.
D) value.
E) channel.

Question 12

A 1% improvement in price results in a(n) ______ improvement in operating profits.

A) 1%
B) 3%
C) 5%
D) 8%
E) 11%

Question 13

A 5% price decrease would require a _______ volume increase to simply maintain profit level.

A) 5%
B) 10%
C) 15%
D) 17.5%
E) 20%

Question 14

As a marketing mix element, price

A) is considered first.
B) is determined by the competition.
C) is unrelated to the overall marketing strategy.
D) has little impact on profit.
E) is underutilized.

Question 15

From 2003 to 2005, global private label brand market share grew by

A) 4%.
B) 9%.
C) 13%.
D) 20%.
E) 28%.

Question 16

Research has shown that when demand is lower than expected, managers respond with

A) higher prices.
B) static prices.
C) excessively large price drops.
D) increased advertising.
E) price premiums.

Question 17

Price, costs, and volume influence a company's

A) profits.
B) distribution.
C) advertising spending.
D) brand image.
E) media planning.

Question 18

The major reason why most firms lower prices is to

A) strengthen brand image.
B) reduce advertising costs.
C) initiate a price war.
D) secure a higher market share.
E) allay concerns from the sales force.

Question 19

In many firms prices are set by

A) adding a percentage increase to last year's prices.
B) reviewing customer feedback.
C) a price war with competitors.
D) product distributors, such as Wal-Mart.
E) understanding customer needs.

Question 20

Consumers are ______ more price-sensitive than they were 25 years ago.

A) 10%
B) 20%
C) 30%
D) 40%
E) 50%

Question 21

Businesses that use a customer-focused approach to pricing start by researching

A) the competition's pricing.
B) last year's prices.
C) new technological advancements.
D) customer perceptions of value.
E) seasonal volume fluctuations.

Question 22

The costs that actually determine the profit impact of the pricing decision are referred to as

A) acquisition costs.
B) usage costs.
C) possession costs.
D) disposal costs.
E) incremental costs.

Question 23

Customers who are primarily interested in product performance features are referred to as

A) price customers.
B) value customers.
C) relationship customers.
D) competitive loyals.
E) switchers.

Question 24

Instead of segmenting customers and customizing prices to segments, many managers attempt to target

A) price-sensitive customers.
B) price-insensitive customers.
C) competitors' customers.
D) "average" customers.
E) brand loyal customers.

Question 25

Volume discounts, discounts for early payment, and order size discounts are all price leakages that can affect the

A) initial price.
B) pocket price.
C) advertised price.
D) acquisition costs.
E) usage costs.

Question 26

It is important that a firm calculates _____________, where it neither makes a profit nor a loss but recovers its total costs.

A) its average costs
B) its break-even point
C) its transaction costs
D) its shipping costs
E) its incremental costs

Question 27

As a first step in the pricing process, a company should segment the market by

A) demographic variables.
B) psychographic variables.
C) geography.
D) income.
E) assessing the value created by its product.

Question 28

By cutting costly animal acts and providing acrobatic acts that customers prefer, Cirque du Soleil demonstrated its accurate understanding of

A) customer needs and perceptions of value.
B) emerging customer segments.
C) its variable and fixed costs.
D) cost-plus pricing.
E) value-based pricing.

Question 29

The opposite of price skimming is

A) cost-plus pricing.
B) value-based pricing.
C) target costing.
D) price penetration.
E) pocket pricing.

Question 30

Using the total cost of ownership framework, statistical software manufacturer SPSS offers online training programs to reduce its customers'

A) acquisition costs.
B) possession costs.
C) usage costs.
D) disposal costs.
E) vendor costs.

Question 31

Reducing the total cost of ownership will make the customer less price-sensitive to

A) switching costs.
B) acquisition cost.
C) disposal costs.
D) possession costs.
E) usage costs.

Question 32

A procedure called Economic Value Added (EVA) analysis is useful in arriving at

A) the initial price.
B) the transaction price.
C) the usage price.
D) the possession price.
E) the disposal price.

Question 33

Using customer value data to arrive at your initial price is referred to as

A) cost-plus pricing.
B) target costing.
C) price skimming.
D) value-based pricing.
E) price penetration.

Question 34

A short-term tactic in which a company sets a high initial price for a product to recoup its investment is referred to as

A) cost-plus pricing.
B) value-based pricing.
C) price skimming.
D) target costing.
E) price penetration.

Question 35

Using the total cost of ownership framework, catalogue retailers like Land's End allow customers to shop online or over the phone to reduce their

A) acquisition costs.
B) possession costs.
C) usage costs.
D) disposal costs.
E) vendor costs.

Question 36

Since custom home builders are price-insensitive and are willing to pay for customization, Arbol Industries charged this segment prices based on

A) a commodity index.
B) competitor prices.
C) a bundled offering.
D) a premium pricing strategy.
E) cost-plus pricing.

Question 37

Since tract home builders are price-sensitive because they cannot charge price premiums over their competitors, Arbol Industries charged this segment prices based on

A) a commodity index.
B) a premium pricing strategy.
C) a bundled offering.
D) competitors' prices.
E) cost-plus pricing.

Question 38

Customers who are brand loyal due to intangibles such as liking the brand are referred to as

A) price customers.
B) value customers.
C) relationship customers.
D) competitive loyals.
E) switchers.

Question 39

The method that enables a company to establish an initial price, set a profit margin, and control costs to ensure that the required profit margin is met is called

A) cost-plus pricing.
B) value-based pricing.
C) price skimming.
D) target costing.
E) price penetration.

Question 40

The final variable every business must take into account when analyzing returns is the

A) average cost.
B) fixed cost.
C) variable cost.
D) incremental performance cost.
E) cost to serve a customer.

Question 41

The target costing method enables a company to establish an initial price, set a profit margin, and control costs to ensure that the required profit margin is met.

Question 42

The right way to approach the pricing decision is to look at costs.

Question 43

Firms that put their customers last by following a narrow product focus do not capture the full benefit of optimal prices.

Question 44

Even if a company can reduce the customer's total cost of ownership, the customer will still be price-sensitive to the acquisition cost.

Question 45

There is a strong possibility that your brand image could be hurt if you drop your price.

Question 46

Price is just one component of a customer's total cost of "owning" a product.

Question 47

Consumers are 50% more price-sensitive than they were 25 years ago.

Question 48

Value customers are primarily interested in product performance features like the ability of a product to save them money.

Question 49

Even if you think your pricing is 90% effective, it's worth striving for 91%.

Question 50

Contrary to popular practice, costs should play a relatively minor role in the pricing decision.

Question 51

Relationship customers primarily want the basic product at the basic price.

Question 52

"Me too" brands command price premiums.

Question 53

A variable cost such as raw materials or labour has to be incurred regardless of volume.

Question 54

Setting a high initial price for a product to recoup investment in product development is a technique called price penetration.

Question 55

The hard work in building the lululemon brand has paid off: its customers are price-insensitive.

Question 56

Catalogue retailers like Land's End attempt to reduce the total cost of ownership by reducing customers' shopping costs through online shopping.

Question 57

A 1% improvement in price results in an 11% improvement in operating profits.

Question 58

It is impossible to simultaneously cut costs and maintain (or increase) customer value.

Question 59

The costs that actually determine the profit impact of the pricing decision are the incremental costs.

Question 60

Price skimming and price penetration tactics are essentially the same thing.

Question 61

What is cost-plus pricing? Why is it an inferior way to make pricing decisions?

Question 62

Provide an example of how a company might attempt to reduce the total cost of ownership to make its products more attractive to customers.

Question 63

If even one of the elements of the marketing mix is at odds with the others, the end result is customer confusion.

Question 64

List the three main reasons why price is a key marketing decision.

Question 65

What are the two main short-term tactics a company might employ when considering what price to set.

Question 66

Discuss how the case of Vlasic pickles and Wal-Mart illustrates the relationship between Vlasic's marketing strategy and price.

Question 67

Each customer segment should be analyzed to assess cost to serve, to ensure that the price paid by customers is commensurate with the value they are receiving.

Question 68

Order size discounts, competitive discounts, and annual volume bonuses are all examples of price waterfalls that impact the actual pocket price.

Question 69

What risks are associated with a company dropping its prices?

Question 70

What impact does price have on profits?

Question 71

Price is just one component of a customer's total cost of "owning" a product. Explain this statement.

Question 72

Explain the success of Cirque du Soleil's pricing strategy.

Question 73

The final price has to be set based on knowledge of potential competitors that could enter the marketplace.

Question 74

IKEA's secret to success is a clear understanding of the marketing strategy it wants to pursue: cheap products at cheap prices.

Question 75

What does the author mean by a "seat-of-the-pants" approach to pricing?