Deck 6: Pricing Strategies

Question 1

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.

Answer 1

A

Question 2

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.

Answer 2

C

Question 3

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%

Answer 3

D

Question 4

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 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

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 7

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

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

Question 8

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

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

Question 9

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.

Question 10

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 11

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 12

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.

Question 13

Price,costs,and volume influence a company's

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

Question 14

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 15

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.

Question 16

An example of a fixed cost would be

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

Question 17

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 18

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

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

Question 19

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

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

Question 20

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

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

Question 21

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 22

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 23

The opposite of price skimming is

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

Question 24

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 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

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 27

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 28

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 29

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 30

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 31

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 32

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 33

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 34

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 35

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 36

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 37

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 38

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 39

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 40

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 41

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

Question 42

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 43

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

Question 44

"Me too" brands command price premiums.

Question 45

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

Question 46

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

Question 47

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

Question 48

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

Question 49

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

Question 50

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

Question 51

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

Question 52

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

Question 53

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

Question 54

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

Question 55

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

Question 56

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

Question 57

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

Question 58

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 59

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

Question 60

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

Question 61

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

Question 62

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

Question 63

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

Question 64

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

Question 65

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 66

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

Question 67

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

Question 68

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

Question 69

What impact does price have on profits?

Question 70

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

Question 71

What risks are associated with a company dropping its prices?

Question 72

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

Question 73

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

Question 74

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