Deck 6: Understanding costs and developing pricing strategy

Question 1

Which of the following objectives might a service organisation pursue?

A)Revenue-orientated objectives
B)User-oriented objectives
C)Patronage-oriented objectives
D)a and b
E)a, b and c

Answer 1

E

Question 2

___________ is concerned with obtaining the best possible yield over time from each available unit of capacity.

A)Dynamic pricing
B)Yield management
C)Value-based pricing
D)Demand-based pricing
E)None of the above

Answer 2

B

Question 3

A customer who perceives high levels of __________worries that their choice of service provider may not meet with the approval of family or friends.

A)time and effort cost
B)performance risk
C)psychological risk
D)social cost
E)financial cost

Answer 3

D

Question 4

Companies seeking to make a profit must recover the full costs associated with producing and marketing a service, and then add a margin sufficient to yield a satisfactory profit.This is known as:

A)value-based pricing
B)yield-based pricing
C)marginal-cost pricing
D)cost-based pricing
E)activity-based pricing

Question 5

A service provider can increase the net value of a service by doing all of the following except:

A)adding benefits
B)adding supplementary services
C)cutting costs
D)combination of a, b and c
E)adding costs

Question 6

Price can play a strategic role in which of the following ways?

A)Symbolise quality
B)Differentiate a service from its competitors
C)Symbolise value offered
D)Manage demand
E)All of the above

Question 7

Which of the following is NOT a way in which pricing can be used for strategic purposes?

A)Position a service organisation
B)Reward and retain customers
C)Manage demand
D)Target new customers
E)None of the above

Question 8

The ___________ of the service to the customer sets a ceiling to the price that may be charged.

A)costs
B)value
C)competitors price
D)elasticity
E)price

Question 9

A customer who perceives high levels of __________ risk worries about how comfortable and secure they will feel with a particular service provider.

A)temporal
B)performance
C)psychological
D)social
E)financial

Question 10

When price is set and used with the aim of maximising sales, cash flow and/or profits, we may say that the pricing objective is primarily:

A)operations-oriented
B)patronage-oriented
C)revenue-oriented
D)production-oriented
E)consumption-oriented

Question 11

Which of the following is NOT a way that a marketer can increase the net value of the service?

A)Increasing the amount of time involved in service purchase, delivery and consumption
B)Reducing any unwanted physical effort the customers may make to obtain the service
C)Minimising unpleasant sensory experiences
D)Minimising unwanted mental or psychological effort
E)Reducing the amount of time involved in service purchase, delivery and consumption

Question 12

Which of the following conditions would intensify price competition?

A)Personal relationships matter to customers
B)There is increased surplus capacity in the industry
C)Customers want to use services at specific times and locations
D)Saving time and effort are more important to customers
E)Switching costs are high

Question 13

Price competition intensifies with each of the following except:

A)increased number of competitors
B)switching costs are high
C)wider distribution of competitors
D)increased surplus capacity in the industry
E)wider distribution of substitute offers

Question 14

When a firm has a relatively undifferentiated service compared to its competitors, price competition intensifies.Which of the following is NOT an example of price competition?

A)Increased number of competitors
B)Increased substitute offers
C)Decreased capacity in the industry
D)Increased surplus capacity in the industry
E)Wider distribution of the service

Question 15

The _________ to be recovered set a floor to the price that may be charged for a specific service.

A)costs
B)value
C)competitors price
D)elasticity
E)price

Question 16

Which of the following benefits can be achieved by using activity-based costing?

A)Determining differences in costs of serving different customers
B)Determining different activities associated with each customer
C)Determining the amount of each activity demanded by different customers
D)Determining profitability for different customers
E)All of the above

Question 17

Research by Zeithaml suggests four broad expressions of value.Which of the following is NOT one of them?

A)Value is low price.
B)Value is what I want in a product.
C)Value is benefits minus costs.
D)Value is the quality I get for the price I pay.
E)Value is what I get for what I give.

Question 18

A customer who perceives high levels of _________ worries about when and how she will be able to find, evaluate and select a service provider.

A)time and effort cost
B)performance risk
C)psychological risk
D)social cost
E)financial cost

Question 19

A cost management system that provides a structured way of thinking about the relationship between activities and the resources they consume is known as:

A)activity-based costing
B)volume-based costing
C)product-based costing
D)yield-based costing
E)margin-based costing

Question 20

How do we compute net value?

A)Total perceived benefits minus total perceived costs
B)Total benefits minus fixed costs
C)Total benefits minus variable costs
D)Total benefits minus semi-variable costs
E)Total benefits minus marginal costs

Question 21

Which of the following is the difference between the variable costs to the seller and the price charged to the purchaser?

A)Institutional overhead
B)Semi-variable cost
C)Contribution margin
D)Break-even point
E)Total benefits

Question 22

In terms of the 'building the service model and creating customer value' model, which of the following services could be classified as having the most fixed and predictable duration of customer use?

A)Movies
B)Hotels
C)Restaurants
D)Golf courses
E)Rental cars

Question 23

To provide a simple and effective way for consumers to pay for the service they require it is possible to use intermediaries such as:

A)travel agents for booking hotels
B)banks for accepting deposits
C)ticket agents for selling concert hall seats
D)all of the above
E)a and c

Question 24

Pricing information is less important for services _______ in _______ as customers evaluation is likely made with reference to quality concerns.

A)low; value
B)high; value
C)high; criticality
D)low; criticality
E)high; cost

Question 25

Which of the following does NOT demonstrate the principle of the use of physical rate fences to support revenue management?

A)Seat location
B)Size of a hotel room
C)Furnishing of a hotel room
D)Product bundle
E)Having to pay cancellation fees

Question 26

Services often invite performance and pricing abuses for which of the following reasons?

A)Customers may not be present when the work is being performed.
B)Customers may not have the technical skills necessary to evaluate performance.
C)Quality and benefits may be difficult to evaluate even after delivery.
D)Customers may not be able to assess the amount, if any, of work done.
E)All of the above

Question 27

When deciding on the basis for pricing, marketers may use which of the following units of consumption?

A)admission
B)time taken
C)completion of a task
D)a and b
E)all of the above

Question 28

For a passenger railroad company, the cost incurred to sell an additional ticket for a seat in a train is an example of:

A)variable cost
B)semi-variable cost
C)fixed cost
D)marginal cost
E)none of the above

Question 29

Marketing's task in helping maximise ARGE involves all of the following except:

A)providing the sales force with specific sales target on specific dates for each segment
B)providing guidelines for what prices to charge each segment at specific points in time
C)identifying the principal market segments that might be attracted to service facilities
D)forecasting the volumes of business that might be obtained from each segment at specific price levels
E)monitoring price over time

Question 30

Which of the following best describes semi-variable costs?

A)Costs that fluctuate with what is consumed but may not be linked directly to customer demand and the volume of services provided
B)Costs that do not fluctuate with what is consumed but may be linked directly to customer demand and the volume of services provided
C)Costs that fluctuate even if no services are provided and may be linked directly to economic environment
D)Costs that fluctuate with what is consumed and may be linked directly to customer demand and the volume of services provided
E)Costs that do not fluctuate with what is consumed and may not be linked directly to customer demand and the volume of services provided

Question 31

When deciding on a price to charge for the service which is being offered, it is important to consider:

A)customer price sensitivity
B)the right customer
C)the right time
D)the right place
E)the right inventory unit

Question 32

Which of the following sectors of service marketing use the concept of revenue management?

A)Travel industry
B)Hotel industry
C)Airline industry
D)Restaurant industry
E)All of the above

Question 33

Which of the following are conditions that could encourage the use of revenue management?

A)Capacities are relatively fixed
B)Service is sold in advance
C)Variable and uncertain demand
D)All of the above
E)a and b

Question 34

Which of the following is NOT an example of a prepaid method of payment for services?

A)e-tag
B)Telephone cards
C)Debit cards
D)Credit cards
E)c and d

Question 35

Which of the following is an amenities rate fence?

A)Personal butler
B)Free golf cart
C)Size of rental car
D)Theatre seat location
E)Class of travel

Question 36

Which of the following will assist in reconciling yield management with customer satisfaction and good will?

A)Using bundling to 'hide' discounts
B)Using service recovery to compensate for overbooking
C)Building in 'loyalty multipliers' for regular customers
D)Designing price schedules that are clear and fair
E)All of the above

Question 37

__________ costs often vary widely from one situation to another, depending on the type of service and the number of people involved.

A)Variable
B)Semi-variable
C)Fixed
D)Marginal
E)None of the above

Question 38

Building rent is an example of:

A)variable cost
B)semi-variable cost
C)fixed cost
D)marginal cost
E)none of the above

Question 39

A service organisation may take into consideration all of the following costs when using the cost-based pricing, except:

A)semi-variable costs
B)marginal costs
C)fixed costs
D)opportunity costs
E)variable costs

Question 40

When can a service be said to be price-elastic?

A)Where a large increase in price has the effect of a large increase in sales.
B)Where a large decrease in price has the effect of a small increase in sales.
C)Where a small decrease in price has the effect of a large increase in sales.
D)Where a small increase in price has the effect of a small increase in sales.
E)Where a small increase in price has the effect of a small decrease in sales.

Question 41

Psychological costs to the customer can be minimised by ensuring that unpleasant surroundings and procedures are eliminated or minimised.

Question 42

Each customer will have their own viewpoint on what constitutes value and what they are prepared to pay for the service which offers value.

Question 43

Which of the following is NOT a revenue or profit objective?

A)Vary prices to maximise revenue from a fixed capacity
B)Cover all costs, including overhead
C)Cover costs of providing a particular service
D)Maximise demand
E)Make the largest possible contribution or profit

Question 44

Activity-based costing has been adopted by a growing number of organisations to enable them to reduce their reliance on traditional cost-accounting systems.

Question 45

A business model is the mechanism whereby, through effective pricing, sales are transformed into revenues, costs are covered and __________ for the business owners.

A)value is created
B)costs are marginal
C)marketing is created
D)pricing is scheduled
E)a value proposition is developed

Question 46

In some cases, __________ demand might be more important than achieving maximum __________, as long as basic __________ requirements are met.

A)maximising; profit; profit
B)basic; profit; needs
C)actualising; profit; profit
D)maximising; exposure; profit
E)minimising; sales; profit

Question 47

Even a well-designed revenue management system has difficulty accurately predicting how many customers will use a service at a given time.

Question 48

Firms that have relatively undifferentiated products are rarely influenced by their competitors' pricing strategies.

Question 49

Consumer perception is one of the factors - but only of limited importance - in setting guidelines for pricing of services.

Question 50

Two ways in which to put a cost on a service are: to consider both the related monetary and non-monetary costs.

Question 51

New companies offering price discounts to stimulate trial and attract customers are pursuing patronage-oriented pricing objectives.

Question 52

Which of the following does an effective pricing strategy do?

A)Keeps prices below costs
B)Makes service pricing difficult to understand
C)Fulfils the promise of the value proposition
D)Keeps price levels below the target customers' willingness to pay
E)Eliminates non-monetary costs

Question 53

One problem that is unique to the service industry is that their services have a fixed capacity and their services are perishable.

Question 54

An accurate definition of yield management is, 'a method to sell the right inventory unit to the right type of customer at the right time and for the right price'.

Question 55

In business, it is not possible to distinguish between desirable and undesirable customers, therefore all customers are equally desirable.

Question 56

Price setting is totally within the company's control and is not affected by legal, regulatory or ethical considerations.

Question 57

The only business function that brings operating revenues into the organisation is ____________.

A)marketing
B)management
C)finance
D)accounting
E)information technology

Question 58

Rate fences, both physical and non-physical, are more a concept than an efficient tool in services marketing.

Question 59

Satisfied customers believe they have received acceptable value for the money, time and effort they invest in particular services.

Question 60

Net value is the sum of all benefits a customer receives from purchasing a service minus the total costs of doing so.

Question 61

Explain the categories of pricing objectives open to a service organisation and discuss when each would be appropriate.

Question 62

Evaluate, from a consumer perspective, a recent visit to a service organisation where you were dissatisfied with the service.What advice would you give to the organisation to improve the value of the product they were offering?

Question 63

Home delivery pizza services have multiplied in recent times, encouraging a high level of competition.How would this competition be likely to affect pricing policies?

Question 64

Service firms often have greater pricing flexibility.Using the example of a bus service, discuss the reasons and management implications of this.

Question 65

Using the information in Table 6.6, develop a pricing strategy for an entertainment venue of your choice.

Question 66

Contribution is the difference between the variable cost and the price charged.

Question 67

Using the example of a hotel business, discuss the concepts of 'yield management' and ARGE.

Question 68

The demand for a service is said to be price-elastic when a change in price has little effect on sales.

Question 69

Semi-variable costs are those that vary or fluctuate as a direct consequence of what is produced.

Question 70

Customers often use price as a surrogate for quality in the case of services.Explain why this might occur and how this would apply to a legal office.

Question 71

What elements of price bundling could assist a newly-opened silver service restaurant located in the heart of the city?

Question 72

A florist which specialises in wedding arrangements is reassessing their pricing.Using the three foundations of pricing strategy, what advice would you give them?

Question 73

For many consumers, there is an implicit belief that the higher the cost of the service the more likely it will be that the service is of a high quality.

Question 74

Assume that you are running a medical surgery.Discuss how you can increase the net value of the service you provide to your customers.

Question 75

The relationship between the average price actually obtained and the maximum price that might have been charged is referred to as the 'yield percentage'.