Deck 8: Price

Question 1

Which of the following statements is incorrect?

A) An exchange of value always involves a monetary transaction.
B) Price is a measure of value for buyers.
C) Price is a measure of value for sellers.
D) Not-for-profit organisations may charge a price for their products.
E) All of the options listed.

Answer 1

An exchange of value always involves a monetary transaction.

Question 2

As with all objectives, pricing objectives should be specific, measurable, ____________, reasonable and timetabled.

A) actionable
B) appropriate
C) achievable
D) accomplishable

Answer 2

actionable

Question 3

An organisation sets a high price for its product with the aim of communicating a high quality image. This could be described as an example of:

A) a qualitative pricing objective.
B) a quantitative pricing objective.
C) positioning
D) both a and c.
E) both b and c.

Answer 3

both a and c.

Question 4

In an economic downturn, many businesses lower their prices in order to ensure sales volumes are sufficient to generate enough cash flow for the business to meet its financial obligations, such as paying staff, meeting loan repayments and paying suppliers. This approach ensures a company's:

A) market share.
B) productivity.
C) long-term prosperity.
D) profitability.

Question 5

In order to provide a solid return on investment for their shareholders (amongst other things), the business managers at the hardware retail chain Bunnings set prices based on profitability. Which of the following would not be considered by the managers who work with a pricing objective based on profitability?

A) Sales volume.
B) Production and distribution costs.
C) Return on investment.
D) Sales revenue.
E) All of the options listed would be potential considerations.

Question 6

A company that distributes cognac decides to set prices high to convey an image of quality and exclusivity. Taking this approach is an example of:

A) promotional pricing.
B) prestige pricing.
C) bait pricing.
D) positioning pricing.

Question 7

Jetstar using aggressive pricing to grow sales volumes is an example of pricing for:

A) profitability.
B) long-term prosperity.
C) market share.
D) positioning.
E) none of the options listed.

Question 8

A company that sells one item in a product line at an artificially low price to attract potential buyers then tries to sell them a higher-priced item in the product line is using:

A) promotional pricing.
B) prestige pricing.
C) bait pricing.
D) positioning pricing.

Question 9

Which of the following is an objective that can be influenced by product pricing?

A) Organisational profitability.
B) The long term survival and/or prosperity of an organisation.
C) The market share held by an organisation and/or its products.
D) How an organisation's products are positioned in the market's mind.
E) All of the options listed.

Question 10

Paul works for the Australian Government; he travels from store to store checking for illegal pricing activity. Which of the following price situations would Paul deem inherently illegal?

A) An organisation establishes an artificially low price for one item in a product line in order to attract buyers into a store, but has sufficient stock of that item and is willing to sell it for that price.
B) An organisation charges different prices to customers in different geographic regions due to higher transportation costs.
C) An organisation offers a low entry price for a basic product, and then charges more for desirable additional parts or functions.
D) An organisation offers volume purchase discounts.
E) None of the options listed.

Question 11

The Australian Government introduced a law making unit pricing mandatory for many consumer products. In order to satisfy the government requirements, which of the following is an example of unit pricing?

A) $2.34.
B) $0.29 per 100g.
C) 6 for $10.
D) $1.95 per pack.
E) None of the options listed.

Question 12

When a car manufacturer employs headline pricing for a basic model and then charges premium prices for commonly desired add-ons such as air-conditioning, it is an example of:

A) bait pricing.
B) bundle pricing.
C) unit pricing.
D) captive pricing.
E) bait and switch pricing.

Question 13

The business managers for each supermarket category at Coles are responsible for setting the retail price for each of the products in their category. They are also responsible for setting the promotional price and frequency of promotions. The business managers need to consider _______________ when setting these prices.

A) demand
B) cost
C) competition
D) Options a, b and c.
E) Both b and c.

Question 14

Formally defined, ____________ is the relationship between the price of a particular product and the quantity of the product that consumers are willing to buy.

A) demand
B) value
C) benefit
D) worth

Question 15

As shown with a demand curve, for the vast majority of products there is an inverse relationship between price and quantity sold; that is, as price ____________, the quantity sold ____________, and vice versa.

A) rises, rises
B) falls, rises
C) falls, falls
D) rises, falls

Question 16

If the prices for necessities such as water or electricity change, demand for these products tends to remain fairly constant. According to their price elasticity of demand, these products are regarded as:

A) price sensitive.
B) demand sensitive.
C) price inelastic.
D) price elastic.

Question 17

When a change in prices causes the opposite change in revenue, it is logical to cut prices to generate increased revenue. This sort of product demand is regarded as:

A) price sensitive.
B) demand sensitive.
C) price inelastic.
D) price elastic.

Question 18

Sarah is studying the demand curve for her product range. As marketing manager for Lean Cuisine frozen meals she is aware of the relationship between price and the demand for her products. Sarah is aware that:

A) for most products, there is an inverse relationship between price and quantity sold.
B) the demand curve has a downward, or negative slope.
C) Both a and b.
D) The demand curve for prestige products has a downward or negative slope.
E) Both a and d.

Question 19

Hotel rooms are most expensive on weekends and during peak holiday times. This pricing strategy is best described as:

A) inelastic pricing.
B) scheduled pricing.
C) prestige pricing.
D) demand-based pricing.
E) cost-plus pricing.

Question 20

Sarah is studying the demand curve for her product range. As marketing manager for Lean Cuisine frozen meals she is aware of the relationship between price and the demand for her products. Sarah understands that a change in the quantity demanded of her products due solely to a change in their price will result in:

A) movement along the demand curve.
B) there will be a shift of the demand curve to the left.
C) there will be a shift of the demand curve to the right.
D) no movement along the demand curve.
E) None of the options listed.

Question 21

Sarah is studying the demand curve for her product range. As marketing manager for Lean Cuisine frozen meals she is aware of the relationship between price and the demand for her products. It seems that even a small change in the price will greatly influence the sales demand. Lean Cuisine meals follow a price elastic demand curve which would be:

A) parallel.
B) relatively vertical.
C) relatively horizontal.
D) inverse.
E) None of the options listed.

Question 22

Price floor is defined as:

A) costs which vary with changes in output.
B) costs which do not vary with changes in output.
C) a minimum price that must be charged to cover costs.
D) price to attract customers into the store, where it is expected they will buy other, normally priced, product.

Question 23

Milk and eggs are products that is often heavily discounted in supermarkets like Coles, pricing lower than their competitor Woolworths to increase traffic into their stores. Oftentimes, this loss is balanced via other purchases in store. This pricing strategy is an example of a:

A) promotional product.
B) price floor product.
C) loss leader.
D) price leader.

Question 24

Break-even analysis determines the 'break-even point' for a product. Analysis involves estimating the ____________ required to cover total costs.

A) fixed costs
B) volume of unit sales
C) variable costs
D) price per unit

Question 25

In its standard production run, a bread company manufactures 100 loaves of bread. Investigating the effect on costs and revenue to produce and sell 120 loaves of this bread involves what sort of analysis by the company?

A) Marginal.
B) Break even.
C) Profit.
D) Qualitative.

Question 26

When it is difficult or impossible to determine the costs of the product until it has been made or completed, the pricing approach used is known as:

A) markup.
B) break even.
C) cost-plus.
D) percentage of cost.

Question 27

Pepsi cola soft drink 24 packs of cans selling at near cost price by Woolworths is an example of a:

A) price floor.
B) price leader.
C) loss leader.
D) break-even analysis.
E) competition based pricing.

Question 28

VPS Electrical decides to embark on an aggressive strategy to increase its market share and customer base; their prices will be determined using their price floor, which can be best described as:

A) selling products at a loss for a short period of time.
B) pricing products low in order to generate cash flow.
C) the minimum price that an organisation can charge for its products in order to cover costs.
D) charging a low price in order to attract customers to trial a new product.
E) None of the options listed.

Question 29

Paul has a small business selling coffee and light lunches. He prices his products based on cost, which he calculates by adding his fixed costs to his marginal costs. One of Pauls fixed costs might be:

A) sales commissions / tips.
B) shop rent.
C) raw materials.
D) packaging.
E) electricity.

Question 30

Each week, Paul monitors the performance of his products to check that he is making a profit on each line. He understands that there is a relationship between the price he sells them at and the quantity demanded. Reaching the break-even point is an indication that he is pricing his products correctly. The break-even point is:

A) the point at which total sales volume = variable cost.
B) the volume of unit sales at which total revenue = total costs.
C) the volume of unit sales where fixed costs = variable costs.
D) the point at which the price of a product = fixed costs.
E) the volume of unit sales at which total revenue = marginal cost.

Question 31

Which of the following best describes the concept of marginal analysis?

A) The amount of revenue per unit of product sold that contributes to profit.
B) The amount of revenue per unit of product sold that offsets costs.
C) The effect on costs and revenue when a company produces and sells one more unit of product.
D) Total cost divided by the number of units produced.
E) Total revenue divided by the number of units sold.

Question 32

A retailer who adds a 50 per cent 'markup' to the price charged to them by a wholesaler could best be described as using a __________ based pricing model?

A) demand
B) cost
C) competition
D) marginal analysis
E) None of the options listed.

Question 33

An approach to pricing based on the prices charged by competitors or on the likely response of competitors to the organisation, is known as:

A) cost-plus pricing.
B) cost-based pricing.
C) competition-based pricing.
D) geographic pricing.

Question 34

As an alternative to competing on price, companies can use a strategy of ____________ by focusing on product attributes such as uniqueness, quality, brand, image or service.

A) differentiation
B) targeting
C) segmentation
D) wholesaler pricing

Question 35

Bunnings Hardware advertises that if a customer happens to find a cheaper price on one of their stocked items at a competing store, they will beat that price by 10 per cent. Which of the following factors is most likely to allow Bunnings to compete on price in this way?

A) Low variable costs.
B) Low fixed costs.
C) Economies of scale in purchasing.
D) A higher break-even point.
E) Its marginal cost on their products exceeds their average cost.

Question 36

Woolworths and Coles often compete on price. For example Coles began a 'price war' selling milk at $1 per litre, an offer that Woolworths quickly matched. The retailers are aware that the cost of their electricity and water for example, are not negotiable like the costs of many of the products that they buy such as milk and bread. Coles and Woolworths managers understand that:

A) price competition is undesirable for a seller unless it has a cost advantage over competitors.
B) an organisation choosing to compete on aspects other than price has greater power to decide on the profit margin per unit sold for its products.
C) some government owned monopolies price products below cost.
D) All of the options listed.
E) Both a and b.

Question 37

The banking sector would best be described as an example of an industry that is:

A) an oligopoly.
B) characterised by monopolistic competition.
C) a monopoly.
D) perfectly competitive.
E) None of the options listed.

Question 38

Which of the following organisations could least afford to engage in price competition?

A) An organisation with low fixed costs and high variable costs.
B) An organisation with high fixed costs and low variable costs.
C) A supermarket.
D) Both a and c.
E) None of the options listed.

Question 39

Which of the following would be classified as 'non-price' competition?

A) Brand image.
B) Product quality.
C) Customer service.
D) Convenience.
E) All of the options listed.

Question 40

Apple is a good example of a company, which does not compete on price. Apple uses a 'non-price' competition approach. In order to do this, which of the following differentiators could be used?

A) Brand image.
B) Product quality.
C) Customer service.
D) Convenience.
E) All of the options listed.

Question 41

Online retailers in Australia often provide free shipping in metro areas, and calculate shipping costs at the checkout based on where the customer lives (i.e. in Australia or globally) based on their shipping address. This type of pricing is an example of:

A) cost-plus pricing.
B) cost-based pricing.
C) competition-based pricing.
D) geographic pricing.

Question 42

In business markets, various discounts apply to transactions, including functional discounts, _________ discounts, cash discount and seasonal discounts.

A) competition.
B) promotional.
C) wholesale.
D) quantity.

Question 43

Which of the following statements is incorrect?

A) A business that charges different prices to suppliers in different states and territories of Australia, to reflect the different transport costs of getting the product to each market, could be said to have a geographic pricing strategy.
B) Prices tend to be more negotiable in business markets.
C) A functional (or trade) discount is a price reduction provided to an intermediary that purchases large volumes of product.
D) A rebate for an intermediary based on purchase volume in a specified period is a form of quantity discount.
E) Consumer purchasing behaviour is usually based on a rational evaluation of value.

Question 44

Which of the following would not be a potential benefit to a supplier in terms of pricing to intermediaries in business markets?

A) Offering seasonal discounts to smooth sales, inventory and distribution costs.
B) Offering cash discounts to minimise time and money spent in collecting accounts receivable.
C) Offering quantity discounts to encourage large purchase volumes.
D) Offering discounts in return for various tasks performed by intermediaries, such as retailing.
E) All of the options listed are potential benefits.

Question 45

Which of the following is not an intermediary in a business-to-business transaction?

A) An agent.
B) A broker.
C) An industrial distributor.
D) An organisational buyer.
E) All of the options listed are intermediaries.

Question 46

In setting the initial price for the launch of a new product, ____________ involves charging the highest price that customers who most desire the product are willing to pay.

A) cost-based pricing
B) price skimming
C) penetration pricing
D) differential pricing

Question 47

The practice of charging different buyers different prices for the same product is known as:

A) cost-based pricing.
B) price skimming.
C) penetration pricing.
D) differential pricing.

Question 48

'Upsize' deals at fast food restaurants are examples of pricing a product at a moderate level and then positioning it next to a more expensive model. This is known as:

A) cost-based priding.
B) price skimming.
C) penetration pricing.
D) reference pricing.

Question 49

A car salesperson shows buyers cars that are outside their price range before showing them more suitable vehicles. This could best be described as an example of:

A) multiple-unit pricing.
B) reference pricing.
C) odd-even pricing.
D) bundle pricing.
E) cost-plus pricing.

Question 50

Which of the following statements is correct?

A) For unfamiliar products, consumers are more likely to rely on an external reference price.
B) For familiar products, consumers are more likely to rely on an internal reference price.
C) Both a and b.
D) Neither a nor b.
E) Odd-even pricing is pricing a product at a moderate level and positioning it next to a more expensive model.

Question 51

When new products are first introduced to the market, they are seen to be superior to other offerings on the market at the time; due to their perceived innovation or quality advantage. For example solar panels were initially very expensive to install (in the tens of thousands of dollars). Today, you can install a system on your home for a fraction of the price. This could best be described as an example of:

A) penetration pricing.
B) price skimming.
C) prestige pricing.
D) differential pricing.
E) odd-even pricing.

Question 52

Which of the following statements is incorrect?

A) A trade-in allowance is a form of differential pricing.
B) Differential pricing is common in business markets.
C) An organisation that regularly uses a special-event pricing strategy runs the risk that customers may delay purchasing behaviour in anticipation of the lower prices.
D) Differential pricing is illegal in consumer markets.
E) Discounts are a form of differential pricing.

Question 53

An office equipment manufacturer that charges a low price for a printer but a high price for the printer's ink cartridges could best be described as having a _____________ strategy.

A) captive pricing
B) bait pricing
C) secondary-market pricing
D) price lining
E) None of the options listed.

Question 54

Senior citizen discounts on a product could best be described as a _________ strategy.

A) captive pricing
B) comparison discounting
C) price leader
D) secondary-market pricing
E) None of the options listed.

Question 55

Which of the following pricing strategies would be best suited to encouraging consumers to trial a new product?

A) Price skimming.
B) Price lining.
C) Penetration pricing.
D) Secondary-market pricing.
E) None of the options listed.

Question 56

Which of the following pricing strategies would not be beneficial for an organisation to use for a product with an inelastic demand?

A) Discounting.
B) Prestige pricing.
C) Negotiated pricing.
D) Both a and c.
E) None of the options listed.

Question 57

Which of the following statements is correct?

A) Multiple-unit pricing involves selling multiple units of different products for a single price.
B) Bundle pricing involves selling two or more units of the same product for a single price.
C) Both a and b.
D) Neither a nor b.
E) Reference pricing is based on the theory that odd numbered prices have been discounted to the lowest price possible.