Deck 10: Managing Perceived Costs

Question 1

Describe the five pricing objectives

Answer 1

. Surplus Maximization - four equations comprise the surplus maximizing pricing model, which focuses on yielding the largest possible surplus or profit for the organization.
. Cost Recovery - a portion of the costs or the full costs are recovered
.Market Size Maximization - nonprofits maximize the number of users, making up for lower margins with volume
.Social Equity - services are priced to contribute to social equity (e.g. subsidized services for the poor)
. Market Disincentivization - pricing discourages people from purchasing a product or service (e.g. government tax on cigarettes)

Question 2

Describe the four pricing strategies

Answer 2

.Cost-oriented- mark-up pricing, cost-plus, cost-minus, and break-even analysis
.Demand -oriented-rests on the premise that price reflects the target audience's perceived value
.Competition-oriented- pricing based on what competitors are charging (i.e. the going rate)
.Promotional pricing- Temporary deductions or discounts from a maintained list price with promotional specials

Question 3

Describe the strategy of varying costs across segments by price discrimination

Answer 3

.An offer of products and services at different prices
.Varies target audience monetary costs based on the cost of provision, matching the price to the perceived value received, regulating demand and capturing the most surplus the target audience is willing to pay.

Question 4

Describe the conflicts of ethical price setting

Question 5

At a medical check-up, the fear that a disease will be found is a

A) monetary cost
B) perceived cost
C) social cost
D) physical cost
E) dual cost

Question 6

A hospital may require a patient to walk-in for a simple outpatient surgery instead of admitting him or her to the hospital overnight to

A) minimize the surplus cost to the patient
B) increase the non-monetary costs to the patient
C) increase the duality of costs to both parties
D) practice market disincentivization
E) reduce patient waiting time

Question 7

Understanding target audience perceptions of cost is important because

A) strategies can be used to reduce perceived costs
B) target audience perceptions are always right
C) a marketer wants to minimize the number of exchanges
D) a perceived cost is the same as monetary cost
E) costs only accrue to the target audience so you need to understand them

Question 8

The two stages an organization should go through when deciding on monetary pricing are

A) determining demand functions and conducting a break-even analysis
B) determining the demand and then the response functions
C) determining the pricing objective and then the pricing strategy
D) determining the perceived cost and then the monetary cost
E) determining the benefit bundle and then the cost bundle

Question 9

A local symphony has figured, through local demand analysis that for every $1 increase in the price of its ticket, there will be a corresponding drop of 100 fewer tickets sold. If the fixed cost of a production is $100,000, the cost of each performance is $10,000 and the cost for attracting each person attending is $10. The symphony is examining five price points -$30, $35, $40, $45 and $50. The symphony historically priced its tickets at $40 and averaged attendance of 6,000 over the course of six shows. The theater's capacity is 10,000 over the six-show run. Which price offers the optimum price point for the symphony?

A) $30 ($0 profit)
B) $35 ($12,500 profit)
C) $40 ($20,000 profit)
D) $45 ($22,500 profit)
E) $50 (20,000 profit)

Question 10

When toll roads make customers pay part of their costs, the pricing objective is called:

A) market size maximization
B) market disincentivization
C) social equity
D) surplus maximization
E) cost recovery

Question 11

Mass transit companies wishing to discourage commuting during rush hours and charge a higher price during these hours, the pricing objective is called:

A) market size maximization
B) market disincentivization
C) social equity
D) surplus maximization
E) cost recovery

Question 12

Higher rates are charged for library services used by more affluent borrowers, such as DVD rentals, the pricing objective is called:

A) market size maximization
B) market disincentivization
C) social equity
D) surplus maximization
E) cost recovery

Question 13

The pricing strategy where theaters offer lower-priced tickets for students is called:

A) Cost-plus pricing
B) Cost-minus pricing
C) Mark-up pricing
D) Varying costs across segments
E) Competition-oriented pricing

Question 14

The pricing strategy where theaters offer attendees five plays for the price of four is called:

A) competition-oriented pricing
B) promotional pricing
C) varying costs across segments
D) mark-up pricing
E) cost recovery pricing