Deck 10: Pricing: Understanding and Capturing Customer Value

Question 1

________ pricing uses buyers' perceptions of value as the key to pricing.

A) Customer value-based
B) Cost-based
C) Time-based
D) Markup
E) Target return

Answer 1

A

Question 2

Azure Air, an airline company, offers attractive prices to customers with tighter budgets. A no-frills airline, it charges for all other additional services, such as baggage handling and in-flight refreshments. Which of the following best describes Azure Air's pricing method?

A) target profit pricing
B) good-value pricing
C) cost-based pricing
D) break-even pricing
E) penetration pricing

Answer 2

B

Question 3

Effective ________ pricing involves understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value.

A) customer-oriented
B) cost-based
C) time-based
D) competition-oriented
E) marketer-oriented

Answer 3

A

Question 4

________ refers to the amount of money charged for a product or service.

A) Value
B) Cost
C) Price
D) Wage
E) Salary

Question 5

Bon Vivant offers an assortment of exclusive French wines at incredibly low prices. These prices are neither limited-time offers nor special discounts, but represent the daily prices of products sold by Bon Vivant. This reflects Bon Vivant's ________ strategy.

A) everyday low pricing
B) markup pricing
C) penetration pricing
D) break-even pricing
E) cost-based pricing

Question 6

________ pricing refers to offering just the right combination of quality and gratifying service at a fair price.

A) Markup
B) Good-value
C) Cost-plus
D) Target profit
E) Break-even

Question 7

________ involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items.

A) High-low pricing
B) Everyday low pricing
C) Cost-plus pricing
D) Break-even pricing
E) Penetration pricing

Question 8

________ is the only element in the marketing mix that produces revenue.

A) Price
B) Product
C) Place
D) Fixed costs
E) Variable costs

Question 9

A pharmaceutical company in Utah recently released a new and expensive anti-ulcer drug in the market. The company justifies the high price of the drug by claiming that it is highly effective for treating all kinds of ulcers. The company also claims that the new drug will help bring down the need for invasive surgeries, an additional benefit for patients. Which of the following pricing strategies is the pharmaceutical company most likely using in this instance?

A) target pricing
B) markup pricing
C) cost-based pricing
D) value-based pricing
E) break-even pricing

Question 10

Which of the following is true of value-based pricing?

A) The targeted value and price drive decisions about what costs can be incurred and the resulting product design.
B) Value-based pricing is mostly product driven.
C) Value-based pricing involves setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for its effort and risk.
D) The marketer usually designs a product and marketing program and then sets the price.
E) A company using value-based pricing designs what it considers to be a good product, adds up the costs of making the product, and sets a price that covers costs plus a target profit.

Question 11

Retailers such as Costco and Walmart charge a constant, daily low price with few or no temporary price discounts. This is an example of ________.

A) competition-based pricing
B) everyday low pricing
C) cost-plus pricing
D) break-even pricing
E) penetration pricing

Question 12

Which of the following processes does value-based pricing reverse?

A) high-low pricing
B) everyday low pricing
C) cost-based pricing
D) good-value pricing
E) value-added pricing

Question 13

Which of the following involves introducing less-expensive versions of established, brand-name products?

A) markup pricing
B) good-value pricing
C) time-based pricing
D) cost-based pricing
E) target profit pricing

Question 14

Which of the following is true with regard to price?

A) Historically, price has had the least perceptible impact on buyer choice.
B) Price is the least flexible element in the marketing mix.
C) Unike product features and channel commitments, prices cannot be changed quickly.
D) Price is the sum of all the values that customers give up to gain the benefits of having a product.
E) Prices only have an indirect impact on a firm's bottom line.

Question 15

The perceived value of different product offers can be reasonably assessed by ________.

A) conducting a SWOT analysis
B) conducting a break-even analysis
C) conducting surveys and experiments
D) collecting data about competitors' offers
E) setting a benchmark for product quality

Question 16

When McDonald's and other fast food restaurants offer "value menu" items at surprisingly low prices, they are most likely using ________.

A) break-even pricing
B) target profit pricing
C) good-value pricing
D) cost-plus pricing
E) target return pricing

Question 17

Underpriced products ________.

A) produce less revenue than they would if they were priced at the level of perceived value
B) sell poorly in the global marketplace
C) produce more revenue than they would if they were priced at the level of perceived value
D) mostly offer higher value than those with a high markup price
E) are characterized by rapidly declining demand

Question 18

What sets the floor for product prices?

A) consumer perceptions of the product's value
B) product costs
C) competitors' strategies
D) advertising budgets
E) market competition

Question 19

Department stores such as Kohl's and Macy's practice high-low pricing by ________.

A) charging a constant, everyday low price
B) providing few or no temporary price discounts
C) increasing prices temporarily on select products
D) having frequent sale days for store credit-card holders
E) underpricing most consumer items

Question 20

What sets the ceiling for product prices?

A) product manufacturing costs
B) sellers' perceptions of the product's value
C) customer perceptions of the product's value
D) variable costs
E) break-even volume

Question 21

________ involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk.

A) Value-based pricing
B) Competition-based pricing
C) Cost-based pricing
D) Penetration pricing
E) Break-even pricing

Question 22

With accumulated production experience and a higher volume of production, companies not only become more efficient but also ________.

A) gain economies of scale
B) incur higher overhead costs
C) create derived demand in the market
D) spend more per unit of produced output
E) tend to routinely spend less on inputs

Question 23

As production workers become better organized and more familiar with equipment, the average cost per unit tends to decrease with the ________.

A) increase in the diseconomies of scale
B) accumulated production experience
C) decrease in the economies of scale
D) increase in derived demand
E) increase in primary demand

Question 24

In 2011, the fixed costs of a company were $500,000, and its variable costs equalled $150,000. In 2010, the company made an annual profit of $200,000. It has been predicted that, despite a steady growth, the company's variable costs will likely equal $300,000 by 2013. The total costs of the company in 2011 were ________.

A) $350,000
B) $450,000
C) $650,000
D) $800,000
E) $950,000

Question 25

Companies with lower costs ________.

A) specialize in selling products with value-added features
B) usually market products with inferior quality, thereby justifying the low selling price
C) can set lower prices that result in smaller margins but greater sales and profits
D) tend to overprice products owing to their monopolistic advantage
E) usually set higher prices that result in higher margins

Question 26

A company must pay each month's bills for rent, heat, interest, and executive salaries regardless of the company's level of output. This exemplifies its ________ costs.

A) overhead
B) variable
C) target
D) total
E) unit

Question 27

The fixed cost in manufacturing a single LED monitor is $40 and the variable cost is $12. If the company expects to manufacture 5,000 monitors, the total costs would be ________.

A) $60,000
B) $200,000
C) $260,000
D) $420,000
E) $500,000

Question 28

The learning curve is representative of the ________.

A) per unit cost of output in the long run
B) drop in the average per-unit production cost that comes with accumulated production experience
C) number of units the market will buy in a given time period, at different prices that might be charged
D) total market demand resulting from different prices
E) per unit cost of output in the short run

Question 29

Fixed costs ________.

A) are costs that do not vary with production or sales level
B) vary directly with the level of production
C) decrease with accumulated production experience
D) are the sum of the overhead and variable costs for any given level of production
E) represent the annual costs of inputs incurred by a company

Question 30

The total production costs at Kellner Machine Works are $87,000 out of which $45,000 represent fixed costs. Which of the following is representative of the variable costs incurred by the company?

A) $35,000
B) $42,000
C) $45,000
D) $87,000
E) $132,000

Question 31

The long-run average cost (LRAC) curve indicates the ________.

A) per unit cost of output in the long run
B) projected total production costs of competitors
C) variable costs incurred by a firm over time
D) fixed costs incurred by a firm over the long term
E) number of units the market will buy in a given time period, at different prices that might be charged

Question 32

As production moves up, the average cost per unit decreases because ________.

A) variable costs decrease
B) of increasing diseconomies of scale
C) fixed costs are spread over more units
D) overhead costs decrease
E) revenue increases

Question 33

Overhead costs ________ as the number of units produced increases.

A) decrease
B) increase steadily
C) fluctuate
D) remain the same
E) increase rapidly

Question 34

Which of the following is true with regard to value-added pricing?

A) Companies that practice value-added pricing typically match the competition by cutting prices.
B) Companies practicing value-added pricing differentiate their offers by attaching value-added features to offerings that, in turn, justify higher prices.
C) The intrinsic value of products sold by companies practicing value-added pricing is far less than their actual selling price.
D) Companies practicing value-added pricing primarily rely on cost differentiation.
E) Value-added pricing is the most suitable pricing strategy in pure monopolies.

Question 35

Which of the following is most likely a fixed cost?

A) sales representative commissions
B) product distribution costs
C) manufacturing input costs
D) temporary worker salaries
E) facility rental payments

Question 36

In an effort to differentiate its offerings from its competitors, Pegasus Computers decided to add an extra USB port in all its laptops besides providing a free pair of Delphi power bass headphones with every Pegasus laptop. Although the additional features increased the price of the laptops by $500, Pegasus was confident that the strategy would help boost demand for its laptops substantially. This is an example of ________.

A) good-value pricing
B) markup pricing
C) break-even pricing
D) value-added pricing
E) cost-based pricing

Question 37

Costs that change with the level of production are referred to as ________.

A) fixed costs
B) variable costs
C) target costs
D) total costs
E) overhead costs

Question 38

Companies that adopt value-added pricing ________.

A) consider value-added features as a fitting substitute for aggressive cost cutting
B) set incredibly low prices to meet competition
C) attach value-added features and services to differentiate their offers and support their higher prices
D) overprice their products without any apparent justification
E) underprice their products and lower quality to boost demand in the short-run

Question 39

The experience curve reveals that ________.

A) repetition in production has no visible impact on production costs
B) repetition in production enhances efficiency
C) the average cost of production remains the same with accumulated production experience
D) repetition in production adds to the costs and thereby increases the prices of outputs
E) the average cost of production increases with accumulated production experience

Question 40

A cell phone manufacturing firm produced 1,000 cell phones a day but believed that it could reasonably step up production to 2,000 cell phones a day. Consequently, it built a larger plant and installed efficient machineries and work arrangements to realize the projected output. Which of the following can most likely be inferred from this information?

A) The unit cost of producing 2,000 cell phones per day would be twice that of the unit cost of producing 1,000 units per day.
B) A production plant with the capacity of producing 5,000 cell phones a day would be most efficient.
C) The unit cost of producing 2,000 cell phones per day would be lower than the unit cost of producing 1,000 units per day.
D) A 2,000-capacity production plant would be less efficient because of increasing diseconomies of scale.
E) The fixed costs of the firm are more likely to increase with the increase in output.

Question 41

Target return pricing uses the concept of a(n) ________, which shows the total cost and total revenue expected at different sales volume levels.

A) BCG matrix
B) break-even chart
C) SWOT analysis
D) demand curve
E) experience curve

Question 42

Samsung Mobile plans to launch a new phone with a unit cost of $270 and wants to earn a 10 percent markup on its sales. Samsung's markup price is ________.

A) $275
B) $280
C) $295
D) $300
E) $335

Question 43

Mansfield Pharmaceuticals markets Zipro, an antibiotic. The firm has fixed costs of $1,000,000 and variable costs of $2 per bottle of 50 tablets priced at $10 per bottle. What is the break-even volume?

A) 25,000
B) 55,000
C) 100,000
D) 115,000
E) 125,000

Question 44

As a manufacturer increases the price, ________.

A) efficiency drops
B) the break-even volume drops
C) competition is minimized
D) the total costs increase
E) the profit margin shrinks

Question 45

Why is markup pricing most likely popular?

A) Sellers are more certain about demand than about costs.
B) Markup pricing tends to maximize market competition.
C) Markup pricing affords buyers greater bargaining power.
D) Sellers do not need to make frequent adjustments as demand changes.
E) Markup pricing is designed to set prices to break even on the costs of making and marketing a product.

Question 46

Which of the following is a cost-based approach to pricing?

A) value-based pricing
B) high-low pricing
C) target return pricing
D) good value pricing
E) EDLP

Question 47

Which of the following statements about break-even analysis is true?

A) It is used to determine how much production experience a company must have in order to achieve desired efficiencies.
B) It is a technique used to calculate fixed costs.
C) It determines the amount of retained earnings a company will have during a given accounting period.
D) It is a technique marketers use to determine the relationship between supply and demand.
E) It is calculated by using variable costs, the unit price, and fixed costs.

Question 48

Target return pricing is a variation of which of the following cost-oriented pricing approaches?

A) cost-plus pricing
B) break-even pricing
C) markup pricing
D) value-based pricing
E) fixed cost pricing

Question 49

The break-even volume is the point at which ________.

A) the total revenue and total cost curves intersect
B) demand equals supply
C) the production of one more unit will not lead to increase in demand
D) the company can pay off all its long-term debt
E) a firm exceeds the sales forecast

Question 50

The simplest pricing method is ________ pricing.

A) value-based
B) fixed cost
C) cost-plus
D) target return
E) competition-based

Question 51

Which of the following is most likely a risk associated with experience-curve pricing?

A) High-volume production facilities are unable to meet demand.
B) New technology often leads to productivity problems.
C) Demand for the product fluctuates unpredictably.
D) Consumers tend to prefer new brands over established ones.
E) Aggressive pricing often gives a product a cheap image.

Question 52

A company faces fixed costs of $100,000 and variable costs of $8 per unit. It plans to directly sell its product in the market for $12. How many units must it produce and sell to break even?

A) 20,000
B) 25,000
C) 30,000
D) 35,000
E) 40,000

Question 53

A downward-sloping experience curve is indicative of ________.

A) the negative customer perception about a company's products
B) the falling demand for a company's products
C) the falling unit production cost of a company
D) the low quality of a company's products
E) slow and inadequate organizational learning

Question 54

A manufacturer has fixed costs of $100,000, a variable cost of $10 per unit of output, and break-even volume of 50,000 units. What should the manufacturer's unit cost be in order to break even?

A) $10
B) $12
C) $14
D) $16
E) $20

Question 55

Herbie Inc., a firm manufacturing sandwich makers, has fixed costs of $250,000, variable costs of $20 per unit of output, and expected unit sales of 50,000 units. What is the unit cost of a sandwich maker manufactured by Herbie?

A) $15
B) $25
C) $30
D) $50
E) $75

Question 56

John assured his venture capitalists an earning of 25 percent return on equity when he began his IT start-up. In order to achieve this result, he will most likely use which of the following pricing approaches?

A) value-based pricing
B) markup pricing
C) EDLP
D) customer-based pricing
E) target return pricing

Question 57

Cost-plus pricing ________.

A) is a complex pricing method
B) involves pricing that accurately reflects production costs
C) involves adding a standard markup for profit
D) aims at breaking even on the costs of making and marketing a product
E) is a value-based pricing method

Question 58

Why is markup pricing most likely impractical?

A) Calculating costs is complicated due to fluctuations.
B) By tying the price to cost, sellers oversimplify pricing.
C) When all firms in the industry use this pricing method, prices tend to be similar.
D) The method ignores demand and competitor prices.
E) With a standard markup, consumers know when they are being overcharged.

Question 59

Lawyers, accountants, and other professionals typically price by adding a standard markup for profit. This exemplifies ________.

A) target pricing
B) cost-plus pricing
C) value-based pricing
D) break-even pricing
E) penetration pricing

Question 60

Experience-curve pricing assumes that ________.

A) competitors are weak and not willing to fight price cuts
B) competitors are strong and invincible
C) aggressive pricing adversely affects product image
D) volume-based production slows down organizational learning
E) lower-cost technologies are almost always inferior

Question 61

Under ________, the market consists of many buyers and sellers trading in a uniform commodity.

A) pure competition
B) monopolistic competition
C) oligopolistic competition
D) a pure monopoly
E) the dominant firm model

Question 62

In industrial markets, ________ typically has the final say in setting the pricing objectives and policies of a company.

A) the sales manager
B) top management
C) the production manager
D) the HR department
E) the sales staff

Question 63

Under ________, the market consists of many buyers and sellers who trade over a range of prices rather than a single market price.

A) pure competition
B) monopolistic competition
C) oligopolistic competition
D) a pure monopoly
E) the dominant firm model

Question 64

Which of the following is an external factor that affects pricing decisions in a company?

A) the company's overall marketing strategy
B) the nature of the market
C) the organizational objectives of the company
D) elements of the company's marketing mix
E) the annual advertising budget of rival firms

Question 65

Which of the following is true with regard to pure competition?

A) Under pure competition, no single buyer or seller has much effect on the going market price.
B) In a purely competitive market, marketing research is of utmost importance.
C) In a purely competitive market, product development is the focus of most firms.
D) Under pure competition, the market consists of many buyers and sellers who trade over a range of prices rather than a single market price.
E) Under pure competition, the market consists of only a few large sellers.

Question 66

The movie industry in a country is controlled by six large studios that receive 90 percent of the annual revenues from movies. This is an example of a(n) ________.

A) pure competition
B) monopolistic competition
C) oligopolistic competition
D) pure monopoly
E) government monopoly

Question 67

A decision to position the product on high-performance quality will mean that the ________.

A) seller must charge a higher price to cover higher costs
B) seller must charge a lower price to attract more customers
C) producer must step down production
D) marketer must boost derived demand in the market
E) break-even volume will be fairly low

Question 68

In Viña del Mar, Chile, a large number of shops specialize in selling the same quality of seafood products along the beach frequented by tourists. No individual shop dares charge more than the going price without fearing loss of business to other shop-owners. This exemplifies ________.

A) pure competition
B) monopolistic competition
C) oligopolistic competition
D) pure monopoly
E) the dominant firm model

Question 69

Elmo Inc., a global conglomerate, designed the ElBrush, an electric toothbrush. Sensing market demand for the electric toothbrush, Elmo started with an ideal selling price of $3 based on customer value considerations and then targeted costs to ensure that the price was met. This exemplifies ________.

A) competition-based pricing
B) cost-plus pricing
C) target costing
D) everyday low pricing
E) high-low pricing

Question 70

RedFin, a company marketing deep-sea diving equipment, charges very high prices for its products. Despite the availability of many low-priced products in the market, customers seem to prefer RedFin, which has earned a reputation for selling high-quality products. This exemplifies ________.

A) a pure monopoly
B) an oligopoly
C) a nonprice position
D) break-even pricing
E) target costing

Question 71

Companies using target costing ________.

A) first design a new product and then determine its cost
B) tailor their products to be in line with the marketing mix
C) routinely neglect customer value considerations
D) avoid determining an ideal selling price until analyzing test market results
E) start with an ideal selling price and then target costs that will ensure that the price is met

Question 72

Price setting is usually determined by ________ in large companies.

A) the top managers
B) the external stakeholders
C) product managers
D) non-executive employees
E) the sales department

Question 73

Companies can legitimately charge a higher price if ________.

A) consumers perceive that the company's product offers greater value
B) the demand for products manufactured by a firm is highly elastic
C) the cost of advertising is minimal
D) derived demand remains constant
E) consumers de-emphasize quality

Question 74

Which of the following is an internal factor that affects pricing decisions in a company?

A) the nature of the market
B) the degree of inflation in the economy
C) the overall marketing strategy of the company
D) the forces of demand and supply in the market
E) consumers' perception of value

Question 75

Which of the following involves setting prices based on a rival firm's strategies, costs, prices, and market offerings?

A) target return pricing
B) good-value pricing
C) competitor value-added pricing
D) market-based pricing
E) competition-based pricing

Question 76

Which of the following exemplifies a pure competitive market?

A) a market where many buyers and sellers trade over a range of prices rather than a single market price
B) a market where a single firm controls the larger fraction of the market share
C) a market where a few powerful firms control the larger fraction of the market share
D) a market characterized by only a few large sellers
E) a market where many buyers and sellers trade in a uniform commodity

Question 77

Which of the following is true of a pure competitive market?

A) A single seller has a major effect on the current and future market price.
B) Companies spend significantly on marketing research and product development.
C) The advertising budget of companies is usually huge.
D) Sellers try to develop differentiated offers for different customer segments.
E) Sellers spend little time on marketing strategy.

Question 78

PoolPak produces climate-control systems for large swimming pools. The company's customers are more concerned about service support for maintaining their systems than the initial price of the product. PoolPak specializes in and differentiates itself through both cutting-edge technologies used to build its high-value climate control systems as well as seamless quality service. PoolPak's prices are very high, but demand for its climate-control systems seems to be forever on the rise. This exemplifies ________.

A) target costing
B) a pure monopoly
C) cost-plus pricing
D) a nonprice position
E) break-even pricing

Question 79

In industries in which pricing is a key factor, ________ often set the best prices or help others in setting them.

A) sales departments
B) salespeople
C) production managers
D) line managers
E) pricing departments

Question 80

Price setting is usually determined by ________ in small companies.

A) the top managers
B) the marketing department
C) the sales department
D) divisional managers
E) product managers