Question 1

An executive fully reimbursed for all travel expenses is most likely to be attracted to a(n):

Accepted Answer

An executive who is fully reimbursed for travel expenses is likely to prioritize comfort and luxury. Therefore, an upscale hotel with room service for breakfast and dining at expensive restaurants would be more attractive. Options A, B, and C would not be as appealing as the executive would be less likely to be concerned about discounts when fully reimbursed.

Question 2

A restaurant seeking to establish an exclusive clientele is likely to:

Accepted Answer

A restaurant seeking to establish an exclusive clientele is likely to inflate food and beverage prices to create a perception of luxury and exclusivity. This pricing strategy not only helps to attract a certain type of customer but also helps to cover the higher costs associated with providing a higher-end dining experience.

Question 3

When employees try to sell a higher priced alternative to a potential customer, it is called:

Accepted Answer

Up-selling refers to when an employee suggests a higher priced alternative to a customer who initially shows interest in a lower priced item. This can often result in a higher sale and increased profit margin for the business.

Question 4

A hotel trying to sell its food and beverage facilities, meeting rooms, retails, etc. to its guests, is an example of:

Accepted Answer

Cross-selling refers to promoting additional products or services to a customer that are related to their initial purchase or interest. In this case, the hotel is promoting additional facilities to their guests that are related to their stay. Up-selling would refer to convincing the guest to upgrade their room or purchase a more expensive package. Down-stream selling refers to selling products or services to customers after they have left the initial purchase or service. Internal promotion would refer to promotion within the company, such as promoting an employee to a higher position.

Question 5

In the short run, the most important pricing strategy is:

Accepted Answer

In the short run, survival is the most important pricing strategy. The business must cover its costs to stay afloat and avoid bankruptcy. Therefore, pricing at a level that allows the business to break even, or even with a small profit margin, is crucial for survival. Only when the business is stable and profitable can it consider other pricing strategies such as penetration or profit maximization.

Question 6

Which of the following is NOT a factor affecting price sensitivity?

Accepted Answer

Customer satisfaction is not a factor affecting price sensitivity. However, factors such as the total expenditure effect, end-benefit effect, and unique value effect can impact a customer's willingness to pay a certain price for a product or service.

Question 7

For which goods could the demand slope curve upward?

Accepted Answer

The demand slope for prestige goods can curve upward because as the price of the good increases, the demand for it may also increase due to its higher perceived value and status symbol. This is known as the Veblen effect, named after economist Thorstein Veblen.

Question 8

Which of the following statements is TRUE?

Accepted Answer

Excess capacity refers to a situation where the demand for a product or service is lower than its supply. In such a scenario, businesses often resort to price cuts to attract customers and increase sales. Hence, option C is true.

Option A is false because price points, or specific price levels for a product or service, are commonly used in the hospitality industry.

Option B is also false because while yield management is a popular practice in the hospitality and travel industries, not all businesses use it.

Option D is false because business travelers are generally less price-sensitive than leisure travelers since their expenses are often covered by their employers.

Question 9

With increased demand, or higher guest/customer traffic, the total costs are likely to ________.

Accepted Answer

With increased demand or higher guest/customer traffic, businesses may need to spend more on resources such as staffing, inventory, or services. This will lead to increased total costs.

Question 10

Which of the following is an example of an elastic demand situation?

Accepted Answer

Elastic demand occurs when the percentage change in quantity demanded is greater than the percentage change in price. In option B, the demand falls by 8% when the price increases by 5%, indicating elasticity.

Question 11

A restaurant seeking to establish a heavy demand is likely to:

Accepted Answer

Offering high quality products for low prices is likely to attract more customers and establish heavy demand due to the perceived value and affordability.

Question 12

Customers are more price-sensitive when the price of the product accounts for a large share of the total cost of the ________.

Accepted Answer

Customers are more price-sensitive when the price of the product accounts for a large share of the total cost of the end benefit, as it significantly impacts the overall value they receive.

Question 13

In the first few months upon opening a new hotel, a hotel company wanting to achieve market share leadership is most likely to:

Accepted Answer

During the first few months of opening a new hotel, the hotel company may use low opening rates to attract customers and influence demand. This strategy may help the hotel to gain market share by attracting customers who may not have considered staying at the hotel at a higher price point. Once the hotel has established a presence in the market, it may adjust its pricing strategy accordingly.

Question 14

Hotels often use this strategy when the economy slumps:

Accepted Answer

During economic downturns, hotels may adopt a survival strategy to maintain operations and navigate through periods of reduced demand. This can involve cost-cutting measures, offering special promotions, or adjusting services to retain customers and stay afloat until the economy recovers.

Question 15

The factor that sets the floor for a product's price is:

Accepted Answer

The cost of producing a product sets the minimum price at which it can be sold. If the selling price is lower than the cost price, the business will incur a loss. Therefore, the cost of production is the factor that sets the floor for a product's price.

Question 16

When families go to the same resort year after year, and get to know and like both the resort employees and friends in the nearby town, they may be less sensitive to price increases at the resort due to the:

Accepted Answer

The sunk investment effect refers to the tendency for individuals to become less sensitive to future costs because they have already invested time, money, or effort into a particular activity or service. In this case, if families have been going to the same resort year after year and have gotten to know the employees and nearby town, they have likely already invested time and effort into building those relationships and may be less sensitive to price increases at the resort.

Question 17

Costs that do NOT vary with production levels are called:

Accepted Answer

Fixed costs are costs that do not vary with production levels, regardless of whether there is high or low production. Non-operating costs are costs that are not related to the day-to-day operations of a business, and variable costs are costs that vary with production levels. Permanent cost is not a commonly used term in accounting and finance.

Question 18

If a server in a restaurant convinces a patron to buy a t-shirt at the front counter, they are:

Accepted Answer

The server is cross-selling by persuading the patron to buy a product that is related to the restaurant experience but not directly involved in their meal, such as a t-shirt. Upselling would involve convincing the patron to upgrade or add onto their meal, while split-selling and overselling are not terms commonly used in sales or marketing.

Question 19

Charging $0.99 instead of $1.00, or using 3s in the price instead of 7s, is an attempt to engage in:

Accepted Answer

Psychological pricing involves using pricing tactics that play on consumer's emotions and perceptions to influence their decision making. Charging $0.99 instead of $1.00 creates the perception that the price is lower, even though the difference is only one penny. Using 3s in the price instead of 7s can also create the perception of a lower price or a sale. Both of these tactics fall under psychological pricing.

Question 20

The basic break-even price is:

Accepted Answer

The basic break-even price is calculated by dividing the fixed costs by the contribution margin per unit. This tells us the minimum price per unit we need to charge to break even and cover our fixed costs.

Quiz 11: Pricing: Understanding and Capturing Customer Value

An executive fully reimbursed for all travel expenses is most likely to be attracted to a(n) :