Question 1

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

Accepted Answer

Value-based pricing is the process of setting a price based on the perceived value to the customer, rather than the cost of production or the competition's price. Therefore, it reverses the process of cost-based pricing, which involves setting a price based on the cost of production. High-low pricing, everyday low pricing, good-value pricing, and value-added pricing are all pricing strategies that can coexist with value-based pricing but are not reversed by it.

Question 2

Define price. Discuss its importance.

Accepted Answer

In the narrowest sense, price is the amount of money charged for a product or a service. More broadly, price is the sum of all the values that customers give up to gain the benefits of having or using a product or service. Historically, price has been the major factor affecting buyer choice. In recent decades, however, nonprice factors have gained increasing importance. Even so, price remains one of the most important elements that determines a firm's market share and profitability.
Price is the only element in the marketing mix that produces revenue; all other elements represent costs. Price is also one of the most flexible marketing mix elements. Unlike product features and channel commitments, prices can be changed quickly. At the same time, pricing is the number one problem facing many marketing executives, and many companies do not handle pricing well. Some managers view pricing as a big headache, preferring instead to focus on other marketing mix elements. However, smart managers treat pricing as a key strategic tool for creating and capturing customer value. Prices have a direct impact on a firm's bottom line. A small percentage improvement in price can generate a large percentage increase in profitability. More important, as part of a company's overall value proposition, price plays a key role in creating customer value and building customer relationships.

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

Accepted Answer

Effective customer-oriented pricing involves understanding the value that consumers place on the benefits they receive from the product, and setting a price that captures that value. This approach is focused on meeting the needs and expectations of the customer, rather than on simply covering costs or outdoing competitors. It can result in higher profit margins and greater customer loyalty.

Question 4

________ 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

Accepted Answer

Customer value-based pricing emphasizes the importance of understanding customers' perceptions of value and using that knowledge to set prices that reflect what customers are willing to pay. This approach starts with customer needs and perceptions rather than costs or competition, making it a customer-centric approach to pricing.

Question 5

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

Accepted Answer

Underpriced products are products that are priced lower than their perceived value. This means that they produce less revenue than they would if they were priced at the level of perceived value. Therefore, choice A is the correct answer.

Question 6

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.

Accepted Answer

Value-based pricing is based on the customer's perception of the value of the product. The targeted value and price drive decisions about what costs can be incurred and the resulting product design. The company starts by assessing the customer's needs and the value it provides to the customer, and then designs the product and marketing program accordingly.

Question 7

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

Accepted Answer

The floor for product prices is set by the product costs, which include the expenses for materials, labor, and overhead. Companies cannot price a product below this level and still remain profitable. While consumer perceptions of the product's value, competitors' strategies, advertising budgets, and market competition can all influence pricing decisions, the product costs provide a minimum threshold for pricing.

Question 8

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) Unlike 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.

Accepted Answer

Price is the sum of all the values that customers give up to gain the benefits of having a product. This is known as the total cost of ownership, which includes not only the monetary price, but also the time, effort, and other sacrifices that customers make in order to purchase and use a product. Therefore, price is a critically important element in the marketing mix that can directly influence buyer choice and the firm's bottom line. Choices A, B, C, and E are all incorrect statements about price.

Question 9

________ refers to the amount of money charged for a product or service.
A) Value
B) Cost
C) Price
D) Wage
E) Salary

Accepted Answer

Price refers to the amount of money charged for a product or service. A is incorrect because value is the worth or usefulness of a product or service. B is incorrect because cost refers to the expenses incurred in producing a product or service. D and E are also incorrect as they refer to payments made to employees, not the amount charged for a product or service.

Question 10

The perceived value of different product offers can be reasonably assessed by ________.
A) conducting a SWOT analysis
B) preparing demand curves
C) conducting surveys and experiments
D) collecting data about competitors' offers
E) setting a benchmark for product quality

Accepted Answer

Conducting surveys and experiments is the best way to assess the perceived value of different product offers as it directly involves consumer opinions and feedback. SWOT analysis, demand curves, data collection about competitors' offers, and setting a benchmark for product quality may provide valuable information, but may not fully capture the perceived value of the product from the consumer's perspective.

Question 11

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

Accepted Answer

The pharmaceutical company is most likely using value-based pricing, as they are justifying the high price of the drug by claiming that it is highly effective and will bring down the need for invasive surgeries - implying that it provides a significant value to the customers/patients.

Question 12

Prices have a direct impact on a firm's bottom line.

Accepted Answer

Prices directly affect a firm's revenue and profits, which are part of the bottom line of a company's financial statement. Higher prices can lead to higher revenues, while lower prices can lead to lower revenues and profits.

Question 13

________ 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

Accepted Answer

Good-value pricing refers to providing the right combination of quality and service at a fair price. This approach considers the customer's perception of value and aims to offer a price that aligns with that perception while still generating profit for the company. It does not rely solely on cost or markup, but rather takes into account the customer's willingness to pay and the competition in the market.

Question 14

________ is the only element in the marketing mix that produces revenue.
A) Price
B) Product
C) Place
D) Fixed costs
E) Variable costs

Accepted Answer

Price is the unique element of the marketing mix that generates revenue. The other elements of the marketing mix - product, place, and promotion - create expenses for the company but do not directly produce revenue. Fixed and variable costs are not part of the marketing mix.

Question 15

When McDonald's and other fast food restaurants offer "value menu" items at surprisingly low prices, they are most likely using ________ pricing.
A) break-even
B) target profit
C) good-value
D) cost-plus
E) target return

Accepted Answer

When fast food restaurants offer value menu items at low prices, they are likely using good-value pricing. This strategy involves offering a low price for a product that customers perceive as having high-value. The aim is to attract price-sensitive customers and increase sales volume.

Question 16

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

Accepted Answer

The ceiling for product prices is ultimately set by the customer perceptions of the product's value. Customers will only pay what they believe a product is worth, and therefore the success of a pricing strategy is dependent on how well it aligns with customer perceptions of value. While product manufacturing costs, sellers' perceptions of value, variable costs, and break-even volume are all factors that can influence pricing decisions, they are not the ultimate determinant of a product's price ceiling.

Question 17

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

Accepted Answer

The strategy of introducing less-expensive versions of established, brand name products is known as good-value pricing. This involves offering similar quality at a lower price point in order to appeal to cost-conscious consumers while still maintaining a profit margin.

Question 18

List some important characteristics of price.

Accepted Answer

The answer of List some important characteristics of price....

Question 19

Why is price considered one of the most flexible elements of the marketing mix?

Accepted Answer

The answer of Why is price considered one of the...

Question 20

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

Accepted Answer

The answer of Azure Air, an airline company, offers attractive...

Quiz 10: Pricing: Understanding and Capturing Customer Value

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

Define price. Discuss its importance.

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.

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

Underpriced products ________.

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

What sets the floor for product prices?

Which of the following is true with regard to price?

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

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

Prices have a direct impact on a firm's bottom line.

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

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

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

What sets the ceiling for product prices?

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

List some important characteristics of price.

Why is price considered one of the most flexible elements of the marketing mix?

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?