Question 1

Which of the following is a customer- oriented approach to pricing?

Accepted Answer

Customer value-based pricing is a customer-oriented approach to pricing. It involves setting prices based on the perceived value customers get from a product or service. By using customer research and analysis, companies can determine the specific benefits that are most important to their target customers and use that information to set prices that align with the perceived value. This approach focuses on meeting the needs and preferences of customers while also ensuring that the company remains profitable. Break-even pricing (A) and target profit pricing (B) are more internally focused pricing strategies that do not directly consider customer preferences and values. Sealed-bid pricing (D) is a pricing approach used in bidding situations where prices are submitted in a sealed envelope and the vendor with the lowest price is awarded the contract. This is not necessarily customer-oriented pricing.

Question 2

With target costing,marketers will first and then _.

Accepted Answer

Target costing is a process in which a company determines a target price for a product and then works backwards, setting a target cost for the product to ensure that it can be sold at the desired price while still yielding a profit. Therefore, the first step is to determine a selling price, and then target costs are identified to ensure that the price can be met.

Question 3

Fixed costs _ as the number of units produced increases.

Accepted Answer

Fixed costs remain the same regardless of the number of units produced. These costs include items such as rent, salaries etc.

Question 4

With a higher volume of product,most companies can expect to _.

Accepted Answer

With a higher volume of production, companies can expect to gain economies of scale which allows them to produce goods at a lower cost per unit. This is because fixed costs, such as equipment and machinery, can be spread out over a larger number of units produced, resulting in a lower cost per unit.

Question 5

Value- based pricing is the reverse process of .

Accepted Answer

Value-based pricing is based on the perceived value of the product or service to the customer, rather than on the cost of producing it. In contrast, cost-based pricing (choice C) is based on the costs of production, while variable cost pricing (choice A) adjusts the price based on the variable costs of production. Good-value pricing (choice B) aims to provide the best value to customers, while value-added pricing (choice D) adds extra features or services to justify a higher price. Cost-plus pricing (choice E) is a method of pricing based on the cost of producing a product plus a markup to generate profit.

Question 6

The experience curve reveals that .

Accepted Answer

The experience curve theory states that by repeating the production process, cumulative experience will be gained, leading to greater efficiency and a reduction in costs. Therefore, choices A, B, and C are all true.

Question 7

Product costs set a(n)to a product's price.

Accepted Answer

Product costs set a floor to a product's price because they represent the minimum amount that must be covered to avoid losses.

Question 8

A company faces fixed costs of $100,000 and variable costs of $8.00/unit.It plans to directly sell its product to the market for $12.00.How many units must it produce and sell to break even?

Accepted Answer

To break even, total revenue must equal total costs. The break-even point in units is calculated as Fixed Costs / (Selling Price per Unit - Variable Cost per Unit) = $100,000 / ($12 - $8) = 25,000 units.

Question 9

The learning curve is also referred to as the .

Accepted Answer

The learning curve, also known as the experience curve, is a graphical representation of the improvement in performance gained by an individual or organization as a result of experience. It shows that as experience is gained, there is a decrease in the amount of time and cost required to produce a specific output.

Question 10

Costs that do not vary with production or sales level are referred to as .

Accepted Answer

Fixed costs are not directly dependent on the level of production or sales, meaning they do not vary as these factors change. Variable costs, on the other hand, do change as production or sales levels change. Total costs refer to the sum of fixed and variable costs. Unit costs are the total cost per unit of production or sales. Target costs are the desired cost level for a product, based on market demand and expected profit margins.

Question 11

Measuring can be difficult.A company might conduct surveys or experiments to test this in the different products it offers.

Accepted Answer

Perceived value is subjective and can vary greatly among consumers, making it difficult to measure accurately. Surveys or experiments can help gauge consumer perceptions of value for different products.

Question 12

Walmart is famous for using what important type of value pricing?

Accepted Answer

Walmart is known for their everyday low pricing strategy, which involves consistently offering products at low prices rather than relying on sales or discounts. This strategy helps Walmart attract and retain price-sensitive customers and creates a perception of value for their products.

Question 13

SRAC is the acronym for which concept related to costs at different levels of production?

Accepted Answer

SRAC stands for short-run average cost, which is an economic concept that refers to the average cost per unit of production in the short run when at least one input is fixed. It helps firms to understand how the cost of production changes as it increases or decreases its output in the short run.

Question 14

If a seller charges _ than the buyer's perceived value,the company's sales will .

Accepted Answer

If a seller charges more than the buyer's perceived value, the buyer is less likely to make a purchase, leading to a decrease in sales.

Question 15

Price elasticity of demand is _ _ divided by .

Accepted Answer

Price elasticity of demand is calculated as the percent change in quantity demanded divided by the percent change in price.

Question 16

Price is the only element in the marketing mix that produces .

Accepted Answer

Price is the element in the marketing mix that generates revenue for the company. It is the amount a customer pays for a product or service, and it directly impacts the company's profitability. While expenses and costs are associated with setting a price, they are not generated by price itself. Stability and outfixed costs are not relevant to the impact of price on the marketing mix.

Question 17

Assume a manufacturer with fixed costs of $100,000,a variable cost of $10,and expected sales of 50,000 units wants to earn a 20 percent markup on sales.What is the manufacturer's markup price?

Accepted Answer

To find the markup price, first calculate the total cost: Fixed costs ($100,000) + Variable costs ($10 * 50,000 units) = $600,000. To achieve a 20% markup on sales, the sales price must cover the total cost plus 20% of the sales price. Let P be the price per unit. Then, 50,000P = $600,000 + 0.2(50,000P). Solving for P gives P = $15.

Question 18

A manufacturer is trying to determine its break- even volume.With fixed costs of $100,000,a variable cost of $10,and expected sales of 50,000 units,what should the manufacturer's unit cost be to break even?

Accepted Answer

The answer of A manufacturer is trying to determine its...

Question 19

Xbox 360 decides to add a free subscription to XBOX magazine with every game bought in an effort to differentiate its offering from PS3 games.This is an example of .

Accepted Answer

This is an example of value-added pricing, as the addition of a free subscription to the XBOX magazine adds value to the overall offering of the game and makes it more attractive to consumers compared to similar offerings from competitors.

Question 20

P&G surveyed the market and identified an unserved segment of the electric toothbrush market.Using these results,P&G created Spinbrush.The unorthodox order of this marketing mix decision is an example of .

Accepted Answer

Target costing involves designing a product to meet a specific cost and price point, often identified by understanding the needs of a specific market segment, as P&G did with Spinbrush.

Quiz 10: Pricing Strategies: Understanding and Capturing Customer Value