Question 1

The formula for price- elasticity attempts to show the relationship between the percentage change in quantity demanded and the percentage change in _________.
A) market size
B) price
C) demand
D) market share
E) costs

Accepted Answer

As per the formula for price-elasticity, it attempts to measure the sensitivity of the quantity demanded to changes in its price. Therefore, the correct answer is B) price.

Question 2

Which of the following statements provides the broadest, most complete definition of price?
A) the value of the product, as defined by the marketer, and displayed on the price tag
B) the amount charged for a product or service
C) the sum of the values consumers exchange for the benefits of having or using the product or service
D) the costs associated with the consumer's acquisition and ownership of a product

Accepted Answer

Option C provides the most comprehensive definition of price, as it includes not only the amount charged by the marketer but also the perceived value of the product by the consumer and the benefits they derive from it. Options A and B are too narrow, as they only focus on the marketer's perspective or the actual amount charged. Option D is incorrect, as it refers to the costs associated with consumers' acquisition and ownership, rather than the price itself.

Question 3

An approach to pricing that starts with the customer benefits relative to key competitors and sets prices according to these factors is BEST described as:
A) value pricing.
B) uniform delivered pricing.
C) competitive prices.
D) product- form pricing.
E) customer- segment prices.

Accepted Answer

This approach is called value pricing, which sets prices based on the perceived value that the customer receives from the product compared to competitors. It focuses on the benefits that customers receive, rather than the cost of producing the product or what competitors are charging.

Question 4

When a company offers to sell accessories along with the main product, this is known as:
A) product line pricing.
B) product bundle pricing.
C) optional product pricing.
D) product mix pricing.
E) none of the above

Accepted Answer

Optional product pricing is when a company offers the main product for sale and then offers optional or accessory products along with it. This strategy allows customers to customize their purchase according to their needs or preferences.

Question 5

Buyers who receive a discount for purchasing in large volumes are receiving:
A) a quantity discount.
B) a cash discount.
C) psychological pricing.
D) seasonal discounts.
E) a functional discount.

Accepted Answer

Buyers who receive a discount for purchasing in large volumes are receiving a quantity discount. This means that they are offered a lower price per unit due to the fact that they are buying a larger quantity of the product.

Question 6

When a company charges the same price plus freight to all customers regardless of their location, this is known as:
A) geographical pricing.
B) free- on- board pricing.
C) price- location discounting.
D) customer- segment discounting.
E) uniform delivered pricing.

Accepted Answer

This is because the pricing strategy described is uniform delivered pricing, which means that the company charges the same price to all customers including the freight cost of delivering the product to their location. This strategy simplifies pricing and reduces the need for complex geographical or customer-specific pricing models.

Question 7

In the pricing of services, two part pricing involves which of the following?
A) a fixed fee component plus a variable usage rate
B) a fixed price plus a variable price
C) a basic service establishment fee plus an annual subscription fee
D) a low basic price with an intention to recoup on selling extra services
E) a membership fee plus a variable component

Accepted Answer

Two part pricing involves a fixed fee component and a variable usage rate. Customers pay a fixed fee for access to the service or product, and then a variable usage rate based on how much they use the service. This pricing strategy is commonly used for utility services like electricity or water.

Question 8

A product- market that consists of a few sellers who are highly sensitive to each other's pricing and marketing strategies is known as:
A) monopolistic competition.
B) pure competition.
C) oligopolistic competition.
D) free market.
E) monopoly.

Accepted Answer

An oligopolistic competition is a market structure where a few firms dominate the market and are highly sensitive to each other's pricing and marketing strategies. The firms in this market structure have some control over the price and their actions can affect the market as a whole. Therefore, an oligopolistic competition is the best choice for this situation.

Question 9

When average costs of production drop as a result of a company learning how to produce items more efficiently, this is known as:
A) natural attrition.
B) scale economies.
C) scale diseconomies.
D) experience curve.
E) scope economies.

Accepted Answer

The term for this phenomenon is the experience curve, in which a company's production costs decrease as it gains experience and expertise in producing a product.

Question 10

The degree to which the price of a product affects consumers' purchasing patterns is known as:
A) economies of scale.
B) economies of scope.
C) price elasticity.
D) price sensitivity.
E) experience effects.

Accepted Answer

The answer of The degree to which the price of...

Question 11

In spite of its failure to account for customer value or customer demand, cost- plus pricing remains one of the most popular methods of price setting. Which of the following statements BEST accounts for its continued currency?
A) It enables sellers to earn a fair return on investment.
B) Sellers simplify the pricing decision using cost- plus approaches.
C) Sellers are more confident about costs than demand or value.
D) In markets where cost- plus pricing is widely practised, cost- plus results in competitors charging similar prices.
E) All of the above are reasons for the widespread use of cost- plus pricing methods.

Accepted Answer

Cost-plus pricing remains popular because it allows sellers to ensure a return on investment, simplifies the pricing process, is based on more predictable costs rather than uncertain demand or value, and leads to price uniformity among competitors.

Question 12

Milk is a staple product in most households. The price of milk is relatively low compared with average weekly household income. Under these conditions, the typical purchaser of milk is MOST likely to be:
A) price neutral.
B) price sensitive.
C) price insensitive.
D) price indisposed.
E) price predisposed.

Accepted Answer

Since milk is a staple product, most households are likely to purchase it regardless of fluctuations in price, making them price insensitive.

Question 13

Frogmore Gardens in central Victoria specialises in mail- order supplies of bare- rooted perennial plants, herbs and cottage garden favourites to retail and wholesale customers around Australia. Frogmore Gardens sends one of the most extensive catalogues of plants to customers in late Spring each year. When customers place their orders, they must also pay a delivery fee. The schedule of delivery fees is included in the catalogue and shows that rates are based on the state where customers live and are as follows: Vic= $11.50; NSW and SA = $12.50; Queensland = $14.50; Tasmania = $17.50. Frogmore Gardens is using:
A) geographic pricing.
B) freight absorption pricing.
C) basing point pricing.
D) zone pricing.
E) none of the above

Accepted Answer

Frogmore Gardens is using zone pricing, which sets different prices based on the geographic location of customers. The schedule of delivery fees shows that rates are based on the state where customers live, which is a characteristic of zone pricing.

Question 14

Market segments that are willing to pay a premium for the privilege of being the first to own a new product or service are prime candidates for:
A) price maximising.
B) price penetration.
C) price skimming.
D) demand based pricing.
E) value approach to pricing.

Accepted Answer

Price skimming involves charging a high price for a new product or service targeting early adopters or those willing to pay a premium to be the first to own it. This strategy is effective for generating maximum revenue in the short term before competitors enter the market and start to drive prices down.

Question 15

When sellers combine two or more of their products and offer them for sale as a single unit for a single price, that represents less than if both products were purchased separately, this is known as:
A) optional product pricing.
B) product- bundle pricing.
C) offset pricing.
D) by- product pricing.
E) none of the above

Accepted Answer

This is known as product-bundle pricing, where sellers bundle multiple products and offer them at a lower price than if purchased separately.

Question 16

Tiger Airways entered the Australian air passenger services market as the lowest cost operator. Its fares are priced well below competitors. Tiger operates in a market that is highly price sensitive and one in which low prices stimulate market growth. Its costs have fallen as it has become more efficient at providing airplane service to its customers. Tiger Airways is MOST likely using a_________ pricing strategy.
A) market skimming
B) price bundling
C) penetration pricing
D) maximum current revenue
E) discounting

Accepted Answer

Tiger Airways is using a penetration pricing strategy by offering low fares to stimulate market growth and gain a foothold in the competitive Australian air passenger services market. As it becomes more efficient in providing airplane services, its costs have fallen, enabling it to sustain its low prices and attract price-sensitive customers.

Question 17

Supermarkets often price one or two popular items such as butter and bread at very low prices with a view to increasing store traffic. This practice is known as a(n):
A) loss leader.
B) special price.
C) rebate.
D) allowance.
E) discount.

Accepted Answer

The practice described in the question is known as a loss leader, where a popular item is priced at a very low price to attract customers to the store, with the hope that they will buy other items as well.

Question 18

In the 1980s, American company, Amana, pioneered a new technology that would become the modern micro- wave oven. Although the technology used in micro- waves was well known and well understood in industrial contexts, Amana had long experienced difficulties developing a prototype that was small enough and cheap enough for domestic applications. Just when it seemed that the product concept was doomed, along came a new company director, George Foerstner, with a sales and marketing background. He issued the design team with a seemingly impossible challenge. Before it would be commercialised, the new product concept was to be shaped like an air- conditioner, should look like an oven, have buttons like an oven and be priced around the same as a conventional oven (at the time, not more than $500). Foerstner's challenge to the design team was an example of which type of pricing strategy?
A) pricing according to what the market will bear
B) economic value pricing
C) target costing
D) relationship based pricing
E) performance based pricing

Accepted Answer

Foerstner's challenge to the design team was an example of target costing, which involves determining the cost at which a product must be produced in order to meet a specific price point or profit margin. In this case, the target price was set at $500, and the design team had to work backwards to create a prototype that could be produced at that cost.

Question 19

A product- market that consists of just one seller is known as:
A) monopolistic competition.
B) pure competition.
C) oligopolistic competition.
D) free market.
E) monopoly.

Accepted Answer

A market with just one seller is known as a monopoly.

Question 20

A company will place its major emphasis on competitors' prices in which of the following approaches to pricing?
A) sealed- bid pricing
B) going rate pricing
C) break- even pricing
D) value- based pricing
E) economic value pricing

Accepted Answer

In going rate pricing, a company sets its price based on the prices of its competitors. Therefore, the major emphasis is placed on competitors' prices. Sealed bid pricing focuses on bidding for specific projects, break-even pricing considers the company's costs, value-based pricing focuses on the perceived value to the customer, and economic value pricing balances the benefits of the product with the cost to produce it.

Quiz 12: Pricing for Value

The formula for price- elasticity attempts to show the relationship between the percentage change in quantity demanded and the percentage change in _________.

Which of the following statements provides the broadest, most complete definition of price?

An approach to pricing that starts with the customer benefits relative to key competitors and sets prices according to these factors is BEST described as:

When a company offers to sell accessories along with the main product, this is known as:

Buyers who receive a discount for purchasing in large volumes are receiving:

When a company charges the same price plus freight to all customers regardless of their location, this is known as:

In the pricing of services, two part pricing involves which of the following?

A product- market that consists of a few sellers who are highly sensitive to each other's pricing and marketing strategies is known as:

When average costs of production drop as a result of a company learning how to produce items more efficiently, this is known as:

The degree to which the price of a product affects consumers' purchasing patterns is known as:

In spite of its failure to account for customer value or customer demand, cost- plus pricing remains one of the most popular methods of price setting. Which of the following statements BEST accounts for its continued currency?

Milk is a staple product in most households. The price of milk is relatively low compared with average weekly household income. Under these conditions, the typical purchaser of milk is MOST likely to be:

Market segments that are willing to pay a premium for the privilege of being the first to own a new product or service are prime candidates for:

When sellers combine two or more of their products and offer them for sale as a single unit for a single price, that represents less than if both products were purchased separately, this is known as:

Supermarkets often price one or two popular items such as butter and bread at very low prices with a view to increasing store traffic. This practice is known as a(n) :

A product- market that consists of just one seller is known as:

A company will place its major emphasis on competitors' prices in which of the following approaches to pricing?