Deck 9: Pricing: Understanding and Capturing Customer Value

Question 1

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

A) It determines how customer-perceived value changes with value-added pricing.
B) It is a tool used to calculate fixed costs.
C) It is used to determine the maximum price that can be set on a product.
D) It is a tool marketers use to examine the relationship between supply and demand.
E) It fails to consider customer value and the relationship between price and demand.

Answer 1

E

Question 2

When establishing prices, it's important for a manager to understand that "good value" is not the same as ________.

A) "low price"
B) "high price"
C) "bargain basement"
D) "perceived value"
E) "everyday value"

Answer 2

A

Question 3

Lovely Skin is establishing a pricing strategy for a new moisturizer. The total cost to produce each unit is $3.50. The company has decided to add a $1.50 markup, so the unit price to distributors will be $5. Lovely Skin is using a ________ approach to price the new moisturizer.

A) value-added
B) good-value
C) cost-plus
D) competitor-based
E) break-even

Answer 3

C

Question 4

________ costs refer to the sum of the fixed and variable costs for any given level of production.

A) Target
B) Marginal
C) Value-based
D) Total
E) Break-even

Question 5

Everyday low pricing is a cost-based pricing strategy.

Question 6

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

A) Price
B) Place
C) Promotion
D) Product
E) Profit

Question 7

________ uses buyers' perceptions of what a product is worth as the key to pricing.

A) Customer value-based pricing
B) Target return pricing
C) Cost-plus pricing
D) Psychological pricing
E) Competition-based pricing

Question 8

________ pricing involves setting prices based on the expenses involved in producing, distributing, and selling a product plus a fair rate of return for a company's effort and risk.

A) Competition-based
B) Value-added
C) Cost-based
D) Good-value
E) Demand-based

Question 9

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

A) fixed
B) variable
C) target
D) capital
E) payroll

Question 10

Rent, electricity, and executive salaries that do not vary with production or sales level are referred to as ________ costs.

A) fixed
B) variable
C) break-even
D) target
E) promotional

Question 11

Which of the following sets the upper limit for a product's pricing?

A) profits
B) product costs
C) consumer perceptions of value
D) elements of the product mix
E) competition

Question 12

The Fashion Store, a new startup, sets product prices so that revenues will equal manufacturing and marketing costs. The pricing strategy used by the company is referred to as ________ pricing.

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

Question 13

Unlike the other marketing mix elements, price plays a minor role in creating customer value and building customer relationships.

Question 14

Which of the following sets the lower limit for a product's pricing?

A) product costs
B) profits
C) competition
D) elements of the product mix
E) consumer perceptions of value

Question 15

________ pricing is when a firm tries to determine the price at which it will break even or earn the profit it is seeking.

A) Competition-based
B) Target return
C) Cost-plus
D) Good-value
E) Value-added

Question 16

Retailers like Walmart and Target carry less-expensive versions of established brand name products or new lower-price lines. They have adopted a ________ pricing strategy.

A) high-low
B) target return
C) cost-plus
D) good-value
E) market-skimming

Question 17

A ________ pricing strategy for an offering begins with an assessment of customer needs and perceptions. Then a target price is set based on customer perceptions of worth.

A) cost-based
B) target costing
C) value-based
D) value-added
E) competition-based

Question 18

Value-based pricing is often product driven, and customer value perceptions are secondary.

Question 19

Providing extra amenities to differentiate and support high-priced products is referred to as ________ pricing.

A) high-low
B) value-added
C) target return
D) everyday low
E) cost-plus

Question 20

________ is the sum of all the values that customers give up to gain the benefits of having or using a product or service.

A) Payroll
B) Profit
C) Price
D) Cost
E) Salary

Question 21

What is customer value-based pricing? Describe the two types of value-based pricing.

Question 22

Los Amigos, a new Mexican restaurant, has set up shop across the street from Hot Tamales and More. Which of the following pricing strategies will Los Amigos likely use?

A) cost-plus
B) competition-based
C) break-even
D) good-value
E) target costing

Question 23

Target return pricing is a variation of break-even pricing.

Question 24

The relationship between the price charged for a product and the resulting demand level can be shown in a(n)________.

A) demand curve
B) supply curve
C) elastic demand slope
D) break-even chart
E) inelastic demand slope

Question 25

Target costing starts with an ideal selling price based on customer value considerations and then aims at costs that will ensure that the price is met.

Question 26

Each PC produced by HP involves a cost of computer chips, wires, plastic, packaging, and other inputs. Although these costs tend to be the same for each unit produced, they are called ________ costs because the total changes based on the number of units produced.

A) fixed
B) variable
C) target
D) capital
E) payroll

Question 27

Under oligopolistic competition, the market consists of only a few large sellers.

Question 28

Some companies deemphasize price and use other marketing mix tools to create non-price positions in the marketplace.

Question 29

Under ________, the market consists of many buyers and sellers trading 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) a pure monopsony

Question 30

Explain competition-based pricing.

Question 31

An airline runs a 6-month promotional program where all baggage fees are waived. It is using a cost-based pricing strategy.

Question 32

A break-even chart shows the total cost and total revenue expected at various sales volume levels of a product.

Question 33

Under ________, the market consists of a few large sellers who are highly sensitive to each other's pricing and marketing strategies.

A) pure competition
B) monopolistic competition
C) oligopolistic competition
D) a pure monopoly
E) pure monopsony

Question 34

The demand curve shows the number of units the market will buy in a given time period at similar prices.

Question 35

Radox, a luxury watch brand, identifies a market segment that is willing to pay premium prices for its watches, and Radox managers select an ideal selling price. Managers then determine the costs to create watches that meet the ideal selling price. The company's pricing approach is referred to as ________.

A) mass production
B) cost-plus pricing
C) target costing
D) value-added pricing
E) target return pricing

Question 36

There are more than 50 blueberry farmers in Shammonton, New Jersey, that grow, package, and distribute the same quality blueberries. An individual farmer cannot charge more than the going market price per unit without the risk of losing business to the other farmers. This is an example of ________.

A) pure competition
B) monopolistic competition
C) oligopolistic competition
D) a pure monopoly
E) a black market

Question 37

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

A) market-penetration practices
B) top management decisions
C) promotional activities
D) reseller policies
E) interest rates

Question 38

When demand hardly changes with a small change in the price of a product, the demand for the product is best described as ________.

A) elastic
B) flexible
C) inelastic
D) variable
E) cyclical

Question 39

In ________, the market consists of many buyers and sellers trading in a uniform commodity, such as wheat, copper, or financial securities.

A) pure competition
B) monopolistic competition
C) oligopolistic competition
D) a pure monopoly
E) a pure monopsony

Question 40

What are the two different types of costs a company incurs? Explain with examples.

Question 41

How do firms that use captive-product pricing make up for the low prices of their main products?

A) They reduce the cost of the captive products.
B) They provide the captive products as freebies.
C) They set high markups on the captive products.
D) They increase the price of the main products.
E) They offer the captive products and main products together at a reasonable price.

Question 42

Posh Collections introduced a new watch to appeal to upscale consumers. The company will most likely use a(n)________ strategy.

A) market-skimming pricing
B) market-penetration pricing
C) optional-product pricing
D) by-product pricing
E) allowance pricing

Question 43

What is a demand curve? Why is it useful to marketers?

Question 44

The first generation Apple iPod was introduced in 2001 and sold for $500. The following year a mini version was introduced for $250. Apple initially used a ________ strategy to price their digital music innovation.

A) market-skimming
B) target costing
C) deceptive
D) market-penetration
E) predatory

Question 45

The first Target store opened in 1962. Its initial strategy was to set prices low to attract a large number of buyers quickly and win a large market share. This is referred to as ________.

A) market-skimming pricing
B) market-penetration pricing
C) value-added pricing
D) target costing
E) deceptive pricing

Question 46

Which of the following conditions is most likely essential for implementing a successful market-penetration pricing strategy for a product?

A) The product's quality supports its high price.
B) Alternative products can enter the market easily.
C) The market for the product is highly price sensitive.
D) Prices increase incrementally as sales volume increases.
E) Production costs rise with an increase in marketing efforts.

Question 47

With reference to the different types of markets, compare pure competition with monopolistic competition.

Question 48

With reference to pricing in different types of markets, compare oligopolistic competition with a pure monopoly.

Question 49

Explain the concept of price elasticity.

Question 50

Which of the following conditions is most likely essential for implementing a successful market-skimming pricing strategy for a product?

A) The product's quality and image must support its high price.
B) Lower-priced alternatives can enter the market easily.
C) Low prices promote more market growth than high prices.
D) The product's price matches its manufacturing costs.
E) A low-price position of the product is maintained.

Question 51

Market skimming makes sense when a product's quality and image support its higher price, and enough buyers want the product at that price.

Question 52

NerdHerd Electronics sells three different sizes of televisions at three different prices. In this case, the company's pricing strategy is referred to as ________ pricing.

A) product line
B) optional-product
C) by-product
D) product bundle
E) captive-product

Question 53

Computer World sells laptops separately from accessory products like docking stations, anti-virus software, and external hard drives. This is referred to as ________ pricing.

A) product bundle
B) optional-product
C) market-penetration
D) by-product
E) product line

Question 54

There is no true substitute for coffee. If the price goes from $8 to $12 for a package of k-cups due to a coffee bean shortage, demand will remain relatively unchanged. This is an example of demand elasticity.

Question 55

What external factors affect the pricing decisions made by organizations?

Question 56

If demand is elastic rather than inelastic, sellers typically consider increasing their prices.

Question 57

Distinguish between market-skimming pricing and market-penetration pricing.

Question 58

Netcorp, an Internet service provider, charges its users a fixed rental fee for its basic package, which has a download limit. If a user exceeds this download limit, an additional fee is charged for every download. In this case, the firm's pricing strategy is referred to as ________ pricing.

A) by-product
B) two-part
C) optional-product
D) segmented
E) promotional

Question 59

Establishing prices for razor blades that must be used with a razor blade system is known as ________ pricing.

A) by-product
B) market-penetration
C) product line
D) product bundle
E) captive-product

Question 60

Pricing strategies usually remain the same as a product passes through its life cycle.

Question 61

Vac "N" Sew, a consumer electronics outlet, offers a price reduction of $100 when customers bring in a used vacuum cleaner and exchange it for a new vacuum cleaner or sewing machine. This is an example of a ________.

A) functional discount
B) cash discount
C) seasonal discount
D) trade-in allowance
E) by-product allowance

Question 62

Universal Appliance prices its refrigerators at five distinct price levels based on finish, style, capacity, and features. They range from $799 to $9,500. This is an illustration of price steps.

Question 63

When a manufacturer seeks a market for by-products and accepts a price that covers more than the cost of storing and delivering those by-products, the manufacturer is able to reduce the main product's price to make it more competitive.

Question 64

When Nabisco offers to cover half the cost of all local advertising for supermarkets that sell Oreo Cookies, the company is granting ________.

A) cash discounts
B) seasonal discounts
C) quantity discounts
D) promotional allowances
E) trade-in allowances

Question 65

Which group is most likely offered functional discounts by manufacturers?

A) trade-channel members that perform sales tasks
B) consumers who buy products in large quantities
C) buyers who pay their bills before the due date
D) buyers who purchase merchandise out of season
E) retailers that participate in advertising programs

Question 66

Pricing a product based on consumers' reference prices is referred to as ________ pricing.

A) geographical
B) psychological
C) allowance
D) by-product
E) captive-product

Question 67

When using product line pricing, a firm sets one price for all products in the line based on average manufacturing costs.

Question 68

Metro Museum has different admission prices for students, adults, and seniors. All three groups are entitled to the same services. This form of pricing is called ________ pricing.

A) time-based
B) location-based
C) customer-segment
D) by-product
E) product form

Question 69

Movie theaters charge matinee pricing during the daytime, and resorts give weekend and seasonal discounts. This is illustrative of a ________ pricing strategy.

A) product form
B) market-penetration
C) market-skimming
D) time-based
E) value-added

Question 70

Dynamic pricing is particularly suitable for Internet-based companies like Amazon who want to be responsive to shoppers' desires and marketplace changes.

Question 71

What type of pricing is being used when a company temporarily prices its products below the list price to create buying excitement and urgency?

A) segmented pricing
B) psychological pricing
C) geographical pricing
D) promotional pricing
E) dynamic pricing

Question 72

Explain product line pricing. Provide an example.

Question 73

Salon Du Jour offers special combination packages at a reduced price. Separately, a haircut is $30 and a conditioning treatment is $35. But the combo price is $50. This is referred to as ________ pricing.

A) by-product
B) product bundle
C) captive-product
D) optional-product
E) product line

Question 74

Consumers rely less on price to judge the quality of a product when they ________.

A) lack information about the product
B) are unable to research the product
C) have prior experience with the product
D) are unable to judge the quality of the product
E) rely on cues from sellers to differentiate a high or low price

Question 75

________ prices are carried in buyers' minds and used when looking at a given product.

A) Captive-product
B) Reference
C) Promotional
D) Geographical
E) Dynamic

Question 76

Busch Stadium in St. Louis charges different prices for seats in different areas of the ball park, even though each seat costs the same for the owners of the stadium. What is this form of pricing called?

A) location-based pricing
B) market-skimming pricing
C) product-form pricing
D) time-based pricing
E) market-penetration pricing

Question 77

When a manufacturer offers a ________, a customer buys a product from a manufacturer's dealer within a specified time period, and the manufacturer then sends the customer a check.

A) cash rebate
B) quantity discount
C) promotional allowance
D) flash sale
E) functional discount

Question 78

When using product bundle pricing, sellers combine several products and offer the bundle at an increased price for increased profit.

Question 79

Which pricing mix strategy should be used in relation to saleable scrap materials? How does this strategy function?

Question 80

The National Tree Company offers resellers half-price reductions on artificial Christmas trees if they purchase them in July. This is an example of a ________.

A) functional discount
B) seasonal discount
C) promotional allowance
D) trade-in allowance
E) quantity discount