Deck 10: Pricing Strategies: Understanding and Capturing Customer Value

Question 1

Buyers are less price sensitive in all of the following situations EXCEPT _ .

A)when the product is exclusive
B)when the total expenditure for a product is high relative to their income
C)when the product they are buying is unique
D)when the product they are buying is high in quality
E)when substitute products are hard to find

Answer 1

B

Question 2

Ecstasy Pharmaceuticals faces fixed costs with its new drug of $1,000,000.The company sells the drug in bottles of 50 pills for $10.00.It estimates that it must sell 200,000 bottles to break even.What is the total cost to produce a bottle of 50 pills?

A)$5.00
B)$2.50
C)$6.00
D)$7.50
E)not enough information to calculate

Answer 2

A

Question 3

If Canon Camera Company follows a high- price,high- margin strategy,what will competitors such as Nikon,Minolta,and Pentax most likely do?

A)They will want to compete against Canon.
B)They will bundle their products.
C)They will advertise less.
D)They will go out of business.
E)none of the above

Answer 3

A

Question 4

As a manufacturer increases price,the drops.

A)break- even volume
B)cost- plus pricing
C)total cost
D)target
E)profit margin

Question 5

Which of the following is a cost- based approach to pricing?

A)going- rate pricing
B)good value pricing
C)target return pricing
D)value- based pricing
E)A and C

Question 6

A company that wants to emphasize the premium quality of its product and enhance the product's allure would be most likely to position its product on _ .

A)nonprice qualities
B)value prices
C)high prices
D)target costing
E)low prices

Question 7

uses buyers' perceptions of what a product is worth,not the seller's cost,as the key to pricing.

A)Product image
B)Variable cost
C)Customer value- based pricing
D)Price elasticity
E)Cost- based pricing

Question 8

With ,price is set to match consumers' perceptions of product value.

A)variable cost pricing
B)cost- based pricing
C)cost- plus pricing
D)everyday low pricing
E)value- based pricing

Question 9

Ryanair offers free flights to a quarter of its customers and rock- bottom prices to many of its other customers.Ryanair then charges for all extra services,such as baggage handling and in- flight refreshments.Which of the following best describes Ryanair's pricing method?

A)good- value pricing
B)image pricing
C)cost- plus pricing
D)high- low pricing
E)value- added pricing

Question 10

Trader Joe's offers an assortment of exclusive gourmet products at impossibly low prices.These prices are not limited- time offers or special discounts.Instead,they reflect Trader Joe's strategy.

A)dynamic pricing
B)cost- plus pricing
C)everyday low pricing
D)cost- based pricing
E)value- based pricing

Question 11

pricing works only if that price actually brings in the expected level of sales.

A)Inelasticity
B)Elasticity
C)Target return
D)Markup
E)Variable

Question 12

Ascot Tires has decided to decrease its prices.The company can expect that for its product will increase.

A)competition
B)cost- plus pricing
C)the experience curve
D)value- based pricing
E)demand

Question 13

In the aftermath of the Great Recession,consumers have become .

A)more value conscious
B)less value conscious
C)more loyal to prestigious products
D)less interested in price cutting
E)more interested in prestige pricing

Question 14

In Vin del Mar,Chile,there are a dozen stores specializing in selling the same quality of seafood products on one street.An individual store dare not charge more than the going price without the risk of losing business to the other stores that are selling the fish at a common price.This is an example of what type of market?

A)oligopolistic competition
B)socialist
C)pure competition
D)pure monopoly
E)monopolistic competition

Question 15

Costs that vary directly with the level of production are referred to as .

A)unit costs
B)target costs
C)fixed costs
D)total costs
E)variable costs

Question 16

Some companies have adopted a(n)strategy,offering just the right combination of quality and good service at a fair price.

A)cost- plus pricing
B)low- price image
C)good- value pricing
D)value- based pricing
E)elastic- pricing

Question 17

Price setting is usually determined by in small companies.

A)marketing departments
B)top management
C)cross- functional teams
D)sales departments
E)divisional managers

Question 18

involves charging a constant,everyday low price with few or no temporary price discounts.

A)EDLP
B)High- low pricing
C)Cost- plus pricing
D)Target pricing
E)Penetration pricing

Question 19

The LRAC is most closely related to which of the following?

A)long- term business plans
B)long- term marketing plans
C)the cost of promoting a greater quantity of units
D)the cost of producing a greater quantity of units
E)the legal responsibility of a company

Question 20

Which of the following is a reason why markup pricing is NOT practical?

A)By tying the price to cost,sellers simplify pricing.
B)When all firms in the industry use this pricing method,prices tend to be similar.
C)This method ignores demand.
D)Sellers earn a fair return on their investment.
E)With a standard markup,consumers know when they are being overcharged.

Question 21

When a downward- sloping experience curve exists,a company should usually the selling price of that product in order to bring in higher revenues.

A)level
B)greatly increase
C)not alter
D)decrease
E)increase

Question 22

In industrial markets,typically has the final say in setting the pricing objectives and policies of a company.

A)the finance manager
B)the sales staff
C)the production manager
D)top management
E)the sales manager

Question 23

The less the demand,the it benefits the seller to raise the price.

A)elastic;less
B)concentrated;more
C)focused;more
D)elastic;more
E)constant;more

Question 24

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

A)It is used to determine how much production experience a company must have to achieve desired efficiencies.
B)It is a technique used to calculate fixed costs.
C)It is a technique marketers use to examine the relationship between supply and demand.
D)It determines the amount of retained earnings a company will have during an accounting period.
E)It is calculated using variable costs,the unit price,and fixed costs.

Question 25

PoolPak produces climate- control systems for large swimming pools.The company's customers are more concerned about service support for maintaining a system than its initial price.PoolPak may use this knowledge to become more competitive through .

A)target costing
B)a nonprice position
C)cost- plus pricing
D)value pricing
E)skimming pricing

Question 26

Price setting is usually determined by _ in large companies.

A)top management
B)divisional managers
C)product line managers
D)pricing departments
E)both B and C

Question 27

General Motors prices its automobiles to achieve a 15 to 20 percent profit on its investment.This approach is called .

A)going- rate pricing
B)target- return pricing
C)cost- plus pricing
D)value- based pricing
E)low- price image

Question 28

The break- even volume is the point at which .

A)a firm's profit goal is reached
B)the production of one more unit will not increase profit
C)the total revenue and total costs lines intersect
D)demand equals supply
E)the company can pay all of its long- term debt

Question 29

that influence pricing decisions include the nature of the market and other environmental factors.

A)Value factors
B)External factors
C)Internal factors
D)Domestic factors
E)Target factors

Question 30

Which of the following is an external factor that affects pricing decisions?

A)funds expensed to clean production equipment
B)demand
C)the salaries of production management
D)the salaries of finance management
E)A,B,and C

Question 31

If demand hardly changes with a small change in price,we say the demand is .

A)inelastic
B)variable
C)at break- even pricing
D)value- based
E)market penetrating

Question 32

As a manufacturer decreases price,volume increases.

A)cost- plus pricing
B)sales
C)break- even
D)total cost
E)target

Question 33

When companies set prices,the government and social concerns are two affecting pricing decisions.

A)internal factors
B)demand curves
C)temporary influences
D)external factors
E)economic conditions

Question 34

Break- even pricing,or a variation called _ ,is when the firm tries to determine the price at which it will break even or make the profit it is seeking.

A)competition- based pricing
B)fixed cost pricing
C)target return pricing
D)customer- based pricing
E)value- based pricing

Question 35

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

A)break- even pricing
B)target profit pricing
C)good- value pricing
D)bundling
E)cost- plus pricing

Question 36

Which of the following is a risk a company takes when building a strategy around the experience curve?

A)Aggressive pricing may give the product a cheap image,causing customers to lose interest.
B)The method may cause consumers to become frustrated with changing prices.
C)Competitors will likely not be able to meet the company's price cuts.
D)Existing technologies are likely to become more expensive as the company expands.
E)The method does not take competitors' prices into account.

Question 37

As production workers become better organized and more familiar with equipment,the average cost per unit decreases.This is called the .

A)marginal utility
B)experience curve
C)demand curve
D)long- run average cost curve
E)short- run average cost curve

Question 38

Price competition is minimized when all firms in an industry use which pricing method?

A)value- added pricing
B)variable pricing
C)elasticity pricing
D)markup pricing
E)value- based pricing

Question 39

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

A)anti- trust agreements
B)oligopolistic competition
C)pure competition
D)a pure monopoly
E)monopolistic competition

Question 40

Which of the following involves setting prices based on competitors' strategies,costs,prices,and market offerings?

A)good- value pricing
B)competition- based pricing
C)added- value pricing
D)market- based pricing
E)target return pricing

Question 41

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

A)break- even pricing
B)target profit pricing
C)customer value- based pricing
D)sealed- bid pricing
E)C and D

Question 42

With target costing,marketers will first and then _.

A)identify the marketing mix;determine product cost
B)design the product;determine its cost
C)determine a selling price;target costs to ensure that the price is met
D)use skimming pricing;penetrating pricing
E)build the marketing mix;identify the target market

Question 43

Fixed costs _ as the number of units produced increases.

A)decrease
B)increase at a diminishing rate
C)divide in half
D)remain the same
E)increase

Question 44

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

A)gain economies of scale
B)find competitors using the experience curve strategically
C)become less efficient
D)see fixed costs increase
E)have a straight,horizontal learning curve

Question 45

Value- based pricing is the reverse process of .

A)variable cost pricing
B)good- value pricing
C)cost- based pricing
D)value- added pricing
E)cost- plus pricing

Question 46

The experience curve reveals that .

A)repetition in production enhances efficiency
B)repetition in production lowers costs
C)the average cost drops with accumulated production experience
D)A,B,and C
E)none of the above

Question 47

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

A)experience curve
B)break- even cost
C)ceiling
D)floor
E)demand curve

Question 48

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?

A)50,000
B)20,000
C)40,000
D)25,000
E)not enough information to calculate

Question 49

The learning curve is also referred to as the .

A)demand curve
B)experience curve
C)price elasticity curve
D)LRAC
E)break- even curve

Question 50

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

A)variable costs
B)fixed costs
C)total costs
D)unit costs
E)target costs

Question 51

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

A)price elasticity
B)quantity supplied
C)the demand curve
D)perceived value
E)break- even pricing

Question 52

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

A)competition- based pricing
B)everyday low pricing
C)cost- plus pricing
D)penetration pricing
E)break- even pricing

Question 53

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

A)short- run average cost
B)strategic reasoning and costs
C)strategic revenues and costs
D)strategic rights and company
E)short- run accounting costs

Question 54

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

A)more;suffer
B)less;increase
C)less;suffer
D)more;benefit
E)none of the above

Question 55

Price elasticity of demand is _ _ divided by .

A)demand;price
B)percent change in price;percent change in quantity demanded
C)the going price;the asking price
D)retail value;list price
E)percent change in quantity demanded;percent change in price

Question 56

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

A)expenses
B)revenue
C)variable costs
D)stability
E)outfixed costs

Question 57

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?

A)$14
B)$18
C)$15
D)$18.50
E)none of the above

Question 58

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?

A)$16
B)$12
C)$10
D)$20
E)none of the above

Question 59

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 .

A)good- value pricing
B)add- on pricing
C)cost- based pricing
D)value- added pricing
E)product- support pricing

Question 60

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 .

A)competition- based pricing
B)penetration pricing
C)target costing
D)value- based pricing
E)cost- plus pricing

Question 61

If Alden raises the price on the handheld mixer by 2 percent and quantity demanded falls by 10 percent,what is the price elasticity of demand?

A)- 12
B)5
C)12
D)- 8
E)- 5

Question 62

Underpriced products sell very well,but they produce less revenue than they would have if price were raised to the level.

A)variable
B)perceived
C)elastic
D)price- floor
E)demand curve

Question 63

A company should set prices that will allow _ to receive a fair profit.

A)consumers
B)resellers
C)the market
D)producers
E)competitors

Question 64

If Canon Camera Company follows a low- price,low- margin strategy for a product,what will competitors most likely do?

A)They will advertise less.
B)They will want to compete in the same markets against Canon.
C)They will decide to decide to target underserved niches.
D)They will advertise more.
E)none of the above

Question 65

Firms are less affected by competitors' pricing strategies under than under .

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

Question 66

Refer to the scenario below to answer the following questions.
Alden Manufacturing produces small kitchen appliances-blenders,hand mixers,and electric skillets-under the brand name First Generation.Alden attempts to target newlyweds and first- time home buyers with this brand.
In considering that most young households have limited financial resources,Alden has attempted to engage in target costing."In doing this," Milt Alden stated,"we have better control over keeping price right in line with customers."
Alden manufactures a three- speed blender,its top seller,and a five- speed blender.The hand mixers are manufactured in two styles-a small handheld mixer with two rotating beaters and a similar style that comes with an optional stand and attached mixing bowl.Alden's temperature- controlled skillets are manufactured in one style with three color options.
"Our product offerings are narrower," Milt Alden added,"but our line workers know each product like the back of their hands.This allows us to produce superior products while holding our prices low."
Milt Alden uses a target costing strategy.Which of the following is he most likely to do in executing this strategy?

A)start by determining the costs of a new product
B)start with customer- value considerations
C)base his price on competitors' prices
D)use everyday low pricing
E)use a break- even chart to determine pricing

Question 67

Under ,the market consists of one seller.

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

Question 68

are the sum of the _ and for any given level of production.

A)Variable costs;fixed;total costs
B)Fixed costs;variable;total costs
C)Break- even costs;fixed;total costs
D)Total costs;fixed;variable costs
E)Fixed costs;total;variable costs

Question 69

Many people feel that pricing is fairer to both buyers and sellers.Sellers earn a fair return on their investment but do not take advantage of buyers when buyers' demand becomes great.

A)skimming
B)elasticity
C)markup
D)inelasticity
E)penetration

Question 70

The company designs what it considers to be a good product,totals the expenses of making the product,and sets a price that adds a standard markup to the cost of the product.This approach to pricing is called .

A)variable pricing
B)value- based pricing
C)cost- plus pricing
D)skimming pricing
E)fixed cost pricing

Question 71

The relationship between the price charged and the resulting demand level can be shown as the .

A)break- even pricing
B)variable cost
C)demand curve
D)target cost
E)experience curve

Question 72

Dips in the economy and the instant price comparisons made possible by the Internet have both contributed to .

A)decreased consumer price sensitivity
B)a more direct relationship between supply and demand
C)increased consumer price sensitivity
D)decreased brand loyalty
E)a less direct relationship between supply and demand

Question 73

A company building its pricing strategy around the experience curve would be most likely to .

A)price its products high
B)engage in value- added pricing
C)price its products low
D)avoid cost- based pricing
E)engage in break- even pricing

Question 74

If demand changes greatly with a small change in price,we say the demand is .

A)value- based
B)fixed
C)elastic
D)inelastic
E)variable

Question 75

describes how responsive demand will be to a change in price.

A)The demand curve
B)Break- even pricing
C)Target costing
D)Price elasticity
E)Supply

Question 76

Amos Zook,an Amish farmer,sells organically grown produce.Often he will trade some of his produce for dairy products produced by other Amish farmers.The sum of the values exchanged for the produce is the _ .

A)price
B)cost- plus price
C)penetration price
D)common value price
E)dynamic price

Question 77

Consumer perceptions of the product's value set the for prices.

A)floor
B)ceiling
C)image
D)demand curve
E)variable cost

Question 78

is the amount of money charged for a product or service.

A)A demand
B)Value
C)Price
D)Salary
E)A wage

Question 79

Under ,the market consists of many buyers and sellers who trade over a range of prices rather than a single market price.

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

Question 80

Which of the following is true about the demand curve?

A)It usually slopes upward and to the right.
B)It is used to illustrate the effect of price on the quantity supplied.
C)It shows the quantity of product customers will buy in a market during a period of time even if other factors change.
D)It is always graphically depicted by a straight line.
E)It shows the relationship between product demand and product price.