Deck 10: Managing Price and Customer Cost Perceptions

Question 1

Positioning influences the way customers see value in a product or service, and while the price is of major concern to the marketer, price has much less influence than effective positioning for the customer.

Answer 1

False

Question 2

Customer perceptions are more important than reality in setting prices.

Answer 2

True

Question 3

Elastic demand characterizes discretionary items where a small change in the price of the items will have a noticeable effect on the number sold.

Answer 3

True

Question 4

While marketers must pay attention to the prices charged by competitors and the expectations of customers, the effective way to attract customers at fair prices is to emphasis benefits and non-price elements.

Question 5

A significant disadvantage of cost-based pricing is that it is difficult to get accurate information about what customers would consider the true price.

Question 6

One of the major problems marketers face with pricing is that although there are many "wrong" prices, there isn't one "right" price.

Question 7

While consumers gain from artificially low prices in predatory pricing and price wars, they are harmed by the illegal practice of price-fixing.

Question 8

It is not unusual to see price mark-downs such as 50% off. A company does not to establish that products were sold at price as long as it can show it had been offered at that price for a reasonable period of time.

Question 9

Consumers are familiar with the Manufacturer's Suggested Retail Price (MSRP), but it might be illegal to sell products at that price.

Question 10

For an exchange to take place, a marketer knows that

A) both the buyer and seller see value being created in the exchange.
B) money needs to change hands.
C) the buyer must know exactly what he or she is receiving.
D) competitors cannot match the total offering.

Question 11

John is trying to figure out what to charge customers in the landscaping business he is starting. He knows what the labor costs are, and how to include the materials (plants, mulch, etc.) that he will use in the price. He thought he could add these two together, add an amount for profit and general expenses, and he'd have a fair price. Is he right?

A) Yes. He has the major items covered and incidentals can be covered in the general expenses.
B) No. He needs to ensure the price covers the tools needed for the job.
C) Yes. For a small or start-up business, pricing should be kept as simple as possible.
D) No. He needs to calculate any other expenses and add those into the price.

Question 12

Auctions are successful because

A) marketers don't need to set prices.
B) customers prefer to compete with one another.
C) customers have different perceived value for products.
D) marketers can avoid costly couponing and price promotions.

Question 13

Which of the following is NOT one of the four primary factors that influence price?

A) Customer perceptions
B) Company costs
C) Analyst expectations
D) Market characteristics

Question 14

If you go to a fancy steak house and see a hamburger on the menu for $1.19 or if you go to a fast food restaurant and see a hamburger on the menu for $24.00, you'd think something was not right. Marketers understand you are comparing those posted menu prices to your own

A) learned dining costs.
B) reference price.
C) perceived cost.
D) expected value.

Question 15

Your reference price will become more accurate and reflect real prices when

A) you have found a similar item online.
B) you have experience related to the product.
C) you have consulted your friends, family and colleagues.
D) you are not emotionally involved in making the purchase.

Question 16

Simon is reviewing the marketing department's budget and expenses, and some figures would not fit easily into fixed or variable costs categories. Paul gave him an easy way to distinguish between the two, which was to determine

A) if the costs are part of the marketing mix, then they are variable costs.
B) if the costs are linked to things that cannot be easily moved, then they are fixed expenses.
C) if the cost can be assigned on a per unit basis, then it is a variable cost.
D) if it is a cost associated with headquarters, then it is a fixed cost.

Question 17

The product life cycle curve can help marketers determine pricing. In general, as a product matures, the price will go down as

A) competitors exit the market.
B) costs to make the product go down as it matures.
C) inelastic prices are now becoming more elastic.
D) all profits have been realized in a product, and the firm is moving to harvest the remaining value.

Question 18

Price wars are usually harmful to firms because non-loyal customers will switch to whichever product has a lower price, and loyal customers

A) take advantage of lower prices, which diminishes profit.
B) will abandon the product as the image becomes cheapened.
C) will often pursue legal remedies.
D) will stay out of the market until prices stabilize.

Question 19

While it is relatively easy to determine variable costs as they are linked to the units produced, fixed costs are more difficult to determine as

A) much of the information is confidential and not readily available to the marketer.
B) there are no formulas to work with.
C) they must cover all the expenses of the firm and it may be difficult to get accurate estimates.
D) depreciation on fixed assets can vary with accounting practices.

Question 20

One of the most challenging pricing decisions a marketer faces is

A) knowing when the product is changing from the mature stage to the decline stage in the product life cycle.
B) keeping prices low without starting a price war.
C) establishing a price for new products without any market experience.
D) keeping track of the laws and regulations affecting pricing.

Question 21

When a new product is introduced to a market and is priced high with the intention of eventually lowering the price as the market becomes more competitive, marketers are using a pricing strategy known as

A) value-adding prices.
B) premium pricing.
C) rapid recovery.
D) skimming.

Question 22

Eduardo and David have developed a unique gaming accessory and are determining how to price it. Their market analysis has told them the accessory will appeal to a large number of gamers, it is relatively inexpensive to produce, and they already are thinking about how they could enhance the accessory to make it even more attractive. What kind of pricing strategy should they use?

A) Entrepreneurial
B) Penetration
C) Skimming
D) Contingent

Question 23

When pricing existing products, the marketer must make three basic sets of decisions: the basis for setting the price, if the prices will change very much, and

A) how it relates to other products the company sells.
B) what the competition is doing.
C) how similar products in target retailers are priced.
D) how difficult or easy it will be to promote the price.

Question 24

An approach services use to set prices according to changing market conditions is known as

A) value-based pricing.
B) cost-based pricing.
C) premium pricing.
D) dynamic pricing.

Question 25

Chris and Lynn were watching sales slumping for their line of expensive, exotically-scented candles, and they had narrowed down their options to adjusting the price. Chris suggested the best thing to do would be to raise prices. Lynn thought Chris wasn't thinking clearly, but increasing prices to stimulate sales for luxury items is known as

A) reverse pricing logic.
B) prestige pricing.
C) enhanced value-based pricing.
D) dynamic pricing.

Question 26

Ming-tao was trying to figure out how much revenue he would have to bring in on a specific product to start earning a profit. He wanted to know the point at which the total sales at a given price level needed to produce zero profits, but cover costs. To determine the this, he needs to know the fixed costs and

A) markup.
B) expected unit sales.
C) contribution margin.
D) unit variable cost.

Question 27

One of the fundamental "building blocks" of pricing is an estimate or understanding of how many units can be sold in a given period-usually a year. This estimate is known as expected unit sales or

A) annual product sales.
B) demand forecast.
C) sales forecast
D) product forecast.

Question 28

Damon is developing a marketing plan for the product he is managing. What calculation will he use to determine how many incremental sales he will have to make if he increases advertising efforts by three different amounts?

A) Bread-even analysis
B) Total variable costs
C) Total fixed costs
D) Unit contribution

Question 29

Analyses and calculations use estimates and projections. These will be imprecise, but the calculations require precision. Which of the following is NOT an approach that marketers can use to get more precise estimates?

A) Marketing research
B) Forecasts from sales representatives in the field
C) Forecasts from trade associations
D) Executive opinions

Question 30

The first step in setting a base price for a product is

A) estimate demand and revenue.
B) determine cost, volume and profit relationships for different price points.
C) analyze competitors' prices, offers and value propositions.
D) set pricing objectives.

Question 31

Rick had solid information about the internal costs, volume and objectives he needed to set prices for the next year. Before he can set prices, he also needs to understand what is going on the market in general. He will examine the competitors' overall pricing, and he will need to research consumer demand for the products to know how the size of the total market and

A) the competitors' break-even points.
B) the demand for his product.
C) the impact of changing demographics.
D) the actual sales for the past three years.

Question 32

Maya is setting prices for her home remodeling business. Over the course of the year, there are times of peak activities-such as pre-holidays-and times when consumers were not as interested in home remodeling. This is an issue throughout the industry, so she knows it isn't just her business. After she determines a base price for the service, she could stimulate demand during the slow periods by using

A) discounts.
B) bundling.
C) premium pricing.
D) no-cost consultations.

Question 33

Nevin has an electronics store with a focus on high-end audio and visual products. He knows he cannot compete with the "big box" stores to attract everyone, so he has focused on people who demand high quality in their electronics even though some can't easily afford it. He has already used rebates, especially those offered by the manufacturers. He doesn't want to lower his prices as a large part of his customer base can afford his prices. What other discounting option does Nevin have that makes sense for his business and won't undermine the base price?

A) Price lining
B) Financing
C) Buy-one-get-a-discount-on-the-second purchases
D) Refer-a-friend bonuses

Question 34

Angie needed a new refrigerator after her old one stopped working and couldn't be repaired. At the appliance store, she ended getting a new refrigerator plus a new stove and dishwasher because the sales associate showed her that by buying all three, should could save money that she could save not buying any of the items separately. The store used what kind of adjustment to the base price?

A) Financing
B) Quantity discounting
C) Rebates
D) Bundling

Question 35

Businesses in the U.S. often compete on price, and competition can be very tough beyond pricing. Competing on price is an accepted practice in the marketplace and under the law. What is the name of the practice that goes beyond fair competition to drive another business out of the market by dropping prices to an extremely low level with the intention of destroying another business?

A) Loss-leader pricing
B) Domestic dumping
C) Predatory pricing
D) Monopolistic pricing

Question 36

Some companies will drop prices to a point where competitors may question their motives. Although federal law prohibits predatory pricing and similar actions, the situations are rarely prosecuted because it is difficult to prove and

A) the fines are so low it's not worth the effort.
B) consumers gain from artificially low prices.
C) primary jurisdiction is often with the states.
D) few lawyers are qualified to prosecute or defend charges in this area.

Question 37

Daniel and Sarah were going to a movie, and they started discussing the way the theater offered discounts to senior citizens before 6:00 pm. Sarah commented, "That's discrimination. They see the same movie in the same seats. Why should they pay less?" Which of the following is NOT one of the explanations as to why this is not treated as discrimination?

A) Marketers can use pricing as a way to influence demand.
B) Services are not subject to the Robinson-Patman Act.
C) Marketing practice allows discounts as long as they do not discriminate within protected classes.
D) Senior citizens can rarely afford the costs of the full-priced tickets.

Question 38

___________ is one of the most difficult decisions in the marketing mix, since it directly influences customer perceptions of value.

A) Strategy
B) Costs
C) Market characteristics
D) Pricing

Question 39

Price is a measure of the relative value of an item for both the customer and the ___________.

A) seller
B) market characteristics
C) costs
D) owner

Question 40

Price is related to _________ for both the buyer and seller.

A) market characteristics
B) cost
C) value
D) strategy

Question 41

____________ must consider costs from both sides to set an acceptable price.

A) Customers
B) Sellers
C) Marketers
D) Owners

Question 42

Which of the following is NOT one of the primary factors that influence price?

A) Customer expectation
B) Company costs
C) Marketers
D) Competition

Question 43

An expectation about the price of a given product is known as

A) pricing strategy.
B) reference price.
C) quote.
D) market price.

Question 44

To be financially successful, companies must also consider their own costs when setting

A) fixed costs.
B) variable costs.
C) strategy.
D) prices.

Question 45

How a price is presented can also influence customer price

A) feedback.
B) decisions.
C) perceptions.
D) comparisons.

Question 46

_________ change with quantity sold and are generally tied to the product sold.

A) Fixed costs
B) Variable costs
C) Reference costs
D) Marketing costs

Question 47

Unlike variable costs, which vary with the quantity sold, _________ costs don't change based on sales.

A) reference
B) marketing
C) product
D) fixed

Question 48

A __________ strategy is defined as setting an initially high price and using gradual, timed price drops to make as much profit as possible over time by maximizing how much is made from each sale.

A) skimming.
B) price.
C) penetration.
D) value-based.

Question 49

Which of the following is defined as introducing a new product at a relatively low price with the intention of establishing a large market share before competitors can establish themselves?

A) Skimming strategy
B) Penetration pricing
C) Cost-based pricing
D) Value-based pricing

Question 50

__________ prices provide consistency and decrease the price shopping of customers.

A) Prestige
B) Static
C) Cost-based
D) Value-based

Question 51

Taking into consideration how the price of one product might influence the perception and price of another product is called price

A) calculating.
B) strategy.
C) prestige.
D) lining.

Question 52

The product of expected unit sales and variable unit cost is known as

A) total variable costs.
B) fixed costs.
C) variable costs.
D) expected unit sales.

Question 53

All of the following are primary factors that influence prices, EXCEPT

A) customer perceptions or expectations.
B) company costs.
C) reference price.
D) market characteristics.

Question 54

All of the following are marketing costs that are considered fixed costs, EXCEPT

A) sales salaries
B) sponsorships
C) commissions
D) research and development costs

Question 55

All of the following are considered variable costs, EXCEPT

A) expected unit sales.
B) manufacturing costs per unit.
C) sales promotion costs.
D) sales commissions.

Question 56

All of the following are considered fixed costs, EXCEPT

A) rent.
B) advertising.
C) salaries.
D) sales promotion costs.

Question 57

Alex and Monica decided on a Saturday morning to have four other couples over that evening for a cookout. After they figured out how many people would be coming, they began to plan what to serve. Alex found steaks on sale at about $3.00 a pound cheaper at a store about ten miles away. Monica said, "We'll just get the meat here instead along with the other supplies. That's not enough of a savings to go there." Marketers know that customers are concerned about more than just the actual per item price. What did Monica see in the total price to counteract what seems like a very good deal?

Question 58

Catherine had calculated and was using a set of prices to market her product line of baking pans and related items. Midway through the year, a competitor introduces an imported product line of comparable products at a much lower price. Catherine does not want to start a price war, but she knows she must respond. To determine what pricing options she has, she will need to re-examine all of the calculations she made. Which factors can she consider changing and which will remain the same?

Question 59

Marketers go through a great deal of time and effort to set accurate and reasonable bases prices. When they make adjustments to the base price, they do so for specific reasons. Identify three common adjustments marketers make to the base price and for each, briefly describe when that adjustment would make the most sense.

Question 60

What can be said of price spirals considering how they negatively affect businesses?

Question 61

How does the stage in the product lifecycle influence pricing?

Question 62

Which ideas validate the term prestige pricing?

Question 63

Identify and discuss the conditions that must be met in order for skimming to be effective.

Question 64

Identify and discuss the conditions that must be met in order for penetrative pricing to be effective.

Question 65

Assume you were tasked with calculating the outcome for the following question: How much profit or loss are you making if you have 15% market share? Why is this calculation important? Explain.

Question 66

Discuss predatory pricing, including definition. Include an example-either real life, or one that you make up-to illustrate this concept further.

Question 67

Identify and describe common adjustments to price that are used by marketers. Provide an example of each.

Question 68

Identify and discuss three of the six steps of the price-setting process.