Deck 12: Pricing Strategy for Business Markets

Question 1

Pertinent considerations for pricing industrial products or services include:

A)competition.
B)demand determinants.
C)cost determinants.
D)all of the above.
E)(b)and (c)only.

Answer 1

D

Question 2

During the innovative firm's monopoly period,a _____ is optimal if the demand curve is stable over time (no diffusion)and production costs decline with accumulated volume.

A)life cycle costing pricing policy
B)skimming policy
C)penetration policy
D)time segmentation policy
E)bid price policy

Answer 2

B

Question 3

The price elasticity of demand:

A)is not the same at all prices.
B)varies by industrial market segment.
C)is relatively easy to measure in the industrial market.
D)all of the above
E)(a)and (b)only

Answer 3

E

Question 4

The business marketer will find that total revenue will ____ if the price is decreased and demand is price inelastic.

A)rise a little
B)rise sharply
C)remain the same
D)fall

Question 5

The policy of using a skimming pricing approach when a product is introduced,followed by penetration pricing as the product matures,is referred to by Joel Dean as:

A)product differentiation.
B)market segmentation.
C)time segmentation.
D)price administration.
E)life cycle pricing.

Question 6

Motorola introduced a new personal communicator priced at a significant premium over competing models. Initially,Motorola will concentrate on the business user but the firm plans to reduce the price later and capture a share of the consumer market. This policy of beginning with a high price and then moving to a lower price is referred to as:

A)product differentiation.
B)market segmentation.
C)price administration.
D)time segmentation.
E)life cycle pricing.

Question 7

The successful implementation of value-based strategies requires close coordination between the _____ and _____ units in the firm.

A)product
B)sales
C)service
D)all of the above.
E)(b)and (c)only

Question 8

Successful pricing strategies are:

A)value based.
B)proactive.
C)profit-driven.
D)all of the above.
E)only a and c.

Question 9

A penetration policy is appropriate when there is:

A)a strong threat of imminent competition.
B)inelastic demand.
C)an opportunity for a substantial reduction in production costs as volume expands.
D)all of the above
E)(a)and (c)only

Question 10

If the business marketer's product input assumes an insignificant role in the final product's total cost,demand is likely:

A)elastic.
B)price sensitive.
C)inelastic.
D)small.

Question 11

Those costs,fixed or variable,that can be traced to a product,customer,or sales territory (for example,general plant overhead may be indirectly assigned to a product)are called:

A)direct traceable costs.
B)indirect traceable costs.
C)assignable costs.
D)general costs.
E)administrative overhead.

Question 12

Pine River Equipment has developed a distinctly new product that offers considerable promise. By exploiting the experience effect,management believes that there are opportunities for a substantial reduction in production costs as volume expands. While the market is quite large,there is a strong threat of imminent competition. The firm should likely use:

A)product differentiation.
B)a skimming approach to pricing.
C)a penetration approach to pricing.
D)a bid price policy.
E)a life cycle costing pricing policy.

Question 13

During the innovative firm's monopoly period,a _____ is optimal if there is a relatively high repeat purchase rate for nondurable goods or if a durable good's demand is characterized by diffusion.

A)life cycle costing pricing policy
B)skimming policy
C)penetration policy
D)time segmentation policy
E)bid price policy

Question 14

Before preparing a bid for any potential contract,the industrial firm should first:

A)estimate the profitability of the potential contract.
B)assess the probability of winning the contract.
C)carefully define their objectives.
D)conduct a preliminary analysis of their expected costs in performing the potential contract.
E)evaluate the strength of potential competing bidders.

Question 15

The competitive bidding approach that may include deliberations with suppliers throughout the bidding process is referred to as:

A)closed bidding.
B)open bidding.
C)contractual bidding.
D)institutional bidding.

Question 16

Concerning pricing and the competitive environment,which of the following statements is(are)accurate?

A)Competition establishes an upper limit on price.
B)Late entrants to the market often enjoy potential cost advantages over the pioneering firm.
C)Competitors will be more sensitive toward price reductions that threaten market segments that they deem important.
D)all of the above
E)(a)and (b)only

Question 17

From an organizational buyer's perspective,the cost of an industrial good:

A)is equal to the seller's price.
B)is equal to the seller's price plus order processing costs.
C)includes not only the seller's price,but also transportation,installation,order handling,and inventory carrying costs.
D)includes the seller's price adjusted for quantity discounts that may be received in the future.

Question 18

In hypercompetitive environments,

A)leading-edge firms are reluctant to lower prices because they enjoy attractive margins.
B)successful firms sustain quality but drive to the next lower price point to enjoy a burst of volume and an expansion of market share.
C)successful firms are reluctant to disrupt the equilibrium of the market.
D)successful firms look for the first opportunity to raise prices.
E)both (a)and (c).

Question 19

The degree of latitude that an industrial firm has in setting prices above those offered by competitors is dependent upon:

A)the firm's objectives.
B)the cost of producing the product.
C)the level of differentiation that the product enjoys in the perceptions of organizational buyers.
D)the size of the firm's promotional budget.
E)both (a)and (b)

Question 20

Which of the following statements concerning target costing is(are)accurate?

A)Japanese managers who pioneered the approach view target costing as a profit-management tool.
B)The approach is designed to reach market segments comprised of buyers who consistently select the lowest-priced alternative.
C)Target costing tends to move product developers toward products that include only the bare essentials.
D)All of the above.
E)None of the above.

Question 21

Which of the following are questions that must be addressed when determining responses to a competitor's threat?

A)If you respond,is the competitor willing and able to lower their price again?
B)Is our position in other markets at risk if the competitor gains market share?
C)Is there a response that would cost you more than the preventable sales loss?
D)All of the above.
E)Only (a)and (b).

Question 22

Examples of typical add-on benefits include:

A)joint working relationships.
B)commitment.
C)supplier flexibility.
D)All of the above.
E)Only (a)and (b).

Question 23

_____ features a design-to-cost philosophy that begins by examining market conditions.

A)Target costing
B)ABC costing
C)Value-based segmentation
D)Total cost costing
E)Penetration pricing

Question 24

Examples of pricing objectives include:

A)channel relationships.
B)achieving a market-share goal.
C)achieving a target return on investment.
D)all of the above.
E)(b)and (c)only.

Question 25

_____ refers to the rate of percentage change in quantity demanded attributable to change in price.

A)Cost/benefit analysis
B)Customer demand
C)Price elasticity of demand
D)Perceived value
E)Competitive edge

Question 26

If competitors are likely to continue to pursue price cutting,the best strategy for the defender is to:

A)allow the competitor to win where it is least damaging to profitability.
B)create barriers that make it more difficult for competitors to reach less price-sensitive customer segments.
C)center reactive price cuts on a particular geographic region.
D)all of the above.
E)(a)and (b)only.

Question 27

The buyer's price sensitivity increases to the degree that:

A)buyers can switch from one supplier to another without incurring additional costs.
B)organizational buyers can easily shop around and assess the relative performance and price of alternatives.
C)the product represents one for which it is difficult to make price comparisons.
D)all of the above.
E)(a)and (b)only.

Question 28

General plant overhead is an example of _____ costs.

A)direct traceable
B)indirect traceable
C)general
D)attributable

Question 29

_____ represents a business customer's overall assessment of the utility of a relationship with a supplier based on the benefits received and sacrifices made.

A)Core benefits
B)Add-on benefits
C)Customer value
D)Relationship commitment
E)Total cost analysis

Question 30

_____ are those that support a number of activities that cannot be objectively assigned to a product on the basis of a direct physical relationship.

A)Indirect traceable costs
B)Attributable costs
C)General costs
D)none of the above.

Question 31

Which of the following statements regarding competitive threats is incorrect?

A)Matching a price cut will be an ineffective strategy if the competitor simply reestablished the differential by a further price reduction.
B)A single response is rarely enough to stop price moves by competitors that are struggling to establish a market position.
C)If a price response is required,the strategist should focus the firm's competitive retaliation on those actions that are most cost-effective for the firm.
D)All of the above.

Question 32

Organizational buyers tend to associate high price with high quality.

Question 33

A skimming strategy is appropriate when:

A)there is high price elasticity of demand.
B)strong threat of imminent competition.
C)the firm has a distinctly new product in a monopoly period.
D)All of the above.
E)Only (b)and (c).

Question 34

_____ are those attributes that are not typically required but that can ultimately lead to a supplier being selected by a customer over other qualified suppliers.

A)Core benefits
B)Add-on benefits
C)Supplier personality traits
D)Customer values
E)Elasticities of demand

Question 35

Which of the following are reasons why followers into a market often find lower costs than the pioneer firm?

A)The use of more current production technologies.
B)Experience of suppliers leads to cost reductions.
C)Learning from the pioneer's mistakes.
D)All of the above.
E)Only (b)and (c).

Question 36

_____ involves a formal invitation to potential suppliers to submit written,sealed bids.

A)Closed bidding
B)Open bidding
C)On-line bidding
D)E-commerce
E)Comparative bidding

Question 37

Since higher costs are incurred in providing higher levels of performance on one or more of the attributes,the strategists should assess the:

A)relative importance of the attributes to different market segments.
B)strength of the firm's offering on each of the importance attributes vis-a-vis competitors.
C)costs associated with the experience effect.
D)(a)and (b)only.
E)(b)and (c)only.

Question 38

_____ costs include financing,storage,and inspection costs.

A)Acquisition
B)Possession
C)Usage
D)None of the above

Question 39

Business marketers should base their pricing decisions primarily on cost and competitive considerations.

Question 40

Which of the following are useful to business marketers trying to gauge competitive responses to pricing?

A)Examining the cost structure and strategy of direct competitors.
B)Examination of annual reports and other public records.
C)Identifying which markets competitors deem as important.
D)All of the above.
E)Only (a)and (c).

Question 41

Closed bidding is particularly appropriate when specific requirements are hard to rigidly define or when the products and services of competing suppliers vary substantially.

Question 42

Price elasticity of demand is not the same at all prices.

Question 43

According to the Robinson-Patman Act,price differentials are permitted,but they must be based on cost differences or the need to meet competition.

Question 44

Recent research indicates that highly satisfied customers are just as sensitive to price changes as customers with low to moderate levels of satisfaction.

Question 45

To sustain profitability,price reductions should be avoided by strategists in hypercompetitive environments.

Question 46

Developing a bidding strategy is the important first step in planning for competitive bidding.

Question 47

A____________________pricing approach is most appropriate for a distinctly new product,and provides an opportunity to profitably reach market segments that are not sensitive to the high initial price.

Question 48

Success in penetrating a buying organization with one item often means success for other items in the product line.

Question 49

Low switching costs allow a buyer to focus on minimizing the cost of a particular transaction.

Question 50

Costs that support a number of activities that cannot be objectively assigned to a product on the basis of a direct physical relationship are classified as____________________costs.

Question 51

Total revenue will decrease if the price is decreased and demand is price elastic.

Question 52

Raw materials are an example of indirect traceable costs.

Question 53

Differentiation value is the value associated with product features that are unique and different from competitors

Question 54

The value customers assign to a firm's offering can vary by market segment because of how the product will be used.

Question 55

If the business marketer's product input plays an insignificant role in the final product's total cost,demand is likely elastic.

Question 56

The importance of the business marketer's product as an input into the total cost of the end product influences demand elasticity. If the business marketer's product has an insignificant effect on cost,demand is likely to be inelastic.

Question 57

The goals of a cost classification system are to properly classify cost data in to fixed and variable components and to properly link costs to the activities causing them.

Question 58

Buyers tend to be price sensitive when they can switch from one supplier to another without incurring additional costs.

Question 59

Because making competitive bids is costly and time-consuming,firms should choose potential bid opportunities with care.

Question 60

A penetration pricing policy is optimal if there is a relatively low repurchase rate for durable goods.

Question 61

The Robinson-Patman Act holds that it is unlawful to____________________in price between different purchasers of commodities of like grade and quality.

Question 62

How do conditions differ in hypercompetitive environments as opposed to traditional markets? How can business marketers create and/or use hypercompetitive rivalries to their advantage and how can they predict the reactions of their competitors to their pricing actions?

Question 63

Two competitors with similar products may ask differing prices because their total offerings are perceived as being unique by buyers. In the eyes of the organizational buyer,one firm may provide more value than another. Demonstrate how this might occur and outline the corresponding marketing strategy implications.

Question 64

When challenged by an aggressive competitor,the immediate thought that comes to mind for many managers is to fight back and match the price cut. However,because price wars can be quite costly,experts suggest that a more systematic process should be followed. Describe the factors that a strategist should consider before matching a price cut by a rival.

Question 65

____________________drivers add incremental value by facilitating revenue or margin expansion while____________________drivers create value by providing economic savings.

Question 66

The first component in the Price-Setting Decision Process is____________________.

Question 67

A firm developed a new component part (i.e.,a timing mechanism)that can be effectively used in dishwashers,automobiles,toys and medical equipment. Describe the process that the firm might follow in measuring the elasticity of demand for the new product. Is it likely to vary by application?

Question 68

Two types of benefits can contribute to customer value in business markets: ____________________ benefits which are the basic requirements the business marketer must meet to be included in the customer's consideration set and ____________________ benefits which are those attributes typically not required,that assist the customer in selecting a supplier from among a qualified set of potential suppliers.

Question 69

If an aggressive competitor cuts prices,what action can a strategist take to minimize the damage and respond in the most cost-effective way? Under what conditions should a strategist merely ignore an aggressive price move by a competitor?

Question 70

____________________costs include financing,storage,inspection,taxes,insurance,and other internal handling costs.

Question 71

A small high-technology firm in Arizona recently developed a new component part that offers superior advantages over competing products. The component is used in high-speed production systems and,due to its durable composition,has a useful life of 12 months versus 3 months for competing products. By reducing downtime and frequent changeovers,the product will offer users a significant improvement in production efficiency. Of course,the exact savings will vary by market segment. The two executives,who launched the firm,are divided over the course that should be followed in pricing the component-one favors a high price for a quick payback while the other opts for a lower price and a more deliberate approach. Outline the critical issues that should be examined in setting the price.

Question 72

A large consumer goods company recently entered the business market with a new product with broad industrial application. They are in the process of determining the appropriate price for the product. Discuss the role of costs in determining price and indicate some of the key cost considerations that must be evaluated in setting price.