Deck 10: Pricing Strategies

Question 1

In general, entrepreneurs should ________ head-to-head price competition with firms that can more easily achieve lower prices through lower cost structures.

A) avoid
B) take on
C) meet
D) exit the market when faced with

Answer 1

A

Question 2

The top business challenge that drives pricing decisions is the:

A) increased price transparency.
B) increased price sensitivity of customers.
C) need to protect the brand's image.
D) increased pricing aggressiveness from competitors.

Answer 2

B

Question 3

Generally, entrepreneurs should avoid head-to-head price competition with other firms that can more easily achieve lower prices through:

A) offering lower value products and services.
B) a better designed Web site.
C) geographic advantages.
D) lower cost structures.

Answer 3

D

Question 4

Ultimately, the "right" price for a product or service depends on one factor:

A) the lowest price possible.
B) premium prices.
C) the value that it provides for a customer.
D) the most effective advertising campaign.

Question 5

A business with a 25 percent gross profit margin that reduces its price by 10 percent would have to ________ its sales volume just to break even.

A) double
B) triple
C) quadruple
D) match

Question 6

Which of the following statements concerning the impact of competition on a small company's prices is true?

A) When setting prices, a business owner must either match or beat competitors' prices on similar products or services.
B) Because federal laws prohibit the practice as an unfair trade practice, business owners should not monitor their rivals' prices on identical items.
C) When going up against larger, more powerful rivals, small firms should consider using nonprice competition as a way to differentiate their products or services rather than head-to-head price competition.
D) All of the above

Question 7

One key to setting prices properly is based on understanding a company's:

A) buying power.
B) competitive position.
C) target market.
D) cost structure.

Question 8

The "ideal price" for a product:

A) is high enough to cover costs and to generate a profit.
B) is low enough to produce adequate sales volume.
C) today may be different from the "ideal price" tomorrow.
D) All of the above

Question 9

________ value is the price customers would be willing to pay if they perfectly understood the benefits offered, while ________ value is what determines the price they are willing to pay.

A) Objective; perceived
B) Perceived, objective
C) Objective; quantitative
D) Perceived; real

Question 10

A key ingredient to setting prices properly is to understand a company's:

A) cost structure.
B) most aggressive price competitor.
C) target market.
D) profit expectations.

Question 11

Management consulting firm McKinsey and Company states that more than ________ percent of the pricing problems on new products are the result of companies setting prices that are too low.

A) 20
B) 40
C) 60
D) 80

Question 12

An entrepreneurial company can differentiate itself by creating a distinctive image in customers' minds or by offering:

A) superior service and quality.
B) exceptional design and convenience.
C) speed and performance.
D) All the above provide the opportunity for differentiation.

Question 13

Businesses facing rapidly rising costs should consider:

A) offer products in smaller sizes or quantities.
B) communicate with customers about the cost increases.
C) anticipate rising material costs and try to lock in prices early.
D) All the above

Question 14

A common pricing mistake entrepreneurs make is lowering prices because they fail to recognize the:

A) extra value, convenience, service, and quality they offer their customers.
B) advantages they have due to their lower cost structure.
C) complexities that larger competitors have to face.
D) driving need that all customers have to find the lowest price possible.

Question 15

Setting prices for products and services requires entrepreneurs to balance a multitude of complex forces as entrepreneurs determine prices for their goods and services that will draw customers and:

A) position prices lower than all competitors.
B) produce a profit.
C) effectively compete with online alternatives.
D) have high volume/high margin sales.

Question 16

The acceptable price range of a product or service is the area between the ________ defined by customers in the market and the ________ established by the company's cost structure.

A) price floor; price ceiling
B) image; quality
C) price ceiling; price floor
D) price floor; value

Question 17

Which of the following statements about price is true?

A) Price measures what the customer must exchange to obtain goods and services in the marketplace.
B) Target market, business image, and price are closely related.
C) For most goods and services, there is an acceptable price range and not a single "ideal price."
D) All of the above

Question 18

________ frequently convey the idea of quality, prestige, and uniqueness to customers.

A) Effective packaging
B) Low prices
C) High prices
D) High profile promotions

Question 19

The final price a business owner sets within the acceptable price range depends on:

A) the cost of the product or service.
B) the desired "image" he wants to create in the customer's mind.
C) the maximum price customers are willing to pay.
D) All of the above

Question 20

One of the most important determinants of customers' response to a price is whether they perceive the price to be a fair exchange:

A) compared to what they have paid in the past.
B) regardless of their actual experience with the product.
C) based on their expectation, not reality.
D) for the value they receive from the product or service.

Question 21

Once a company has invested time and money developing a unique new product, in order to recoup some of the high R&D costs, they will likely use a:

A) skimming pricing strategy.
B) penetration pricing strategy.
C) sliding-down-the-demand-curve pricing strategy.
D) discount pricing strategy.

Question 22

Although many retailers must match competitors' prices on identical items, maintaining a ________ pricing policy may not be healthy for a small business because it robs the company of the opportunity to create a distinctive image in its customers' eyes.

A) markup
B) follow-the-leader
C) below-market
D) matching

Question 23

A technique that involves selling a product for a low price and charging a higher price for the accessories that accompany it is called:

A) multiple-unit pricing.
B) optional product pricing.
C) captive-product pricing.
D) by product pricing.

Question 24

________ is the difference between the cost of a product or service and its selling price.

A) Markup
B) Break-even price
C) Contribution margin
D) Absorption costing

Question 25

The Sound Shop buys a popular programmable telephone from a supplier for $12.19. If the desired markup of retail price on the telephone is 35 percent, the retail price should be:

A) $34.83.
B) $18.75.
C) $16.46.
D) $20.11.

Question 26

Macy's buys white, pinpoint oxford blouses at $14 each and sells them at $30 each. Macy's percentage (of retail price) markup is:

A) 46.7 percent.
B) 87.5 percent.
C) 53.3 percent.
D) 114.3 percent.

Question 27

CD Connection sells popular CDs at three price levels: $11, $14, and $17. This illustrates which of the following pricing techniques?

A) Odd pricing
B) Leader pricing
C) Price lining
D) Suggested retail pricing

Question 28

When pricing a new product, a small business owner should strive to always satisfy which three objectives?

A) Product acceptance, maintaining market share, and earning a profit
B) Quick acceptance, extensive distribution, and quickly recovering costs
C) Recovering initial development costs, recovering initial promotional costs, and discouraging competition
D) Discouraging competition, recovering development costs, and developing a prestige image

Question 29

Macy's buys white, pinpoint oxford blouses at $14 each and sells them at $30 each. Macy's percentage (of cost) markup is:

A) 46.7 percent.
B) 87.5 percent.
C) 53.3 percent.
D) 114.3 percent.

Question 30

A pricing technique that sets different prices on the same products and services for different customers using the information that a company collects about its customers is called:

A) market penetration.
B) customized or dynamic pricing.
C) predatory pricing.
D) price skimming.

Question 31

A technique in which a company uses the revenues from the sale of those products that were once considered as waste to be more competitive in pricing their main product is:

A) by-product pricing
B) optional-product pricing
C) bundling pricing
D) captive-product pricing

Question 32

Optional product pricing involves selling the base product at:

A) what may be a "standard" margin and selling the options or accessories at a higher markup.
B) a high markup, with the accessories at a competitive price.
C) one price with deep discounts on accessories.
D) a high margin with the accessories offered as a part of the bundle.

Question 33

A pricing technique that sets prices that always end in numbers like "99" for prices such as $9.99 and $19.99 is an example of:

A) odd pricing.
B) price lining.
C) customized pricing.
D) zone pricing.

Question 34

A technique offering customers discounts if they purchase in quantity is referred to as:

A) optional product pricing.
B) bundling.
C) multiple-unit pricing.
D) customized pricing.

Question 35

________ pricing strategies work best in markets where no "elite" segments exist or in highly competitive markets where similar products are trying to gain a foothold.

A) Skimming
B) Sliding-down-the-demand-curve
C) Odd
D) Penetration

Question 36

An MP3 player is sold at a price close to the break even point, but the accessories for the product are priced at a premium, offering impressive contribution margins. This is an example of:

A) byproduct pricing.
B) bundling.
C) captive-product pricing.
D) multiple-unit pricing.

Question 37

________ is a short-term strategy that assumes that competition will eventually emerge.

A) Life cycle pricing
B) Odd pricing
C) Price lining
D) Penetration pricing

Question 38

Your local grocery store uses a pricing technique known as ________ on a weekly basis, in which they mark down the price of several popular items, sometimes well below their normal price, in an effort to increase customer traffic and to boost sales of other items.

A) odd pricing
B) leader pricing
C) price lining
D) suggested retail pricing

Question 39

________ pricing is a technique that involves marking down the normal price of a popular item in an attempt to attract more customers who make incidental purchases of other items at regular prices.

A) Leader
B) Markup
C) Markdown
D) Multiple unit

Question 40

Which of the following is/are true regarding cost-plus pricing?

A) It encourages the manufacturer to operate efficiently.
B) It fails to consider competitors' prices appropriately.
C) It fails to guarantee the manufacturer a desired profit margin.
D) Only A and C

Question 41

One of the requirements to be able to offer ________ is to make certain that the firms' cash position is ________.

A) installment credit; positive
B) installment credit; strong enough to support the additional pressure
C) trade credit; positive
D) trade credit; strong enough to support the additional pressure

Question 42

It has been reported that the use of credit cards increases the ________ of customer spending.

A) probability
B) speed
C) magnitude
D) All of the above

Question 43

Which of the following businesses would be most likely to offer installment credit to its customers?

A) A retailer of major appliances
B) A convenience store
C) A printer
D) A clothing retailer

Question 44

To avoid major pricing mistakes, business owners should "shop" their competitors and asses their prices, especially on identical products.

Question 45

Which of the following is/are not true regarding pricing for service firms?

A) A service firm must establish a price based on the materials used to provide the service, the labor employed, an allowance for overhead, and a profit.
B) Most service firms base their prices on an hourly rate-usually actual hours, but sometimes standard hours are used.
C) For most service firms, labor and profit comprise the largest portion of the cost of the service.
D) None of the above

Question 46

A study by Rafi Mohammed, author of The Art of Pricing, found that companies that raised prices by 1 percent saw profits increase by 11 percent and those that raised prices by 10 percent realized profit increases of 100 percent.

Question 47

The most effective technique by which small companies can gain a competitive edge over their larger rivals is to charge lower prices for the goods and services they sell.

Question 48

Pandecker, Inc., estimates the variable costs of producing one unit to be $11.26. The company plans to produce 26,500 units. The fixed costs the company expects to incur are $82,770. What is Pandecker's break-even selling price?

A) $14.38
B) $35.17
C) $11.26
D) $3.12

Question 49

A customer who purchases a television from Ace Appliance Store and pays for it in 36 monthly payments is most likely using:

A) trade credit.
B) charge account credit.
C) installment credit.
D) debit card credit.

Question 50

Without the advantage of a unique business image, a small business must match local competitors' prices or risk losing sales and customers.

Question 51

The use of credit cards by consumers:

A) has little real impact on sales.
B) broadens a small company's customer base.
C) costs businesses nothing and adds significantly to their sales.
D) has no impact on pricing decisions.

Question 52

A reliable cost accounting system is necessary for accurate pricing. The traditional method of product costing, where the costs of direct materials, direct labor, and factory overhead are included in a finished product's total cost is called ________.

A) absorption costing
B) break-even pricing
C) direct costing
D) absorption pricing

Question 53

________ tells what portion of the total revenue remains, after covering variable costs, to contribute toward meeting fixed expenses and earning a profit.

A) The full absorption statement
B) The break-even selling price
C) The contribution percentage
D) Cost-plus pricing

Question 54

The best way to survive a price war is to engage in the battle and emphasize the unique features, benefits, and value your company offers its customers.

Question 55

The fee that banks collect from retailers whenever customers use a credit or a debit card to pay for a purchase is known as the:

A) interchange fee.
B) chargeback fee.
C) processing fee.
D) installment fee.

Question 56

Pandecker, Inc., estimates the variable costs of producing one unit to be $11.26. The company plans to produce 26,500 units. The fixed costs the company expects to incur are $82,770. If Pandecker's profit target is $75,000, what price should it charge?

A) $14.38
B) $35.17
C) $17.21
D) $11.26

Question 57

The prices a small business charges influence its image in the marketplace.

Question 58

The most common pricing mistake small business owners make is setting the price for the products and services they sell too high.

Question 59

The desired image for the business, the target market the owner is trying to reach, and the prices charged are all closely related to one another.

Question 60

Small companies have three options for selling to customers on credit:

A) credit cards, manufacturer credit, and trade credit.
B) credit cards, installment credit, and trade credit.
C) credit cards, installment credit, and poor credit.
D) debit cards, installment credit, and trade credit.

Question 61

The "right" price depends on one factor: the value that it provides for customers.

Question 62

When pricing any new product, the owner should try to accomplish three objectives: 1) get the product accepted; 2) maintain market share; and 3) earn a profit.

Question 63

Entrepreneurs that face rapidly rising costs in their business should consider strategies that facilitate better customer communication, efficiencies, passing along cost increases, emphasizing value, and anticipating rising costs to lock in prices.

Question 64

Price is a measure of what the customer must exchange to obtain goods and services, and is an indicator of value to the customer.

Question 65

Entrepreneurs have three basic strategies to choose from when establishing a new product's price: a penetration pricing strategy; a skimming pricing strategy; and life cycle pricing strategy.

Question 66

Dynamic pricing may raise ethical questions.

Question 67

Market penetration pricing is a short-term pricing strategy that achieves high profits quickly.

Question 68

Management consulting firm McKinsey and Company claims that ________ of the pricing problems on new products are the result of companies setting prices that are too low.

A) 10 to 20 percent
B) 40 to 50 percent
C) 60 to 70 percent
D) 80 to 90 percent

Question 69

James decides to price his products in his small hardware store with ".95," thinking that customers will perceive a price of $9.95 is much lower than a price of $10. This is an example of odd pricing.

Question 70

Perceived value is the price customers would be willing to pay if they perfectly understood the benefits offered, while objective value is what determines the price they are willing to pay.

Question 71

A market penetration pricing strategy is designed to recover a company's development and promotional cost of a new product very quickly.

Question 72

Life cycle pricing is a short-term pricing strategy that assumes that competition will eventually emerge and the price will be lowered.

Question 73

A skimming price strategy is used to introduce relatively low-priced goods into a market where no "elite" segment exists.

Question 74

For most products, there is an acceptable price range, not a single ideal price.

Question 75

Price lining occurs when a small company raises the price of all of its goods by the same percentage to cover operating expenses.

Question 76

A skimming pricing strategy sets a relatively high price for a product to appeal to the segment of the market that is not sensitive to price.

Question 77

A common pricing mistake entrepreneurs often make is failing to recognize the extra value, convenience, service, and quality they offer their customers-all of which customers are willing to pay for.

Question 78

If a company wants quick acceptance and extensive distribution when introducing a new product into a highly competitive market with a large number of similar products, a market penetration pricing is the best strategy.

Question 79

A technique that greatly simplifies the pricing function by pricing different products in a product line at different price points, depending on their quality, features and cost, is referred to as odd pricing.

Question 80

Customized or dynamic pricing sets different prices on the same products and services for different customers using the information that a company collects about its customers.