Deck 10: Pricing and Credit Strategies

Question 1

________ 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

Answer 1

A

Question 2

Businesses facing rapidly rising costs should consider ________.

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

Answer 2

D

Question 3

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

Answer 3

D

Question 4

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

Question 5

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

Question 6

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

Question 7

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 8

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 9

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

Question 10

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 11

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 12

________ 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 13

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

Question 14

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 15

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 16

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

Question 17

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 18

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 19

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 20

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 21

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

Question 22

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 23

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 24

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 25

What does it mean to "focus on value" in relationship to establishing a price? In your response, discuss how customers recognize and evaluate value.

Question 26

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 27

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

Question 28

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 29

Once a company has invested time and money developing a unique new product, to recoup some of the high R&D costs, they will likely use a ________ pricing strategy.

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

Question 30

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 31

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 32

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

Question 33

________ 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 34

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 35

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 36

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 37

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 38

________ 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 39

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 40

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 41

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 42

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 43

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

Question 44

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

Question 45

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

Question 46

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

Question 47

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 48

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 49

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 50

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 51

________ 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 52

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.

Question 53

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 ________ pricing.

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

Question 54

Dynamic pricing may raise ethical questions.

Question 55

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 56

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

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

Question 57

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 58

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 59

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 ________ pricing.

A) odd
B) price
C) customized
D) zone

Question 60

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 61

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 62

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

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

Question 63

The manufacturer's suggested retail prices may create an undesirable image for the small firm.

Question 64

________ 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 65

It is much easier to lower a product's price once it is on the market than to increase it after its introduction.

Question 66

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 67

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

Question 68

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 69

A manufacturer can force a small business to charge the "manufacturer's suggested retail price."

Question 70

The manufacturer's suggested price takes into account the small firm's cost structure and its competitive situation.

Question 71

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 72

Leader pricing is a technique in which a small company marks down the price of a popular item below its normal price in an attempt to increase customer traffic and to boost sales of other items.

Question 73

Describe two situations - one where you consider dynamic pricing is ethical and the other where dynamic pricing is unethical.

Question 74

When a small business owner does not want to make a pricing decision, he can use a suggested retail pricing strategy.

Question 75

Captive-product pricing is a technique that involves selling a product for a low price and charging a higher price for the accessories that accompany it.

Question 76

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

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

Question 77

There are at least eight different pricing strategies for established goods and services. Explain four of those strategies and under what conditions a business owner should use them.

Question 78

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

Question 79

The best pricing strategy for a small business owner to follow is to charge the manufacturer's suggested retail price.

Question 80

Name and explain the three basic pricing strategies a small business owner has in establishing a new product's price.