Deck 16: Developing Pricing Strategies and Programs

Question 1

Traditionally, price was never a major determinant of buyer choice.

Answer 1

False

Question 2

Although consumers may have fairly good knowledge of the range of prices involved, very few can accurately recall specific prices of products.

Answer 2

True

Question 3

________ price refers to what the consumers feel the product should cost.

A) Fair
B) Typical
C) Usual discounted
D) List
E) Maximum retail

Answer 3

A

Question 4

When consumers examine products, they often compare an observed price to an internal price they remember. This is known as a(n) ________ price.

A) markup
B) reference
C) market-skimming
D) accumulated
E) target

Question 5

Today, consumers are price takers and accept prices at face value or as given.

Question 6

A company decided to conduct a market survey for its new MP3 player that the company had priced at $150. In the survey, 95 percent of participants said that the maximum they would pay for the MP3 player is $100. This is an example of which of the following possible consumer reference prices?

A) historical competitor price
B) expected future price
C) usual discounted price
D) upper-bound price
E) last price paid

Question 7

When Abe goes shopping, he comes across a T-shirt that is priced at $35. Although he wants to buy it, judging from the material used, he feels that the T-shirt should only cost $20. What reference price is Abe using here?

Question 8

Which of the following is NOT one of the possible consumer reference prices?

A) typical price
B) actual future price
C) last price paid
D) expected future price
E) upper-bound price

Question 9

The reservation price, the maximum that most consumers will pay for a given product, is known as the ________ price.

A) expected future
B) usual discounted
C) upper-bound
D) typical
E) historical competitor

Question 10

Price is one of the two elements of the marketing mix that produces revenue.

Question 11

Customers usually have a lower price threshold below which prices signal inferior or unacceptable quality, as well as an upper price threshold above which prices are prohibitive and the product appears not worth the money.

Question 12

While shopping at the mall, Jane was asked by one of the sales representatives at the cosmetics counter to try out a new lipstick that her company was test marketing. The company representative asks her how much she would be willing to pay for the lipstick. After trying it out, Jane is of the opinion that $5 is just the right price for it. What type of a reference price is Jane using?

A) usual discounted price
B) fair price
C) maximum retail price
D) last price paid
E) historical competitor price

Question 13

What are the different possible consumer reference prices?

Question 14

Many consumers are willing to pay $100 for a perfume that contains $10 worth of scent because the perfume is from a well-known brand. What kind of pricing is the company depending on?

A) going-rate pricing
B) image pricing
C) market-skimming pricing
D) target pricing
E) markup pricing

Question 15

Many consumers use price as an indicator of quality and value.

Question 16

Pricing cues such as sale signs and prices that end in 9 are more influential when ________.

A) customers have substantial knowledge about prices
B) customers purchase the particular item regularly
C) product quality is standardized
D) product designs vary over time
E) prices do not vary from time to time

Question 17

A company has developed the prototype of a mobile phone that it plans to launch in the next few months. The phone comes equipped with the most advanced technological features. As part of its test marketing efforts, the company allows customers to examine and use the prototype and also gathers feedback regarding product features and price. The results of this test marketing effort show that customers are willing to pay at least $500, considering the phone's various features. As such, the company has discovered customers' ________.

A) last paid price
B) expected future price
C) lower-bound price
D) upper-bound price
E) typical price

Question 18

Pricing cues such as sale signs and prices that end in 9 are more influential when consumers are experienced in the category.

Question 19

The minimum price that most consumers would pay for a given product is known as the ________ price.

A) everyday low
B) usual discounted
C) fair
D) typical
E) lower-bound

Question 20

When examining products, consumers compare an observed price to an internal reference price they remember or an external frame of reference.

Question 21

Starbucks, Aveda, and BMW have been able to position themselves within their categories by combining quality, luxury, and premium prices with an intensely loyal customer base. These companies are employing a ________ strategy.

A) market-skimming
B) market-penetration
C) survival
D) market share maximization
E) product-quality leadership

Question 22

A market-penetration pricing strategy is most suitable when ________.

A) a low price slows down market growth
B) production and distribution costs fall with accumulated production experience
C) a high price dissuades potential competitors from entering the market
D) the market is characterized by inelastic demand
E) a low price encourages actual competition

Question 23

If consumers were largely indifferent to a $0.05 increase in the price of a gallon of milk, the price rise is said to fall within customers' ________.

A) price indifference band
B) experience curve
C) arm's-length price
D) learning curve
E) net price index

Question 24

When Apple introduced its iPhone, it was priced at $599. This allowed Apple to earn the maximum amount of revenue from the various segments of the market. Two months after the introduction, the price had come down to $399. What kind of a pricing did Apple adopt?

A) loss-leader pricing
B) market-penetration pricing
C) market-skimming pricing
D) target-return pricing
E) value pricing

Question 25

A firm that is plagued with overcapacity, intense competition, or changing consumer desires would do better if it pursues ________ as its major objective.

A) market skimming
B) product-quality leadership
C) survival
D) profit maximization
E) market penetration

Question 26

After determining its pricing objectives, what is the next logical step a firm should take in setting its pricing policy?

A) It should analyze its competitors' costs, prices, and offers.
B) It should select its pricing method.
C) It should select its final price.
D) It should determine the demand for its product.
E) It should estimate the cost of its product.

Question 27

Which of the following is the first step in setting a pricing policy?

A) selecting a pricing method
B) selecting the pricing objective
C) determining demand
D) estimating cost
E) analyzing competitors' costs, prices, and offers

Question 28

Market skimming pricing makes sense under all the following conditions, EXCEPT if ________.

A) a sufficient number of buyers have a high current demand
B) the unit costs of producing a small volume are high enough to cancel the advantage of charging what the traffic will bear
C) the high initial price does not attract more competitors to the market
D) consumers are likely to delay buying the product until its price drops
E) the high price communicates the image of a superior product

Question 29

The first step in estimating demand is to ________.

A) analyze competitors' cost
B) select a pricing method
C) understand what affects price sensitivity
D) calculate fixed costs
E) decipher the experience curve

Question 30

Companies who believe that higher sales volume leads to lower unit costs and higher long-run profits are attempting to ________.

A) maximize their market share
B) skim the market
C) become a product-quality leader
D) merely survive in the market
E) maximize their current profits

Question 31

If demand changes considerably, with a small change in price, the demand is said to be ________.

A) unit elastic
B) elastic
C) inelastic
D) marginal
E) strained

Question 32

Companies that aim to ________ strive to be affordable luxuries.

A) survive in the market
B) partially recover their costs
C) maximize their market share
D) pursue value pricing
E) be product-quality leaders

Question 33

When a company introduces a product at a high price and then gradually drops the price over time, it is pursuing a ________ strategy.

A) market-penetration pricing
B) market-skimming pricing
C) value-pricing
D) switching cost
E) loss-leader pricing

Question 34

NV Inc. has launched a touch sensitive handset in the Indian market and priced the same at INR 9500. Although many people are checking it out and showing interest about purchasing it, the majority of them are holding themselves back because they feel that it is not worth INR 9500. They compare the handset's feature with that of its other competitors offering the same features and come to a conclusion that it is worth INR 8500 and nothing more than that. What kind of a reference price are the consumers using?

Question 35

A company that is looking to maximize its market share would do well to follow ________ pricing.

A) markup
B) market-penetration
C) market-skimming
D) survival
E) target-return

Question 36

If demand hardly changes with a small change in price, the demand is said to be ________.

A) strained
B) marginal
C) inelastic
D) flexible
E) unit elastic

Question 37

When Yolanda went shopping, she paid a lot to buy a jacket that had a well-known designer's tag attached to it. After a few days, she came across a jacket which was undistinguishable from the one she had bought but was priced 5 times lesser than the earlier one. She didn't give this a second thought because she was convinced that the designer label she had bought was worth it. What can be deduced from this?

Question 38

After estimating the demand and costs associated with alternative prices, a company has chosen to price its product in such a way that it gains the highest rate of return on its investment. The company is looking to ________.

A) maximize market share
B) skim the market
C) become a product-quality leader
D) survive in the market
E) maximize current profit

Question 39

Consumers are less price sensitive ________.

A) to high cost items
B) when they frequently change their buying habits
C) when there are more substitutes
D) when there are more competitors
E) when they do not readily notice higher prices

Question 40

Consumers are less price sensitive when ________.

A) price is only a small part of the total cost spent on the product over its lifetime
B) they perceive the higher prices to be unjustified
C) they change their buying habits regularly
D) there are many substitutes and competitors in the market
E) they are buying high-cost items

Question 41

The decline in the average cost of production with accumulated production experience is called the ________.

A) demand curve
B) supply chain
C) learning curve
D) value chain
E) indifference curve

Question 42

Despite its weaknesses, markup pricing remains popular for which of the following reasons?

A) Sellers can determine demand much more easily than they can estimate costs.
B) By tying the price to cost, the pricing task becomes more sophisticated.
C) When all firms in the industry use markup pricing, price competition flourishes.
D) Sellers take advantage of buyers when the latter's demand becomes acute.
E) Many people feel that cost-plus pricing is fairer to both buyers and sellers.

Question 43

JJ pays overhead each month, including his company's bills for rent, heat, interest, and salaries, which are examples of ________ costs.

A) total
B) average
C) activity-based
D) variable
E) fixed

Question 44

The key to perceived-value pricing is to ________.

A) reengineer the company's operations
B) deliver more unique value than competitors
C) adopt subtle marketing tactics compared to competitors
D) deliver more value but at a lower cost
E) invest heavily in advertising in order to convey superior value

Question 45

Deducting the desired profit margin from the price at which a product will sell, given its appeal and competitors' prices, is known as ________.

A) overhead costing
B) target costing
C) activity-based costing
D) benefit analysis
E) estimate costing

Question 46

Everyday low pricing is most suitable if ________.

A) consumers are willing to perform activities such as clip coupons to avail of discounts
B) consumers tend to associate price with quality
C) customers are insensitive to changes in price
D) the cost of conducting frequent sales and promotions is high
E) consumers have sufficient time to find the best prices

Question 47

A retailer who utilizes a(n) ________ policy charges a constant low price with little or no price promotions and special sales.

A) everyday low pricing
B) high-low pricing
C) low cost
D) going-rate pricing
E) auction-type pricing

Question 48

When ConAgra foods decided to cut $250 million in costs to return to a $1 price point (after sales dropped as a result of raising prices $0.25 to cover higher commodity costs), it was using ________.

A) target costing
B) experience-curve pricing
C) ceiling pricing
D) the learning curve
E) promotional price elasticities

Question 49

Costs that differ directly with the level of production are known as ________ costs.

A) fixed
B) overhead
C) opportunity
D) target
E) variable

Question 50

An umbrella manufacturing company's fixed costs are $275,000. The variable cost per unit is $5 and each umbrella is sold at $10. How many units should the firm sell in order to break even?

A) 1,819
B) 5,500
C) 18,000
D) 27,500
E) 55,000

Question 51

Experience-curve pricing ________.

A) assumes competitors are weak followers
B) allows products to project a high quality image
C) is applicable only to manufacturing costs
D) focuses on reducing fixed costs
E) is generally risk-free

Question 52

Which of the following is the most elementary pricing method?

A) value pricing
B) going-rate pricing
C) markup pricing
D) target-return pricing
E) perceived-value pricing

Question 53

Matt's retail store offers all products at $2 less than its competitors. The store never runs promotional campaigns or offers special discounts. Matt's retail store is following a(n) ________ pricing policy.

A) auction-type
B) target-plus
C) everyday low
D) high-low
E) going-rate

Question 54

________ cost is the cost per unit at that level of production; it equals total costs divided by production.

A) Target
B) Average
C) Marginal
D) Opportunity
E) Fixed

Question 55

Which of the following is true regarding price elasticity?

A) The higher the elasticity, the lesser is the volume growth resulting from a 1 percent price reduction.
B) Within the price indifference band, price changes have little or no effect on demand.
C) If demand is elastic, sellers will consider increasing the price.
D) Price elasticity does not depend on magnitude and direction of the contemplated price change.
E) When demand is inelastic, sellers should lower prices in order to increase total revenue.

Question 56

Competitors are most likely to react to a price change when ________.

A) the firm has a weak value proposition
B) the firm enjoys a monopoly
C) there are few competing firms
D) the product is heterogeneous
E) buyers have limited information

Question 57

Costs that do not vary with production levels or sales revenue are known as ________ costs.

A) overhead
B) variable
C) average
D) opportunity
E) total

Question 58

________ pricing takes into account a host of inputs, such as the buyer's image of the product performance, the channel deliverables, the warranty quality, customer support, and attributes such as the supplier's reputation, trustworthiness, and esteem.

A) Perceived-value
B) Value
C) Going-rate
D) Auction-type
E) Markup

Question 59

________ pricing is a matter of reengineering the company's operations to become a low-cost producer without sacrificing quality.

A) Value
B) Going-rate
C) Auction-type
D) Markup
E) Perceived-value

Question 60

A manufacturer has invested $750,000 in a new product and wants to set a price to earn a 15 percent ROI. The cost per unit is $18 and the company expects to sell 50,000 units in the first year. Calculate the company's target-return price for this product.

A) $18.10
B) $18.23
C) $20.25
D) $20.70
E) $25.50

Question 61

Total costs consist of the sum of the fixed and the variable costs for any given level of production.

Question 62

In reality, it is very easy for firms to estimate their demand and cost functions.

Question 63

Value pricing requires a company to reengineer its operations to become a low-cost producer.

Question 64

________ auctions let would-be suppliers submit only one bid; they cannot know the other bids.

A) Descending bid
B) Sealed-bid
C) English
D) Dutch
E) Reverse

Question 65

Price elasticity depends upon the magnitude and direction of the contemplated price change.

Question 66

In target-return pricing, the firm adds a standard markup to the product's cost.

Question 67

One of the weaknesses of using surveys to estimate the demand curve is that consumers exaggerate their willingness to pay for new products and services.

Question 68

If firms wish to maximize their market share, they should opt for market-skimming pricing.

Question 69

In a(n) ________, the buyer announces something he or she wants to buy, and potential sellers compete to offer the lowest price.

A) Dutch auction with one buyer and many sellers
B) English auction with one buyer and many sellers
C) English auction with one seller and many buyers
D) sealed-bid auction
E) ascending auction

Question 70

A marketer who has unit costs of $16 and wants to earn a 20 percent markup on sales would charge a markup price of $20.

Question 71

In ________ pricing, the firm bases its price largely on competitor's prices.

A) going-rate
B) auction-type
C) markup
D) target-return
E) perceived-value

Question 72

In the case of prestige goods, the demand curve sometimes slopes upward.

Question 73

Caterpillar uses target-return pricing to set prices on its construction equipment, and justifies a higher price by showing lower lifetime operating costs.

Question 74

Companies prefer customers who are less price sensitive.

Question 75

When Sony introduced the first high-definition television to the Japanese market in 1990, it was priced at $43,000, which is an example of partial-cost recovery pricing.

Question 76

In which of the following auctions does the auctioneer first announce a high price for a product and then slowly decreases the price until a bidder accepts?

A) a Dutch auction with one buyer and many sellers
B) an English auction with one seller and many buyers
C) an ascending bid auction
D) a sealed-bid auction
E) a Dutch auction with one seller and many buyers

Question 77

Price elasticity magnitudes are lower for durable goods than for other goods.

Question 78

Companies strive to maximize their current profits if they are plagued with overcapacity, intense competition, or changing consumer wants.

Question 79

Which of the following auctions is characterized by one seller and many buyers?

A) Walrasian auctions
B) ascending bid auctions
C) closed auctions
D) sealed-bid auctions
E) reverse auctions

Question 80

When a product is more distinctive, it leads to less price sensitivity.