Pricing: Understanding and Capturing Customer Value

Chapter 9

Pricing: Understanding and Capturing Customer Value

GENERAL CONTENT: Multiple-Choice Questions

1. _____ is the amount of money charged for a product or service.
2. Experience curve
3. Demand curve
4. Price
5. Wage
6. Salary

(Answer: c; p. 263; Easy)

1. Big Mike’s Health Food Store sells nutritional energy-producing foods. The price of the products sold varies according to individual customer accounts and situations. For example, long-time customers receive discounts. This strategy is an example of _____.
2. price elasticity
3. cost-plus pricing
4. dynamic pricing
5. value pricing
6. penetration pricing

(Answer: c; p. 285; Challenging)

1. Price is the only element in the marketing mix that produces _____.
2. revenue
3. variable costs
4. expenses
5. fixed costs
6. stability

(Answer: a; p. 263; Easy)

1. Lawnmowers of Chicago is a landscaping company established throughout the American Midwest. Upon entering a new community, lower prices are asked for their services. After gaining a respectable reputation in a new area, prices are gradually increased. Starting a business in this manner is an example of which marketing objective?
2. Current profit maximization.
3. Market share leadership.
4. Product quality leadership.
5. Survival.
6. Status quo existence.

(Answer: d; p. 268; Challenging)

1. A company sets not a single price, but rather a _____ that covers different items in its line that change over time as products move through their life cycles.
2. pricing range
3. pricing structure
4. pricing loop
5. pricing cycle
6. pricing bundle

(Answer: b; p. 274; Moderate)

1. Pricing is difficult because the various products have related _____ and costs, and face different degrees of _____.
2. demand; product modifications
3. demand; competition
4. competition; obsolescence
5. substitutes; customer loyalty
6. revenue levels; challenges

(Answer: b; p. 276; Moderate)

1. Companies usually develop _____ rather than single products.
2. product families
3. product groupings
4. product lines
5. product brands
6. product images

(Answer: c; p. 276; Easy)

1. A marketer must be familiar with the five major product mix pricing situations. Which of the following is not one of them?
2. Product line pricing.
3. Optional-product pricing.
4. Captive-product pricing.
5. Unbundled product pricing.
6. None of the above.

(Answer: d; p. 276; Moderate)

1. Swatch surveyed the market and identified an unserved segment of watch buyers. Using these results, they created a watch at a price consumers were willing to pay. The unorthodox order of this marketing mix decision is an example of _____.
2. competition-based pricing
3. cost-plus pricing
4. target costing
5. value-based pricing
6. penetration pricing

(Answer: c; p. 268; Moderate)

1. Costs that do not vary with production or sales level are referred to as _____.
2. fixed costs
3. variable costs
4. target costs
5. total costs
6. unit costs

(Answer: a; p. 266; Easy)

1. Costs that vary directly with the level of production are referred to as _____.
2. fixed costs
3. variable costs
4. target costs
5. total costs
6. unit costs

(Answer: b; p. 266; Easy)

1. _____ are the sum of the _____ and _____ for any given level of production.
2. Fixed costs; variable; total costs
3. Fixed costs; total; variable costs
4. Variable costs; fixed; total costs
5. Total costs; fixed; variable costs
6. Break-even costs; fixed; total costs

(Answer: d; p. 267; Easy)

1. A challenge for management in product line pricing is to decide on the price steps between the _____.
2. various products in a line
3. product mixes
4. product groupings
5. product lines
6. various target markets

(Answer: a; p. 276; Moderate)

1. Fixed costs _____ as the number of units produced increases.
2. decrease
3. increase
4. divide in half
5. remain the same
6. increase at a diminishing rate

(Answer: d; p. 266; Easy)

1. When Circuit Town Electronics sets its televisions at three price levels of $699, $899, and $1,099, it is using _____.
2. price points
3. tier-level pricing
4. market-penetration pricing
5. B and C
6. none of the above

(Answer: a; p. 276; Easy)

1. When using price points, the seller must establish perceived _____ that support the price differences.
2. nonprice competition
3. quality differences
4. service levels associated with each
5. images
6. all of the above

(Answer: b; p. 276; Challenging)

1. Price setting is usually determined by _____ in small companies.
2. top management
3. marketing departments
4. sales departments
5. divisional managers
6. cross-functional teams

(Answer: a; p. 269; Easy)

1. Price setting is usually determined by _____ in large companies.
2. top management
3. divisional managers
4. product-line managers
5. purchasing departments
6. both B and C

(Answer: e; p. 269; Easy)

1. In industrial markets, _____ has the final say in setting the pricing objectives and policies of that company.
2. the sales manager
3. top management
4. the production manager
5. the finance manager
6. the purchasing department

(Answer: b; pp. 269–270; Moderate)

1. Which of the following is an external factor that affects pricing decisions?
2. The salaries of production management.
3. Competition.
4. The salaries of finance management.
5. Funds expensed to clean production equipment.
6. A, C, and D

(Answer: b; p. 268; Easy)

1. Under _____, the market consists of many buyers and sellers trading in a uniform commodity such as wheat, copper, or financial securities.
2. pure competition
3. monopolistic competition
4. an oligopoly
5. pure monopoly
6. anti-trust agreements

(Answer: a; p. 271; Easy)

1. In Lima, Peru, 20 stores specializing in selling the same quality and brand of wheat products are located on one street. An individual seller cannot charge more than the going price without the risk of losing business to the other stores that are still selling the product at its uniform price. This is an example of what type of market?
2. Pure competition.
3. Monopolistic competition.
4. Oligopolistic competition.
5. Pure monopoly.
6. Socialist.

(Answer: a; p. 271; Challenging)

1. Under _____, the market consists of many buyers and sellers who trade over a range of prices rather than a single market price.
2. pure competition
3. monopolistic competition
4. oligopolistic competition
5. pure monopoly
6. none of the above

(Answer: b; p. 271; Easy)

1. Under _____, the market consists of a few sellers who are highly sensitive to each other’s pricing and marketing strategies.
2. pure competition
3. monopolistic competition
4. an oligopoly
5. pure monopoly
6. capitalism

(Answer: c; p. 272; Easy)

1. Nonregulated monopolies are free to price at what the market will bear. However, they do not always charge the full price for a number of reasons. What is NOT one of those reasons?
2. They desire to attract competition.
3. They desire to penetrate the market faster with a low price.
4. They have a fear of government regulation.
5. They want to encourage government regulations.
6. They want to please a large group of consumers.

(Answer: d; p. 272; Moderate)

1. A general practice when using captive-product pricing is to set the price of the main product _____ and set _____ on the associate’s supplies.
2. low; low markups
3. high; low markups
4. low; high markups
5. high; high markups
6. moderately; moderate markups

(Answer: c; p. 277; Moderate)

1. The relationship between the price charged and the resulting demand level can be shown as the _____.
2. demand curve
3. variable cost
4. target cost
5. break-even pricing
6. experience curve

(Answer: a; p. 272; Easy)

1. When Gibson Guitar Corporation lowered its prices to compete more effectively with Japanese rivals, why did they not sell more guitars?
2. The Gibson guitars were not as well made as the Japanese guitars.
3. The market was already flooded with guitars.
4. The sound of the Gibson guitar was not as good as the Japanese guitars.
5. Customers were unable to distinguish the superiority of the Gibson guitar when it was at a lower price.
6. Customers had come to expect a higher price for a Gibson guitar.

(Answer: d; pp. 272–273; Challenging)

1. _____ is how responsive demand will be to a change in price.
2. Price elasticity
3. Break-even pricing
4. Demand curve
5. Target cost
6. Supply

(Answer: a; p. 273; Easy)

1. Buyers are less price sensitive for all of the following reasons except _____.
2. when the product they are buying is unique
3. when the product they are buying is in high demand
4. when substitute products are hard to find
5. when the total expenditure for a product is high relative to their income
6. when the product is a specialty product

(Answer: d; p. 274; Easy)

1. When setting prices, the company also must consider other factors in its external environment. _____ can have a strong impact on the firm’s pricing strategies. This includes factors such as boom or recession, inflation, and interest rates affecting pricing decisions.
2. Demand curve
3. Economic conditions
4. Target costing
5. Value-based pricing
6. Competitors

(Answer: b; p. 274; Moderate)

1. When setting prices, the company also must consider other factors in its external environment. How will _____ react to various prices? The company should set prices that will allow these people to receive a fair profit.
2. resellers
3. producers
4. consumers
5. the elderly
6. competitors

(Answer: a; p. 274; Easy)

1. When companies set prices, the government and social concerns are two _____ affecting pricing decisions.
2. external factors
3. internal factors
4. economic conditions
5. demand curve
6. temporary influences

(Answer: a; p. 274; Easy)

1. Product costs set a(n) _____ to the price.
2. demand curve
3. experience curve
4. floor
5. learning curve
6. break-even cost

(Answer: c; p. 263; Easy)

1. Consumer perceptions of the product’s value set the _____.
2. demand curve
3. floor
4. ceiling
5. variable cost
6. image

(Answer: c; p. 263; Moderate)

1. Companies set prices by selecting a general pricing approach that includes one or more of three sets of factors. One of these is the cost-based approach, which means _____.
2. value-based pricing
3. going-rate and sealed-bid pricing
4. cost-plus pricing, break-even analysis, and target profit pricing
5. A and C
6. none of the above

(Answer: c; p. 267; Challenging)

1. Companies set prices by selecting a general pricing approach that includes one or more of three sets of factors. One of these is the buyer-based approach, which means _____.
2. value-based pricing
3. going-rate and sealed-bid pricing
4. cost-plus pricing, break-even analysis, and target profit pricing
5. low-price image
6. none of the above

(Answer: a; p. 264; Challenging)

1. When Kodak sets the general price range of its cameras low and its related film high, it is practicing _____.
2. market-penetration pricing
3. market-skimming pricing
4. product line pricing
5. captive-product pricing
6. price bundling

(Answer: d; p. 277; Challenging)

1. Lawyers, accountants, and other professionals typically price by adding a standard markup for profit. This is known as _____.
2. variable costs
3. cost-plus pricing
4. value-based pricing
5. break-even price
6. penetration pricing

(Answer: b; p. 267; Easy)

1. Hotline Long Distance Service uses captive-product pricing for its phone call charges. Because this is a service, the price is broken into a fixed rate plus a _____.
2. fixed rate usage
3. variable usage rate
4. flexible usage rate
5. volume usage rate
6. none of the above

(Answer: b; p. 277; Challenging)

1. When amusement parks and movie theaters charge admission plus fees for food and other attractions, they are following a(n) _____ pricing strategy.
2. by-product
3. optional-product
4. captive-product
5. skimming
6. penetration

(Answer: c; p. 277; Challenging)

1. When management at Yamaha Motorcycles makes decisions on which type of saddlebags, handle bars, and seats for its bikes, they become engaged in _____.
2. product line pricing
3. optional-product pricing
4. captive-product pricing
5. by-product pricing
6. value-based pricing

(Answer: b; p. 276; Challenging)

1. Companies that have a problem of deciding which items to include in the base price and which to offer as options are engaged in _____ pricing.
2. product bundle
3. optional-product
4. captive-product
5. by-product
6. skimming

(Answer: b; p. 276; Moderate)

1. What will by-product pricing allow a seller to do? Keep in mind that the seller must sell the by-products at a price that covers more than the cost of storing and delivering them.
2. Increase the main product’s price.
3. Make extra profit.
4. Reduce the main product’s price.
5. None of the above.
6. B and C

(Answer: e; p. 277; Challenging)

1. Break-even pricing, or a variation called _____, is when the firm tries to determine the price at which it will break even to make the profit it is seeking.
2. competition-based pricing
3. target profit pricing
4. fixed cost
5. value-based pricing
6. customer-based pricing

(Answer: b; p. 267; Easy)

1. Sometimes, companies do not realize how _____ their by-products are.
2. costly
3. time consuming
4. valuable
5. unnecessary
6. mandatory

(Answer: c; p. 277; Easy)

1. _____ uses buyers’ perceptions of what a product is worth, not the seller’s cost, as the key to pricing.
2. Value-based pricing
3. Target costing
4. Variable costs
5. Price elasticity
6. Product image

(Answer: a; p. 264; Challenging)

1. In _____, price is considered along with the other marketing mix variables before the marketing program is set.
2. target pricing
3. value-based pricing
4. variable costs
5. price elasticity
6. building the marketing mix

(Answer: b; p. 264; Challenging)

1. _____ pricing is product driven. The company designs what it considers to be a good product, totals the expenses of making the product, and sets a price that covers costs plus a target profit.
2. Value-based
3. Fixed cost
4. Cost-based
5. Variable
6. Skimming

(Answer: c; p. 264; Challenging)

1. Value-based pricing is the reverse process of what?
2. Variable cost pricing.
3. Cost-plus pricing.
4. Cost-based pricing.
5. A or D
6. None of the above.

(Answer: c; p. 264; Moderate)

1. In _____ price is set to match consumers’ perceived value.
2. variable cost pricing
3. cost-plus pricing
4. cost-based pricing
5. value-based pricing
6. none of the above

(Answer: d; p. 264; Moderate)

1. Measuring _____ can be difficult. A company might conduct surveys to test this in the different products they offer.
2. price elasticity
3. demand curve
4. perceived value
5. break-even pricing
6. quantity supplied

(Answer: c; p. 265; Challenging)

1. Underpriced products sell very well, but they produce less revenue than they would have if price were raised to the _____level.
2. perceived value
3. value-based
4. variable
5. demand curve
6. price-floor

(Answer: a; p. 265; Moderate)

1. With product bundle pricing, sellers can combine several products and offer the bundle _____.
2. as a working unit
3. at a reduced price
4. as a complete self-service package
5. A or C
6. any of the above

(Answer: b; p. 278; Moderate)

1. What is a major advantage of product bundle pricing?
2. It can promote the sales of products consumers might not otherwise buy.
3. It offers consumers more value for the money.
4. It combines the benefits of the other pricing strategies.
5. It provides a more complete product experience for consumers.
6. All of the above.

(Answer: a; p. 278; Moderate)

1. _____ is a company’s power to maintain or even raise prices without losing market share.
2. Variable cost
3. Pricing power
4. Target cost
5. Fixed cost
6. Unit cost

(Answer: b; p. 265; Easy)

1. To maintain a company’s _____, a firm must retain or build the value of its marketing offer.
2. variable cost
3. pricing power
4. target cost
5. fixed cost
6. image

(Answer: b; p. 265; Challenging)

1. When there is intense price competition, many companies adopt ______rather than cutting prices to match competitors.
2. pricing power
3. value-added strategies
4. fixed costs
5. price elasticity
6. image pricing

(Answer: b; p. 265; Moderate)

1. What is the important type of value pricing that Wal-Mart uses?
2. Competition-based pricing.
3. EDLP.
4. Cost-plus pricing.
5. Break-even pricing.
6. Penetration pricing.

(Answer: b; p. 265; Easy)

1. _____ involves charging a constant, everyday low price with few or no temporary price discounts.
2. High-low pricing
3. Target pricing
4. Cost-plus pricing
5. EDLP
6. Penetration pricing

(Answer: d; p. 265; Moderate)

1. Discounts and allowances are price adjustments to the basic price to reward customers for _____.
2. early payment of bills
3. off-season buying
4. accepting early delivery
5. volume purchases
6. all of the above

(Answer: c; p. 278; Easy)

1. Quantity discounts are a legal form of price discrimination. A quantity discount is a price reduction to buyers who purchase _____.
2. frequently
3. large volumes
4. close outs
5. inferior merchandise
6. superior merchandise

(Answer: b; pp. 278–279; Easy)

1. Companies offer functional discounts to channel members who _____.
2. perform certain marketing functions
3. perform certain jobs that save them money
4. function better as resellers
5. provide funding to assist with promotion
6. none of the above

(Answer: a; p. 278; Moderate)

1. When a firm or store offers a price reduction to customers who buy during off-peak periods throughout the year, we say the firm is giving a(n) _____ discount.
2. functional
3. seasonal
4. annual
5. allowance
6. credit

(Answer: b; p. 278; Easy)

1. When General Motors provides payments or price reductions to its new car dealers as rewards for participating in advertising and sales support programs, it is granting a(n) _____.
2. trade discount
3. functional discount
4. allowance
5. promotional allowance
6. trade credit

(Answer: d; p. 279; Easy)

1. By definition, this type of pricing is used when a firm sells a product or service at two or more prices, even though the difference in price is not based on differences in cost.
2. segmented pricing
3. variable pricing
4. flexible pricing
5. cost-plus pricing
6. none of the above

(Answer: a; p. 279; Moderate)

1. The New Age Gallery has three admission prices for students, adults, and seniors. All three groups are entitled to the same services. This form of pricing is called _____.
2. time pricing
3. location pricing
4. customer-segmented pricing
5. revenue management pricing
6. generational pricing

(Answer: c; p. 279; Challenging)

1. When a firm varies its price by the season, month, day, or even hour, it is using _____ pricing.
2. revenue management
3. penetration
4. variable
5. time
6. value-added

(Answer: d; p. 279; Easy)

1. Common _____ objectives include survival, current profit maximization, market share leadership, and leadership building.
2. pricing
3. management
4. marketing mix
5. cost-plus pricing
6. image

(Answer: a; p. 268; Moderate)

1. Airlines, hotels, and restaurants call segmented pricing _____.
2. time pricing
3. yield management
4. location pricing
5. segmented
6. service pricing

(Answer: b; p. 279; Easy)

1. _____ that influence(s) pricing decisions include the nature of the market and demand and competitors’ prices.
2. Internal factors
3. Elasticity
4. External factors
5. Target factors
6. Domestic factors

(Answer: c; p. 268; Moderate)