Pricing - Understanding and Capturing Customer Value 1-35 Answer Key

Marketing: An Introduction Pricing: Understanding and Capturing Customer Value 1) ________ is the sum of all the values that customers give up to gain the benefits of having or using a product or service. A) Payroll B) Profit C) Price D) Cost E) Salary Answer: C 2) ________ is the only element in the marketing mix that produces revenue. A) Price B) Place C) Promotion D) Product E) Profit Answer: A 3) Which of the following sets the upper limit for a product's pricing? A) profits B) product costs C) consumer perceptions of value D) elements of the product mix E) competition Answer: C 4) Which of the following sets the lower limit for a product's pricing? A) product costs B) profits C) competition D) elements of the product mix E) consumer perceptions of value Answer: A 5) ________ uses buyers' perceptions of what a product is worth as the key to pricing. A) Customer value-based pricing B) Target return pricing C) Cost-plus pricing D) Psychological pricing E) Competition-based pricing Answer: A 6) A ________ pricing strategy for an offering begins with an assessment of customer needs and perceptions. Then a target price is set based on customer perceptions of worth. A) cost-based B) target costing C) value-based D) value-added E) competition-based Answer: C 7) When establishing prices, it's important for a manager to understand that "good value" is not the same as ________. A) "low price" B) "high price" C) "bargain basement" D) "perceived value" E) "everyday value" Answer: A 8) Retailers like Walmart and Target carry less-expensive versions of established brand name products or new lower-price lines. They have adopted a ________ pricing strategy. A) high-low B) target return C) cost-plus D) good-value E) market-skimming Answer: D 9) Providing extra amenities to differentiate and support high-priced products is referred to as ________ pricing. A) high-low B) value-added C) target return D) everyday low E) cost-plus Answer: B 10) ________ pricing involves setting prices based on the expenses involved in producing, distributing, and selling a product plus a fair rate of return for a company's effort and risk. A) Competition-based B) Value-added C) Cost-based D) Good-value E) Demand-based Answer: C 11) Rent, electricity, and executive salaries that do not vary with production or sales level are referred to as ________ costs. A) fixed B) variable C) break-even D) target E) promotional Answer: A 12) Costs that change directly with the level of production are referred to as ________ costs. A) fixed B) variable C) target D) capital E) payroll Answer: B 13) ________ costs refer to the sum of the fixed and variable costs for any given level of production. A) Target B) Marginal C) Value-based D) Total E) Break-even Answer: D 14) Lovely Skin is establishing a pricing strategy for a new moisturizer. The total cost to produce each unit is $3.50. The company has decided to add a $1.50 markup, so the unit price to distributors will be $5. Lovely Skin is using a ________ approach to price the new moisturizer. A) value-added B) good-value C) cost-plus D) competitor-based E) break-even Answer: C 15) ________ pricing is when a firm tries to determine the price at which it will break even or earn the profit it is seeking. A) Competition-based B) Target return C) Cost-plus D) Good-value E) Value-added Answer: B 16) The Fashion Store, a new startup, sets product prices so that revenues will equal manufacturing and marketing costs. The pricing strategy used by the company is referred to as ________ pricing. A) good-value B) value-added C) cost-plus D) competition-based E) target return Answer: E 17) Which of the following statements about break-even analysis is most likely true? A) It determines how customer-perceived value changes with value-added pricing. B) It is a tool used to calculate fixed costs. C) It is used to determine the maximum price that can be set on a product. D) It is a tool marketers use to examine the relationship between supply and demand. E) It fails to consider customer value and the relationship between price and demand. Answer: E 18) Unlike the other marketing mix elements, price plays a minor role in creating customer value and building customer relationships. Answer: FALSE 19) Everyday low pricing is a cost-based pricing strategy. Answer: FALSE 20) Value-based pricing is often product driven, and customer value perceptions are secondary. Answer: FALSE 21) An airline runs a 6-month promotional program where all baggage fees are waived. It is using a cost-based pricing strategy. Answer: FALSE 22) A break-even chart shows the total cost and total revenue expected at various sales volume levels of a product. Answer: TRUE 23) Target return pricing is a variation of break-even pricing. Answer: TRUE 24) What is customer value-based pricing? Describe the two types of value-based pricing. Answer: Customer value-based pricing uses buyers' perceptions of value as the key to pricing. Value-based pricing means that the marketer cannot design a product and marketing program and then set the price. Price is considered along with all other marketing mix variables before the marketing program is set. The company first assesses customer needs and value perceptions. It then sets its target price based on customer perceptions of value. The targeted value and price drive decisions about what costs can be incurred and the resulting product design. As a result, pricing begins with analyzing consumer needs and value perceptions, and the price is set to match perceived value. It is important to remember that "good value" is not the same as "low price." The two types of value-based pricing are good-value pricing and value-added pricing. More and more, marketers have adopted the strategy of good-value pricing — offering the right combination of quality and good service at a fair price. In many cases, this has involved introducing less-expensive versions of established, brand name products. Many companies also adopt value-added pricing strategies. Rather than cutting prices to match competitors, they attach value-added features and services to differentiate their offers and thus support their higher prices. 25) What are the two different types of costs a company incurs? Explain with examples. Answer: A company's costs take two forms: fixed and variable. Fixed costs (also known as overhead) are costs that do not vary with production or sales level. For example, a company must pay each month's bills for rent, heat, interest, and executive salaries regardless of the company's level of output. Variable costs vary directly with the level of production. Each PC produced by HP involves a cost of computer chips, wires, plastic, packaging, and other inputs. Although these costs tend to be the same for each unit produced, they are called variable costs because the total varies with the number of units produced. Total costs are the sum of the fixed and variable costs for any given level of production. Management wants to charge a price that will at least cover the total production costs at a given level of production. 26) Explain competition-based pricing. Answer: Competition-based pricing involves setting prices based on competitors' strategies, costs, prices, and market offerings. Consumers will base their judgments of a product's value on the prices that competitors charge for similar products. In assessing competitors' pricing strategies, a company should consider several factors. First, it must find how the company's market offering compares with competitors' offerings in terms of customer value. If consumers perceive that the company's product or service provides greater value, the company can charge a higher price. If consumers perceive less value relative to competing products, the company must either charge a lower price or change customer perceptions to justify a higher price. Next, the company should determine the strength of its current competitors and their current pricing strategies. If the company faces a host of smaller competitors charging high prices relative to the value they deliver, it might charge lower prices to drive weaker competitors from the market. If the market is dominated by larger, lower-price competitors, the company may decide to target unserved market niches with value-added products and services at higher prices. Finally, no matter what price the company charges — high, low, or in between — it must try to give customers superior value for that price. 27) Each PC produced by HP involves a cost of computer chips, wires, plastic, packaging, and other inputs. Although these costs tend to be the same for each unit produced, they are called ________ costs because the total changes based on the number of units produced. A) fixed B) variable C) target D) capital E) payroll Answer: A 28) Los Amigos, a new Mexican restaurant, has set up shop across the street from Hot Tamales and More. Which of the following pricing strategies will Los Amigos likely use? A) cost-plus B) competition-based C) break-even D) good-value E) target costing Answer: B 29) Radox, a luxury watch brand, identifies a market segment that is willing to pay premium prices for its watches, and Radox managers select an ideal selling price. Managers then determine the costs to create watches that meet the ideal selling price. The company's pricing approach is referred to as ________. A) mass production B) cost-plus pricing C) target costing D) value-added pricing E) target return pricing Answer: C 30) In ________, the market consists of many buyers and sellers trading in a uniform commodity, such as wheat, copper, or financial securities. A) pure competition B) monopolistic competition C) oligopolistic competition D) a pure monopoly E) a pure monopsony Answer: A 31) There are more than 50 blueberry farmers in Shammonton, New Jersey, that grow, package, and distribute the same quality blueberries. An individual farmer cannot charge more than the going market price per unit without the risk of losing business to the other farmers. This is an example of ________. A) pure competition B) monopolistic competition C) oligopolistic competition D) a pure monopoly E) a black market Answer: A 32) Under ________, the market consists of many buyers and sellers trading over a range of prices rather than a single market price. A) pure competition B) monopolistic competition C) oligopolistic competition D) a pure monopoly E) a pure monopsony Answer: B 33) Under ________, the market consists of a few large sellers who are highly sensitive to each other's pricing and marketing strategies. A) pure competition B) monopolistic competition C) oligopolistic competition D) a pure monopoly E) pure monopsony Answer: C 34) The relationship between the price charged for a product and the resulting demand level can be shown in a(n) ________. A) demand curve B) supply curve C) elastic demand slope D) break-even chart E) inelastic demand slope Answer: A 35) When demand hardly changes with a small change in the price of a product, the demand for the product is best described as ________. A) elastic B) flexible C) inelastic D) variable E) cyclical Answer: C