CCHAPTER HAPTER 99

PRICING: Understanding and Capturing Customer

Value

CRS Questions & Answers

©2011 Pearson Education, Inc. publishing as Prentice Hall 9-2

Setting price based on buyers’ perceptionsof value rather than on the seller’s cost is called:

1. Value-based pricing2. Customer-based pricing3. Non-cost pricing4. Competitive-based pricing

©2011 Pearson Education, Inc. publishing as Prentice Hall 9-3

Setting price based on buyers’ perceptionsof value rather than on the seller’s cost is called:

1. Value-based pricing2. Customer-based pricing3. Non-cost pricing4. Competitive-based pricing

Value-based pricing begins with a complete understanding of the value that a product or service creates for customers.

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Monthly costs such as rent, interest, and salaries that must be paid regardless of output each month are:

1. Nonvariable costs2. Commitment costs3. Fixed costs4. Variable costs

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Monthly costs such as rent, interest, and salaries that must be paid regardless of output each month are:

1. Nonvariable costs2. Commitment costs3. Fixed costs4. Variable costs

Fixed costs (also known as overhead) are costs that do not vary with production or sales level.

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A manufacturer of bicycles has fixed costs of $500,000 and variable costs of $30 per bicycle. If the company sells the bicycle for $80, how many bicycles must be sold to break even?1. 6,250

2. 10,0003. 16,6674. 20,000

©2011 Pearson Education, Inc. publishing as Prentice Hall 9-7

A manufacturer of bicycles has fixed costs of $500,000 and variable costs of $30 per bicycle. If the company sells the bicycle for $80, how many bicycles must be sold to break even?1. 6,250

2. 10,0003. 16,6674. 20,000

Breakeven volume = fixed cost ÷ (price – variable costs) = $500,000 ÷ ($80 - $30) = 10,000 bicycles.

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Initially, you price your new motorcycle at $30,000, but then drop the price to $27,000. Consequently, demand for the new motorcycle jumps by 40%. In this case, demand is:

1. Highly inelastic2. Highly unpredictable3. Highly elastic4. Highly variable

©2011 Pearson Education, Inc. publishing as Prentice Hall 9-9

Initially, you price your new motorcycle at $30,000, but then drop the price to $27,000. Consequently, demand for the new motorcycle jumps by 40%. In this case, demand is:

1. Highly inelastic2. Highly unpredictable3. Highly elastic4. Highly variable

When the percentage change in price (10%) is smaller than the corresponding percentage change in demand (40%), demand is elastic.

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Market penetration pricing works best when all EXCEPT which the following conditions are met?

1. Consumers are price sensitive.2. Per unit production and distribution

costs fall as sales volume rises.3. The low prices keep competitors at

bay.4. The product has a premium image.

©2011 Pearson Education, Inc. publishing as Prentice Hall 9-11

Market penetration pricing works best when all EXCEPT which the following conditions are met?

1. Consumers are price sensitive.2. Per unit production and distribution

costs fall as sales volume rises.3. The low prices keep competitors at

bay.4. The product has a premium image.

As consumers often equate high prices with high quality, market skimming would be the preferred strategy when a product has a premium image.

©2011 Pearson Education, Inc. publishing as Prentice Hall 9-12

Computer printers have become very inexpensive. However, the replacement ink cartridges can cost almost as much as the printer. What product mix pricing strategy is being used?

1. Everyday low pricing2. Competition-based pricing3. Captive-product pricing4. High-low pricing

©2011 Pearson Education, Inc. publishing as Prentice Hall 9-13

Computer printers have become very inexpensive. However, the replacement ink cartridges can cost almost as much as the printer. What product mix pricing strategy is being used?

1. Everyday low pricing2. Competition-based pricing3. Captive-product pricing4. High-low pricing

Companies that make products (e.g., cartridges) that must be used along with a main product (e.g., printer) are using captive-product pricing.

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Discounts offered to channel members for services they provide are called:

1. Functional discounts2. Quantity discounts3. Cash discounts4. Seasonal discounts

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Discounts offered to channel members for services they provide are called:

1. Functional discounts2. Quantity discounts3. Cash discounts4. Seasonal discounts

Wholesalers, distributors, and retailers earn functional discounts as a reward for storing and selling the product, and for their record keeping activities.

©2011 Pearson Education, Inc. publishing as Prentice Hall 9-16

Priceway grocery stores frequently advertise some products at very low prices to attract customers to the store in the hope that they will buy other items at normal markups. What price-adjustment strategy is Priceway using?1. Promotional pricing

2. Reference pricing3. Low-High pricing4. Segmented pricing

©2011 Pearson Education, Inc. publishing as Prentice Hall 9-17

Priceway grocery stores frequently advertise some products at very low prices to attract customers to the store in the hope that they will buy other items at normal markups. What price-adjustment strategy is Priceway using?1. Promotional pricing

2. Reference pricing3. Low-High pricing4. Segmented pricing

Promotional pricing involves temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales. This specific type of promotion pricing is called loss leader.

©2011 Pearson Education, Inc. publishing as Prentice Hall 9-18

Charging the same price plus freight to all customers, regardless of their location, is called:

1. Nonpromotional pricing 2. Uniform-delivered pricing 3. Zone pricing4. Price conformity

©2011 Pearson Education, Inc. publishing as Prentice Hall 9-19

Charging the same price plus freight to all customers, regardless of their location, is called:

1. Nonpromotional pricing2. Uniform-delivered pricing3. Zone pricing 4. Price conformity

When using uniform-delivered pricing, the company charges the same price plus freight to all customers, regardless of their location. The freight charge is set at the average freight cost.

©2011 Pearson Education, Inc. publishing as Prentice Hall 9-20

Amanda was checking airline prices on the Internet and noticed that prices changed throughout the day and on different days when she checked. This type of pricing routinely practiced by industries such as airlines and hotels is called:1. Reference pricing

2. Dynamic pricing3. Captive-product pricing4. Zone pricing

©2011 Pearson Education, Inc. publishing as Prentice Hall 9-21

Amanda was checking airline prices on the Internet and noticed that prices changed throughout the day and on different days when she checked. This type of pricing routinely practiced by industries such as airlines and hotels is called:1. Reference pricing

2. Dynamic pricing3. Captive-product pricing4. Zone pricing

Dynamic pricing is the adjusting of prices continually to meet the characteristics and needs of individual customers and situations.

©2011 Pearson Education, Inc. publishing as Prentice Hall 9-22

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