Ohio University, Athens

MKT 4630

Chapter 18-1-Critical Underpinnings of Pricing Decisions

True/ Questions

1)Perceived value analysis is a method of estimating the price equivalence of the firm’s product versus competitive products.

 

 

2. Product, promotion, distribution, and service are the non-price elements in the marketing mix that a firm uses to create value for customers.

 

 

3. Dollarmetric pricing is often used in situations such as supermarket pricing where many different products must be priced.

 

 

4. According to the text, cost-plus pricing is focused internally and does not take into account external market realities.

 

 

5. Variable costs vary directly with the volume of sales and production, increasing as volume increases and decreasing as volume decreases.

 

 

6. According to the text, fixed costs do not vary directly with the volume of sales or production.

 

 

7. A price-inelastic demand curve occurs when volume increases significantly as price decreases.

 

 

8. According to the text, a price-elastic demand curve occurs when volume is relatively insensitive to changes in price.

 

 

9. Grocery store items are examples of products with price-elastic demand.

 

 

10. Electricity is an example of an item with price-inelastic demand.

 

 

11. In skim pricing, the firm prices close to costs; it expects high market share in the short run with profits delayed and ultimately secured from high volumes and low margins.

 

 

12. Price elasticity of demand helps estimate market demand when price changes.

 

 

13. The formula for price elasticity of demand is percentage change in price/percentage change in demand.

 

 

14. Pricing at what the market will bear is not useful advice because the market will bear many prices.

 

 

15. Cost-plus pricing is a pricing technique that considers customer value.

 

 

Multiple Choice Questions

 

16. All of the following are critical considerations that should enter into pricing decisions EXCEPT:

a.) Governmental intervention

b.) Perceived customer value c.) Competition

d.) Strategic objectives

 

17. Perceived value is created primarily by all of the following elements in the marketing mix EXCEPT:

a.)   Product b.) Promotion

c.) Price

d.) Distribution

 

18. Which of the following methods of measuring customer value compares each options with the others? Then for each pair of option, customers would say which they prefer and how much extra they would pay.

a.) direct value assessment b.) perceived value analysis c.) price experiment

d.) dollarmetric method

 

19. Which of the following specific methodologies is NOT mentioned in the text as being available for measuring perceived value?

a.) Direct value assessment b.) Perceived value analysis c.) The dollarmetric method

d.) Factor analysis

 

20.                                       is a method of estimating the price equivalence of the firm’s versus competitive products.

a.) Perceived value analysis

b.) Conjoint analysis

c.) Value-in-use analysis d.) Perceptual mapping

 

21. Which of the following is the first step in using the perceived value analysis method to measure an offer’s perceived value?

a.) Identify customers’ required benefits and values

b.) Weigh benefits and values

c.) Rate each offer from the various suppliers d.) Develop benefit/value scores

 

22. In which of the following approaches to measuring customer value does the firm offer a test product at different prices in different market areas, like geographic locations?

a.) Price experiment

b.)   Dollarmetric method c.) Direct value assessment d.) Economic analysis

 

23. The customer value map displays the                                  positions. a.) benefits/value

b.) price/cost

c.) value/price

d.) cost/price

 

24. According to the text, which of the following strategies is the most-used pricing method? a.) Conjoint pricing

b.) Cost-plus pricing

c.) Competitive pricing d.) Comparative pricing

 

25. In                                      , the product cost is incremented upward by a margin to establish the selling price.

a.) conjoint pricing

b.) cost-plus pricing

c.) competitive pricing d.) comparative pricing

 

26. Which of the following is NOT mentioned in the text as an advantage of cost-plus pricing systems? a.) They are legally acceptable and in certain cases may be required.

b.) If sales are made, they should be profitable with this pricing method. c.) Assuming costs are known, the pricing task is simple.

d.) Prices are matched to market realities.

 

27.                                  proceeds by identifying product costs, then adding a predetermined profit margin. a.) Conjoint pricing

b.) Cost-plus pricing

c.) Competitive pricing d.) Comparative pricing

 

28. All of the following are mentioned in the text as disadvantages of cost-plus pricing systems EXCEPT:

a.) Implicit limits on growth and profit potential. b.) Arbitrary cost measurement.

c.) Prices are not matched to market realities.

d.) Difficult to implement this pricing system

 

29.                                       is focused internally and does not take into account external market realities. a.) Conjoint pricing

b.) Cost-plus pricing

c.) Competitive pricing d.) Comparative pricing

 

30.                                        vary directly with the volume of sales and production, increasing as volume increases and decreasing as volume decreases.

a.) Fixed costs

b.) Marginal costs

c.) Variable costs

d.) Segmented costs

 

31. For manufactured products,                              usually include raw materials, utilities to power production machines, direct labor, and sales commissions.

a.) fixed costs

b.) marginal costs

c.) variable costs

d.) segmented costs

32. Which of the following costs do not vary directly with the volume of sales or production?

a.) Fixed costs

b.) Marginal costs c.) Variable costs d.) Segmented costs

 

33.                                include overhead and allocated items like depreciation, rent, salaries, and selling, general and administrative expenses.

e.) Fixed costs

f.) Marginal costs g.) Variable costs h.) Segmented costs

 

34. All of the following are examples of fixed costs EXCEPT: a.) Managerial salaries

b.) Depreciation

c.) Administrative expenses

d.) Raw materials

 

35. Which of the following is the correct formula for the Price Elasticity of Demand?

a.) Percentage change of demand/percentage change in price

b.) Percentage change in price/percentage change in demand c.) Percentage change in supply/percentage change in demand d.) Percentage change in demand/percentage change in supply

 

36. A demand curve occurs when volume increases significantly as price decreases.

a.) price-elastic

b.) price-inelastic c.) positive-sloping d.) negative-sloping

 

37. Many grocery items are examples of which of the following market-level price sensitive situations?

a.) price-elastic

b.) price-inelastic c.) positive-sloping d.) negative-sloping

 

38. According to the text, a                                       demand curve occurs when volume is relatively insensitive to changes in price.

a.) price-elastic

b.) price-inelastic

c.) positive-sloping d.) negative-sloping

 

39. Electricity and heart pacemakers are examples of which of the following market-level price sensitive situations?

a.) price-elastic

b.) price-inelastic c.) positive-sloping d.) negative-sloping

 

40. All of the following are advantages of cost-plus pricing EXCEPT:

a.) profitability b.) simplicity c.) defensibility

d.) all selections are advantages of cost-plus pricing

41. Which of the following is NOT a disadvantage of cost-plus pricing? a.) Profit limitations

b.) Defensibility

c.) Inappropriate treatment of fixed costs d.) Arbitrary overhead allocations

 

42. According to the text, costs have all of the following important price-setting roles EXCEPT: a.) birth control

b.) death control

c.) cultural control

d.) profit planning

 

43.                              include all incremental costs related to a new product, including incremental overhead.

a.) Variable costs b.) Fixed costs

c.) Marginal costs

d.) Fully loaded costs

 

44. Which of the following types of costs is defined as the cost to make and sell one additional unit?

a.) marginal costs

b.) fully loaded costs c.) variable costs

d.) fixed costs

 

45.  

a.) $75,000 b.) $150,000 c.) $200,000 d.) $225,000 (difficult)

A firm is determining the price of a new product and uses a mark-up of 50%. If direct out-of-pocket cost is $50,000 and fully loaded manufacturing cost is $150,000, what price should be suggested if the firm uses cost-plus pricing?

 

 

 

 

46. According to the text,                                        pricing suggests setting the price based on the competitor’s price.

a.) skimming b.) penetration c.) vertical

d.) price parity

 

47. All of the following are major strategic options for developing market strategy EXCEPT:

a.) introduce a fighting brand

b.) increase volume and/or market share c.) maximize profits

d.) maximize cash flow

 

48. Which of the following is NOT an appropriate condition in which a firm can offer high customer value superior to competitors?

a.) price-inelastic market

b.) desire to deter competitors

c.) deep pockets to absorb initially low profit margins d.) sufficient capacity to fulfill increased demand