Download Marketing Management, 4e (Winer/Dhar)

Marketing Management, 4e (Winer/Dhar)
Chapter 9 Pricing
1) What a product or service is worth to a customer is the:
A) brand value.
B) customer value.
C) profit potential.
D) market potential.
Answer: B
Diff: 1 Page Ref: 246
2) Which of the following statements is true regarding the first-degree of price discrimination?
A) It is changing the price of a product due to inflation.
B) It occurs when competitors charge different prices for similar products in the same market
segment.
C) It involves charging different prices to segments of the market according to their price
elasticity or sensitivity.
D) It refers to the strategy of charging a higher price for a product at the time of introduction and
then gradually decreasing its price.
Answer: C
Diff: 2 Page Ref: 247
3) Charging different prices to different segments according to their price elasticity or sensitivity
is commonly known as:
A) price segmentation.
B) price differentiation.
C) price discrimination.
D) price preference.
Answer: C
Diff: 1 Page Ref: 247
4) Price variations within a product category are called:
A) price slots.
B) price ranges.
C) price groups.
D) price bands.
Answer: D
Diff: 1 Page Ref: 247
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5) Which of the following is most likely a reason of why some categories have large numbers of
product variants?
A) to reduce price visibility
B) to keep competitors from getting shelf space
C) to increase product recall
D) to enhance the brand image
Answer: B
Diff: 1 Page Ref: 248
6) Because more competition implies greater convergence on a standard price, a large number of
suppliers in a product category most likely results in:
A) narrower price bands.
B) increased price transparency.
C) broader price bands.
D) increase in the sales of the product.
Answer: A
Diff: 1 Page Ref: 248
7) Which of the following is the the maximum price someone is willing to pay for a product?
A) external price
B) reservation price
C) internal price
D) reference price
Answer: B
Diff: 1 Page Ref: 249
8) Which of the following statements is true about perceived value?
A) A single perceived value exists in the marketplace.
B) When the price of a product is higher than the perceived value, it is known as value pricing.
C) Perceived value is always relative.
D) Perceived value is standard across customers with similar purchasing power.
Answer: C
Diff: 1 Page Ref: 249
9) Strategically pricing below customer value is called:
A) price skimming.
B) value pricing.
C) pricing to value.
D) price discrimination.
Answer: B
Diff: 1 Page Ref: 249
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10) Which of the following best describes setting a price at the level determined to represent the
customer's perceived value for your product?
A) pricing to value
B) quality pricing
C) value pricing
D) price discrimination
Answer: A
Diff: 1 Page Ref: 249
11) In this situation, the manager has set a price that is higher than the target market is willing to
pay. The customer looks at this situation as a bad deal and, unless the company has a monopoly
or some other kind of market power, does not buy. Identify the situation.
A) perceived value > price > cost
B) price > cost > perceived value
C) price > perceived value > cost
D) perceived value > cost > price
Answer: C
Diff: 2 Page Ref: 250
12) This scenario clearly represents a failure. Usually, such products are weeded out in the newproduct development process. If not, they are ultimately withdrawn from the market. Identify this
scenario.
A) perceived value > price > cost
B) perceived value > cost > price
C) price > perceived value > cost
D) price > cost > perceived value
Answer: D
Diff: 2 Page Ref: 251
13) Identify the correct formula for the calculation of price elasticity of demand.
A) E = percent change in price/percent change in demand
B) E = percent change in demand/percent change in price
C) E = percent change in demand/percent change in supply
D) E = percent change in supply/percent change in demand
Answer: B
Diff: 1 Page Ref: 252
14) When the absolute value of price elasticity of demand is ________, the category is price
elastic.
A) less than 1
B) equal to 0
C) greater than 1
D) equal to 1
Answer: C
Diff: 1 Page Ref: 252
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15) With regard to price elasticity, if a product's price is low to the point where there is
considerable value left for the customer (a good deal), an increase in price will:
A) decrease the market share of the product.
B) not have much impact.
C) decrease customer purchase.
D) increase brand equity.
Answer: B
Diff: 1 Page Ref: 253
16) As the price of a product gets closer to customer value,
A) price elasticity will decrease.
B) price elasticity will be unaffected.
C) price elasticity will increase.
D) product will become perfectly inelastic.
Answer: C
Diff: 1 Page Ref: 253
17) The concept of "value-in-use" is a useful method of estimating customer value for:
A) consumer electronic products.
B) industrial products.
C) convenience products.
D) fast moving consumer goods.
Answer: B
Diff: 1 Page Ref: 253
18) Identify the approach where the benefits of the product are put in monetary terms such as
time savings, less use of materials, or less downtime.
A) value pricing
B) pricing to value
C) value-in-use
D) price discrimination
Answer: C
Diff: 1 Page Ref: 253
19) Which of the following best describes a trend in business to purchase a service from an
outside vendor to replace the company's operation?
A) insourcing
B) outsourcing
C) joint venture
D) horizontal integration
Answer: B
Diff: 1 Page Ref: 254
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20) Which of the following approaches to calculating customer value creates a scale that puts
survey responses in monetary terms?
A) dollarmetric method
B) chi square testing
C) conjoint analysis
D) regression analysis
Answer: A
Diff: 1 Page Ref: 255
21) Which of the following is a marketing research method that uses theoretical profiles or
concepts to determine how customers value different levels of product attributes?
A) regression analysis
B) cluster analysis
C) dollarmetric method
D) conjoint analysis
Answer: D
Diff: 1 Page Ref: 255
22) This method is an alternative to survey-based methods and takes place in a real environment.
It tries to obtain actual market data after manipulating price in different markets. Identify this
method.
A) dollarmetric method
B) conjoint analysis
C) field experimental method
D) delphi method
Answer: C
Diff: 1 Page Ref: 256
23) An understanding of the cost structure of the market provides marketing managers with:
A) an idea of how low some competitors can price.
B) the demographics of target markets.
C) the behavioral segmentation of target markets.
D) an accurate idea of customers' willingness to pay.
Answer: A
Diff: 1 Page Ref: 259
24) Purchasing a competitor's product and taking it apart, studying the cost of the components,
and packaging describes the process of:
A) outsourcing.
B) reverse engineering.
C) insourcing.
D) horizontal integration.
Answer: B
Diff: 1 Page Ref: 259
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25) Identify the phenomenon in which the conventional functional relationship assumed is that
unit costs are a decreasing function of accumulated experience, or production volume.
A) the regression curve
B) the experience curve
C) the Chasm model
D) Parfitt-Collins model
Answer: B
Diff: 1 Page Ref: 259
26) Full cost plus some target margin are used to set price in a:
A) customer-driven firm.
B) nonmarket-driven firm.
C) market-driven firm.
D) share-driven firm.
Answer: B
Diff: 1 Page Ref: 260
27) ________ are spread out over many years and sometimes different products.
A) Development costs
B) Overhead costs
C) Variable costs
D) Direct fixed costs
Answer: A
Diff: 1 Page Ref: 260
28) Development costs are best described as:
A) costs that are associated with individual products that do not vary with sales volume.
B) expenses involved in bringing new products to the market.
C) costs that must ultimately be covered by revenues from individual products, but are not
associated with any one product.
D) the per-unit costs of making the product or delivering the service.
Answer: B
Diff: 1 Page Ref: 260
29) If there is no legal way to keep competitors out of the market, these costs must be viewed as
sunk costs that do not affect decision making after the product is introduced into the market.
Identify the type of cost being discussed.
A) development cost
B) variable cost
C) direct fixed cost
D) overhead cost
Answer: A
Diff: 1 Page Ref: 260
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30) Costs such as the corporate jet and the president's salary are examples of:
A) development costs.
B) variable costs.
C) direct fixed costs.
D) overhead costs.
Answer: D
Diff: 1 Page Ref: 260-261
31) Which of the following best describes the costs that must ultimately be covered by revenues
from individual products, but are not associated with any one product?
A) development costs
B) variable costs
C) direct fixed costs
D) overhead costs
Answer: D
Diff: 1 Page Ref: 261
32) Costs, such as the marketing manager's salary and product-related advertising and promotion
expenses, are examples of:
A) development costs.
B) variable costs.
C) direct fixed costs.
D) overhead costs.
Answer: C
Diff: 1 Page Ref: 261
33) Which of the following statements is true regarding a direct fixed cost?
A) The corporate jet expenditure is an example of a direct fixed cost.
B) These costs are not associated with individual products.
C) These costs do not vary with sales volume.
D) These costs are spread out over many years and sometimes different products.
Answer: C
Diff: 1 Page Ref: 261
34) Which of the following describes the per-unit cost of making the product or delivering the
service?
A) development costs
B) variable costs
C) direct fixed costs
D) fixed costs
Answer: B
Diff: 1 Page Ref: 261
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35) Which of the following statements is true about variable costs?
A) The corporate jet expenditure is an example of a variable cost.
B) These costs must be recovered by the price.
C) The marketing manager's salary is an example of a variable cost.
D) These costs are independent of sales volume.
Answer: B
Diff: 1 Page Ref: 261
36) Which of the following is a concern for marketing managers when price is used as a costrecovery mechanism?
A) a mismatch between price and customers' perceptions of value
B) ignoring market segmentation
C) independence against competitors' prices
D) implementation of development costs
Answer: A
Diff: 1 Page Ref: 261
37) Market share pricing is also known as:
A) competitive pricing.
B) investment pricing.
C) penetration pricing.
D) skimming.
Answer: C
Diff: 1 Page Ref: 262
38) Which of the following strategies entails giving most of the value to the customer and
keeping a small margin?
A) penetration pricing
B) skimming
C) prestige pricing
D) competitive pricing
Answer: A
Diff: 1 Page Ref: 262
39) Which of the following pricing strategies is used to gain as much market share as possible?
A) penetration pricing
B) skimming
C) prestige pricing
D) competitive pricing
Answer: A
Diff: 1 Page Ref: 262
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40) Identify the pricing strategy that is useful for preventing competitive entry.
A) pricing to value
B) investment pricing
C) penetration pricing
D) prestige pricing
Answer: C
Diff: 1 Page Ref: 262
41) Which of the following best describes a situation when penetration pricing should be used?
A) when the product has a strong competitive advantage
B) when a large segment of the customer base is price-sensitive
C) when the perceived quality depends on price
D) when there is a little chance of competition in near future
Answer: B
Diff: 1 Page Ref: 262
42) The opposite of the penetration pricing is:
A) value pricing.
B) skimming.
C) market share pricing.
D) competitive pricing.
Answer: B
Diff: 1 Page Ref: 262
43) Skimming is also known as ________ pricing.
A) competitive
B) investment
C) penetration
D) prestige
Answer: D
Diff: 1 Page Ref: 262
44) Which of the following pricing strategies is the most appropriate when costs are not related
to volume and managers are less concerned about building significant market share?
A) penetration pricing
B) skimming
C) market share pricing
D) competitive pricing
Answer: B
Diff: 1 Page Ref: 262
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45) Which of the following describes a situation when skimming should be used?
A) when experience or scale effects lead to a favorable volume—cost relationship
B) when there is a strong price—perceived quality relationship
C) when a large segment of the customer base is price-sensitive
D) when the company wants to build significant market share
Answer: B
Diff: 1 Page Ref: 262
46) Which of the following describes establishing a price that provides the rate of return
demanded by senior management?
A) skimming
B) return on sales pricing
C) penetration pricing
D) competitive pricing
Answer: B
Diff: 1 Page Ref: 262
47) Which of the following pricing objectives is useful only when the product has a monopoly or
near monopoly position so that the market will produce the needed sales volume at the price set?
A) penetration pricing
B) skimming
C) investment pricing
D) competitive pricing
Answer: C
Diff: 1 Page Ref: 262-263
48) Which of the following best describes the pricing objective typically used by regulated
utilities such as gas and electricity?
A) penetration pricing
B) skimming
C) investment pricing
D) competitive pricing
Answer: C
Diff: 1 Page Ref: 263
49) Telephone rates for large users such as telemarketing firms and banks fall under this
category. Identify this pricing objective category.
A) penetration pricing
B) pricing for stability
C) investment pricing
D) competitive pricing
Answer: B
Diff: 1 Page Ref: 263
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50) Which of the following pricing objectives describes a situation where the marketer attempts
to price the product at the market average or match a particular brand's price?
A) penetration pricing
B) pricing for stability
C) return on investment pricing
D) competitive pricing
Answer: D
Diff: 1 Page Ref: 263
51) Which of the following pricing objectives is appropriate when customers have not been
persuaded that significant differences exist among the competitors and that they view the product
as a commodity?
A) investment pricing
B) pricing for stability
C) competitive pricing
D) prestige pricing
Answer: C
Diff: 1 Page Ref: 263
52) When Microsoft introduced the Xbox videogame console in 2001, the company priced it at
$299, exactly the same price as Sony's PlayStation 2, the market leader. Identify this pricing
strategy.
A) penetration pricing
B) skimming
C) competitive pricing
D) investment pricing
Answer: C
Diff: 1 Page Ref: 263
53) Identify the concept related to the psychological aspects of price.
A) skimming price
B) reference price
C) prestige price
D) penetration price
Answer: B
Diff: 1 Page Ref: 263
54) A ________ is any standard of comparison against which an observed potential transaction
or purchase price is compared.
A) ceiling price
B) competitive price
C) price point
D) reference price
Answer: D
Diff: 1 Page Ref: 263
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55) In the retail business, the reference price is often listed on the sales tag as the:
A) original price.
B) reduced price.
C) marked-down price.
D) sale price.
Answer: A
Diff: 1 Page Ref: 263-264
56) Internal reference prices are formed from advertising, past purchasing experience, and so on,
and are often called ________ because the customer considers them the actual prices of the
products in a category.
A) competitive prices
B) perceived prices
C) price points
D) ceiling prices
Answer: B
Diff: 1 Page Ref: 264
57) ________ goods are products that you have to try before assessing its quality.
A) Convenience
B) Shopping
C) Experience
D) Durable
Answer: C
Diff: 1 Page Ref: 265
58) If the quality of a product or service is difficult to evaluate even after you have purchased
and used the product or service, the product falls under the category of:
A) experience goods.
B) shopping goods.
C) convenience goods.
D) credence goods.
Answer: D
Diff: 1 Page Ref: 265
59) High buyer power tends to ________ prices and high supplier power ________ the floor
beneath which prices cannot be set.
A) inflate; raises
B) inflate; lowers
C) depress; raises
D) depress; lowers
Answer: C
Diff: 1 Page Ref: 266
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60) Identify the approach that integrates a set of products and offers them in a package that is
usually lower in price than the sum of the prices of the individual components.
A) price bundling
B) product-line pricing
C) complementary pricing
D) penetration pricing
Answer: A
Diff: 1 Page Ref: 268
61) The ________ approach involves offering both a high-priced and a low-priced brand that
would result in brands at multiple price tiers.
A) congestion pricing
B) price bundling
C) complementary pricing
D) product-line pricing
Answer: A
Diff: 1 Page Ref: 268
62) Which of the following pricing tactics applies to products that are used together when one of
the products is a consumable that must be replenished continually?
A) price bundling
B) congestion pricing
C) complementary pricing
D) second market discounting
Answer: C
Diff: 1 Page Ref: 269
63) Which of the following statements is true about value pricing?
A) It is also known as penetration pricing.
B) It gives customers more value than they expect for the price paid.
C) It gives the seller most of the value—cost difference.
D) It implies low price alone.
Answer: B
Diff: 1 Page Ref: 269
64) ________ pricing gives customers more value than they expect for the price paid.
A) Penetration
B) Value
C) Prestige
D) Investment
Answer: B
Diff: 1 Page Ref: 269
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65) The senior citizen discounts given at movie theaters and quantity discounts on personal
computers given to large customers are examples of:
A) price bundling.
B) complementary pricing.
C) price discrimination.
D) value pricing.
Answer: C
Diff: 1 Page Ref: 270
66) A disposable diaper company prices its newborn disposable diapers higher than later-stage
diapers to take advantage of new parents' concerns and concomitant extreme price insensitivity.
This is an example of:
A) prestige pricing.
B) penetration pricing.
C) complementary pricing.
D) congestion pricing.
Answer: D
Diff: 1 Page Ref: 270
67) Identify the strategy that involves selling the extra production at a discount to a market
separate from the main market.
A) second-market discounting
B) penetration pricing
C) competitive pricing
D) periodic discounting
Answer: A
Diff: 1 Page Ref: 270
68) Theater tickets cost more on weekends. This is an example of:
A) penetration pricing.
B) complementary pricing.
C) periodic discounting.
D) value pricing.
Answer: C
Diff: 1 Page Ref: 271
69) Identify the strategy that allows customers to choose the option that best suits their level of
usage.
A) second market discounting
B) value pricing
C) periodic discounting
D) per-use pricing
Answer: D
Diff: 1 Page Ref: 271
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70) Identify the main advantage of the Web as an auction site.
A) the size of the audience
B) the ease of processing the order
C) the availability of different sites
D) the speed of access
Answer: A
Diff: 1 Page Ref: 274
71) A customer, in determining what a product or service is worth, considers the cost of
producing the product or the service.
Answer: FALSE
Diff: 2 Page Ref: 246
72) Strategy decisions do not lead to a specific price-setting rule; rather, they give general
guidelines for whether a price should be low or high.
Answer: TRUE
Diff: 1 Page Ref: 247
73) Charging different prices to different segments according to their price elasticity or
sensitivity is known as price discrimination.
Answer: TRUE
Diff: 1 Page Ref: 247
74) A larger number of suppliers within a product category results in a broader price band.
Answer: FALSE
Diff: 1 Page Ref: 248
75) More competition implies greater divergence on a standard price.
Answer: FALSE
Diff: 1 Page Ref: 248
76) Reservation price is the most someone is willing to pay for a product.
Answer: TRUE
Diff: 1 Page Ref: 249
77) There is no single perceived value in the marketplace.
Answer: TRUE
Diff: 1 Page Ref: 249
78) Perceived value is always relative.
Answer: TRUE
Diff: 1 Page Ref: 249
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79) Strategically pricing below customer value is often called pricing to value.
Answer: FALSE
Diff: 1 Page Ref: 249
80) Price elasticity of demand is the percent change in demand divided by a percent change in
price.
Answer: TRUE
Diff: 1 Page Ref: 252
81) The value-in-use method works well with products and services for which it is difficult to
quantify the economic benefits.
Answer: FALSE
Diff: 1 Page Ref: 254
82) The dollarmetric method is used in conjunction with survey based methods that create a scale
that puts survey responses in monetary terms.
Answer: TRUE
Diff: 1 Page Ref: 255
83) The conventional functional relationship assumed in experience curve economics is that unit
costs are an increasing function of accumulated experience, or production volume.
Answer: FALSE
Diff: 1 Page Ref: 259
84) Often variable costs are spread out over many years and sometimes different products.
Answer: FALSE
Diff: 1 Page Ref: 260
85) The expenditure incurred for product-related advertising and promotion is an example of
direct fixed costs.
Answer: TRUE
Diff: 1 Page Ref: 261
86) The corporate jet expenditure is an example of a direct fixed cost.
Answer: FALSE
Diff: 1 Page Ref: 261
87) Direct fixed costs do not vary with sales volume.
Answer: TRUE
Diff: 1 Page Ref: 261
88) Prestige pricing entails giving most of the value to the customer and retaining a small
margin.
Answer: FALSE
Diff: 1 Page Ref: 262
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89) Skimming is also known as penetration pricing.
Answer: FALSE
Diff: 1 Page Ref: 262
90) Investment pricing implies that you can set a price that delivers the rate of return demanded
by senior management.
Answer: TRUE
Diff: 1 Page Ref: 262
91) Haircuts and legal advice can be cited as examples of credence goods.
Answer: FALSE
Diff: 2 Page Ref: 265
92) In a product category, higher price levels can be sustained if the barriers to entry are low.
Answer: FALSE
Diff: 1 Page Ref: 266
93) The concept of unused capacity is important in product categories with high-fixed-cost and
high contribution-margin.
Answer: TRUE
Diff: 1 Page Ref: 267
94) In price bundling, the package price is usually higher than the sum of the individual
components.
Answer: FALSE
Diff: 1 Page Ref: 268
95) Automobiles and gas are examples of complementary products.
Answer: TRUE
Diff: 2 Page Ref: 269
96) The best way to defend your brand against the incursion of private labels is to lower the
price.
Answer: FALSE
Diff: 1 Page Ref: 272
97) When the domestic currency is weak, full-costing or cost-plus pricing does not hurt you so
much because the exchange rate keeps the selling price down.
Answer: TRUE
Diff: 1 Page Ref: 275
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98) Describe the three possible relationships among perceived value, price and cost, ignoring
competition for the present.
Answer:
a. Perceived value > price > cost – in this case, the marketing manager has set a price, either
intentionally or mistakenly, below what customers would be willing to pay for the product or
service. From the customer's standpoint, the product is a bargain.
b. Price > perceived value > cost – in this unfortunate situation, the manager has set a price that
is higher than the target market is willing to pay. The customer looks at this situation as a bad
deal and, unless the company has a monopoly or some other kind of market power, does not buy.
c. Price > cost > perceived value – this scenario clearly represents failure. Usually, such products
are weeded out in the new product development process. If not, they are ultimately withdrawn
from the market.
Diff: 1 Page Ref: 249-251
99) Explain the four different kinds of costs to consider when using costs to set price.
Answer:
a. Development costs – expenses involved in bringing new products to market.
b. Overhead costs – must be ultimately covered by revenues from individual products, but they
are not associated with any one product.
c. Direct fixed costs – these costs, such as marketing manager's salary and product-related
advertising and promotion, are associated with individual products but do not vary with sales
volume.
d. Variable costs – the per-unit costs of making the product or delivering the service. These must
be recovered by price.
Diff: 1 Page Ref: 260-261
100) Describe the five major pricing objectives discussed in the text.
Answer:
a. Penetration pricing – entails giving most of the value to the customer and keeping a small
margin. The objective is to gain as much market share as possible.
b. Skimming – gives more of the cost-value gap to you than to the customer.
c. Return on sales or investment pricing – implies that you can set a price that delivers the rate of
return demanded by senior management.
d. Pricing for stability – sometimes customers for industrial products are as concerned about
price stability as they are about actual price levels.
e. Competitive pricing – describes a situation in which you try to price at the market average or
match a particular brand's price.
Diff: 1 Page Ref: 262-263
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101) Briefly describe any three specific pricing tactics discussed in the text.
Answer:
a. Price bundling – takes a set of products, offers them to customers in a package, and usually
prices the package lower than the sum of the individual components.
b. Product-line pricing – involves offering both a high-priced and a low-priced brand.
c. Complementary pricing – applies to products that are used together when one of the products
is a consumable that must be replenished continually.
Diff: 1 Page Ref: 268-269
102) Describe the four methods of implementing differential pricing.
Answer:
a. Direct price discrimination – maximizes products' profits by charging each market segment the
price that maximizes profits from that segment because of different price elasticities of demand.
b. Second-market discounting – with this policy, you sell the extra production at a discount to a
market separate from the main market.
c. Periodic discounting – price varies over time. It is appropriate when some customers are
willing to pay a higher price to have the product or service during a particular time period.
d. Flat-rate versus variable-rate pricing – allows customers to choose the option that best suits
their level of usage.
Diff: 1 Page Ref: 269-271
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