10 questions of ch 14

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TOP 10 Learning Questions

Ch 14: Developing Pricing Strategies and Programs

Bohong LiApril 15 ,2011

http://bohongli.blogspot.com

1. Many consumers use price as an indicator of ________. Image pricing is especially effective with ego-sensitive products such as perfumes and expensive cars.

A. Status B. QualityC. QuantityD. Ability E. Capability


Concept 1:Price-quality inferences

some consumers believe that price and quality are highly correlated whereas other consumers believe that price and quality are not highly correlated.


1. Many consumers use price as an indicator of ________. Image pricing is especially effective with ego-sensitive products such as perfumes and expensive cars.

A. Status B. QualityC. QuantityD. Ability E. Capability


2. ______ is a type of consumer pricing psychology wherein consumers tend to process prices in a “left-to-right” manner rather than by rounding, e.g. stereo amplifier priced at 299 instead $300 as a price in the $200 range rather than $300 range

A. Price CueB. Price endingC. Reference PriceD. Lower Bound PriceE. Price-quality inference


Concept 1:Price endings: price ending is a marketing practice based on the theory that certain prices have a psychological impact.

Firms that are using high prices to signal quality are more likely to set those prices at round numbers (9-ending prices)


2. ______ is a type of consumer pricing psychology wherein consumers tend to process prices in a “left-to-right” manner rather than by rounding, e.g. stereo amplifier priced at 299 instead $300 as a price in the $200 range rather than $300 range

A. Price CueB. Price endingC. Reference PriceD. Lower Bound PriceE. Price-quality inference


Concept 1:Price cues

A price cue is defined as any marketing tactic used to persuade customers that prices offer good value compared to competitors’ prices, past prices or future prices.


3. “Estimate costs” is one of the six steps in setting price. In the following steps, _____is the step after “estimate costs”?

A. Determine demandB. Select pricing methodC. Analyze competitor price mixD. Select the price objectiveE. Select final price


Concept 2:Steps in Setting Price

1. Select the price objective2. Determine demand3. Estimate costs4. Analyze competitor price mix5. Select pricing method6. Select final price


3. “Estimate costs” is one of the six steps in setting price. In the following steps, _____is the step after “estimate costs”?

A. Determine demandB. Select pricing methodC. Analyze competitor price mixD. Select the price objectiveE. Select final price


4. Which of the following statement is FALSE in considering a pricing objective?

A. Survival: Prices are lowered to ensure inventory turnover but price must cover variable costs & fixed costs.

B. Maximum current profit: price is set to maximize current profit, cash flow, or ROI

C. Maximum Market Skimming: Prices start low and increased overtime

D. Maximum sales growth : low price is set assuming that marketing is price sensitive

E. Marketing penetration pricing: Goal is high sales volume


Concept 3:Step 1: Selecting the Pricing Objective

Survival Maximum current profit Maximum market share Maximum market skimming Product-quality leadership


Survival: if the companies are plagued with overcapacity, intense competition, or changing consumer wants.

Maximum current profit: if the companies estimate the demand and costs associated with alternative prices

Maximum market share: if they believe that a higher sales volume will lead to lower unites costs and higher long-run profit.



Maximum market skimming: companies unveiling a new technology favor setting high prices, and slowly drop price over time.

Product-quality leadership: products or services characterized by high levels of perceived quality, taste, and status with a price just high enough not to be out of consumers’ reach.



4. Which of the following statement is FALSE in considering a pricing objective?

A. Survival: Prices are lowered to ensure inventory turnover but price must cover variable costs & fixed costs.

B. Maximum current profit: price is set to maximize current profit, cash flow, or ROI

C. Maximum Market Skimming: Prices start low and increased overtime

D. Maximum sales growth : low price is set assuming that marketing is price sensitive

E. Marketing penetration pricing: Goal is high sales volume


5. When Sony introduced the world’s first high-definition television (HDTV) to the Japanese market in 1990, it was priced at $43,000. Then the price dropped steadily through the years—a 28-inch Sony HDTV cost just over $6,000 in 1993 and a 40-inch Sony HDTV about $1,200 in 2007. This is an example of___?

A. SurvivalB. Maximum current profitC. Maximum market shareD. Maximum market skimmingE. Product-quality leadership



Survival Maximum current profit Maximum market share Maximum market skimming Product-quality leadership


Survival: if the companies are plagued with overcapacity, intense competition, or changing consumer wants.

Maximum current profit: if the companies estimate the demand and costs associated with alternative prices

Maximum market share: if they believe that a higher sales volume will lead to lower unites costs and higher long-run profit.



Maximum market skimming: companies unveiling a new technology favor setting high prices, and slowly drop price over time.

Product-quality leadership: products or services characterized by high levels of perceived quality, taste, and status with a price just high enough not to be out of consumers’ reach.



5. When Sony introduced the world’s first high-definition television (HDTV) to the Japanese market in 1990, it was priced at $43,000. Then the price dropped steadily through the years—a 28-inch Sony HDTV cost just over $6,000 in 1993 and a 40-inch Sony HDTV about $1,200 in 2007. This is an example of___?

A. SurvivalB. Maximum current profitC. Maximum market shareD. Maximum market skimmingE. Product-quality leadership


6. Which of the following is NOT true?

A. The amount of fixed-cost per unit of activity decrease as volume increase.

B. Variable costs, also known as overhead, differ greatly depending upon the level of production.

C. The cost of electricity can be viewed as semi-variable cost.

D. Total costs consist of the sum of the fixed and variable costs for any given level of production.

E. Average cost is the cost per unit at that level production; it equals total costs divided by production.


Concept 5:Step 3: Estimating Costs

Types of Costs

AccumulatedProduction

Activity-BasedCost Accounting

From Philip Kotler’s, Marketing Management, 13th Edition

Target Costing


Fixed costs Variable costs Total costs Average cost Cost at different levels of

production

Concept 5:Type of costs



1. Fixed costs: (also known as overhead) are items of cost that, in total, do not vary at all with volume. The fixed-cost per unit equals total fixed-cost divided by the number of units of volume.

2. Variable costs: are items of cost that vary, in total, directly and proportionately with volume.



3. Semi-variable costs: those costs include a combination of variable-cost and fixed-cost items. Electrical power is essential for the basic operation of the business in lighting and heating - this portion is a sunk cost that is foregone regardless of production. As demand ramps up, more energy is required to ramp up the production process in the use of machinery or large banks of computers for instance. Cost of electrical energy will then rise accordingly as production activities increase.



6. Which of the following is NOT true?

A. The amount of fixed-cost per unit of activity decrease as volume increase.

B. Variable costs, also known as overhead, differ greatly depending upon the level of production.

C. The cost of electricity can be viewed as semi-variable cost.

D. Total costs consist of the sum of the fixed and variable costs for any given level of production.

E. Average cost is the cost per unit at that level production; it equals total costs divided by production.


7.Which of the followings is TRUE?

A. markup pricing works only if the marked-up price actually brings in the expected level of sales.

B. Value pricing is made up of several elements, such as the buyers’ image of the product performance, the channel deliverables, the warranty quality, customer support, etc.

C. Perceived value win loyal customers by charging a fairly low price for a high quality offering.

D. In going-rate pricing, the firm bases its price largely on competitors' prices, charging less price than major competitors.

E. In target-return pricing, the firm determines the price that would yield its target rate of return on equity.


Markup pricing Target-return pricing Perceived-value pricing Value pricing Going-rate pricing Auction-type pricing

Concept 6:Step 5: Selecting a Pricing Method



7.Which of the followings is TRUE?

A. markup pricing works only if the marked-up price actually brings in the expected level of sales.

B. Value pricing is made up of several elements, such as the buyers’ image of the product performance, the channel deliverables, the warranty quality, customer support, etc.

C. Perceived value win loyal customers by charging a fairly low price for a high quality offering.

D. In going-rate pricing, the firm bases its price largely on competitors' prices, charging less price than major competitors.

E. In target-return pricing, the firm determines the price that would yield its target rate of return on equity.


8. A British aircraft manufacture sold planes to Brazil for 70% cash and the rest in coffee. The manufacture applies ______ as a countertrade form?

A. BarterB. compensation dealC. Buyback arrangementD. OffsetE. Allowance


Barter Compensation deal Buyback

arrangement Offset

Concept 8:Price-Adaption Strategy 1&2 : Geographical Pricing& Discounts/Allowances

Countertrade


Discounts/Allowances Cash discount

Quantity discount Functional discount Seasonal discount Allowance


Concept 8: Countertrade

Barter: the buyer and seller directly exchange goods, with no money and no third party involved.

compensation deal: the seller receives some percentage of the payment in cash and the rest in product.


Concept 8: Countertrade

Buyback arrangement: the seller sales a plant, equipment or technology in other country and agrees to accept as partial payment products manufactured with the supplied equipment.

Offset: the seller receives full payment in cash but agrees to spend a substantial amount of the money in that country within a stated time period.


8. A British aircraft manufacture sold planes to Brazil for 70% cash and the rest in coffee. The manufacture applies ______ as a countertrade form?

A. BarterB. compensation dealC. Buyback arrangementD. OffsetE. Allowance


9. Supermarkets and department stores often drop the price on well-known brands to stimulate additional store traffic. This is an example of ____?

A. Special-event pricingB. Cash rebatesC. Low-interest financingD. Psychological discountingE. Loss-leader pricing


Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting

Concept 9: Price-Adaption Strategy 3 : Promotional Pricing



Concept 9: Loss-leader pricing

A loss leader or leader is a product sold at a low price (at cost or below cost) to stimulate other,

profitable sales. It is a kind of sales

promotion.

One use of a loss leader is to draw customers into a store where they are likely to buy other goods. The vendor expects that the typical customer will purchase other items at the same time as the loss leader and that the profit made on these items will be such that an overall profit is generated for the vendor.


9. Supermarkets and department stores often drop the price on well-known brands to stimulate additional store traffic. This is an example of ____?

A. Special-event pricingB. Cash rebatesC. Low-interest financingD. Psychological discountingE. Loss-leader pricing


10. Companies often adjust their basic price to accommodate differences in market situations. The following are differentiated pricings EXCEPT______?

A. New-product pricingB. Customer-segment pricingC. Product-form pricingD. Channel pricingE. Location pricing


Customer-segment pricing Product-form pricing Channel pricing Location pricing Time pricing Yield pricing

Concept 10: Price-Adaption Strategy 4 : Differentiated Pricing



Differentiated pricingTypes Definition Example

Customer-segment pricing Different customer groups pay different prices for the same product or service.

Museums often charge a lower admission fee to students and senior citizens.

Product-form pricing

Different versions of the product are priced differently, but not proportionately to their costs.

In America, Evian prices a 48-ounce bottle of its mineral water at $2.00. It takes the same water and packages 1.7 ounces in a moisturizer spray for $6.00.

Image pricingSome companies price the same product at two different levels based on images differences.

A perfume manufacture can put the perfume in one bottle, give it a name and image, and price it at €10 an ounce; put the same perfume in another bottle with a different name and image and price it at €30 an ounce.


Differentiated pricingTypes Definition Example

Channel pricing Price the same product by different channels.

Coca-Cola carries a different price depending on whether the consumer purchase it in a fine restaurant, a fast-food restaurant, or a vending machine.

Location pricing

The same product is priced differently at different locations even through the cost of offering it at different location is the same.

A theater varies its seats prices according to audience preferences for different locations.

Time pricing Prices are varied by seasons, day, or hour.

Restaurant charge less to “early bird” customers, and some hotels charge less on weekends.


10. Companies often adjust their basic price to accommodate differences in market situations. The following are differentiated pricings EXCEPT______?

A. New-product pricingB. Customer-segment pricingC. Product-form pricingD. Channel pricingE. Location pricing


TOP 2 Learning Questions

Ch 14: Developing Pricing Strategies and Programs

Bohong LiApril 1 ,2011

10 questions of ch 14

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low price

price sensitivee

price cueb

price endingc

price objectivee

price endings

price cuesa price cue

final price http