C HAPTER 9 PRICING: Understanding and Capturing Customer Value CRS Questions & Answers

©2011 Pearson Education, Inc. publishing as Prentice Hall9-2 Setting price based on buyers’ perceptions of value rather than on the seller’s cost is called: 1.Value-based pricing 2.Customer-based pricing 3.Non-cost pricing 4.Competitive-based pricing

©2011 Pearson Education, Inc. publishing as Prentice Hall9-3 Setting price based on buyers’ perceptions of value rather than on the seller’s cost is called: 1.Value-based pricing 2.Customer-based pricing 3.Non-cost pricing 4.Competitive-based pricing Value-based pricing begins with a complete understanding of the value that a product or service creates for customers.

©2011 Pearson Education, Inc. publishing as Prentice Hall9-4 Monthly costs such as rent, interest, and salaries that must be paid regardless of output each month are: 1.Nonvariable costs 2.Commitment costs 3.Fixed costs 4.Variable costs

©2011 Pearson Education, Inc. publishing as Prentice Hall9-5 Monthly costs such as rent, interest, and salaries that must be paid regardless of output each month are: 1.Nonvariable costs 2.Commitment costs 3.Fixed costs 4.Variable costs Fixed costs (also known as overhead ) are costs that do not vary with production or sales level.

©2011 Pearson Education, Inc. publishing as Prentice Hall9-6 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, , , ,000

©2011 Pearson Education, Inc. publishing as Prentice Hall9-7 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, , , ,000 Breakeven volume = fixed cost ÷ (price – variable costs) = $500,000 ÷ ($80 - $30) = 10,000 bicycles.

©2011 Pearson Education, Inc. publishing as Prentice Hall9-8 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 inelastic 2.Highly unpredictable 3.Highly elastic 4.Highly variable

©2011 Pearson Education, Inc. publishing as Prentice Hall9-9 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 inelastic 2.Highly unpredictable 3.Highly elastic 4.Highly variable When the percentage change in price (10%) is smaller than the corresponding percentage change in demand (40%), demand is elastic.

©2011 Pearson Education, Inc. publishing as Prentice Hall9-10 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 Hall9-11 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 Hall9-12 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 pricing 2.Competition-based pricing 3.Captive-product pricing 4.High-low pricing

©2011 Pearson Education, Inc. publishing as Prentice Hall9-13 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 pricing 2.Competition-based pricing 3.Captive-product pricing 4.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.

©2011 Pearson Education, Inc. publishing as Prentice Hall9-14 Discounts offered to channel members for services they provide are called: 1.Functional discounts 2.Quantity discounts 3.Cash discounts 4.Seasonal discounts

©2011 Pearson Education, Inc. publishing as Prentice Hall9-15 Discounts offered to channel members for services they provide are called: 1.Functional discounts 2.Quantity discounts 3.Cash discounts 4.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 Hall9-16 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 pricing 3.Low-High pricing 4.Segmented pricing

©2011 Pearson Education, Inc. publishing as Prentice Hall9-17 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 pricing 3.Low-High pricing 4.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 Hall9-18 Charging the same price plus freight to all customers, regardless of their location, is called: 1.Nonpromotional pricing 2.Uniform-delivered pricing 3.Zone pricing 4.Price conformity

©2011 Pearson Education, Inc. publishing as Prentice Hall9-19 Charging the same price plus freight to all customers, regardless of their location, is called: 1.Nonpromotional pricing 2.Uniform-delivered pricing 3.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 Hall9-20 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 pricing 3.Captive-product pricing 4.Zone pricing

©2011 Pearson Education, Inc. publishing as Prentice Hall9-21 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 pricing 3.Captive-product pricing 4.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 Hall9-22 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2009 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall