Pricing

Front 1

The difference between how an economist and sales manager approach pricing is

Back 1

the economist thinks of a profit maximizing price while the sales manager focuses on the list price

Front 2

When thinking of pricing, product managers

Back 2

focus on product features

Front 3

The three levesl of pricing include

Back 3

Industry economics, product/market strategy and transaction level prices

Front 4

According to the pricing pyramid the foundation of pricing is __________ and the pinnacle is ___________.

Back 4

value creation and price level

Front 5

Managers need to create a price structure so as to

Back 5

so as to cater to heterogeneous customers

Front 6

A well designed price policy ensures that

Back 6

qualified customers get price breaks

Front 7

In determining the price level a manager needs to use

Back 7

lots of data and good judgment

Front 8

The two objectives of pricing strategy are to

Back 8

Ensure profitability and capture consumer value

Front 9

Cost plus pricing

Back 9

Can lead to overpricing if demand is weak

Front 10

The XYZ company's average cost last year was $240 per unit. It priced its product at $300 for a target margin of 20%. A recent drop in demand has resulted in an increase in the average cost to $256. The manager is considering a price increase to $320 to maintain the margin at 20%. In the face of the drop in demand, which of the following is the most appropriate:

Back 10

The new contemplated price is probably too high

Front 11

Customer oriented pricing requires that we should measure the customer's perceived value for the product, and

Back 11

A. Choose a price equal to the value
B. Choose a price below the value
C. A or B <-
D. Neither A nor B

Front 12

Advertising

Back 12

Increases consumer's perceived value by educating the consumers

Front 13

A good approach to competitor oriented pricing is

Back 13

To take into account differences among competitors

Front 14

Managers that pursue market share goals

Back 14

Are responding to incentives

Front 15

A tactical approach to pricing involves
A- Asking reactive questions
B- Making judgments about the right price
C- Ensuring that costs are covered and profit objectives are met

Back 15

A and C

Front 16

Strategic pricing involves asking

Back 16

What sales increase would be necessary to profit from a price cut?

Front 17

We can get the net profits by

Back 17

subtracting fixed costs from gross profits

Front 18

Attributes X of a product

Back 18

are under the manager's control and affect willingness to pay and variable costs

Front 19

WTP depends on

Back 19

product attributes and NBA

Front 20

The fourth profit lever, in addition to price, fixed cost and variable cost, is

Back 20

Volume

Front 21

The most important profit lever is

Back 21

price

Front 22

According to Marn, Roegner and Zawada a 1% improvement in fixed cost increases profits by

Back 22

2.7%

Front 23

A cell phone manufacturer runs an advertising campaign emphasizing the clarity of the pictures from the camera in the phone. This

Back 23

Will probably not affect the consumer's perceived value

Front 24

Comparing the Use Value (UV) and the Economic Value (EV)

Back 24

EV<UV

Front 25

Exchange Value is

Back 25

The same as Economic Value

Front 26

Steel belted radial tires replaced older tires that had a road life roughly half that of the steel belted ones. As a result consumers did not have to replace tires as often and tire replacement shops saw a decline in the frequency of consumers visiting their stores, in turn cutting into their revenues. This is an example of

Back 26

Positive differentiation value to end users

Negative differentiation value to tire replacement shops

Front 27

In calculating economic value

Back 27

The differences among consumers in the economic value

Front 28

Reference Value

Back 28

A. Is the same as outside option
B. Depends on the most suitable substitute 25%
C. Varies across consumers
D. Requires managerial judgment to assess

Front 29

Economic value

Back 29

Is detemined by the extent of consumer benefits

Front 30

Comparing Economic Value (EV) and Willingness to Pay (WTP)

Back 30

EV + Gap = WTP

Front 31

surplus value

Back 31

is perceived value less perceived price

Front 32

According to the Value Equivalence concept some consumers choose a higher priced product because

Back 32

they prefer the benefits offered by it

Front 33

As gas prices rise, the position of small cars on the VEL

Back 33

would move below the line

Front 34

The three steps in arriving at economic value consist of determining

Back 34

customer economics, differentiation value and value drivers

Front 35

The customer production process includes

Back 35

product acquisition, use and disposal

Front 36

The key value driver in a new video game is

Back 36

benefit of entertainment

Front 37

In quantifying value drivers we must ask

Back 37

how the product affects the consumer's production process

Front 38

A key point to keep in mind when caculating the differentiation value is

Back 38

the concept of incremental analysis

Front 39

Even though value based segmentation requires the manager to segment the market based on the value different customers attach to the product

Back 39

it is necessary to start with descriptive profile

Front 40

Not all drivers are created equal refers to the fact that

Back 40

some drivers are easier to deliver

Front 41

Discriminating value drivers

Back 41

are common within a segment

Front 42

A good hierarchy of value drivers

Back 42

customer needs and internal factors

Front 43

Segment descriptors

Back 43

can help in communication and distribution

Front 44

The price metric used by the local water utility

Back 44

is the number of gallons of water used

Front 45

A price fence

Back 45

allows firms to charge different prices

Front 46

Which of htese is NOT a reason for price segmentation

Back 46

Differences in price policy

Front 47

Segmented pricing can be more profitable than a single price because

Back 47

The single price could be too high

Yes.. For some consumers, see slide 4, lecture 6

Front 48

Segmented pricing requires a fence so that

Back 48

it prevents arbitrage

Yes. See slide 7, lecture 6

Front 49

Which of these is NOT a consideratiton in erecting fences?

Back 49

the simplicity

yes. see slide 8, lecture 6

Front 50

Which of these is an example of buyer ID as a fence?

Back 50

Individuals versus libraries

See slides 9-11, lecture 6

Front 51

It makes sense to offer quantity discounts to cater to buyers of large quantities because

Back 51

They represent greater value

Yes. See slide 4, lecture 7

Front 52

Which of these is NOT a way to implement a non-linear price?

Back 52

Learning curve pricing

Yes. See slide 9, lecture 7

Front 53

Segmented pricing using prodcut design uses as a fence

Back 53

A. quality of low end product
B. Price of high end product
C. both A and B 100% See slide 4, lecture 8
D. Neither A nor B

Front 54

For bundling to work to implement segmented pricing

Back 54

consumers must prefer different products

yes. See slides 6 and 7, lecture 8

Front 55

The Weber-Fechner effect says that

Back 55

Consumers see percentage price differences as meaningful

Front 56

Which of these is NOT a way to provide economic value assurance?

Back 56

Technical brochures 100% yes. see slide 6. lecture 9

Front 57

The highest price in a pocket price waterfall is

Back 57

the list price

Front 58

Price bands can

Back 58

can identify customers for whom price can be increased

Front 59

A pricing policy can help in all the following ways EXCEPT

Back 59

increase top line

Yes. See slide 6, lecture 10

Front 60

Reference price can be important because

Back 60

perceived value depends on it

yes. see slide 5, lecture 11

Front 61

A manager who understands the idea of switching costs can

Back 61

decrease switching costs to induce trial and raise switching costs to fend off competition

Yes. See slide 7, lecture 11

Front 62

End benefit effect refers to

Back 62

what proportion of the buyer's total cost is the price of the item

Front 63

Prospect theory says that

Back 63

view losses and gains relative to where they are

Front 64

Relevant costs

Back 64

Are avoidable

Front 65

Accounting figures are often unhelpful for pricing decisions because

Back 65

Accountants give importance to sunk costs

Front 66

Check the relevant costs from the following

Back 66

Opportunity cost

Front 67

Percent contribution margin

Back 67

Is the leverage between sales volume and profit

Front 68

A product that has a low %CM

Back 68

Is a candidate for premium pricing

Front 69

A manufacturer has the capacity to produce 1000 units on regular time ($ 20 per hour) and an additional 200 units on overtime at 150% of regular time labor costs. The cost of raw materials is $ 10 per unit and labour required is 1 manhour per unit. Current sales are running at 1100 units per day and the price is $ 60. The percent CM is

Back 69

33%

Yes, cost is $10 (materials)+$30 (overtime labor cost)=$40. So CM=$20, and price=$60. So, %CM=100*20/60.

Front 70

How would you define Breakeven volume as it applies to pricing decisions?

Back 70

When we are evaluating a proposed change, we compare the profits after the proposed change to the current level of profits and calculate the volume required under the proposed change to make the two profits equal. This is the break-even sales volume.
General Feedback: When we are evaluating a proposed change, we compare the profits after the proposed change to the current level of profits and calculate the volume required under the proposed change to make the two profits equal. This is the break-even sales volume.

Front 71

The ABC firm is thinking of cutting the current price of $ 100 by 10%. the current CM is $ 50. The % BE sales volume is

Back 71

Impossible to tell

See slide 5, lecture 11

Front 72

In question 2 assume that the firm is working at capacity. Any increase in production would need overtime and that would add 50% to the current labor cost. Currently labor cost runs at 20% of price. The break-even sales volume in this case would be

Back 72

25%

See slide 7, lecture 11

Front 73

In question 9, suppose the firm is contemplating avoiding overtime by adding a faster machine that is more productive. In this case there would be an additional fixed cost of $ 10,000. The %break-even volume is

Back 73

Impossible to tell

Front 74

The ABC firm is facing a cmpetitor who has just raised the current price of $ 100 by 10%. ABC is contemplating matching the competitor. The current CM is $ 40. The % BE sales volume is

Back 74

-20%

Front 75

Pest Control Limited is currently serving 1400 customers per week at an average price of $ 80 per customer. The variable costs are constant at $ 26 and non incremental fixed costs are 40% of current revenue. Pest Control's management believes that more customers could be attracted by a price cut of 5%. BUt there is some hesitation on their part because of demand exceeded 1500 customers there would be additional equipment needed that would raise the capacity by 750 customers but also result in an increase of $ 1400/ week of fixed costs. As a consultant to Pest Control you are required to prepare a break-even table for sales changes from 0 to 20% in steps of 5%.

Back 75

unsure

Front 76

In a pricing game resembling a prisoners' dilemma

Back 76

the equilibrium may be undesirable 100

Yes. See slide 7, lecture 15

Front 77

Firms can avoid price competition by

Back 77

obtaining competitive advantage

yes. see slide 11, lecture 15

Front 78

all the following are ways of obtaining competitive advantage except

Back 78

using game theory

yes. See slide 11, lecture 15

Front 79

All the following are good ways of reacting to price cuts except

Back 79

Match competitor's price

Front 80

When a competitor is weak and a price reaction is cost justified the best way to react to a competitor's price cut is to

Back 80

attack

yes. See slide 14, lecture 15

Front 81

Why are price wars bad?

Back 81

Equals Profits sensitive to price (100%)
Equals Market shares don't change (100%)
Equals Consumers become price sensitive (100%)
Equals Firms don't exit industry (100%)

Front 82

Price wars are caused by

Back 82

Misreads and misjudgments

. See slide 19, lecture 15

Front 83

Which of th efollowing is NOT a goal of promotions

Back 83

Avoiding price wars

Front 84

Which of these is NOT true about promotions

Back 84

Promotions are always a result of prisoners' dilemma

Yes. NOT ALWAYS! See slides14-16, lecture 16

Front 85

Which of these are probably not complements

Back 85

Coke and Sprite

Front 86

Which of the following is NOT true for a loss leader

Back 86

Loss leaders are meant to threaten competitors

Yes. See slides 21 and 22, lecture 16

Front 87

A consequence of double marginalization is

Back 87

Retailers do not pass through the entireyty of a manufacturer price cut

Front 88

Which of the following is not likely to help in overcoming double marginalization?

Back 88

Negotiations

Front 89

The following are all ways of legally practicing resale price maintanence EXCEPT

Back 89

coupons

Front 90

Skim price is optimal when

Back 90

Innovators place high value

Front 91

Four consultants have worked on the optimal dynamic pricing strategy for a new integrated circuit that exploits experience curve. Which is the most reasonable, in your opinion?

Back 91

Prices: {50, 49, 48, 45, 42, 38, 35, 33}

Front 92

The part worth of price tells us

Back 92

how much value a consumer places as price is changed

Front 93

Conjoint analysis can be used for

Back 93

A. optimizing the price
B. segmenting the market
C. neither A nor B
D. both A and B