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Chapter 12: Pricing Products and Services
25 problems · 0 figuresKnowledge Check 12.1.1 §12.1 source ↗
You receive an email from your favorite clothing store. It is having a one-day sale where everything is 50 percent off. The retailer is using a form of psychology known as ________.
- a.artificial time constraint
- b.price appearance
- c.profit
- d.fixed costs
Answer
A. artificial time constraint
Artificial time constraints tell the consumer they will miss out if they don’t purchase right now.
Knowledge Check 12.1.2 §12.1 source ↗
Which of the following best describes the profit equation?
- a.Profit = Fixed Costs – Variable Costs
- b.Profit = Total Costs – Total Revenue
- c.Profit = Total Revenue – Total Costs
- d.Profit = Fixed Costs + Variable Costs
Answer
C. Profit = Total Revenue – Total Costs
To determine profit, total costs (fixed and variable) are subtracted from total revenue.
Knowledge Check 12.1.3 §12.1 source ↗
Marquis has decided to purchase a new kitchen table. He looks at various brands online and decides to purchase one that is $500 more than the others because it is a brand his parents had when he was growing up and they offer free delivery. These factors indicate Marquis has perceived ________ in the higher-priced table.
- a.value
- b.artificial time constraints
- c.costs
- d.profit
Answer
A. value
Perceived value is perceived benefits less perceived costs.
Knowledge Check 12.1.4 §12.1 source ↗
Kilee sees an advertisement for a new computer. The advertisement portrays an initial price of $699 that has a large red “X” through it with a new price of $499. The advertisement is utilizing which pricing concept?
- a.Artificial time constraints
- b.Price appearance
- c.Price gouging
- d.Price anchoring
Answer
D. Price anchoring
Price anchoring is a strategy that utilizes a psychological theory that buyers frame their price reference around the first piece of information they see.
Knowledge Check 12.1.5 §12.1 source ↗
The perception of a buyer’s value includes which of the following?
- a.Profit a company can expect from sales
- b.Perceived benefits less the perceived costs associated with a purchase
- c.Revenue expected from a sale
- d.Costs of manufacturing the product
Answer
B. Perceived benefits less the perceived costs associated with a purchase
The value that a buyer receives from an exchange takes into account the perceived benefits and costs of making the purchase.
Knowledge Check 12.2.1 §12.2 source ↗
Which of the critical Cs of pricing includes taking into the consideration the value of the product to retailers and suppliers?
- a.Cost
- b.Competition
- c.Channels of distribution
- d.Customers
Answer
C. Channels of distribution
Channels of distribution include the importance of understanding the value of a product through the lens of suppliers and retailers.
Knowledge Check 12.2.2 §12.2 source ↗
Amir is the head of marketing and is explaining to colleagues that the company’s new boutique bed and breakfast near the ocean should not be priced similarly to the local Super 8 motel. Amir explains that the new bed and breakfast is of the highest quality, has posh amenities, and is therefore being marketed to upper- and upper-middle-class couples. Amir is explaining which of the critical Cs of pricing?
- a.Cost
- b.Competition
- c.Customer
- d.Compatibility
Answer
D. Compatibility
Compatibility refers to the consistency of pricing decisions with the other marketing mix elements.
Knowledge Check 12.2.3 §12.2 source ↗
Kevin is a marketing intern at a large corporation. They are tasked with presenting a price for a new service the company will be offering. Which of the following would you recommend Kevin do first?
- a.Analyze the critical Cs of pricing
- b.Choose a pricing strategy
- c.Create an advertisement
- d.Ask his friends what price they would be willing to pay
Answer
A. Analyze the critical Cs of pricing
Analyzing the critical Cs of pricing will help ensure the pricing strategies are set appropriately.
Knowledge Check 12.2.4 §12.2 source ↗
Which of the following statements is false with regard to pricing?
- a.Customers are interested in the price of the product, not the cost to a company.
- b.Cost only includes the materials needed to produce a product.
- c.If cost is not considered in pricing, the company will likely be unsuccessful.
- d.Costs include both variable and fixed costs.
Answer
B. Cost only includes the materials needed to produce a product.
Cost does not only include the materials needed to produce a produce, but all other costs associated with doing business.
Knowledge Check 12.2.5 §12.2 source ↗
Which of the following is not a critical C of pricing?
- a.Customers
- b.Cost
- c.Competition
- d.Commitment
Answer
D. Commitment
The five critical Cs of pricing include cost, customers, channels of distribution, competition, and compatibility.
Knowledge Check 12.3.1 §12.3 source ↗
Sam is explaining to her friend Beth that prices for video conferencing software is increasing because more people are working from home. This relationship can be described by ________.
- a.prestige pricing
- b.customer-driven pricing
- c.the demand curve
- d.the income effect
Answer
C. the demand curve
The demand curve describes the relationship of demand and price for most goods and services.
Knowledge Check 12.3.2 §12.3 source ↗
Each month you pay your rent. It is $800 and does not change based on the number of hours you work. This is known as a ________.
- a.variable cost
- b.fixed cost
- c.changing cost
- d.profit
Answer
B. fixed cost
Fixed costs do not change based on the number of units produced.
Knowledge Check 12.3.3 §12.3 source ↗
Decreases in prices are most often associated with which stage of the product life cycle?
- a.Introduction
- b.Growth
- c.Maturity
- d.Decline
Answer
D. Decline
As demand declines for a product, it is generally expected that prices will also decrease.
Knowledge Check 12.3.4 §12.3 source ↗
Adding fixed costs to variable costs yields which of the following?
- a.Total costs
- b.Profit
- c.Value
- d.Inflation
Answer
A. Total costs
Total costs are equal to fixed costs + variable costs.
Knowledge Check 12.3.5 §12.3 source ↗
When the price of a product increases and the demand for its substitute product increases, this is explained by ________.
- a.elasticity
- b.inelasticity
- c.a change in income
- d.cross-elasticity of demand
Answer
D. cross-elasticity of demand
Cross-elasticity of demand refers to the increase in demand for a substitute product when the price of a product increases.
Knowledge Check 12.4.1 §12.4 source ↗
Luis is planning to introduce a new product to the market. Their aim is to gain as much of the market share as possible in the early introduction stage, so they are thinking of setting an initially low price. Which pricing strategy is Luis using?
- a.Break-even analysis
- b.Price skimming
- c.Penetration pricing
- d.Psychological pricing
Answer
C. Penetration pricing
Penetration pricing is setting an initially low price to capture as much market share as possible.
Knowledge Check 12.4.2 §12.4 source ↗
Alexandra is working on the pricing strategy for her new food truck items. She is interested in knowing how many hamburgers she will need to sell in order to break even. Which formula should she use?
- a.
- b.
- c.
- d.
Answer
D.
The break-even unit formula is Fixed Costs / (Unit Price + Variable Unit Cost)
Knowledge Check 12.4.3 §12.4 source ↗
Tomas is selling his bottled sodas for $2.00 each at the vendor fair. His fixed costs are $100. He estimates that his variable costs are $0.25 per bottle. How many bottles of soda must Tomas sell to break even?
- a.57
- b.2
- c.Less than 1
- d.25
Answer
A. 57
Knowledge Check 12.4.4 §12.4 source ↗
Which of the following is true of price skimming?
- a.It captures the most market share in the introduction stage of a product.
- b.It is setting an initially high price of a product.
- c.It is setting an initially low price of a product.
- d.It determines break-even units.
Answer
B. It is setting an initially high price of a product.
Price skimming sets an initially high price to capture the portion of the market willing to pay the price.
Knowledge Check 12.4.5 §12.4 source ↗
David hopes to capture as much of the market as possible with the company’s new product. Which pricing strategy should David use?
- a.Price skimming
- b.Cost-based pricing
- c.Psychological pricing
- d.Penetration pricing
Answer
D. Penetration pricing
Penetration pricing attempts to capture the greatest market share possible when introducing a new product.
Knowledge Check 12.5.1 §12.5 source ↗
You are considering purchasing cable for your new apartment. You would really like to add HBO to your cable plan, so you can watch some of the shows all of your friends are talking about. You can purchase basic cable for $49.99 per month and add HBO for an additional $12.99 month as a standalone addition. Alternatively, you can choose a package that includes HBO for $59.99. Obviously, you will choose the less expensive package. The cable company is using which of the following pricing tactics?
- a.Product line pricing
- b.Odd-even pricing
- c.Bundle pricing
- d.Economy pricing
Answer
C. Bundle pricing
Bundle pricing is a tactic that has a lower price for a bundle of items than when those items are purchased separately.
Knowledge Check 12.5.2 §12.5 source ↗
Finley was tasked with setting the price of a new coffee maker that would utilize coffee pods instead of traditional coffee filters. Because customers would have to buy the pods in order to utilize the product, Finley should consider which pricing tactic?
- a.Captive pricing
- b.Odd-even pricing
- c.Bundle pricing
- d.Economy pricing
Answer
A. Captive pricing
Captive pricing is a tactic used when there is both a core and a captive product.
Knowledge Check 12.5.3 §12.5 source ↗
Thames is shopping for a new pair of jeans. He notices that one brand is priced at $49.99 and another is priced at $50.00. He immediately chooses the pair priced at $50.00 because he believes they are of better quality. Which pricing tactic was used to help Thames make his decision?
- a.Odd-even pricing
- b.Captive pricing
- c.Bundle pricing
- d.Economy pricing
Answer
A. Odd-even pricing
Odd-even pricing is a tactic used to illustrate value or quality to a customer through pricing.
Knowledge Check 12.5.4 §12.5 source ↗
Which of the following is NOT considered a pricing tactic for existing products?
- a.Odd-even pricing
- b.Price skimming
- c.Bundle pricing
- d.Captive pricing
Answer
B. Price skimming
Price skimming sets an initially high price for new products to capture the portion of the market willing to pay the price.
Knowledge Check 12.5.5 §12.5 source ↗
Daphne often buys store or generic brand items at the grocery store because they are so much cheaper than name-brand items. Which pricing tactic is generally used for store or generic brands?
- a.Bundle pricing
- b.Cost-based pricing
- c.Psychological pricing
- d.Economy pricing
Answer
D. Economy pricing
Economy pricing is a tactic in which products are priced much lower than their name-brand competitors.
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Problems and answers are adapted from Principles of Marketing by Maria Gomez Albrecht, Mark Green and Linda Hoffman, OpenStax, and are used under the CC BY-NC-SA 4.0 licence. Access for free at https://openstax.org/books/principles-marketing/pages/1-unit-introduction. Illustrations: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license. This adaptation is released under the same licence, is non-commercial, and is neither affiliated with nor endorsed by OpenStax or Rice University.