Chapter 10

Question 1

What is a price?

Answer 1

The amount of money charged for a product or a service, or the sum of the values that customer exchange for the benefits of having or using the product or service.

Question 2

What is customer value-based pricing?

Answer 2

Setting price based on buyers’ perceptions of value rather than on the seller’s cost.

Question 3

What is good-value pricing?

Answer 3

Offering just the right combination of quality and good service at fair price.

Question 4

What types of pricing strategies are there?

Answer 4

Customer value-based pricing
Cost-based pricing
Competition based pricing

Question 5

What is value-added pricing?

Answer 5

Attaching value-added features and services to differentiate a company’s offers and changing higher prices.

Question 6

What is cost-based pricing?

Answer 6

Setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk.

Question 7

What types of costs are there?

Answer 7

Fixed costs (overhead) -costs that do not vary with production or sales
Variable costs - costs that vary directly with the level of production.
Total costs - The sum of fixed and variable costs for any given level of production.

Question 8

What is cost-plus pricing (or markup pricing)?

Answer 8

Adding a standard markup to the cost of the product?

Question 9

What is break-even pricing?

Answer 9

Setting price to break even on the costs of making and marketing a product, or setting the price to make a target return.

Question 10

What is competition-based pricing?

Answer 10

Setting prices based on competitors’ strategies, prices, costs, and market offerings.

Question 11

What is target costing?

Answer 11

Pricing that starts with an ideal selling price, and then targets costs that will ensure that the price is met.

Question 12

What is demand curve?

Answer 12

A curve that shows the number of units the market will buy in a given time period, at different prices that might be charged.

Question 13

What is price elasticity?

Answer 13

A measure of the sensitivity of demand to changes in price.

Question 14

What is market-skimming pricing?

Answer 14

Setting a high price for a new product to skim maximum revenues layer by layer from segments willing to pay the high price; the company makes fewer but more profitable sales.

Question 15

What market-penetration pricing?

Answer 15

Setting a low initial price for a new product in order to attract a large number of buyers and a large market share.

Question 16

What is product line pricing?

Answer 16

Setting the price steps between various products in a product line based on cost differences between the products, customer evaluation of different features, and competitors’ prices.

Question 17

What is Optional-product pricing?

Answer 17

The pricing of optional or accessory products along with the main product.

Question 18

What is Captive-product pricing?

Answer 18

Setting a price for products that must be used along with a main product, such as blades for a razor and games for a video-game console.

Question 19

What is by-product pricing?

Answer 19

Setting for by-products to make the main product’s price more competitive.

Question 20

What is product bundle pricing?

Answer 20

Combining several products and offering the bundle at a reduced price.

Question 21

What is a discount?

Answer 21

A straight reduction in price on purchases during a stated period of time or on large quantities.

Question 22

What is allowance?

Answer 22

Promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer’s products in some way.

Question 23

What is segmented pricing?

Answer 23

Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs.

Question 24

What is psychological pricing?

Answer 24

Pricing that considers the psychology of prices and not simply the economics; the price is used to say something about the product.

Question 25

What is reference prices?

Answer 25

Prices that buyers carry in their minds and refer to when they look at a given product.

Question 26

What are promotional prices?

Answer 26

Temporarily pricing products below the list price and sometimes even below cost to increase short-run sales.

Question 27

What is geographical pricing?

Answer 27

Setting prices for customers located in different parts of the country or the world

Question 28

What is dynamic pricing?

Answer 28

Adjusting prices continually to meet the characteristics and needs of individual customers and situations.