SM Chapter 6

Question 1

OBJECTIVES FOR ESTABLISHING
PRICES

Answer 1

 Gain Profit
 Cover Costs
 Build Demand
 Develop a User Base
 Support Positioning Strategy
 Support Competitive Strategy

Question 2

PRICING STRATEGY STANDS ON
THREE FOUNDATIONS

Answer 2

● cost ● competition ● value to customer

Question 3

In the pricing tripod, the costs a firm
needs to recover usually sets a
minimum _________, for
a specific service offering,

Answer 3

price, or price floor

Question 4

customer’s perceived value of the
offering sets a ___________

Answer 4

maximum price, or
price ceiling

Question 5

Three Main Approaches to Pricing

Answer 5

1. Cost-based pricing. 2. Value-based pricing. 3. Competition-based pricing

Question 6

pricing strategy where businesses set a
selling price based on a product’s production, manufacturing,
and distribution costs.

Answer 6

Cost-based pricing

Question 7

Typically, they arrive at this figure by adding a markup
percentage to the total cost of making and delivering the
product.

Answer 7

Cost-based pricing

Question 8

which are services sold at less than full
cost to attract customers,

Answer 8

loss leaders

Question 9

economic costs a supplier would continue to
incur (at least in the short run) even if no services were sold

Answer 9

fixed cost

Question 10

These costs are likely to include rent, depreciation, utilities,
taxes, insurance, salaries and wages for managers and long-
term employees, security, and interest payments

Answer 10

fixed cost

Question 11

refer to the economic costs associated with
serving an additional customer

Answer 11

variable cost

Question 12

fall in between fixed and variable costs. They
represent expenses that rise or fall in a stepwise fashion as the volume of
business increases or decreases.

Answer 12

Semi-variable cost

Question 13

difference between the variable cost of selling an extra
unit of service and the money received from the buyer of that service.

Answer 13

contribution

Question 14

It
goes to cover fixed and semi-variable costs before creating profits

Answer 14

contribution

Question 15

managers to know at what sales volume a
service will become profitable

Answer 15

breakeven analysis

Question 16

involves dividing the
total fixed and semi-variable costs by the contribution obtained on each unit
of service.

Answer 16

breakeven analysis

Question 17

strategy for pricing goods or services
that adjusts the price based on its perceived value rather than
on its historical price.

Answer 17

Value-based pricing

Question 18

used
to increase revenue by increasing prices without a significant
effect on volume.

Answer 18

Value-based pricing

Question 19

sum of all perceived benefits (gross value) minus
the sum of all the perceived costs of the service.

Answer 19

net value

Question 20

The greater the positive
difference between the two, the greater the net value (T or F)

Answer 20

t

Question 21

the difference between the price customers
pay and the amount they would actually have been willing to pay to obtain
the desired benefits (or “utility”) offered by a specific product

Answer 21

customer surplus

Question 22

Competing services are then evaluated via comparison of net value (t or f)

Answer 22

t

Question 23

who proposes four broad expressions of value?

Answer 23

Valarie Zeithaml

Question 24

four
broad expressions of value:

Answer 24

1. Value is a low price.
2. Value is whatever I want in a product.
3. Value is the quality I get for the price I pay.
4. Value is what I get for what I give .

Question 25

Customers often incur significant
financial costs in searching for,
purchasing, and using the service,
above and beyond the purchase
price paid to the supplier.

Answer 25

related monetary services

Question 26

reflect the time, effort,
and discomfort associated with the search,
purchase, and use of a service. Like many
customers, you may refer to them collectively
as “effort” or “hassle.”

Answer 26

non monetary cost

Question 27

four distinct categories of non-
monetary costs:

Answer 27

time, physical, psychological,
and sensory costs.

Question 28

important in value creation as it ensures better
capacity utilization and reserves capacity for higher-paying segments.

Answer 28

revenue management

Question 29

also known as yield management

Answer 29

revenue management

Question 30

involves setting
prices according to predicted demand levels among different market segments.

Answer 30

revenue management

Question 31

allow customers to
self-segment on the basis of
service characteristics and
willingness to pay.

Answer 31

rate fences

Question 32

help companies to
restrict lower prices to customers
willing to accept certain restrictions
on their purchase and
consumption experiences

Answer 32

rate fenses

Question 33

TYPES OF FENCES

Answer 33

physical and non-physical fences

Question 34

refer to tangible product differences related to the different prices,
such as the seat location in a theater, the size and furnishing of a hotel room, or the
product bundle

Answer 34

physical fences

Question 35

refer to differences in consumption, transaction, or buyer
characteristics, but the service is basically the same

Answer 35

non physical fences

Question 36

Issues to Consider When Developing a
Service Pricing Schedule

Answer 36

1. How much to charge?
2. What basis for pricing?
3. Who should collect payment? 4. Where should payment be made?
4. When should payment be made?
5. How should payment be made?
6. How to communicate prices?