Test

Question 1

That which is given in return for a product in a commercial exchange

Answer 1

Price

Question 2

This is the maximum price a buyer is willing to pay for a product or service, or the minimum price a seller is willing to accept. It represents the perceived value of the good or service from both parties’ perspectives.

Buyers - Reference value, Differentiating factors, Differentiation values, Calculate VTC

Sellers - Costs to provide product, Reference profit

Answer 2

Reservation price

Question 3

When a price is arrived at through an auction, negotiation, or through any type of buyer-seller interaction

Answer 3

Interactive price

Question 4

When an organization publicly displays a price and that price stays in effect for a substantial period of time

Answer 4

Fixed price

Question 5

Pattern of an organization’s prices

Answer 5

Price structure

Question 6

An items most appropriate price for some customers will often differ from the items most appropriate price for other customers

Ex: If the organization charged $200 to the customers in the first group and $125 to customers in the second group

Answer 6

Price segmentation

Question 7

The form of expression of a price

Answer 7

Price format

Question 8

When a seller expresses a price in a format that involves two or more numbers

Answer 8

Price partitioning

Question 9

The price of the item that will appear on the customer’s bill

Answer 9

Invoice price

Question 10

The amount that’s actually left in the company’s pocket after the transaction

Answer 10

Pocket price

Question 11

Different Terms Used to Mean Price

Answer 11

Price, Tuition, Rent, Interest, Fee, Premium, Fare, Toll, Salary, Wages, Commission

Question 12

A fixed price is a set price that a seller determines in advance. The buyer has no room to negotiate; the price is predetermined and typically non-negotiable.

-Sellers decide the price based on factors like production costs, market research, desired profit margins, and competitor pricing.

-Offers simplicity and certainty

Answer 12

Sellers (Fixed Price)

Question 13

When a price is arrived at through an auction, negotiation, or through any other type of buyer–seller interaction, the price-setting policy in effect is referred to as interactive pricing.

-Allows competitive forces to determine price, which can lead to a higher or lower price depending on demand.

Answer 13

Buyers (Auctions)

Question 14

The buyer and the seller work together to set a price that both will find acceptable.

-Fosters flexibility and can create a win-win situation where both parties are satisfied with the agreed-upon price.

Answer 14

Both (Negotiated Price)

Question 15

Involves determining the amount to be added to an item’s cost and then adding that amount to arrive at an item’s price

P = C + added amount

*Common among companies that sell customized products

Answer 15

Cost-plus pricing

Question 16

Setting the price of an item by adding to the item’s cost come standard percentage of that cost

Wholesaling: 20%

Retailing: Keystone pricing or doubling the item’s cost (100%)

Restaurants: Tripling the food costs (200%) and quadrupling the costs of served alcoholic beverages (300%)

Markup:

Added Amount / C x 100

Answer 16

Markup pricing

Question 17

A gross margin is the amount of a company’s sales revenue that remains after subtracting the “cost of goods sold,” a standard accounting measure of the costs of manufacturing or acquiring the items that are sold.

-The percent gross margin is the gross margin as a percentage of the sales revenue

-Percent gross margin is the amount added to an item’s cost expressed as a percentage of the item’s price.

Answer 17

Gross-margin pricing

Question 18

In retailing, sellers of clothing, gifts

-Doubling an item’s cost to arrive at its price (i.e., applying a 100 percent markup)

Answer 18

Keystone pricing

Question 19

When a seller’s intent is to match the levels of competitors’ prices

-Not helpful in efforts to maximize total profits

Answer 19

Parity pricing

Question 20

Setting an initial price by beginning with consideration of the items costs

Answer 20

Cost-Based Pricing

Question 21

Cost Based Pricing Advantages

Answer 21

-Simplicity: Intuitive and easy to calculate

-Can facilitate keeping prices in line

Question 22

Cost Based Pricing Disadvantages

Answer 22

-Setting price above costs, no assurance of total profits

-High price could lead to low sales

-Low price could lead to lost profits

Question 23

Setting an initial price by beginning with competitor’s prices

*Which prices, which competitors?
-Highest, lowest, middle of range
-Largest, most successful, most prestigious, most similar

*Determining competitors actual prices

*Not helpful in efforts to maximize total profits

Answer 23

Competition-Based

Question 24

Setting an initial price by beginning with thinking about how product satisfies customer needs

*Role of price in a commercial exchange

-Capturing value by creating other elements

-Value created by satisfying customer needs

Answer 24

Customer-Based

Question 25

Determining a Price Based on Mark-Up

Answer 25

P=C + (M/100 x 100) M = 60 x [100/(100-60)] M = 60 x (100/40) M = 60 x 2.5 M = 150 P = $50 + [(150/100) x $50 = $125

Question 26

Gross-Margin Pricing

Answer 26

P = C/[1-(%GM/100) P = $50/[1-(60/100)] P = $50/(1-0.6) P = $50/0.4 P = $125

Question 27

Related to product's ability to accomplish its primary function -Components, ingredients, basic design -Assembly processes, quality control

Answer 27

Core-Quality

Question 28

Contribute to benefits beyond product's primary function -Characteristics enabling secondary functions -Packaging and product appearance

Answer 28

Features and Styling

Question 29

Branding and product-related services -Brand image and company reputation -Services related to acquisition (selecting, ordering, installing) -Services related to use (maintaining, repairing, disposing)

Answer 29

Reputation and Support

Question 30

Objective Performance Needs

Answer 30

-Needs for aspects of product performance that are objectively measurable

Question 31

Hedonic/Esthetic Performance Needs

Answer 31

-Needs for aspects of product performance that are inherently subjective -Subjective satisfaction is individual, not determined by effects on others

Question 32

Social Performance Needs

Answer 32

-Subjective satisfaction based on acceptance and respect from others -Needs for feeling product is benefiting others

Question 33

Performance Reliability Needs

Answer 33

-Needs for performance (objective, hedonic or social) to be consistent and long lasting

Question 34

Product Convenience Needs

Answer 34

-Needs for performance (objective, hedonic, or social) to require minimum effort

Question 35

Five decision-process roles

Answer 35

-User -Influencer -Gatekeeper -Decider -Purchaser

Question 36

Those in the organization who use the product

Answer 36

User

Question 37

Specialists who have input on the purchase process

Answer 37

Influencer

Question 38

Controls the flow of information to other members of the purchase process

Answer 38

Gatekeeper

Question 39

Managers, who rule on whether or not the purchase should take place

Answer 39

Decider

Question 40

Those in the organization who carry out a purchase

Answer 40

Purchaser

Question 41

Price ceiling and price floor

Answer 41

Under typical circumstances, a product’s price should be below its VTC (its price ceiling) and above its variable costs (its price floor).

Question 42

Can be observed before purchase

Answer 42

Search Characteristics

Question 43

Can be observed only after purchase and use

Answer 43

Experience Characteristics

Question 44

Can never be directly observed

Answer 44

Credence Characteristics

Question 45

An enduring advantage over competition caused by being the first brand purchased by most customers in a market *Tends to occur under conditions when: -There are large economies of scale in production -Being first creates favorable image (We're the original) -Customers find it safer or more convenient to stick with brands they know *Penetration price can help a brand be the first that most customers buy

Answer 45

Pioneer advantage

Question 46

-The amount of the price above the amount required to cover the product's variable costs -The amount of the price that contributes to covering fixed costs and producing a net profit CM = P - VC %CM = CM/P x 100 = P-VC/P x 100

Answer 46

Contribution margin

Question 47

-Setting price so high that most customers will not buy -High per unit profit -Capturing high margins at the expense of unit sales volume

Answer 47

Skimming Strategy

Question 48

-Setting price so low that product sells briskly -Low per unit profit -Making a small margin on a large number of sales

Answer 48

Penetration Strategy

Question 49

-Setting price for greater customer acceptance than skim price -Higher per unit profit than penetration price -Price often set at a point that simplifies what the customer must understand to appreciate the product's value

Answer 49

In Line Strategy

Question 50

Factors supporting skimming

Answer 50

-New product perceived as risky -Presence of protection against competitive products

Question 51

Factors supporting penetration

Answer 51

-Ability of low price to serve as an incentive to buy -Protection against competitive price matching -Market conditions favoring a pioneer advantage

Question 52

Conducting a Break Even Analysis

Answer 52

Determination of the number of units of a product that must be sold so that the organization’s profit after a managerial decision is equal to that before the decision Break even units would be equal to the number of contribution “chunks” that would be required to totally cover the product’s incremental fixed costs. BE = ΔFC/CM *A breakeven analysis provides a critical sales level *A critical sales level reduces the amount of information needed to make the decision

Question 53

-If little price change response, market is insensitive -If large price change response, market is sensitive *Four categories of factors that determine the market's price sensitivity: -Economic, competitive, cognitive, emotional

Answer 53

Price sensitivity

Question 54

Is the percent change in sales for an entire product category divided by the percent change in the average price for an item in that product category

Answer 54

Category price elasticity

Question 55

is the percent change in the sales of that brand divided by the percent change in its price

Answer 55

The brand price elasticity

Question 56

Price signaling

Answer 56

public communication of competition related pricing information

Question 57

Price Signaling

Answer 57

-Signaling Competitive Strength -Signaling Limited Goals for a Price Decrease -Signals to Encourage Matching a Price Increase

Question 58

*Publicize intention to match or beat competitors price cuts *Show ability to carry out price decreases *Implied threat of price warfare

Answer 58

Signaling Competitive Strength

Question 59

Signal that price decrease is not an attempt to take market share from competitors

Answer 59

Signaling Limited Goals for a Price Decrease

Question 60

*Interpret events, an order backlog *Highlight industry trends, increasing costs of materials and supplies *Pre-announce price increase, airline prices

Answer 60

Signals to Encourage Matching a Price Increase

Question 61

Issues Regarding Price Signaling

Answer 61

*Questions of legality -Depends on the circumstances and consequences -Most regulatory attention on signals for price increases *Questions of effectiveness -May often be ignored by competitors -May backfire by raising awareness of price competition -Competitors may perceive signals if unintended

Question 62

Calculate Price Elasticity

Answer 62

E = % change in unit sales/ % change in price

Question 63

Calculating E - Price Increase

Answer 63

Ex: If a price increase from $10 to $12 leads sales to decrease from $2,000 to $1,400 units % unit sales = [(S-S0)/S0] x 100 =[(1,400-2,000)/2,000] x 100 =-30% % price = [P-P0)/P0] x 100 =[($12-$10)/$10] x 100 =-20% E = -30%/20% = -1.5

Question 64

Calculating E - Price Decrease

Answer 64

Ex: If a price decrease from $160 to $140 leads sales to increase from 340 units to 425 units % unit sales = [(S-S0)/S0] x 100 =[(425-340)/340] x 100 =25% % price = [P-P0)/P0] x 100 =[($140-$160)/$160] x 100 =-12.5% E = 25%/-12.5% = -2.0

Question 65

Four economic factors influence the price elasticity

Answer 65

1. Amount of money involved in the price change *Dollar size of the price difference *Frequency of purchase, ability to stock up *Amount relative to customers wealth 2. Amount of the price change that the customer will actually pay 3. Customers switching costs 4. Customers search costs

Question 66

Preference to maintain the status quo with respect to the price change initiator

Answer 66

Cooperative Stance

Question 67

Preference to improve position at the expense of the price change indicator

Answer 67

Aggressive Stance

Question 68

Lack of interest in actions of the price change initiator

Answer 68

Dismissive Stance

Question 69

# Competitors Likely Response to Initiators Cooperative

Answer 69

Price Increase: Matching increase Price Decrease: Matching decrease

Question 70

# Competitors Likely Response to Initiators Aggresive

Answer 70

Price Increase: No change, or smaller increase Price Decrease: Matching or larger decrease

Question 71

# Competitors Likely Response to Initiators Dismissive

Answer 71

Price Increase: No change Price Decrease: No change

Question 72

# Influence on Competitors Cooperative

Answer 72

Relative Size: Equal Differentiated Brand: No Unit Costs: Equal Goals: Maintain

Question 73

# Influence on Competitors Aggressive

Answer 73

Relative Size: Smaller or larger Differentiated Brand: No Unit Costs: Lower Goals: Expand

Question 74

# Influence on Competitors Dismissive

Answer 74

Relative Size: Larger Differentiated Brand: Yes Unit Costs: Lower Goals: Unrelated

Question 75

Using one or more consecutive 0s as ending digits

Answer 75

Round-number pricing

Question 76

Using 99, 98, or 95 as ending digits

Answer 76

Just-below pricing

Question 77

Beliefs concerning the factors that cause a price to be high or low that can be used as rules of thumb for making price-level inferences.

Answer 77

Price-origin beliefs

Question 78

A price or price range that is constructed in the customers mind and is used as a basis for evaluating prices *Internal reference prices reflect price awareness: -When price awareness is high; IRP is likely to be a specific price -When price awareness is low; IRP is likely to fall in a broad range

Answer 78

Internal reference price

Question 79

Use of price level as a cue to the quality of a product or seller *Its use leads to low price elasticity

Answer 79

Price-quality heuristic

Question 80

(ex 47, 83) Prices are close to costs -Retailer has engaged in a careful price-setting process in an effort to minimize markups and cut prices “right to the bone.”

Answer 80

Sharp-number pricing

Question 81

Price level of the item purchased. -There will be more price awareness for big-ticket items, such as a house or car, than for products that have small per-item prices -Will tend to motivate customers to pay close attention to what they are paying.

Answer 81

Big-ticket items

Question 82

There will be greater price awareness for items whose prices are relatively stable over time than for items whose prices vary greatly. -It is difficult to keep track of a moving target.

Answer 82

Items whose prices are relatively stable over time

Question 83

There will be greater price awareness for purchased items in product categories where there is little interbrand price variation than for purchased items in product categories where the prices of different brands vary greatly.

Answer 83

Items in product categories where there is little inter-brand variation

Question 84

-There will be greater price awareness the more the customer encounters opportunities to think about the purchased item’s price. -Thus, when purchases usually involve consideration of price, price awareness will tend to increase with the number of these purchases.

Answer 84

Items where the customer had opportunities to think about its price

Question 85

Common price-origin beliefs

Answer 85

1. Items that show higher-quality materials or workmanship will have higher prices than those that do not 2.Items having more useful features will have higher prices than items having fewer useful features 3.Prices of items whose production is more labor intensive are likely to be higher than prices of items who production is less labor intensive 4.Larger packages of a product will have lower unit prices than smaller packages of a product 5.Prices in retail outlets with very simple store fixtures will be lower than prices in retail fixtures with elaborate fixtures

Question 86

Increase Awareness

Answer 86

When prices are low -Simplified price structure (standard price points, single price retailers) -Price advertising

Question 87

Decrease Awareness

Answer 87

When prices are high -Difficult price formats (price partitioning, just below pricing) -Branded variants (producing large array of similar items) -Complicating prices on the Internet

Question 88

The loss portion of the prospect theory value function curves downward more sharply than the gain portion of the function curves upward. -The tendency of a loss to hurt more than an equal-sized gain feels good

Answer 88

Loss aversion

Question 89

“Was $200.00 – Now Only $129.99!” -In these ads, the higher price shown is known as an external reference price. -Its purpose is to suggest to the consumer the appropriate IRP. -To the extent that the suggestion succeeds, consumer IRPs will be higher than the product’s selling price, and the likelihood of a loss-and-gain perception of the price will be maximized. -The research evidence suggests that they are most likely to be effective when what is being claimed is a discount of moderate size

Answer 89

External reference price

Question 90

Four Perceptions of Price

Answer 90

1. Perception of a Price as a Single Loss 2. Perception of a Price as Two Losses 3. Perception of a Price as a Loss and a Gain 4.Perception of a Price as a Gain Foregone

Question 91

-Price is equal to, or within the range of, the buyers IRP -Buyer has a differing IRP, but does not make use of it

Answer 91

Perception of a Price as a Single Loss

Question 92

-Price exceeds buyers IRP *A price perceived as two losses will be more negatively evaluated than price perceived as one loss

Answer 92

Perception of a Price as Two Losses

Question 93

-Price is lower than buyers IRP *A price perceived as a loss and a gain will be more positively evaluated than that perceived as one loss

Answer 93

Perception of Price as a Loss and a Gain

Question 94

- A gain has just occurred, and the reference point has not yet shifted *A price perceived as a gain foregone will be more positively evaluated than price perceived as a loss

Answer 94

Perception of a Price as a Gain Foregone