CHAPTER 6
MULTIPLE CHOICE QUESTIONS
1. A buyer’s perception of value is considered a tradeoff between:
a. product value and psychic cost
b. total customer value and total customer cost
c. image value and energy cost
d. service value and monetary cost
e. personnel value and time cost
2. Total customer value consists of all of the following components except:
a. product value
b. service value
c. image value
d. time value
e. personnel value
3. Total customer cost consists of all of the following components except:
a. monetary cost
b. social cost
c. time cost
d. psychic cost
e. energy cost
4. Consumers exchange their money, time, and effort for the bundle of benefits the
service offers. Theory suggests that consumers will have a ___________ that
captures the value they place on these benefits.
a. lower price threshold
b. reservation price
c. consumer surplus
d. image value
e. product value
5. When pricing a service, the service provider should consider all of the following
except __________.
a. demand considerations
b. cost considerations
c. customer considerations
d. product considerations
e. all the above should be considered
6. A consumer’s price sensitivity will increase as:
a. the perceived number of substitutes increase
b. switching costs increase
c. the shared costs for the expenditure increase
d. the perceived unique value of the service increases
e. the customer’s ability to build an inventory decreases
7. A consumer’s price sensitivity will increase as:
a. the perceived number of substitutes decrease
b. switching costs increase
c. the shared costs for the expenditure increase
d. the perceived unique value of the service increases
e. the customer’s ability to build an inventory increases
8. A consumer’s price sensitivity will decrease as:
a. the perceived number of substitutes increase
b. switching costs increase
c. the shared costs for the expenditure decreases
d. the perceived unique value of the service decreases
e. the customer’s ability to build an inventory increases
9. A consumer’s price sensitivity will decrease as:
a. the perceived number of substitutes increase
b. switching costs decrease
c. the shared costs for the expenditure increase
d. the perceived unique value of the service decreases
e. the customer’s ability to build an inventory increases
10. Which of the following statements about the pricing of services (compared to the
pricing of goods) is false?
a. The demand for services tends to be more elastic than the demand for goods.
b. Cost-oriented pricing is more difficult for services.
c. Comparing prices of competitors is more difficult for service consumers.
d. Self-service is a viable competitive alternative.
e. Consumers are less able to stockpile services by taking advantage of discount
prices.
11. Which of the following statements about the pricing of services (compared to the
pricing of goods) is false?
a. The demand for services tends to be more inelastic than the demand for goods.
b. Cost-oriented pricing is more difficult for services.
c. Comparing prices of competitors is more difficult for service consumers.
d. Self-service is a viable competitive alternative.
e. Consumers are more able to stockpile services by taking advantage of discount
prices.
12. Which of the following statements about the pricing of services (compared to the
pricing of goods) is true?
a. The demand for services tends to be more elastic than the demand for goods.
b. Cost-oriented pricing is more difficult for services.
c. Comparing prices of competitors is less difficult for service consumers.
d. Self-service is not a viable competitive alternative.
e. Consumers are more able to stockpile services by taking advantage of discount
prices.
13. Which of the following statements about the pricing of services (compared to the
pricing of goods) is true?
a. The demand for services tends to be more elastic than the demand for goods.
b. Cost-oriented pricing is less difficult for services.
c. Comparing prices of competitors is less difficult for service consumers.
d. Self-service is a viable competitive alternative.
e. Consumers are more able to stockpile services by taking advantage of discount
prices.
14. The mental energy spent by customers to acquire service is referred to as _____.
a. image costs
b. monetary price
c. energy costs
d. psychic costs
e. time costs
15. Brand equity is most similar to:
a. psychic value
b. image value
c. service value
d. product value
e. personnel value
16. If the negative effect of cross-price elasticity in which the increasing price of one
service decreases the demand for another service are said to be __________.
a. unitary
b. substitutes
c. complementary
d. inelastic
e. elastic
17. If the positive effect of cross-price elasticity in which the increasing price of one
service increases the demand for another service are said to be __________.
a. unitary
b. substitutes
c. complementary
d. inelastic
e. elastic
18. Which of the following is not a criteria for effective price discrimination?
a. the segments should be identifiable, and a mechanism must exist to price them
differently.
b. different groups of consumers should have similar responses to price
c. segments should be large enough to be profitable
d. incremental revenues should exceed incremental costs
e. customers should not be confused
19. If the goal of the pricing strategy is to reduce the amount of perceived risk
associated with the purchase and appeal to target markets that value certainty,
then the appropriate pricing strategy would be:
a. relationship pricing
b. price bundling
c. mixed bundling
d. efficiency pricing
e. flat-rate pricing
20. Which one of the following is not a form of satisfaction-based pricing?
a. offering guarantees
b. benefit-driven pricing
c. flat-rate pricing
d. relationship pricing
e. all the above are forms of satisfaction-based pricing
21. The pricing strategy that charges customers for services actually used as
opposed to overall “membership” fees is:
a. relationship pricing
b. price bundling
c. benefit-driven pricing
d. flat-rate pricing
e. efficiency pricing
22. The pricing strategy that enhances the firm’s relationship with its targeted
consumers and is a form of relationship pricing is:
a. activity-based costing
b. price bundling
c. benefit-driven pricing
d. flat-rate pricing
e. efficiency pricing
23. Southwest airlines appeals to economically-minded consumers who are looking
for the best price by flying shorter, more direct routes to less congested, less
expensive airports. Southwest Airlines practices:
a. relationship pricing
b. price bundling
c. benefit-driven pricing
d. flat-rate pricing
e. efficiency pricing
24. Traditionally, overhead in most service firms has been allocated to projects
based on the amount of ____________ charged to complete the customer’s
requirements.
a. direct labor
b. fixed costs
c. time
d. number of employees
e. number of time sheet entries
25. The approach that allocates overhead to each project based on the activities
undertaken to complete the project is called:
a. activity-based costing
b. price bundling
c. benefit-driven pricing
d. flat-rate pricing
e. efficiency pricing
26. Customer frustration resulting from receiving poor service is most similar to:
a. image costs
b. monetary price
c. energy costs
d. psychic costs
e. time costs
27. Like many services, the demand for medical services tends to be __________.
a. inelastic
b. elastic
c. substitute demand
d. complementary demand
e. price cross elastic demand
28. Effective boundary spanners enhance the __________ of services.
a. product value
b. service value
c. image value
d. time value
e. personnel value
29. Costs that are planned and are accrued during the operating period regardless of
the level of production and sales are called:
a. fixed costs
b. direct variable costs
c. average costs
d. marginal costs
e. future costs
30. Costs such as direct labor and sales commissions are called:
a. fixed costs
b. variable costs
c. average costs
d. marginal costs
e. future costs
31. Charging customers different prices for essentially the same service is called:
a. price discrimination
b. supply and demand
c. complementary
d. substitutes
e. none of the above
32. The tasks in activity based costing are thought of as “users” of overhead and
identified as:
a. fixed costs
b. cost drivers
c. variable costs
d. project costs
e. cost labor
33. Technique that allows consumers to either buy Service A and Service B together
or purchase one service separately is called:
a. long-term bundling
b. price bundling
c. mixed bundling
d. relations bundling
e. product bundling
34. Which pricing strategies encourage the customer to expand his/her dealings with
the service provider?
a. relationship pricing
b. price bundling
c. benefit-driven pricing
d. flat-rate pricing
e. efficiency pricing
35. Studies suggest that price is more likely to be used as a cue to quality under the
following conditions?
a. when price is the primary differential information available
b. when alternatives are heterogeneous
c. prior to purchase
d. when comparative price differences are relatively large
e. all of the above
SHORT-ANSWER ESSAYS
36. Discuss how consumers relate value and price.
37. Discuss issues service providers should consider when formulating a pricing
strategy.
38. Discuss the concept of cross-price elasticity as it relates to service pricing.
39. Discuss the circumstances under which price segmentation is most effective.
40. Discuss satisfaction-based, relationship, and efficiency approaches to pricing.
41. In general, what guidelines should a service provider follow when formulating a
pricing strategy?