Principles of Marketing, 17e, Global Edition (Kotler/Armstrong)
Chapter 10 Pricing: Understanding and Capturing Customer Value
1) ________ refers to the amount of money charged for a product or service.
A) Value
B) Cost
C) Price
D) Wage
E) Salary
2) ________ is the only element in the marketing mix that produces revenue.
A) Price
B) Product
C) Place
D) Fixed costs
E) Variable costs
3) Which of the following is true with regard to price?
A) Historically, price has had the least perceptible impact on buyer choice.
B) Price is the least flexible element in the marketing mix.
C) Unlike product features and channel commitments, prices cannot be changed quickly.
D) Price is the sum of all the values that customers give up to gain the benefits of having a
product.
E) Prices only have an indirect impact on a firm’s bottom line.
4) Price is important to managers ________.
A) because prices cannot be changed quickly, so must be correctly determined
B) because a small percentage improvement in price can generate a large percentage increase in
profitability
C) but other marketing mix elements create customer value and build relationships
D) but product features can be changed more quickly
E) but has little impact on a firm’s market share
5) Prices have a direct impact on a firm’s bottom line.
6) Price is the most inflexible of the marketing mix elements.
7) List some important characteristics of price.
8) Why is price considered one of the most flexible elements of the marketing mix?
9) Define price. Discuss its importance.
10) What sets the ceiling for product prices?
A) product manufacturing costs
B) sellers’ perceptions of the product’s value
C) customer perceptions of the product’s value
D) variable costs
E) break-even volume
11) What sets the floor for product prices?
A) consumer perceptions of the product’s value
B) product costs
C) competitors’ strategies
D) advertising budgets
E) market competition
12) Effective ________ pricing involves understanding how much value consumers place on
the benefits they receive from the product and setting a price that captures that value.
A) competition-oriented
B) cost-based
C) time-based
D) customer-oriented
E) marketer-oriented
13) ________ pricing uses buyers’ perceptions of value as the key to pricing.
A) Customer value-based
B) Cost-based
C) Time-based
D) Markup
E) Target return
14) Factors a company considers in setting its price include all of the following EXCEPT
________.
A) competitors’ strategies and prices
B) product costs
C) overall marketing strategy and mix
D) value of the product on the pre-owned market
E) nature of the market and demand
15) Which of the following is true of value-based pricing?
A) The targeted value and price drive decisions about what costs can be incurred and the
resulting product design.
B) Value-based pricing is mostly product driven.
C) Value-based pricing involves setting prices based on the costs of producing, distributing,
and selling the product plus a fair rate of return for its effort and risk.
D) The marketer usually designs a product and marketing program and then sets the price.
E) A company using value-based pricing designs what it considers to be a good product, adds
up the costs of making the product, and sets a price that covers costs plus a target profit.
16) What is usually the first step in cost-based pricing?
A) testing the product concept with potential customers
B) determining the marketing mix strategy
C) setting a price that covers costs plus a target profit
D) designing a good product
E) adding up the costs of making the product
17) Which of the following processes does value-based pricing reverse?
A) high-low pricing
B) everyday low pricing
C) cost-based pricing
D) good-value pricing
E) value-added pricing
18) A pharmaceutical company in Utah recently released a new and expensive anti-ulcer drug
in the market. The company justifies the high price of the drug by claiming that it is highly
effective for treating all kinds of ulcers. The company also claims that the new drug will help
bring down the need for invasive surgeries, an additional benefit for patients. Which of the
following pricing strategies is the pharmaceutical company most likely using in this instance?
A) target pricing
B) markup pricing
C) cost-based pricing
D) value-based pricing
E) break-even pricing
19) A restaurant wants to use value-based pricing. It knows the costs of the ingredients in the
food. It must also factor in ________ in determining customer satisfaction and value.
A) wages of employees
B) costs of utilities of the restaurant
C) atmosphere and décor of the restaurant
D) travel distance for customers
E) percentage of bar patrons versus dining patrons
20) The perceived value of different product offers can be reasonably assessed by ________.
A) conducting a SWOT analysis
B) preparing demand curves
C) conducting surveys and experiments
D) collecting data about competitors’ offers
E) setting a benchmark for product quality
21) Underpriced products ________.
A) produce less revenue than they would if they were priced at the level of perceived value
B) sell poorly in the global marketplace
C) produce more revenue than they would if they were priced at the level of perceived value
D) mostly offer higher value than those with a high markup price
E) are characterized by rapidly declining demand
22) The Great Recession of 2008 to 2009 triggered a shift in consumer attitudes toward
________.
A) variety and price
B) perceptions of value
C) locations of stores
D) price and quality
E) economic data
23) Which of the following involves introducing less-expensive versions of established, brand
name products?
A) markup pricing
B) good-value pricing
C) time-based pricing
D) cost-based pricing
E) target profit pricing
24) ________ pricing refers to offering just the right combination of quality and gratifying
service at a fair price.
A) Markup
B) Good-value
C) Cost-plus
D) Target profit
E) Break-even
25) When McDonald’s and other fast food restaurants offer “value menu” items at surprisingly
low prices, they are most likely using ________ pricing.
A) break-even
B) target profit
C) good-value
D) cost-plus
E) target return
26) Azure Air, an airline company, offers attractive prices to customers with tighter budgets. A
no-frills airline, it charges for all other additional services, such as baggage handling and in-
flight refreshments. Which of the following best describes Azure Air’s pricing method?
A) target profit pricing
B) good-value pricing
C) cost-based pricing
D) break-even pricing
E) penetration pricing
27) Retailers such as Costco and Walmart charge a constant, daily low price with few or no
temporary price discounts. This is an example of ________ pricing.
A) competition-based
B) everyday low
C) cost-plus
D) break-even
E) penetration
28) Bon Vivant offers an assortment of exclusive French wines at incredibly low prices. These
prices are neither limited-time offers nor special discounts, but represent the daily prices of
products sold by Bon Vivant. This reflects Bon Vivant’s ________ pricing strategy.
A) everyday low
B) markup
C) penetration
D) break-even
E) cost-based
29) ________ pricing involves charging higher prices on an everyday basis but running
frequent promotions to lower prices temporarily on selected items.
A) High-low
B) Everyday low
C) Cost-plus
D) Break-even
E) Penetration
30) Department stores such as Kohl’s and JCPenney’s practice high-low pricing by ________.
A) charging a constant, everyday low price
B) providing few or no temporary price discounts
C) increasing prices temporarily on select products
D) having frequent sale days for store credit-card holders
E) underpricing most consumer items
31) Companies that adopt value-added pricing ________.
A) consider value-added features as a fitting substitute for aggressive cost cutting
B) set incredibly low prices to meet competition
C) attach value-added features and services to differentiate their offers and support their higher
prices
D) overprice their products without any apparent justification
E) underprice their products and lower quality to boost demand in the short-run
32) Which of the following is true with regard to value-added pricing?
A) Companies that practice value-added pricing typically match the competition by cutting
prices.
B) Companies practicing value-added pricing differentiate their offers by attaching value-added
features to offerings that, in turn, justify higher prices.
C) The intrinsic value of products sold by companies practicing value-added pricing is far less
than their actual selling price.
D) Companies practicing value-added pricing primarily rely on cost differentiation.
E) Value-added pricing is the most suitable pricing strategy in pure monopolies.
33) In an effort to differentiate its offerings from its competitors, Pegasus Computers decided to
add an extra USB port in all its laptops besides providing a free pair of Delphi power bass
headphones with every Pegasus laptop. Although the additional features increased the price of
the laptops by $500, Pegasus was confident that the strategy would help boost demand for its
laptops substantially. This is an example of ________.
A) good-value pricing
B) markup pricing
C) break-even pricing
D) value-added pricing
E) cost-based pricing
34) ________ involves setting prices based on the costs for producing, distributing, and selling
the product plus a fair rate of return for effort and risk.
A) Value-based pricing
B) Competition-based pricing
C) Cost-based pricing
D) Penetration pricing
E) Break-even pricing
35) Companies with lower costs ________.
A) specialize in selling products with value-added features
B) usually market products with inferior quality, thereby justifying the low selling price
C) can set lower prices that result in smaller margins but greater sales and profits
D) tend to overprice products owing to their monopolistic advantage
E) usually set higher prices that result in higher margins
36) Companies with higher costs ________.
A) can drive out competitors through their pricing strategy
B) intentionally pay higher costs so that they can add value through higher quality and claim
higher prices and margins
C) can set lower prices that result in increased sales though with lower margins
D) specialize in selling products without value-added features
E) are more financially successful
37) A company must pay each month’s bills for rent, heat, interest, and executive salaries
regardless of the company’s level of output. This exemplifies its ________ costs.
A) overhead
B) variable
C) target
D) total
E) unit
38) Overhead costs ________ as the number of units produced increases.
A) decrease
B) increase steadily
C) fluctuate
D) remain the same
E) increase rapidly
39) Which of the following is most likely a fixed cost?
A) sales representative commissions
B) product distribution costs
C) manufacturing input costs
D) temporary worker salaries
E) facility rental payments
40) Fixed costs ________.
A) are costs that do not vary with production or sales level
B) vary directly with the level of production
C) decrease with accumulated production experience
D) are the sum of the overhead and variable costs for any given level of production
E) represent the annual costs of inputs incurred by a company
41) Costs that change with the level of production are referred to as ________.
A) fixed costs
B) variable costs
C) target costs
D) total costs
E) overhead costs
42) In 2011, the fixed costs of a company were $500,000, and its variable costs equaled
$150,000. In 2010, the company made an annual profit of $200,000. It has been predicted that,
despite a steady growth, the company’s variable costs will likely equal $300,000 by 2013. The
total costs of the company in 2011 were ________.
A) $350,000
B) $450,000
C) $650,000
D) $800,000
E) $950,000
43) The total production costs at Kellner Machine Works are $87,000 out of which $45,000
represent fixed costs. Which of the following is representative of the variable costs incurred by
the company?
A) $35,000
B) $42,000
C) $45,000
D) $87,000
E) $132,000
44) The fixed cost in manufacturing a single LED monitor is $40 and the variable cost is $12. If
the company expects to manufacture 5,000 monitors, the total costs would be ________.
A) $60,000
B) $200,000
C) $260,000
D) $420,000
E) $500,000
45) As production moves up, the average cost per unit decreases because ________.
A) variable costs decrease
B) of increasing diseconomies of scale
C) fixed costs are spread over more units
D) overhead costs decrease
E) revenue increases
46) A cell phone manufacturing firm produced 1,000 cell phones a day but believed that it
could reasonably step up production to 2,000 cell phones a day. Consequently, it built a larger
plant and installed efficient machinery and work arrangements to realize the projected output.
Which of the following can most likely be inferred from this information?
A) The unit cost of producing 2,000 cell phones per day would be twice that of the unit cost of
producing 1,000 units per day.
B) A production plant with the capacity of producing 5,000 cell phones a day would be most
efficient.
C) The unit cost of producing 2,000 cell phones per day would be lower than the unit cost of
producing 1,000 units per day.
D) A 2,000-capacity production plant would be less efficient because of increasing
diseconomies of scale.
E) The fixed costs of the firm are more likely to increase with the increase in output.
47) The long-run average cost (LRAC) curve indicates the ________.
A) per unit cost of output in the long run
B) projected total production costs of competitors
C) variable costs incurred by a firm over time
D) fixed costs incurred by a firm over the long term
E) number of units the market will buy in a given time period, at different prices that might be
charged
48) A manufacturing plant is designed to produce 2000 flat-screen TVs per day. But demand is
higher than that. If the company tries to increase its production to 2500 TVs per day, the
average costs will ________ because ________.
A) decrease; the plant becomes more efficient
B) stay the same; the plant becomes more efficient
C) decrease; the plant becomes inefficient
D) increase; the plant becomes more efficient
E) increase; the plant becomes inefficient
49) The learning curve is representative of the ________.
A) per unit cost of output in the long run
B) drop in the average per-unit production cost that comes with accumulated production
experience
C) number of units the market will buy in a given time period, at different prices that might be
charged
D) total market demand resulting from different prices
E) per unit cost of output in the short run
50) As production workers become better organized and more familiar with equipment, the
average cost per unit tends to decrease with the ________.
A) increase in the diseconomies of scale
B) accumulated production experience
C) decrease in the economies of scale
D) increase in derived demand
E) increase in primary demand
51) With accumulated production experience and a higher volume of production, companies
not only become more efficient but also ________.
A) gain economies of scale
B) incur higher overhead costs
C) create derived demand in the market
D) spend more per unit of produced output
E) tend to routinely spend less on inputs
52) The experience curve reveals that ________.
A) repetition in production has no visible impact on production costs
B) repetition in production enhances efficiency
C) the average cost of production remains the same with accumulated production experience
D) repetition in production adds to the costs and thereby increases the prices of outputs
E) the average cost of production increases with accumulated production experience
53) A downward-sloping experience curve is indicative of ________.
A) the negative customer perception about a company’s products
B) the falling demand for a company’s products
C) the falling unit production cost of a company
D) the low quality of a company’s products
E) slow and inadequate organizational learning
54) To take advantage of a downward-sloping experience curve, a company must do all of the
following EXCEPT ________.
A) increase the product’s price
B) be able to sell the higher volume of product
C) price its product lower
D) increase its production output
E) decrease its costs through experience gained
55) Which of the following is most likely a risk associated with experience-curve pricing?
A) High-volume production facilities are unable to meet demand.
B) New technology often leads to productivity problems.
C) Demand for the product fluctuates unpredictably.
D) Consumers tend to prefer new brands over established ones.
E) Aggressive pricing often gives a product a cheap image.
56) Experience-curve pricing assumes that ________.
A) competitors are weak and not willing to match price cuts
B) competitors are strong and invincible
C) aggressive pricing adversely affects product image
D) volume-based production slows down organizational learning
E) lower-cost technologies are almost always inferior
57) The simplest pricing method is ________ pricing.
A) value-based
B) fixed cost
C) cost-plus
D) target return
E) competition-based
58) Cost-plus pricing ________.
A) is a complex pricing method
B) involves pricing that accurately reflects production costs
C) involves adding a standard markup for profit
D) aims at breaking even on the costs of making and marketing a product
E) is a value-based pricing method
59) Lawyers, accountants, and other professionals typically price by adding a standard markup
for profit. This exemplifies ________.
A) target pricing
B) cost-plus pricing
C) value-based pricing
D) break-even pricing
E) penetration pricing