pricing strategy – topic 4

question

internal factors

answer

marketing objectives, marketing mix strategies, costs, organizational considerations

question

external factors

answer

competition, economy, resellers, government, demand

question

cost

answer

cost sets floor for price; marketers dont usually set price close to, at, or below cost for obvious reasons

question

captive product pricing

answer

pricing products that must be used with the main product; selling products to customers at a very low price but they need to also buy a product at a high price; ex: selling printer super cheap but selling ink for lots of money

question

variable costs

answer

costs that vary with the quantity of output produced and sold

question

fixed costs

answer

FC = Q (P - UVC)

costs that remain constant as output changes; including lease and rental payments, insurance and interest payments

question

breakeven volume

answer

Q =FC/(P-UVC)

if you produce and sell:
more than BE volume = profit

less = loss

exactly = 0 (breakeven point)

question

answer

fixed cost

question

answer

price

question

UVC

answer

unit variable cost

question

TR = TC

answer

total revenue = total cost

question

answer

break even volume

question

TVC

answer

total variable cost

question

quantity demanded

answer

price affects quantity demanded

*usually higher prices result in lower quantity demanded

*sometimes higher prices lead to higher quantity demanded
- luxury products, status, price as a proxy for quality

question

which demand curve has a more elastic demand?

answer

more flat line instead of steep down line

question

perfectly inelastic demand

answer

the case where the quantity demanded is completely unresponsive to price and the price elasticity of demand equals zero (straight vertical line, more vertical than horizontal)

question

perfectly elastic demand

answer

the case where the quantity demanded is infinitely responsive to price and the price elasticity of demand equals infinity (straight or more horizontal than vertical)

question

elastic

answer

value will almost always be a negative number; E < -1

total revenue after price decrease is larger than the original total

P and Q moving in opposite directions

question

elastic math

answer

if E = -3; for every 1% change in price, the quantity demanded will change by 3% (or whatever E is absolute value) in the opposite direction

ex: P increases by 1% --> Q will decrease by 3% (sales revenue will decrease - moves in same direction as larger of the percentages)

ex: P decreases by 2% → Q will increase by 6% (3 times as much in the opposite direction)

question

inelastic

answer

value will almost always be a negative number; when E > -1

total revenue after a price decrease is smaller than the original total revenue

question

inelastic math

answer

if E = -0.5; for every 1% change in price, the quantity demanded will change by -0.5% in the opposite direction

ex: P increases by 1% --> Q will
decrease by .05% (sales revenue will increase)

ex: P decreases by 10% --> Q will increase by 5%

question

sales revenue

answer

SR = P * Q

question

what influences price sensitivity

answer

Buyers are more insensitive to price (ex: demand becomes more inelastic) when:
Lack of substitutes
A small expenditure compared to total income, a small % of total cost or used with previously purchased goods
Price signals quality
When products cannot be stored in large quantities for a long time
Then the demand becomes inelastic

question

Target profit pricing

answer

a strategy that tells the management the total units to be sold to achieve the targeted profit for a particular period. Under this strategy, after considering total costs and profit targets, the management decides on the total production and sales for a particular period

question

Everything else being the same, when the unit variable cost increases the break-even volume:

answer

increases

question

Finding new usage times for their existing products is a way by which firms can:

answer

increase primary demand

question

Fixed costs will always remain fixed no matter the number of units produced and sold

answer

false

question

Liquidating slow moving inventory could be one reason for selling products at or below cost

answer

true

question

It is not possible to have market share greater than 100%

answer

true

question

Break even volume can be calculated using the formula:

answer

Fixed costs / (price - unit variable cost)

question

According to the asynchronous lecture, the gap between the numbers of people in the US aged 5 and under, and those 65 and over is decreasing

answer

false

question

break even volume can be calculated using the formula

answer

fixed costs / (price - unit variable cost)

question

everything else being the same, a product category that has no alternativ tends to have more elastic demand

answer

false

question

with a 6% decrease in price there was an increase in revenue (% not provided), demand is

answer

elastic

question

the price of a product was increased by $10,000 and the quantity demanded fell by 10 tons; the demand is

answer

cannot be determined from the given info

question

the price of some product category was increased by 3% and the quantity demanded for this product category fell by 2%; the demand is

answer

inelastic

question

when the price is increased and the sales revenue increases, the demand can be said to be

answer

inelastic

question

the quantity demanded fell by 4% when the price of the product was raised by 7%; the demand for the product is

answer

inelastic

question

when the price is decreased and the sales revenue decreases, the demand can be said to be

answer

inelastic

question

the price of a product was increased by a certain percentage and the quantity demanded fell by a larger percentage; the demand is

answer

elastic

question

if with a large percentage increase in price there was a small decrease in revenue we can say that demand is

answer

elastic

question

the price of vibranium was decreased by 7% and the revenue increased by 4%; the demand is

answer

elastic

question

if with a small percentage decrease in price there was a large percentage increase in quantity demanded, we can say that demand is

answer

elastic

question

when the price is increased and the sales revenue decreases, the demand can be said to be

answer

elastic

question

ordinarily when price increases, the quantity demanded decreases

answer

true

question

wanting to eliminate weaker competitors could be one reason for selling products at or below cost

answer

true

question

cost plus pricing

answer

adding a standard markup to the cost of the product; ignores demand and competition, perceived as fair and is simple to implement

question

sku

answer

stock keeping unit

question

perceived value pricing

answer

what the customer is willing to pay; price not on cost but what the consumers think it is worth

question

going rate pricing

answer

Setting price based largely on following competitors' prices rather than on company costs or demand

question

functional discount/promotional allowance

answer

a discount to wholesalers and retailers for performing channel functions - by manufacturer to retailer

question

seasonal discounts

answer

discounts offered to encourage buyers to buy earlier than present demand requires; airlines, movie tickets, hotel rates

question

quantity discounts

answer

discounts offered to encourage customers to buy in larger amounts

question

early payment discounts

answer

Discounts offered by manufacturers to encourage customers to pay for their goods before the agreed time

question

2/10, net 30

answer

means the buyer can take a 2 percent discount off the face value of the invoice if the invoice is paid within 10 days, but they have up to 30 days to pay

question

ROI

answer

return on investment (per annually, per year p.a.)

question

skimming pricing

answer

a new product pricing strategy that aims to maximize profitability by offering new products at a premium price
- product has high quality, enough demand to justify its production, high barriers to entry for competition

question

the payment term 4/12 net 36 means that the customer is required to pay the seller within

answer

36 days

question

if the payment terms are 3/25 net 45 then the customer should compare the payment discount with the earning potential of holding on to their money for

answer

20 extra days

question

a commodity is defined as a product category that is required for everyday life

answer

false

question

perceived value pricing is where marketers charge an unreasonably high price

answer

false

question

a disadvantage of cost plus pricing is that it may promote price wars

answer

false

question

if with a 6% decrease in price there was an increase in revenue (% not provided) demand is

answer

elastic

question

the price of a product was increased from $10,000 by $100 and the quantity demanded fell from 10 tons to 5 tons. the demand is

answer

elastic

question

the price of some product category was raised by 3% and the quantity demanded for this product category fell by 5%. the demand is

answer

elastic

question

the quantity demanded fell by 4% when the price of the product was raised by 7%. the demand for the product is

answer

inelastic

question

the price of vibranium was decreased by 7% and the revenue increased by 4%. the demand is

answer

elastic

question

when the price is increased and the sales revenue decreases, the demand can be said to be

answer

elastic

1 of 68

question

internal factors

answer

marketing objectives, marketing mix strategies, costs, organizational considerations

question

external factors

answer

competition, economy, resellers, government, demand

question

cost

answer

cost sets floor for price; marketers dont usually set price close to, at, or below cost for obvious reasons

question

captive product pricing

answer

question

variable costs

answer

costs that vary with the quantity of output produced and sold

question

fixed costs

answer

FC = Q (P - UVC)

costs that remain constant as output changes; including lease and rental payments, insurance and interest payments

question

breakeven volume

answer

Q =FC/(P-UVC)

if you produce and sell:
more than BE volume = profit

less = loss

exactly = 0 (breakeven point)

question

answer

fixed cost

question

answer

price

question

UVC

answer

unit variable cost

question

TR = TC

answer

total revenue = total cost

question

answer

break even volume

question

TVC

answer

total variable cost

question

quantity demanded

answer

question

which demand curve has a more elastic demand?

answer

more flat line instead of steep down line

question

perfectly inelastic demand

answer

the case where the quantity demanded is completely unresponsive to price and the price elasticity of demand equals zero (straight vertical line, more vertical than horizontal)

question

perfectly elastic demand

answer

the case where the quantity demanded is infinitely responsive to price and the price elasticity of demand equals infinity (straight or more horizontal than vertical)

question

elastic

answer

value will almost always be a negative number; E < -1

total revenue after price decrease is larger than the original total

P and Q moving in opposite directions

question

elastic math

answer

question

inelastic

answer

value will almost always be a negative number; when E > -1

total revenue after a price decrease is smaller than the original total revenue

question

inelastic math

answer

question

sales revenue

answer

SR = P * Q

question

what influences price sensitivity

answer

question

Target profit pricing

answer

question

Everything else being the same, when the unit variable cost increases the break-even volume:

answer

increases

question

Finding new usage times for their existing products is a way by which firms can:

answer

increase primary demand

question

Fixed costs will always remain fixed no matter the number of units produced and sold

answer

false

question

Liquidating slow moving inventory could be one reason for selling products at or below cost

answer

true

question

It is not possible to have market share greater than 100%

answer

true

question

Break even volume can be calculated using the formula:

answer

Fixed costs / (price - unit variable cost)

question

According to the asynchronous lecture, the gap between the numbers of people in the US aged 5 and under, and those 65 and over is decreasing

answer

false

question

break even volume can be calculated using the formula

answer

fixed costs / (price - unit variable cost)

question

everything else being the same, a product category that has no alternativ tends to have more elastic demand

answer

false

question

with a 6% decrease in price there was an increase in revenue (% not provided), demand is

answer

elastic

question

the price of a product was increased by $10,000 and the quantity demanded fell by 10 tons; the demand is

answer

cannot be determined from the given info

question

the price of some product category was increased by 3% and the quantity demanded for this product category fell by 2%; the demand is

answer

inelastic

question

when the price is increased and the sales revenue increases, the demand can be said to be

answer

inelastic

question

the quantity demanded fell by 4% when the price of the product was raised by 7%; the demand for the product is

answer

inelastic

question

when the price is decreased and the sales revenue decreases, the demand can be said to be

answer

inelastic

question

the price of a product was increased by a certain percentage and the quantity demanded fell by a larger percentage; the demand is

answer

elastic

question

if with a large percentage increase in price there was a small decrease in revenue we can say that demand is

answer

elastic

question

the price of vibranium was decreased by 7% and the revenue increased by 4%; the demand is

answer

elastic

question

if with a small percentage decrease in price there was a large percentage increase in quantity demanded, we can say that demand is

answer

elastic

question

when the price is increased and the sales revenue decreases, the demand can be said to be

answer

elastic

question

ordinarily when price increases, the quantity demanded decreases

answer

true

question

wanting to eliminate weaker competitors could be one reason for selling products at or below cost

answer

true

question

cost plus pricing

answer

adding a standard markup to the cost of the product; ignores demand and competition, perceived as fair and is simple to implement

question

sku

answer

stock keeping unit

question

perceived value pricing

answer

what the customer is willing to pay; price not on cost but what the consumers think it is worth

question

going rate pricing

answer

Setting price based largely on following competitors' prices rather than on company costs or demand

question

functional discount/promotional allowance

answer

a discount to wholesalers and retailers for performing channel functions - by manufacturer to retailer

question

seasonal discounts

answer

discounts offered to encourage buyers to buy earlier than present demand requires; airlines, movie tickets, hotel rates

question

quantity discounts

answer

discounts offered to encourage customers to buy in larger amounts

question

early payment discounts

answer

Discounts offered by manufacturers to encourage customers to pay for their goods before the agreed time

question

2/10, net 30

answer

means the buyer can take a 2 percent discount off the face value of the invoice if the invoice is paid within 10 days, but they have up to 30 days to pay

question

ROI

answer

return on investment (per annually, per year p.a.)

question

skimming pricing

answer

question

the payment term 4/12 net 36 means that the customer is required to pay the seller within

answer

36 days

question

if the payment terms are 3/25 net 45 then the customer should compare the payment discount with the earning potential of holding on to their money for

answer

20 extra days

question

a commodity is defined as a product category that is required for everyday life

answer

false

question

perceived value pricing is where marketers charge an unreasonably high price

answer

false

question

a disadvantage of cost plus pricing is that it may promote price wars

answer

false

question

if with a 6% decrease in price there was an increase in revenue (% not provided) demand is

answer

elastic

question

the price of a product was increased from $10,000 by $100 and the quantity demanded fell from 10 tons to 5 tons. the demand is

answer

elastic

question

the price of some product category was raised by 3% and the quantity demanded for this product category fell by 5%. the demand is

answer

elastic

question

the quantity demanded fell by 4% when the price of the product was raised by 7%. the demand for the product is

answer

inelastic

question

the price of vibranium was decreased by 7% and the revenue increased by 4%. the demand is

answer

elastic

question

when the price is increased and the sales revenue decreases, the demand can be said to be

answer

elastic

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pricing strategy – topic 4

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