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93 Cards in this Set

  • Front
  • Back
The difference between how an economist and sales manager approach pricing is
the economist thinks of a profit maximizing price while the sales manager focuses on the list price
When thinking of pricing, product managers
focus on product features
The three levesl of pricing include
Industry economics, product/market strategy and transaction level prices
According to the pricing pyramid the foundation of pricing is __________ and the pinnacle is ___________.
value creation and price level
Managers need to create a price structure so as to
so as to cater to heterogeneous customers
A well designed price policy ensures that
qualified customers get price breaks
In determining the price level a manager needs to use
lots of data and good judgment
The two objectives of pricing strategy are to
Ensure profitability and capture consumer value
Cost plus pricing
Can lead to overpricing if demand is weak
The XYZ company's average cost last year was $240 per unit. It priced its product at $300 for a target margin of 20%. A recent drop in demand has resulted in an increase in the average cost to $256. The manager is considering a price increase to $320 to maintain the margin at 20%. In the face of the drop in demand, which of the following is the most appropriate:
The new contemplated price is probably too high
Customer oriented pricing requires that we should measure the customer's perceived value for the product, and
A. Choose a price equal to the value
B. Choose a price below the value
C. A or B <-
D. Neither A nor B
Increases consumer's perceived value by educating the consumers
A good approach to competitor oriented pricing is
To take into account differences among competitors
Managers that pursue market share goals
Are responding to incentives
A tactical approach to pricing involves
A- Asking reactive questions
B- Making judgments about the right price
C- Ensuring that costs are covered and profit objectives are met
A and C
Strategic pricing involves asking
What sales increase would be necessary to profit from a price cut?
We can get the net profits by
subtracting fixed costs from gross profits
Attributes X of a product
are under the manager's control and affect willingness to pay and variable costs
WTP depends on
product attributes and NBA
The fourth profit lever, in addition to price, fixed cost and variable cost, is
The most important profit lever is
According to Marn, Roegner and Zawada a 1% improvement in fixed cost increases profits by
A cell phone manufacturer runs an advertising campaign emphasizing the clarity of the pictures from the camera in the phone. This
Will probably not affect the consumer's perceived value
Comparing the Use Value (UV) and the Economic Value (EV)
Exchange Value is
The same as Economic Value
Steel belted radial tires replaced older tires that had a road life roughly half that of the steel belted ones. As a result consumers did not have to replace tires as often and tire replacement shops saw a decline in the frequency of consumers visiting their stores, in turn cutting into their revenues. This is an example of
Positive differentiation value to end users

Negative differentiation value to tire replacement shops
In calculating economic value
The differences among consumers in the economic value
Reference Value
A. Is the same as outside option
B. Depends on the most suitable substitute 25%
C. Varies across consumers
D. Requires managerial judgment to assess
Economic value
Is detemined by the extent of consumer benefits
Comparing Economic Value (EV) and Willingness to Pay (WTP)
EV + Gap = WTP
surplus value
is perceived value less perceived price
According to the Value Equivalence concept some consumers choose a higher priced product because
they prefer the benefits offered by it
As gas prices rise, the position of small cars on the VEL
would move below the line
The three steps in arriving at economic value consist of determining
customer economics, differentiation value and value drivers
The customer production process includes
product acquisition, use and disposal
The key value driver in a new video game is
benefit of entertainment
In quantifying value drivers we must ask
how the product affects the consumer's production process
A key point to keep in mind when caculating the differentiation value is
the concept of incremental analysis
Even though value based segmentation requires the manager to segment the market based on the value different customers attach to the product
it is necessary to start with descriptive profile
Not all drivers are created equal refers to the fact that
some drivers are easier to deliver
Discriminating value drivers
are common within a segment
A good hierarchy of value drivers
customer needs and internal factors
Segment descriptors
can help in communication and distribution
The price metric used by the local water utility
is the number of gallons of water used
A price fence
allows firms to charge different prices
Which of htese is NOT a reason for price segmentation
Differences in price policy
Segmented pricing can be more profitable than a single price because
The single price could be too high

Yes.. For some consumers, see slide 4, lecture 6
Segmented pricing requires a fence so that
it prevents arbitrage

Yes. See slide 7, lecture 6
Which of these is NOT a consideratiton in erecting fences?
the simplicity

yes. see slide 8, lecture 6
Which of these is an example of buyer ID as a fence?
Individuals versus libraries

See slides 9-11, lecture 6
It makes sense to offer quantity discounts to cater to buyers of large quantities because
They represent greater value

Yes. See slide 4, lecture 7
Which of these is NOT a way to implement a non-linear price?
Learning curve pricing

Yes. See slide 9, lecture 7
Segmented pricing using prodcut design uses as a fence
A. quality of low end product
B. Price of high end product
C. both A and B 100% See slide 4, lecture 8
D. Neither A nor B
For bundling to work to implement segmented pricing
consumers must prefer different products

yes. See slides 6 and 7, lecture 8
The Weber-Fechner effect says that
Consumers see percentage price differences as meaningful
Which of these is NOT a way to provide economic value assurance?
Technical brochures 100% yes. see slide 6. lecture 9
The highest price in a pocket price waterfall is
the list price
Price bands can
can identify customers for whom price can be increased
A pricing policy can help in all the following ways EXCEPT
increase top line

Yes. See slide 6, lecture 10
Reference price can be important because
perceived value depends on it

yes. see slide 5, lecture 11
A manager who understands the idea of switching costs can
decrease switching costs to induce trial and raise switching costs to fend off competition

Yes. See slide 7, lecture 11
End benefit effect refers to
what proportion of the buyer's total cost is the price of the item
Prospect theory says that
view losses and gains relative to where they are
Relevant costs
Are avoidable
Accounting figures are often unhelpful for pricing decisions because
Accountants give importance to sunk costs
Check the relevant costs from the following
Opportunity cost
Percent contribution margin
Is the leverage between sales volume and profit
A product that has a low %CM
Is a candidate for premium pricing
A manufacturer has the capacity to produce 1000 units on regular time ($ 20 per hour) and an additional 200 units on overtime at 150% of regular time labor costs. The cost of raw materials is $ 10 per unit and labour required is 1 manhour per unit. Current sales are running at 1100 units per day and the price is $ 60. The percent CM is

Yes, cost is $10 (materials)+$30 (overtime labor cost)=$40. So CM=$20, and price=$60. So, %CM=100*20/60.
How would you define Breakeven volume as it applies to pricing decisions?
When we are evaluating a proposed change, we compare the profits after the proposed change to the current level of profits and calculate the volume required under the proposed change to make the two profits equal. This is the break-even sales volume.
General Feedback: When we are evaluating a proposed change, we compare the profits after the proposed change to the current level of profits and calculate the volume required under the proposed change to make the two profits equal. This is the break-even sales volume.
The ABC firm is thinking of cutting the current price of $ 100 by 10%. the current CM is $ 50. The % BE sales volume is
Impossible to tell

See slide 5, lecture 11
In question 2 assume that the firm is working at capacity. Any increase in production would need overtime and that would add 50% to the current labor cost. Currently labor cost runs at 20% of price. The break-even sales volume in this case would be

See slide 7, lecture 11
In question 9, suppose the firm is contemplating avoiding overtime by adding a faster machine that is more productive. In this case there would be an additional fixed cost of $ 10,000. The %break-even volume is
Impossible to tell
The ABC firm is facing a cmpetitor who has just raised the current price of $ 100 by 10%. ABC is contemplating matching the competitor. The current CM is $ 40. The % BE sales volume is
Pest Control Limited is currently serving 1400 customers per week at an average price of $ 80 per customer. The variable costs are constant at $ 26 and non incremental fixed costs are 40% of current revenue. Pest Control's management believes that more customers could be attracted by a price cut of 5%. BUt there is some hesitation on their part because of demand exceeded 1500 customers there would be additional equipment needed that would raise the capacity by 750 customers but also result in an increase of $ 1400/ week of fixed costs. As a consultant to Pest Control you are required to prepare a break-even table for sales changes from 0 to 20% in steps of 5%.
In a pricing game resembling a prisoners' dilemma
the equilibrium may be undesirable 100

Yes. See slide 7, lecture 15
Firms can avoid price competition by
obtaining competitive advantage

yes. see slide 11, lecture 15
all the following are ways of obtaining competitive advantage except
using game theory

yes. See slide 11, lecture 15
All the following are good ways of reacting to price cuts except
Match competitor's price
When a competitor is weak and a price reaction is cost justified the best way to react to a competitor's price cut is to

yes. See slide 14, lecture 15
Why are price wars bad?
Equals Profits sensitive to price (100%)
Equals Market shares don't change (100%)
Equals Consumers become price sensitive (100%)
Equals Firms don't exit industry (100%)
Price wars are caused by
Misreads and misjudgments

. See slide 19, lecture 15
Which of th efollowing is NOT a goal of promotions
Avoiding price wars
Which of these is NOT true about promotions
Promotions are always a result of prisoners' dilemma

Yes. NOT ALWAYS! See slides14-16, lecture 16
Which of these are probably not complements
Coke and Sprite
Which of the following is NOT true for a loss leader
Loss leaders are meant to threaten competitors

Yes. See slides 21 and 22, lecture 16
A consequence of double marginalization is
Retailers do not pass through the entireyty of a manufacturer price cut
Which of the following is not likely to help in overcoming double marginalization?
The following are all ways of legally practicing resale price maintanence EXCEPT
Skim price is optimal when
Innovators place high value
Four consultants have worked on the optimal dynamic pricing strategy for a new integrated circuit that exploits experience curve. Which is the most reasonable, in your opinion?
Prices: {50, 49, 48, 45, 42, 38, 35, 33}
The part worth of price tells us
how much value a consumer places as price is changed
Conjoint analysis can be used for
A. optimizing the price
B. segmenting the market
C. neither A nor B
D. both A and B