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Pricing Strategy and Tactics

Learn about the latest pricing strategies and tactics used by businesses to increase profitability in the Pricing Strategy and Tactics course.

pricing tactics

pricing models

cost-based pricing

value-based pricing

competition-based pricing

psychological pricing

dynamic pricing

penetration pricing

skimming pricing

accountancy

business administration

Typically, input rights are granted to individuals from finance, forecasting, and research that provide critical data but are not responsible for commercial outcomes.

  • True
  • False

What includes costs that are not incremental and are therefore irrelevant to evaluating the proposed opportunity?

  • variable cost
  • none of the choices
  • fixed cost
  • average cost

What pricing strategy is setting initial prices high and reducing them over time?

  • price penetration
  • price window
  • none of the choices
  • sequential skimming

What do buyer considers a reasonable and fair price for a product?

  • none of the choices
  • value based price
  • promotional price
  • reference price

What are the rules or habits, either explicit or cultural, that determine how a company varies its prices when faced with factors other than value and cost that threaten its ability to achieve its objectives?

  • none of the choices
  • price exceptions
  • pricing policy
  • reverse auction

What strategy is when the firm expects that its lower costs will enable it to profit despite competitive pricing?

  • differentiated product strategy
  • none of the choices
  • both cost leadership strategy differentiated product strategy
  • cost leadership strategy

What stage is when a customer chooses distribution channel from which to make purchase and conducts transaction?

  • selection
  • origination
  • fulfillment

What refers to the many ways that a product creates innate satisfaction for the customer?

  • psychological value
  • none of the choices
  • monetary value
  • economic value

Most companies in competitive markets are driven by a focus on revenue growth, which they pursue by trying to be all things to all people, rather than by a focus on creating value more cost-effectively.

  • True
  • False

_______ are based on serving the needs of only a particular customer segment or niche, which enables the firm to tailor its operations to meet the unique needs of that segment more cost-effectively

  • Needs-Based Positioning

_____ used by sales people to develop customer-specific monetary value estimates with the customer in the course of a sales call.

  • Value based selling tool

What means that differences in pricing across customers and changes over time reflect differences or changes in the value to customers?

  • value based
  • none of the choices
  • proactive
  • profit driven

What is the agreement by the seller to bear part of the shipping costs of the product, the amount of which depends upon the buyer’s location?

  • none of the choices
  • shipping arrangement
  • freight absorption
  • freight arragement

What prices are not necessarily cheap, but they are low relative to perceived value in the target segment?

  • none of the choices
  • penetration prices
  • skimming prices
  • floor prices

Profit-driven means that the company evaluates its success at price management by what it earns relative to alternative investments rather than by the revenue it generates relative to its competitors.

  • neither true nor false
  • false
  • true
  • none of the choices

The break-even sales curve is a simple, yet powerful tool for synthesizing and evaluating the dynamics behind the profitability of potential price changes

  • True
  • False

What is the final stage of buying process?

  • selection
  • origination
  • none of the choices
  • fulfillment

What process in costing is to measure the cost incurred because a product is sold, or not incurred because it is not sold?

  • sunk costing
  • variable costing
  • incremental costing
  • fixed costing

What are the costs of raw materials in a manufacturing process?

  • variable cost
  • fixed cost
  • none of the choices
  • incremental cost

What becomes a mechanism for raising prices for managers?

  • reverse auction
  • price exception
  • strategic pricing
  • none of the choices

_______ is the agreement by the seller to bear part of the shipping costs of the product, the amount of which depends upon the buyer’s location.

  • Freight absorption

a form of self-induced buyer identification— especially through the use of coupons and sales promotions, a frequent tool of consumer marketers

  • deal proneness

What are the two forms of differentiation value?

  • none of the choices
  • economic and monetary value
  • use and economic value
  • monetary and psychological

What value represents the total cost savings or income enhancements that a customer accrues as a result of purchasing a product?

  • monetary value
  • none of the choices
  • economic value
  • use value

Like chess, pricing is a “game,” as defined by game theorists, because outcomes depend not only on a company’s own pricing decisions but also on how customers and competitors respond to them.

  • True
  • False

What represents the total cost savings or income enhancements that a customer accrues as a result of purchasing a product?econ

  • none of the choices
  • differentation value
  • economic value
  • monetary value

Profitable price decisions are those that result in sales volumes in the area to the right of the curve.

  • True
  • False

What influence reference prices strategically?

  • none of the choices
  • new product introduction
  • pychological meaning
  • promotional deals

the price of the customer’s best alternative

  • reference value

What type of structure is appropriate for diversified businesses with little overlap in market type?

  • Center of Expertise
  • None of the choices
  • Dedicated Support Unit
  • Center of Scale

What is the requirement for strategic pricing?

  • reduce the average contribution margin across the product line
  • making informed trade-offs between price and volume in order to maximize profits
  • exploit a market opportunity to drive volume
  • None of the choices

Price competition is usually a positive-sum game since the more intense price competition is, the more it undermines the value of the market over which one is competing.

  • True
  • False

What price setting process develops communication plan to ensure prices are perceived to be fair?

  • none of the choices
  • set initial price
  • define the price window
  • communicate price to market

What step creates a series of redesigned pricing processes for each of the major pricing activities identified in step one?

  • Identify Profit Leaks
  • Redesign Process
  • Define Major Pricing Activities
  • Map Current Processes

What stage is when a customer gathers more detailed information to make choice based on price and value?

  • fulfillment
  • selection
  • none of the choices
  • information gathering

What value depends on the alternatives customers have available to satisfy the same need?

  • all of the choices
  • economic value
  • exchange value
  • use value

What is the central part for goods in which monetary value drivers?

  • value based quantification
  • none of the choices
  • value qualification
  • value quantification

What pricing functions often assume the role of commercial partner or expert resource?

  • Center of Scale
  • Center of Expertise
  • All of the choices
  • Dedicated Support Unit

Negative-sum games are those in which the very process of competition creates benefits.

  • True
  • False

What producer which cannot afford to underbid low-cost producers for the patronage of more price-sensitive buyers;

  • high cost producer
  • both low and high cost producer
  • none of the choices
  • low cost producer

What is the term when high-end buyers perceive significantly greater value from purchasing this product, relative to other buyers?

  • None of the choices
  • single-price strategy
  • consumer surplus
  • price segmentation

What are the costs associated with changes in pricing and sales?

  • variable cost
  • fixed cost
  • incremental cost
  • none of the choices

What department in organization is in charge of covering costs?

  • personnel
  • finance and accounting
  • marketing and sales
  • research and development

involves winnowing the alternatives to a manageable number in order to conduct a more detailed product evaluation that ultimately leads to choice

  • selection

What archetype is in which each business unit has a dedicated pricing group that is only loosely aligned with corporate pricing?

  • Center of Scale
  • Dedicated Support Unit
  • Center of Expertise
  • None of the choices

The key to integrating costs and quantitatively assessing the consequences of a price change is the incremental break-even analysis.

  • True
  • False

What strategy in which the firm focuses its marketing efforts on developing unique attributes (or images) for its product?

  • cost leadership strategy
  • both cost leadership and differentiated
  • none of the choices
  • differentiated product strategy

What strategy is when a company thinks the uniqueness of its product creates a value effect that attenuates buyers’ price sensitivity, enabling the firm to price profitably despite increasing numbers of competitors?

  • both cost leadership and differentiated product strategy
  • differentiated product strategy
  • None of the choices
  • cost leadership strategy

What costs are those that either have not yet been incurred or can be reversed?

  • fixed cost
  • none of the choices
  • avoidable cost
  • variable cost

What value accounts for the fact that the value one can capture for commodity attributes of an offer is limited to whatever competitors charge for them?

  • none of the choices
  • differentiation value
  • economic value
  • use value

What is the formulas and calculations that estimate the differentiated monetary worth of each unit of product performance?

  • value algorithms
  • algorithms
  • value driver algorithms
  • none of the choices

What stage is when customer collects initial product data with the objective of narrowing down the choice set to a manageable number of options?

  • origination
  • fulfillment
  • information gathering
  • selection

the utility gained from the product

  • use value

What rewards those customers who are aggressive negotiators?

  • none of the choices
  • reverse auction
  • discounts
  • price exceptions

According to Needs-Based Positioning, serving a uniquely wide or narrow geographic market, based on the firm’s cost structure, can create a unique cost and service advantage.

  • True
  • False

What are those costs that a company is irreversibly committed to bear?

  • avoidable cost
  • sunk cost
  • available cost
  • incremental cost

sales reports from a company’s own records or from a sales monitoring service

  • historical sales data

the Harvard competition guru

  • Michael Porter

Decision rights enable an individual to provide information before the decision is made.

  • True
  • False

What rights enable an individual to provide information before the decision is made?

  • ratification rights
  • decision rights
  • input rights
  • none of the choices

What price setting process determines the amount of differential value to be captured with the price?

  • define the price window
  • communicate price to the market
  • none of the choices
  • set the initial price

What type of buyer purchase a disproportionate share of sales volume in most business-to-business markets?

  • price buyers
  • brand buyers
  • none of the choices
  • value buyers

What rights should be allocated to individuals that will use or be affected by the pricing decisions in other decision-making processes?

  • ratification
  • notification
  • input
  • decision

What is the term for the lowest allowable price point?

  • none of the choices
  • price window
  • price ceiling
  • price floor

coalitions with strategic partners that coordinate or share value chains to give a company a shared cost or differentiation advantage.

  • Variety-Based Positioning

What is designed to capture high margins at the expense of large sales volume?

  • neutral market pricing
  • none of the choices
  • penetration pricing
  • skim pricing

What facilitate segmented pricing, increasing profitability,in different customer segments?

  • none of the choices
  • bundling
  • sale
  • discounts

What are those distributors in countries where prices are lower will ship products to one where prices are higher, which often happens simply due to changes in currency values?

  • none of the choices
  • parallel traders
  • parallel sellers
  • international traders

What value is calculated as the price of the customer’s best alternative plus the worth of whatever differentiates the offering from the alternative?

  • total economic value

What value is the most important element for most business-to- business purchases?

  • use value
  • Monetary value
  • economic value
  • none of the choices

What value is the net benefits that your product or service delivers to customers over and above those provided by the competitive reference product?

  • differentiation value

What pricing is example of segmenting by time of purchase?

  • bundle pricing
  • none of the choices
  • priority pricing
  • reference pricing

What is the maximum price that a “smart shopper,” fully informed about the market and seeking the best value, would pay?

  • monetary value
  • psychological value
  • differentation value
  • total economic value

What do health clubs offer in order to influence value perception?

  • discount card
  • free trial membership
  • loyalty cards
  • none of the choices

What is a tactical lever to close deals and achieve sales objectives?

  • none of the choices
  • procurement
  • pricing
  • selling

What pricing strategy are not necessarily cheap, but they are low relative to perceived value in the target segment?

  • sequential pricing
  • none of the choices
  • skimming pricing
  • penetration pricing

What archetype in which pricing decisions are made and managed at the corporate level?

  • Center of Scale
  • Center of Expertise
  • Dedicated Support Unit
  • None of the choices

_____ are those in which the very process of competition creates benefits.

  • positive sum games

Cost on Past expenditures on research and development is what type of cost?

  • none of the choices
  • incremental cost
  • avoidable cost
  • sunk cost

What value refers to the many ways that a product creates innate satisfaction for the customer?

  • economic
  • psychological
  • all of the choices
  • monetary

the worth of whatever differentiates the offering from the alternative

  • reference value

What refers to rules or habits, either explicit or cultural, that determine how a company varies its prices when faced with factors other than value and cost to serve that threaten its ability to achieve it objectives?

  • none of the choices
  • product policy
  • demand policy
  • pricing policy

What producer can charge lower prices and sell more because it can profitably use low prices to attract more price-sensitive buyers?

  • low-cost producer
  • none of the choices
  • higher-cost producer
  • both higher-cost producer and low-cost producer

What is the units to which the price is applied?

  • Price Metrics

What type of economic value is associated with differentiation?

  • economic value
  • differentiation value
  • none of the choices
  • use value

What are those that directly result from implementing a price change or from offering a version of the product at a different price level?

  • fixed cost
  • incremental fixed cost
  • none of the choices
  • variable cost

What enables managers to identify the characteristics or drivers that cause some customers to be more expensive or less expensive to serve?

  • Activity-based costing
  • variable costing
  • incremental costing
  • none of the choices

______ based on the company’s ability to gain access to customers in unique ways

  • Access-Based Positioning

What tool is used by sales people to develop customer-specific monetary value?

  • none of the choices
  • influence-based selling tool
  • value-based selling tool
  • monetary value

What rights provide a mechanism for senior managers to overturn pricing decisions when they conflict with broader organizational priorities?

  • Ratification rights
  • input rights
  • None of the choices
  • Decision rights

______ is one that causes revenues to vary with differences in the two key elements that drive potential profitability

  • performance-based pricing

_______ the coordination of otherwise independent activities to achieve a common objective

  • segmented price structure

individual purchase reports from members of a consumer panel

  • panel data

refer to the difference between the use value of a product and its market price

  • Consumer Surplus

What strategy begins with a price that attracts the least price-sensitive buyers first?

  • none of the choices
  • penetration pricing
  • price floor
  • sequential skimming

key to integrating costs and quantitatively assessing the consequences of a price change

  • incremental break-even analysis

What refers to the overall satisfaction that a customer receives from using a product or service offering?

  • economic value
  • use value
  • value
  • none of the choices

What pricing strategy involves setting a price low enough to attract and hold a large base of customers?

  • sequential pricing
  • skim pricing
  • penetration pricing
  • none of the choices

Refers to the overall satisfaction that a customer receives from using a product or service offering

  • Value

What costing provides more realistic estimates of how support costs change with increments in sales volume?

  • variable costing
  • none of the choices
  • Activity based costing
  • incremental costing

What is the most important element for most business-to- business purchases?

  • monetary value
  • economic value
  • none of the choices
  • differentation value

What costs are those for product design, advertising, and overhead?

  • fixed cost
  • variable cost
  • none of the choices
  • incremental cost

What value is the heart of pricing strategy?

  • use value
  • exchange value
  • none of the choices
  • economic value

What pricing involves an integration of costs and customer value?

  • value based pricing
  • profitable pricing
  • none of the choices
  • penetration pricing

a means to charge different customers different price levels for the same products and services using the same metrics

  • price fences

What step creates a visual depiction of the processes by which pricing decisions are currently made?

  • Define Major Pricing Activitie
  • Identify Profit Leaks
  • Map Current Processes
  • Redesign Process

When a price-cutting competitor is relatively “strong” and the cost of retaliation is greater than the value of the sales loss prevented, one cannot afford simply to ignore the threat and proceed as if nothing had changed

  • True
  • False

What step involves the definition of the major process activities such as opportunity assessment, price setting, negotiation, and contracting

  • Define Major Pricing Activities
  • Map Current Processes
  • Redesign Process
  • Identify Profit Leaks

_______ are those in which the process of competition imposes costs on players

  • negative sum games

What is the system used for financial reporting?

  • system analysis and design
  • managerial costing system
  • none of the choices
  • accounting information system

What the stage at which the customer becomes aware of a need and begins the search for a suitable offering to satisfy it?

  • selection
  • origination
  • fulfillment
  • information gathering

An ideal price metric that tie what the customer pays for a product or service directly to the economic value received and the incremental cost to serve

  • performance-based pricing

“notification” rights should be allocated to individuals that will use or be affected by the pricing decisions in other decision-making processes.

  • True
  • False

What is the statistical technique for identifying which customers are paying significantly more or significantly less than the band of “peer” prices for a given type of transaction?

  • all of the choices
  • price ceiling
  • price banding
  • Price bundling

What type of cost is the costs of selling a product, delivering it to the customer, and replacing the sold item in inventory?

  • incremental cost
  • sunk cost
  • avoidable cost
  • none of the choices

What strategy optimizes immediate profitability only when the profit from selling to relatively price-insensitive customers exceeds that from selling to a larger market at a lower price?

  • none of the choices
  • skim pricing
  • price floor
  • price window

a critically important stage for complex goods with a high cost of search.

  • information gathering

What principle means that the company evaluates its success at price management by what it earns relative to alternative investments rather than by the revenue it generates relative to its competitors.

  • profit driven

What is tendency to evaluate price differences proportionately?

  • Weber-Fechner effect
  • value based pricing
  • reference price effect
  • none of the choices

What pricing calls for sacrificing gross profit in order to reduce expenses further down the line?

  • profitable pricing
  • profitable costing
  • none of the choices
  • activity based costing

What stage has a critically important stage for complex goods with a high cost of search?

  • selection
  • information gathering
  • origination
  • none of the choices

What step is defined by a price ceiling and floor for each segment?

  • price ceiling
  • price floor
  • none of the choices
  • price window

An effective pricing decision should involve an optimal blending of, not a compromise between, internal financial constraints only.

  • True
  • False

What pricing is when upstream suppliers might be independent companies or independent divisions of the same company that set the prices of products that pass between them?

  • Transfer pricing
  • none of the choices
  • variable costing
  • incremental pricing

What rights define the scope and role of each person’s participation in the decision-making process?

  • ratification
  • decision
  • input
  • all of the choices

What is a strategic initiative to cut costs and achieve advantage?

  • pricing
  • none of the choices
  • selling
  • procurement

What includes the company’s pattern for passing along changes in raw materials costs (such as requiring that all long-term contracts allow for adjustments versus adjusting only after a fixed-price contract expires) and its pattern for inducing product trials.

  • price floor
  • pricing policy
  • none of the choices
  • price window

What is the utility gained from the product?

  • use value

What is being managed by professional procurement managers using sophisticated information systems and aggressive negotiation tactics?

  • none of the choices
  • buying decision makers
  • buying process
  • multiple participants

What is the financial and nonfinancial cost, relative to the expenditure in the category, that a customer must incur to determine differences in features and benefits across alternatives?

  • variable cost
  • relative cost of search
  • none of the choices
  • fixed cost

Who takes a personal interest in the customer, asking what the customer does for a living (ability to pay), how long he has lived in the area (knowledge of the market), what kinds of cars she has bought before (loyalty to a particular brand), where she lives (value placed on the dealer’s location), and whether she has looked at, or is planning to look at, other cars (awareness of alternatives)

  • salesperson

What department in organization is n charge of satisfying customers?

  • finance and accounting
  • research and development
  • marketing and sales
  • personnel

sales data for an individual retail outlet

  • store scanner data

What value is maximum price that a “smart shopper,” fully informed about the market and seeking the best value, would pay?

  • total economic value
  • differentiation value
  • none of the choices
  • use value

What pricing function occurs when the pricing organization owns the right to make key decisions, but does not have the power to enforce those decisions in the market place?

  • figure head
  • functional coordinator role
  • commercial partner role
  • none of the choices

Who evaluates the buyer’s willingness to pay?

  • salesperson
  • company owner
  • seller

What is the term for the highest allowable price point?

  • None of the choices
  • price floor
  • price window
  • price ceiling

What pricing strategy involves a strategic decision not to use price to gain market share, while not allowing price alone to restrict it?

  • neutral pricing
  • penetration pricing
  • skim pricing
  • none of the choices

_______ are based on the customer’s total purchases over a month or year rather than on the amount purchased at any one time

  • Volume discount

the set of alternative products under consideration for purchase

  • next best competitive alternatives
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