BA109 Quiz 10

Entrepreneurs have three basic strategies to choose from when establishing a new product's price: a penetration pricing strategy; a skimming pricing strategy; and life cycle pricing strategy.

True

Even though cost-plus pricing is simple, it does not encourage a small business to use its resources efficiently.

True

For most products, there is an acceptable price range, not a single ideal price.

True

Pandecker, Inc., estimates the variable costs of producing one unit to be $11.26. The company plans to produce 26,500 units. The fixed costs the company expects to incur are $82,770. If Pandecker's profit target is $75,000, what price should it charge?

$17.21

Macy's buys white, pinpoint oxford blouses at $14 each and sells them at $30 each. Macy's percentage (of retail price) markup is:

53.3 percent.

It has been reported that the use of credit cards increases the ________ of customer spending.

All of these

The final price a business owner sets within the acceptable price range depends on:

All of these

Which of the following statements about price is true?

All of these

An entrepreneurial company can differentiate itself by creating a distinctive image in customers' minds or by offering:

All of these provide the opportunity for differentiation.

The most common pricing mistake small business owners make is setting the price for the products and services they sell too high.

False

A manufacturer can force a small business to charge the "manufacturer's suggested retail price."

False

A market penetration pricing strategy is designed to recover a company's development and promotional cost of a new product very quickly.

False

A skimming price strategy is used to introduce relatively low-priced goods into a market where no "elite" segment exists.

False

Break-even pricing will determine the price that will cover total fixed and variable costs and generate a reasonable profit.

False

Captive-product pricing is a technique that involves selling a product for a low price and charging a higher price for the accessories that accompany it.

False

For setting prices, full absorption financial statements are much more useful to the small business owner than are direct cost statements.

False

Price lining occurs when a small company raises the price of all of its goods by the same percentage to cover operating expenses.

False

The best way to survive a price war is to engage in the battle and emphasize the unique features, benefits, and value your company offers its customers.

False

The manufacturer's suggested price takes into account the small firm's cost structure and its competitive situation.

False

________ frequently convey the idea of quality, prestige, and uniqueness to customers.

High prices

________ pricing is a technique that involves marking down the normal price of a popular item in an attempt to attract more customers who make incidental purchases of other items at regular prices.

Leader

________ is a short-term strategy that assumes that competition will eventually emerge.

Life cycle pricing

________ value is the price customers would be willing to pay if they perfectly understood the benefits offered, while ________ value is what determines the price they are willing to pay.

Objective; perceived

________ pricing strategies work best in markets where no "elite" segments exist or in highly competitive markets where similar products are trying to gain a foothold.

Penetration

CD Connection sells popular CDs at three price levels: $11, $14, and $17. This illustrates which of the following pricing techniques?

Price lining

When pricing a new product, a small business owner should strive to always satisfy which three objectives?

Product acceptance, maintaining market share, and earning a profit

A common pricing mistake entrepreneurs often make is failing to recognize the extra value, convenience, service, and quality they offer their customers-all of which customers are willing to pay for.

True

A skimming pricing strategy sets a relatively high price for a product to appeal to the segment of the market that is not sensitive to price.

True

A small business must carefully assess its own cash position before offering trade credit to its customers.

True

A study by Rafi Mohammed, author of The Art of Pricing, found that companies that raised prices by 1 percent saw profits increase by 11 percent and those that raised prices by 10 percent realized profit increases of 100 percent.

True

Because installment credit absorbs a company's cash, many small businesses rely on financial institutions to provide it for their customers.

True

Because the manufacturer's capacity in the short run is fixed, pricing decisions should be aimed at employing these resources most efficiently.

True

Below-market pricing strategies can be risky for small companies because they require businesses to constantly achieve high sales volume to remain competitive.

True

Customized or dynamic pricing sets different prices on the same products and services for different customers using the information that a company collects about its customers.

True

Direct (variable) costing includes in the unit cost of a product only those costs that vary with the quantity of units produced.

True

Dynamic pricing may raise ethical questions.

True

If a company wants quick acceptance and extensive distribution when introducing a new product into a highly competitive market with a large number of similar products, a market penetration pricing is the best strategy.

True

James decides to price his products in his small hardware store with ".95," thinking that customers will perceive a price of $9.95 is much lower than a price of $10. This is an example of odd pricing.

True

Leader pricing is a technique in which a small company marks down the price of a popular item below its normal price in an attempt to increase customer traffic and to boost sales of other items.

True

Markup is the difference between the cost of a product or service and its selling price.

True

One advantage of installment loans for a small business is that the business owner retains a security interest in the item sold as collateral on the loan.

True

Price is a measure of what the customer must exchange to obtain goods and services, and is an indicator of value to the customer.

True

The desired image for the business, the target market the owner is trying to reach, and the prices charged are all closely related to one another.

True

The prices a small business charges influence its image in the marketplace.

True

The use of credit cards increases the probability, speed, and magnitude of customer spending.

True

To avoid major pricing mistakes, business owners should "shop" their competitors and asses their prices, especially on identical products.

True

When pricing any new product, the owner should try to accomplish three objectives: 1) get the product accepted; 2) maintain market share; and 3) earn a profit.

True

Without the advantage of a unique business image, a small business must match local competitors' prices or risk losing sales and customers.

True

Which of the following statements concerning the impact of competition on a small company's prices is true?

When going up against larger, more powerful rivals, small firms should consider using nonprice competition as a way to differentiate their products or services rather than head-to-head price competition.

The use of credit cards by consumers:

broadens a small company's customer base.

A technique that involves selling a product for a low price and charging a higher price for the accessories that accompany it is called:

captive-product pricing.

An MP3 player is sold at a price close to the break even point, but the accessories for the product are priced at a premium, offering impressive contribution margins. This is an example of:

captive-product pricing.

A pricing technique that sets different prices on the same products and services for different customers using the information that a company collects about its customers is called:

customized or dynamic pricing.

A common pricing mistake entrepreneurs make is lowering prices because they fail to recognize the:

extra value, convenience, service, and quality they offer their customers.

A customer who purchases a television from Ace Appliance Store and pays for it in 36 monthly payments is most likely using:

installment credit.

The acceptable price range of a product or service is the area between the ________ defined by customers in the market and the ________ established by the company's cost structure.

price ceiling; price floor

Setting prices for products and services requires entrepreneurs to balance a multitude of complex forces as entrepreneurs determine prices for their goods and services that will draw customers and:

produce a profit.

Once a company has invested time and money developing a unique new product, in order to recoup some of the high R&D costs, they will likely use a:

skimming pricing strategy.

One of the requirements to be able to offer ________ is to make certain that the firms' cash position is ________.

trade credit; strong enough to support the additional pressure

A business with a 25 percent gross profit margin that reduces its price by 10 percent would have to ________ its sales volume just to break even.

triple