Ch11. Pricing and Credit Flashcards
1) 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 ________.
A) position prices lower than all competitors
B) produce a profit
C) effectively compete with online alternatives
D) have high volume/high margin sales
B
2) Which of the following statements about price is true?
A) Price measures what the customer must exchange to obtain goods and services in the marketplace.
B) Target market, business image, and price are closely related.
C) For most goods and services, there is an acceptable price range and not a single “ideal price.”
D) All of the above
D
3) A common pricing mistake entrepreneurs make is lowering prices because they fail to recognize the ________.
A) extra value, convenience, service, and quality they offer their customers
B) advantages they have due to their lower cost structure
C) complexities that larger competitors have to face
D) driving need that all customers have to find the lowest price possible
A
4) The top business challenge that drives pricing decisions is the ________.
A) increased price transparency
B) increased price sensitivity of customers
C) need to protect the brand’s image
D) increased pricing aggressiveness from competitors
B
5) \_\_\_\_\_\_\_\_ frequently convey the idea of quality, prestige, and uniqueness to customers. A) Effective packaging B) Low prices C) High prices D) High profile promotions
C
6) A key ingredient to setting prices properly is to understand a company's \_\_\_\_\_\_\_\_. A) cost structure B) most aggressive price competitor C) target market D) profit expectations
C
7) An entrepreneurial company can differentiate itself by creating a distinctive image in customers' minds or by offering \_\_\_\_\_\_\_\_. A) superior service and quality B) exceptional design and convenience C) speed and performance D) All the above
D
8) Generally, entrepreneurs should avoid head-to-head price competition with other firms that can more easily achieve lower prices through ________.
A) offering lower value products and services
B) a better designed Web site
C) geographic advantages
D) lower cost structures
D
9) Which of the following statements concerning the impact of competition on a small company’s prices is true?
A) When setting prices, a business owner must either match or beat competitors’ prices on similar products or services.
B) Because federal laws prohibit the practice as an unfair trade practice, business owners should not monitor their rivals’ prices on identical items.
C) 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.
D) All of the above
C
10) One key to setting prices properly is based on understanding a company's \_\_\_\_\_\_\_\_. A) buying power B) competitive position C) target market D) cost structure
C
11) \_\_\_\_\_\_\_\_ 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. A) Objective; perceived B) Perceived; objective C) Objective; quantitative D) Perceived; real
A
12) Ultimately, the “right” price for a product or service depends on one factor — ________.
A) the lowest price possible
B) premium prices
C) the value that it provides for a customer
D) the most effective advertising campaign
C
13) One of the most important determinants of customers’ response to a price is whether they perceive the price to be a fair exchange ________.
A) compared to what they have paid in the past
B) regardless of their actual experience with the product
C) based on their expectation, not reality
D) for the value they receive from the product or service
D
14) The final price a business owner sets within the acceptable price range depends on ________.
A) the cost of the product or service
B) the desired “image” he wants to create in the customer’s mind
C) the maximum price customers are willing to pay
D) All of the above
D
15) Businesses facing rapidly rising costs should consider ________.
A) offering products in smaller sizes or quantities
B) communicating with customers about the cost increases
C) anticipating rising material costs and try to lock in prices early
D) All the above
D
16) The prices a small business charges influence its image in the marketplace.
TRUE
17) 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
18) 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
19) To avoid major pricing mistakes, business owners should “shop” their competitors and assess their prices, especially on identical products.
TRUE
20) Without the advantage of a unique business image, a small business must match local competitors’ prices or risk losing sales and customers.
TRUE
21) The most common pricing mistake small business owners make is setting the price for the products and services they sell too high.
FALSE
22) 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
23) The most effective technique by which small companies can gain a competitive edge over their larger rivals is to charge lower prices for the goods and services they sell.
FALSE
24) 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
25) 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
26) Perceived value is the price customers would be willing to pay if they perfectly understood the benefits offered, while objective value is what determines the price they are willing to pay.
FALSE
27) The “right” price depends on one factor — the value that it provides for customers.
TRUE
28) Entrepreneurs that face rapidly rising costs in their business should consider strategies that facilitate better customer communication, efficiencies, passing along cost increases, emphasizing value, and anticipating rising costs to lock in prices.
TRUE
29) 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
30) What does it mean to “focus on value” in relationship to establishing a price? In your response, discuss how customers recognize and evaluate value.
There are two aspects of value — objective value and perceived value.
Answer: The “right” price for a product depends on the value that it provides for customers. One of the most important determinants is a customer’s response to a price where they perceive the price to be a fair exchange for the value they receive from the product or service.
Objective Value of the products and services is what customers would be willing to pay if they understood perfectly the benefits that a product or service delivers. In reality, customers rarely have access to perfect information.
Perceived Value is what customers base their assessment upon when they do not have access to “perfect information” and, therefore, depend upon their perception of what the product or service is worth. Companies can influence customers’ perception of value, and price is one way a company can communicate value to customers.
31) In general, entrepreneurs should \_\_\_\_\_\_\_\_ head-to-head price competition with firms that can more easily achieve lower prices through lower cost structures. A) avoid B) take on C) meet D) exit the market when faced with
A
32) 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. A) double B) triple C) quadruple D) match
B
33) 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. A) price floor; price ceiling B) image; quality C) price ceiling; price floor D) price floor; value
c
34) The “ideal price” for a product ________.
A) is high enough to cover costs and to generate a profit
B) is low enough to produce adequate sales volume
C) today may be different from the “ideal price” tomorrow
D) All of the above
D
