Question

1. When conducting break even analysis, the best decision to make with regard to price is:

1. Choose the highest selling price
2. Choose the selling price that gives you the lowest breakeven point
3. Analyze the market demand and competitive environment before deciding
4. Imitate the competition
5. Choose the lowest price because you can always raise it later if needed.

2.  The most important determinant of how high or low the price for your product will be is:

a.   Your cost

b.  Your desired profit margin

c.  Your investment

         d.  The nature and intensity of the competition (pricing environment)

e.  The stage that your product is in the life cycle.

    3.  In deciding upon a particular price to be charged for a product, a marketing manager might ask herself many

         questions.  Which of these questions would be most important from a marketing point of view?

a.  “How about a 25 percent mark-up on cost?

b.  “What engineering and manufacturing costs are assignable to each unit?

c.  “Who are our customers, and what do they expect to pay?”

d.  “Why consider distribution costs?  They are built into product costs.”

e.  “Where is the computer program that tells me what the price should be?

     4.  Demand for a product is said to be highly elastic when a relatively _________ change in  

      price leads to a relatively ____________change in demand.

a    small ….. small                                            d.  small ….. large

b.   large …….large                                            e.  large ……small

c.   large …….moderate

5.    Price is

a.   money                                                                                  d.  always includes a profit margin

b.   a system that involves barter                                               e.  a statement of value

c.   not something we negotiate in the United States

6.   Which of the following markets would demonstrate the most inelastic demand?

a.   Young people interested in a new stereo

b.   Middle-aged people buying a bar of soap

c.   People who are brand loyal to a certain cola

d.   Collectors buying baseball cards

e.   Diabetics buying insulin from a pharmacist

7.    The “floor” upon which pricing strategies are built is

a.   demand                                                     d.  Sales projections

b.   costs                                                          e.  Supply

       c.   Return on investment

8.  A company’s pricing strategy should do all of the following EXCEPT:

     a.  give direction for price movements over the product life cycle

     b.  define the initial price

     c.  ignore the targeting and positioning strategy of the company

     d.  set a competitive price

     e.  interact with the other elements of the marketing mix

9.  The average price Xerox charged when it introduced the first stand-alone fax machine was $12,700.  This

      higher price was a way for Xerox to recoup some of the research and development costs that went into

      producing this machine.  Xerox used __________.

a.   a cream skimming price                                  d.  penetration pricing

b.   trial pricing                                                      e.  prestige pricing

c.   price-quality inference pricing

10.  A manufacturer sends a wholesaler an invoice dated March 1 with terms 4/15, n/60 in the amount of $650.  If the wholesaler pays the bill on or before March 16, what does he pay?

a.   $552.50                          d.  $630.50

b.   $650.00                          e.  none of the above

c.   $624.00

11.  A manufacturer sends a wholesaler an invoice dated March 1 with terms 4/15, n/60 in the amount of $650.  If the wholesaler pays the bill on May 1, what does he pay?

a.   $552.50                          d.  $630.50

b.   $650.00                          e.  $650.00 plus late fees assessed

c.   $624.00

Answer 1

1. Analyze the market demand and competitive environment before deciding

The breakeven point is the point at which there is neither loss nor profit. Carrying out an analysis of the market demand and competitive environment will help to determine the price, which can give a realistic break even point. The other options are wrong. A high selling price will lower the break even point, but it will not be realistic. Imitating the competition will also give inaccurate break even.

2. The nature and intensity of the competition (pricing environment)

The pricing environment is often the most important determinant of the product’s selling price.

3. “Who are our customers, and what do they expect to pay?”

Understanding the needs, wants and pricing power of the customers are important considerations for the marketing manager while determining the selling price. The other options are used for calculating the fixed and variable costs of the product.

4. small…….large

Demand for a product is said to be highly elastic when a relatively small change in price leads to a relatively large change in demand.

5. A statement of value

Price is a statement of value to a customer. A particular set of customers may value the price of a product differently from another set of customers.

6. People who are brand loyal to a certain cola                                                              

People who are loyal to a certain brand have inelastic demand. Even if the price of the cola increases, demand may fall significantly.

7. Costs

The total costs, including fixed and variable costs, are often the floor or baseline on which pricing strategies are built. The total cost is the bare minimum cost that must be recovered.

8. ignore the targeting and positioning strategy of the company

The pricing strategy should take into account the targeting and positioning strategy of the company.

9. Cream skimming price

In this strategy, a company initially sets the highest price that a customer may pay. Price is then lowered after a period of time.

10. $624

4/15, n/60 means the customer will get 4% discount if payment is done within 15 days from the date of invoice. There is no discount if payment is done after 15 days but within 60 days. The payment is done on March 16, while invoice date is March 1. Hence the wholesaler will get a 4% discount as payment was done within 15 days.

4% of 650 = 26. Hence payment to manufacturer is 650-26= 624

11. $650.00 plus late fees assessed

4/15, n/60 means the customer will get 4% discount if payment is done within 15 days from the date of invoice. There is no discount if payment is done after 15 days but within 60 days. If payment is made after 60 days, the customer will have to pay additional late fees. The payment is done on May 1, while invoice date is March 1. The payment was made after 60 days. Hence, the wholesaler will have to pay $650 plus late fees.