Cost-driven approach to pricing establishes a pricing floor

Assignment Help Operation Management

Reference no: EM132100201

1. Economic value depends on the alternatives customers have available to satisfy the same need. It also accounts for the fact that the value a company can capture from the market may be limited to what competitors charge. Differentiation value, or the value above and beyond competitors, can be either monetary or psychological.

True

False

2. The 3 main tactical pricing orientations used by most companies involve cost-driven, customer-driven, and B2B pricing.

True

False

3. Managers frequently rely on very tactical approaches to pricing, including cost-driven pricing. However, cost-plus pricing deludes managers into believing they can cover fixed costs and achieve desired margins and can lead to overpricing in weak markets and underpricing in strong markets.

True

False

4. Value creation may either be product-led or customer-led. The key to creating good value is first to estimate how much value different combinations of benefits could represent to customers. Value-based companies usually start with the product in mind, designing products and services that drive sales growth at profitable prices.

True

False

5. The purpose of simplified price structures is to illustrate the differences in the potential contribution that can be captured from different customer segments at the best possible price and lowest possible cost.

True

False

6. Compared to needs-based segmentation, a value-based segmentation approach can inform not only pricing, but offering designs for specific market segments. This also allows for the development of effective communication campaigns to reduce customers' willingness to pay.

True

False

7. After completing an EVC analysis, a company wishing to gain market share should be advised to set their pricing closer to EVC to maximize profits.

True

False

8. A cost-driven approach to pricing establishes a pricing floor, while an EVC analysis establishes a price ceiling for a product.

True

False

9. Choosing appropriate segmentation criteria begins with a descriptive profile of the total market to identify differences in each customer segment. In-depth interviews and information from sales, distributors and industry experts further refine value perception patterns of each segment.

True

False

10. When companies make informed trade-offs between price and volume in order to maximize profits, they are engaged in strategic pricing. By doing so, effective pricers regularly evaluate a careful balance between profitability and marketshare, often with very little variation in pricing and strong focus on customer satisfaction.

True

False

11. Total economic value is calculated as the price of the customer's best alternative (the reference value) less the worth of the differentiation value, which may be either positive or negative. This is referred to as the maximum price a customer would pay for a good or service.

True

False

12. The technique of conjoint analysis can be used to estimate psychological value drivers such as satisfaction and security. This type of analysis makes it possible to estimate the value of various features in driving the willingness to pay and purchasing decision. Regardless of the attributes tested, the value estimates from the analysis influence a variety of pricing decisions.

True

False

13. Pricing policy refers to the rules or habits that determine how a company varies it prices when faced with factors other than value and cost that threaten its ability to achieve objectives. Good pricing policies helps companies achieve their objectives with minimal impacts to customer, sales or competitor behaviors. Poor pricing policies tend to adversely affect the customer's willingness to pay. Therefore, price setting should be an iterative process and involve cross-functional teams.

True

False

14. A key problem with customer-driven pricing strategy is that many managers tend to misuse pricing to achieve a short-term sales objectives, thereby undermining perceived value and profits.

True

False

15. The first step in implementing an EVC analysis is to identify the closest competitive offering and measure how much value it creates.

True

False

Reference no: EM132100201

Questions Cloud

Costly research and development versus lack of competition : What is the proper balance of patent protection for costly research and development versus lack of competition.

Traditional approaches to logistics-supply chain management : How does Zara's approach yield advantage over companies using more traditional approaches to logistics and supply chain management?

Different components of large group intervention : After reading through the different components of a large group intervention, discuss the pro's and con's of such a meeting

Many of decisions we make both personally and professionally : Many of the decisions we make, both personally and professionally, are group decisions, meaning we do not have the sole decision-making power

Cost-driven approach to pricing establishes a pricing floor : A cost-driven approach to pricing establishes a pricing floor, while an EVC analysis establishes a price ceiling for a product.

What are the long term consequences of showrooming : What are the long term consequences of showrooming? Do they matter?

How can the content of consumer blogs affect companies : How can the content of consumer blogs affect companies? What marketing communications purposes would a company-supported blog serve?

What is their reorder point : How much safety stock should Litely carry? What is their reorder point (ROP)? What is the total inventory for this item?

Awareness comprehension conviction ordering : Awareness Comprehension Conviction Ordering Discuss how Internet advertising can be used to accomplish these four objectives.

User Account

All Pages