CMC CMC Pricing Strategy & Revenue Management 1 — Questions and Answers
Question 1: Value-based pricing sets prices primarily based on:
- Production costs plus a fixed markup
- Competitor pricing levels
- The perceived value to the customer (Correct answer)
- Government-regulated price floors
Correct answer: The perceived value to the customer
Value-based pricing determines price according to how much customers perceive the product is worth to them, independent of cost or competitor prices.
Question 2: Which pricing strategy involves setting a high initial price and gradually lowering it over time?
- Penetration pricing
- Price skimming (Correct answer)
- Psychological pricing
- Bundle pricing
Correct answer: Price skimming
Price skimming sets a high initial price to capture maximum revenue from early adopters, then lowers the price to attract more price-sensitive customers.
Question 3: Penetration pricing is most appropriate when a company wants to:
- Maximize short-term profits
- Quickly gain market share in a competitive market (Correct answer)
- Position a product as a luxury item
- Reduce production volume
Correct answer: Quickly gain market share in a competitive market
Penetration pricing uses a low initial price to rapidly attract customers and gain market share, particularly effective in highly competitive markets.
Question 4: Price elasticity of demand measures:
- The relationship between price and production costs
- How sensitive consumer demand is to a price change (Correct answer)
- A fixed markup percentage used in retail pricing
- The time it takes for a price change to affect sales
Correct answer: How sensitive consumer demand is to a price change
Price elasticity of demand quantifies how much the quantity demanded changes in response to a price change, indicating consumer sensitivity to price.
Question 5: Cost-plus pricing calculates price by:
- Benchmarking against the market leader's price
- Adding a standard markup to the total cost of production (Correct answer)
- Setting prices below competitor levels
- Basing price on customer willingness-to-pay surveys
Correct answer: Adding a standard markup to the total cost of production
Cost-plus pricing adds a predetermined profit margin to the total production cost to arrive at the final selling price.
Question 6: Which pricing tactic uses prices ending in .99 to make products appear less expensive?
- Bundle pricing
- Dynamic pricing
- Psychological pricing (Correct answer)
- Competitive pricing
Correct answer: Psychological pricing
Psychological pricing uses price points like $9.99 instead of $10.00 to create the perception of a lower price and encourage purchase decisions.
CMC CMC Pricing Strategy & Revenue Management 1
Value-based pricing sets prices primarily based on: