Unit 3: Creating value - Practice Quiz

1 What is a product?

2 Which of the following is an example of a service?

3 What does product quality mainly refer to?

4 What is a product line?

5 What is the first stage in the new product development process?

6 What is concept testing?

7 What is test marketing?

8 What is commercialization in new product development?

9 What is a brand?

10 What is brand equity?

11 What is brand loyalty?

12 What is a private brand?

13 What is price?

14 Which factor directly affects a company's price-setting decision?

15 What is a pricing objective?

16 What is a break-even point?

17 What is cost-plus pricing?

18 What is penetration pricing?

19 What is price skimming?

20 What is psychological pricing?

21 A smartphone company adds a longer warranty, faster technical support, and free software updates to its existing phone model. Which product decision is the company primarily making?

22 A hotel notices that guests value quick check-in more than elaborate lobby decorations. Which service characteristic should management focus on improving first?

23 A food manufacturer sells cereal under several sizes and flavors within the same cereal category. What aspect of its product mix is it mainly increasing?

24 An airline trains employees to handle complaints using the same recovery procedure across all flights. Which service management problem is this approach most likely to reduce?

25 Before developing a smart water bottle, a company interviews target users and discovers that most do not want mobile connectivity. Which new product development activity is being performed?

26 A firm develops a prototype of a new electric scooter and tests whether it meets technical performance requirements. Which stage of new product development is this?

27 A beverage company launches a new drink in two cities to measure repeat purchases and retailer response before expanding nationally. What is the company doing?

28 A company rejects a new product idea because projected sales cannot cover its expected development and launch costs. Which evaluation criterion is being applied?

29 A company uses the same brand name for a new flavor of an existing snack product. Which branding strategy is this?

30 A retailer sells batteries under its own name rather than under the manufacturer's name. What type of brand is being used?

31 A premium coffee brand introduces a very low-priced instant coffee under its existing name. Which risk is most relevant to this decision?

32 After a redesign, customers still recognize a company's logo and continue associating it with dependable products. Which brand outcome has been preserved?

33 A sportswear company allows a famous athlete to use its name on a limited-edition shoe and pays a fee for the right. Which decision does this illustrate?

34 A company calculates that a product costs $40 per unit and adds a 25% markup on cost. What price should it set?

35 A firm estimates fixed costs of $60,000, a selling price of $20 per unit, and variable costs of $8 per unit. What is the break-even quantity?

36 A retailer lowers the price of a product after research shows that customers are highly sensitive to price changes. Which pricing consideration is being emphasized?

37 A company wants its new medical device to be perceived as superior and uses a high initial price supported by advanced features. Which pricing objective is most evident?

38 A technology firm launches a new gaming console at a high price to recover development costs from customers willing to pay more, then plans later price reductions. Which strategy is this?

39 A streaming service sets a low introductory subscription price to attract many users quickly and build market share. Which strategy is being used?

40 A printer is sold at a low price, but customers must purchase compatible ink cartridges regularly. Which pricing strategy does this represent?

41 A product line generates annual revenue of $500,000, has variable costs of $300,000, avoidable fixed costs of $80,000, and allocated common fixed costs of $100,000. If the line is deleted, 30% of its sales will transfer to another product whose contribution margin ratio is 40%. What is the annual profit effect of deleting the line?

42 A clinic offers basic visits and complex visits. A basic visit uses 20 nurse-minutes and 10 doctor-minutes and contributes $50. A complex visit uses 30 nurse-minutes and 30 doctor-minutes and contributes $100. The clinic has 360 nurse-minutes and 240 doctor-minutes, with maximum demands of 12 basic and 10 complex visits. Which daily service mix maximizes contribution?

43 A factory has 500 machine-hours available. Products A, B, and C have unit contribution margins of $60, $50, and $32; require 3, 2, and 1 machine-hours per unit; and have maximum demands of 100, 150, and 200 units, respectively. Which production plan maximizes total contribution?

44 A firm sells 10,000 units annually with a pre-warranty contribution of $80 per unit. Its current warranty has an expected claim cost of $6 per unit. An enhanced warranty would raise unit sales by 8% but increase expected claim cost to $15 per unit on every unit sold. Assuming no other changes, what is the annual profit effect?

45 A new-product project requires $1 million of research spending now. There is a 60% probability of technical success. If successful, the firm will spend $4 million one year from now and simultaneously receive project benefits valued at $9 million at that date. Failure produces no additional cash flows. At a 10% discount rate, what is the project's expected NPV?

46 A proposed product is forecast to sell 20,000 units annually at a contribution margin of $30 per unit. Market research indicates that 25% of these sales would replace purchases of an existing product that contributes $20 per unit. Incremental annual marketing costs will be $250,000. What is the new product's incremental annual profit?

47 Conjoint analysis estimates that upgrading a device's battery adds 1.2 utility units. The estimated price coefficient is utility units per dollar. Holding all other attributes constant, what is the maximum price premium that exactly offsets the battery upgrade's utility gain?

48 Before a concept test, a firm assigns a 40% probability that a new product will succeed. The test produces a positive result with probability 75% when the product will succeed and with probability 20% when it will fail. Given a positive result, what is the revised probability of success?

49 A proposed brand extension would generate annual contribution of $700,000 and require $300,000 in annual brand support. Research predicts that dilution will reduce the parent brand's $4 million annual revenue by 3%; the parent has a 50% contribution margin ratio. What is the extension's net annual contribution after dilution?

50 Under the relief-from-royalty method, a brand is expected to support revenue of $10 million annually for three years. An arm's-length royalty rate is 4%, the tax rate is 25%, and the discount rate is 10%. Ignoring terminal value, what is the brand's approximate value?

51 A corporation acquires a niche brand with strong loyalty in a specialized segment but little credibility outside it. The corporate brand is widely trusted, although replacing the niche name would risk losing its existing associations. Which brand architecture best balances these considerations?

52 A branded offering sells 50,000 units at $30, while a no-brand alternative would sell 60,000 units at $24. Both have a variable cost of $12 per unit, but the branded offering requires $300,000 in annual brand spending. Relative to the no-brand alternative, what incremental annual profit does the brand create?

53 Demand for a product is , where is price in dollars. Unit variable cost is $40, annual fixed cost is $100,000, and management requires annual profit of $50,000. Two prices satisfy the target-profit equation. What is the lower target-return price?

54 A profit-maximizing firm faces constant own-price elasticity of demand of and has a constant marginal cost of $30. Using the inverse-elasticity pricing rule, what price should it set?

55 A product's consumer price is $200. The retailer requires a gross margin equal to 25% of its selling price. The wholesaler requires a gross margin equal to 20% of its selling price to the retailer. If the manufacturer's variable cost is $70, what contribution per unit does the manufacturer earn?

56 A museum wants to charge a lower price to a segment with more elastic demand while limiting resale and preserving access to the regular-price market. Which policy best satisfies the economic conditions for segmented pricing?

57 Two customers have reservation prices for products A and B of and , respectively. Marginal costs are zero, and the firm must choose either separate pricing or pure bundling. Which strategy maximizes revenue?

58 A digital platform has near-zero marginal cost, strong cross-side network effects, and high customer switching costs after adoption. Customers initially perceive little value because few complementary users are present. Which launch pricing strategy is most appropriate?

59 Identical customers have individual demand for a service with constant marginal cost of and no fixed operating cost. Under an optimal two-part tariff that extracts all consumer surplus, what per-unit price and access fee should the firm charge?

60 An airline sells early seats for $120 and late seats for $300. Late-period demand is normally distributed with mean 40 and standard deviation 10. Using Littlewood's rule, approximately how many seats should be protected for late customers? Use .