CPP Pricing Strategy & Market Analysis 2 — Questions and Answers
Question 1: A company notices that lowering its price by 10% increases unit sales by 25%. What does this indicate about demand elasticity?
- Inelastic demand
- Elastic demand (Correct answer)
- Unitary elasticity
- Cross-price elasticity
Correct answer: Elastic demand
When a 10% price decrease leads to a 25% quantity increase, the price elasticity of demand exceeds 1 in absolute value, indicating elastic demand.
Question 2: Which pricing strategy sets a high initial price to 'skim' early adopters before lowering the price over time?
- Penetration pricing
- Price skimming (Correct answer)
- Economy pricing
- Psychological pricing
Correct answer: Price skimming
Price skimming targets early adopters willing to pay a premium, then sequentially captures more price-sensitive segments as the price declines.
Question 3: In competitive pricing analysis, what is a 'price band'?
- A government-regulated price ceiling and floor
- The range between the lowest and highest competitor prices in a market (Correct answer)
- A dynamic pricing algorithm boundary
- The discount range offered to key accounts
Correct answer: The range between the lowest and highest competitor prices in a market
A price band represents the competitive price range from the lowest to highest competitor prices, helping firms position their own price within the market.
Question 4: A firm uses value-based pricing. Which input is MOST critical to setting the price?
- Total fixed and variable production costs
- Competitor list prices
- Customer's willingness to pay based on perceived benefits (Correct answer)
- Industry average gross margin
Correct answer: Customer's willingness to pay based on perceived benefits
Value-based pricing anchors the price to the economic value customers receive, specifically their willingness to pay driven by perceived benefits.
Question 5: What does a 'competitive parity' pricing strategy mean?
- Pricing below every competitor
- Setting prices equal to or in line with the primary competitor (Correct answer)
- Matching prices to production cost parity
- Using auction-based dynamic pricing
Correct answer: Setting prices equal to or in line with the primary competitor
Competitive parity means aligning your price with leading competitors to avoid price-based competitive disadvantage while competing on other dimensions.
Question 6: Which market structure typically grants the most pricing power to a single firm?
- Perfect competition
- Monopolistic competition
- Oligopoly
- Monopoly (Correct answer)
Correct answer: Monopoly
In a monopoly, a single firm faces the entire market demand curve and has the greatest ability to set prices above marginal cost.
Question 7: When analyzing a market using the 'five forces' framework, which force most directly affects a firm's ability to raise prices without losing customers?
- Threat of new entrants
- Bargaining power of buyers (Correct answer)
- Bargaining power of suppliers
- Threat of substitutes
Correct answer: Bargaining power of buyers
High buyer bargaining power constrains a firm's ability to raise prices because buyers can negotiate lower prices or switch to alternatives.
CPP Pricing Strategy & Market Analysis 2
A company notices that lowering its price by 10% increases unit sales by 25%.
What does this indicate about demand elasticity?