nam I 8 I A U n IVE RS ITV OF SCIEnCE AnD TECHnOLOGY

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1 nam I 8 I A U n IVE RS ITV OF SCIEnCE AnD TECHnOLOGY FACULTY OF MANAGEMENT SCIENCES DEPARTMENT OF MARKETING & LOGISTICS QUALIFICATION: BACHELOR OF MARKETING QUALIFICATION CODE: 07BMAR LEVEL: 7 COURSE CODE: PPM712S SESSION: NOVEMEBR 2016 COURSE NAME: PRODUCT PRICING MANAGEMENT PAPER: THEORY DURATION: 3 HOURS MARKS: 100 FIRST OPPORTUNITY EXAMINATION QUESTION PAPER EXAMINER(S) MR. ISHMAEL MUBWANDARIKWA MODERATOR: MR. ALBERT MUTONGA MATONGELA INSTRUCTIONS 1. This paper consists of two (2) sections (A & B) 2. Answer ALL questions 3. Use the tables provided on page [10] to answer Question 1: Detach and insert into your answer booklet 4. Write as legible as possible, and as precise as possible 5. Indicate your class lecturer's name on your answer sheet 6. Read each question carefully 7. Use a non-programmable calculator (STRICTLY NO USE OF CELLPHONE/MOBILE CALCULATOR) B. Allocate your time appropriately THIS QUESTION PAPER CONSISTS OF 10 PAGES {Including this front page) lipage

2 SECTION A [60 MARKS] QUESTION 1: True or False (15 X 1 = 15 Marks) 1.1 When initiating price changes the company must anticipate possible reactions from both buyers and competitors. 1.2 Psychological pricing is the practice of setting a different price for the same product in different segments to the market. 1.3 Monopoly or lack of regulation means one can always set prices at will. 1.4 Variable pricing traditionally includes auctions, stock markets, foreign exchange markets, bargaining, electricity, discounts. 1.5 In setting the price of a product by its perceived value, the company decides on the value of the product. 1.6 Going rate pricing and competitive bidding are examples of marketing-oriented pricing. 1.7 The markdown percent is the amount of markup divided by the new sale price. 1.8 Product dumping, when used to sell off faulty goods, will damage a company's reputation and possibly lead to legal action against the company. 1.9 Price must be recognised as a statement of cost and not as a statement of value. 21Page

3 1.10 Conversion of markup percents can be calculated based on markup on cost or markup on selling price Congestion pricing is a system of surcharging users of public goods that are subject to congestion through excess demand such as higher peak charges for use at busy times Freemium is a revenue model_that works by offering a product or service free of charge (typically digital offerings such as software, content, games, web services or other) while charging a premium for advanced features, functionality, or related products and services Value= Perceived Costs/Price In this type of pricing, odd pricing, the seller tends to fix a price whose last digits are odd numbers Decoy pricing is a strategy which will make people compare the options with similar prices, and as a result, sales of the most attractive choice will increase. 3IPage

4 QUESTION 2: Multiple Choice (15 X 3 = 45 Marks) 2.lln the marketing mix three of the 4P's add to company costs. Which is the only P directly concerned with producing revenues? a) Promotion b) Place c) Product d) Price e) None of the above 2.2 Full cost pricing and marginal cost pricing are two examples of: a) Marketing-oriented pricing b) Cost-oriented pricing c) Tactical pricing d) Product line pricing e) Value pricing 2.3 The short-term practices of price fixing, predatory pricing and deceptive pricing can be prevented by adopting: a) High profitability objectives b) Sales orientation c) New product introductions d) Ethical marketing e) Price skimming 2.4 In industrial marketing price setting the initials E.V.C. stand for: a) Economic value to the company analysis b) Economic value to the customer analysis c) Enhanced value to the customer analysis d) Economic viability to the customer analysis e) External valuation of the competition analysis 41Page

5 2.5 Excessive demand for a product in an industry is likely to lead to: a) Supplier bankruptcies b) Price wars c) Price increases d) Falling sales e) Increased advertising 2.6 An established company with respected brands might introduce which one of the following options to compete against low price rivals? a) Price cuts b) A price skimming strategy c) Value pricing d) A fighter brand e) Higher quality products 2.7 If Moore Motors buys at cost a truck for N$4,000 and plans to sell it for N $6,000, the percent markup on cost is: a) 33 1/3 percent b) 40 percent c) 50 percent d) 60 percent e) None of the above 2.8 Net income is calculated as: a) Net sales+ costs- operating expenses b) Net sales- costs- operating expenses c) Net sales+ costs+ operating expenses d) Net sales- costs+ operating expenses e) None of the above SI Page

6 2.9 The sensitivity of buyers to price changes in terms of the quantities they will buy is referred to as: a) elastic demand b) inelastic demand c) unitary demand d) the price elasticity of demand e) Market-oriented 2.10 An alternative name for direct cost pricing is:- a) Competitive pricing b) Negotiation c) Full cost pricing d) Marginal cost pricing e) Going rate pricing 2.11 Why must a product's price be set in line with the marketing strategy? a) lt's easier to explain to sales staff b) Profits can be assessed before a product is launched c) To avoid confusion in the customer's mind and the market place d) Sales people can advise on a price that is likely to sell well e) Price lists can be printed at the same time as brochures 2.12 In relation to a product launch strategy, a company engaged in high levels of promotion while selling at a high price is following a: a) Rapid penetration strategy b) Rapid skimming strategy c) Slow skimming strategy d) Slow penetration strategy e) Price lists can be printed at the same time as brochures GIPage

7 2.13 Three key issues with regard to initiating price changes are the circumstances, the tactics and the: a) Stock levels b) Bad publicity c) Raw material costs d) Competitor reactions e) Sales targets 2.14 A dress was originally selling for N$150. Due to changing styles the 1st markdown was 10 percent and the second markdown 20 percent. The dress still did not sell so a final markdown of 5 percent was taken. The sale price is currently: a) N$ b) N$ c) N$ d) N$ e) None of the above 2.15 When small changes in price result in substantial changes in the number of units purchased, demand is considered to be: a) inelastic b) elastic c) unitary d) marginal e) None of the above 71Page

8 SECTION B [40 MARKS] Answer all of the following questions. QUESTION 3 [28 Marks] 3.1 [14 Marks] Namibia Ice-Cream Company has introduced a premium brand of ice-cream for the hot summer season and decides to price it on a cost-plus basis. The company determines its variable costs for producing the premium brand (primarily raw materials and labour) at N$1,50 per litre. lt assumes that variable costs will not change as a function of quantity, because it anticipates few improvements in productivity or other labour efficiencies as a volume increase. The company determines that fixed costs (cost of plant and machinery and administrative costs) are approximately 30% of variable costs, or 45 cents per unit. Its profit objective is to achieve a 20% return on variable costs, or 30 cents per unit (N$1,50 = 20%). You as a Marketing Officer in the company you have been asked to perform the following: Calculate the price per litre of ice-cream? (7 Marks) Assume a retailer of the company marks-up the ice-cream by 25%. Calculate the final selling price that will give a margin of 25%? (7 Marks) 3.2 [14 Marks] You are employed by Cellphone Talk More Ltd, a manufacturer of cellphones in Namibia as Marketing Manager. The company wants to sell a battery charger at N$26,00. The company's variable costs are N$10,00 per unit and fixed costs are N$ Your Chief Executive Officer has instructed you to do the following: Calculate the breakeven point. (7 marks) Draw a break-even graph for Cellphone Talk More Ltd. {7 marks) SI Page

9 QUESTION 4 (12 marks) In your job interview for the position of Marketing Manager, one of the interviewing panellists has asked you to draw on a flip chart in the interview room a schematic diagram showing all the six steps in setting prices in their correct sequence and another panellist has further asked you to write one line explaining each step. 9IPage

10 SECTION A: ANSWER SHEET QUESTION 1: True or False (Put X or v) (15 X 1 = 15 Marks) TRUE FALSE SECTION A: ANSWER SHEET QUESTION 2: Multiple Choice (Put X or v) (15 X 3 = 45 Marks) STUDENT NAME: STUDENT NUMBER: FULL-TIME/PART-TIME: LECTURER NAME: 10 I Page