Creating Revenue Models Complete Test Bank Ch.9 Neck

Test Bank

Chapter 9: Creating Revenue Models

Multiple Choice

1. Revenue can be described as which of the following?

a. all the money that a company has to work with

b. the money from loans, sales, and contributions

c. the income gained from the sale of goods or services

d. the income gained from sales minus the cost of creating the goods

Learning Objective: 9.1: Define a revenue model and distinguish it from the business model.

Cognitive Domain: Knowledge

Answer Location: What Is a Revenue Model?

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

2. A business model ______.

a. is the same as a revenue model

b. describes how a venture will create, deliver, and capture value

c. determines how profits will be made

d. determines how revenue will be earned

Learning Objective: 9.1: Define a revenue model and distinguish it from the business model.

Cognitive Domain: Comprehension

Answer Location: What Is a Revenue Model?

Difficulty Level: Easy

AACSB Standard: Systems and processes in organizations

3. Which of the following is true about a revenue model?

a. It is the same as a business model.

b. It is a separate planning model from the business model.

c. It is minor component of the business model.

d. It is a key component of the business model.

Learning Objective: 9.1: Define a revenue model and distinguish it from the business model.

Cognitive Domain: Knowledge

Answer Location: What Is a Revenue Model?

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

4. A company’s plan for how it will earn income and generate profits is called the ______.

a. revenue model

b. business model

c. revenue stream

d. business plan

Learning Objective: 9.1: Define a revenue model and distinguish it from the business model.

Cognitive Domain: Knowledge

Answer Location: What Is a Revenue Model?

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

5. Google’s “cost-per-click” model is a type of ______ revenue model.

a. franchising

b. licensing

c. advertising

d. data

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Advertising Revenue Model

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

6. Tony owns a bicycle shop where he sells bicycles, repairs them, and sells accessories. How many revenue streams does Tony’s business have?

a. one

b. two

c. three

d. four

Learning Objective: 9.1: Define a revenue model and distinguish it from the business model.

Cognitive Domain: Application

Answer Location: What Is a Revenue Model?

Difficulty Level: Easy

AACSB Standard: Application of knowledge

7. Which revenue model measures the amount of revenue generated by the number of items sold by the company?

a. subscription

b. unit sales

c. data revenue

d. intermediation

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Unit Sales Revenue Model

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

8. Cylle installs a unique home entertainment center. He charges a flat fee of $1,200 for the system and the installation. What revenue model does Cylle employ?

a. licensing revenue

b. unit sales

c. data revenue

d. intermediation revenue

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Application

Answer Location: Unit Sales Revenue Model

Difficulty Level: Medium

AACSB Standard: Application of knowledge

9. Which of the following would be considered an intangible?

a. a t-shirt

b. a gym membership

c. a refrigerator

d. an iTunes download

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Comprehension

Answer Location: Unit Sales Revenue Model

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

10. The razor-and-razor-blade revenue model ______.

a. includes tangible and intangible sales

b. involves offering an item at no or low-cost to encourage the sale of expensive complementary or disposable products later

c. involves the sale of a high-cost product with easy-to-replace parts

d. includes additional products as an add-on to the sale

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Comprehension

Answer Location: Unit Sales Revenue Model

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

11. Brent has designed a barbeque smoker that will sell for $29.99 and appeal to campers. The product uses a disposable unit that will protect the food during smoking and make cleanup easier, which customers can replace after 8–10 uses. What revenue model is Brent planning on?

a. intermediation

b. razor-and-razor-blade

c. intangible sales

d. subscription

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Application

Answer Location: Unit Sales Revenue Model

Difficulty Level: Medium

AACSB Standard: Application of knowledge

12. Carol sells a downloadable product that uses bar codes to conduct comparison shopping. Carol’s product is an example of ______.

a. a tangible revenue model

b. an intangible sale

c. a franchising revenue model

d. a licensing revenue model

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Application

Answer Location: Unit Sales Revenue Model

Difficulty Level: Medium

AACSB Standard: Application of knowledge

13. Why is the razor-and-razor-blade model also known as the printer-and-ink model?

a. The technique is only used by printing companies.

b. The razor blade is not used that much today, whereas printers are ubiquitous.

c. The printer is sold at a low cost, but ink or toner is priced much higher.

d. Printers are expensive, but ink is readily available.

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Comprehension

Answer Location: Unit Sales Revenue Model

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

14. Intermediation revenue is associated with ______.

a. direct buyer–seller relationships

b. the use of third parties (or “middlemen”)

c. repeat sales

d. dispute management

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Intermediation Revenue Model

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

15. Airbnb is considered an intermediation revenue model because it ______.

a. helps people in a real-estate-related industry

b. advertises on behalf of the homeowner/renter

c. charges a commission for connecting home renters with home owners

d. is purely web-based

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Comprehension

Answer Location: Intermediation Revenue Model

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

16. Which of the following is the role of the broker in an intermediation revenue model?

a. Brokers sell to the ultimate buyer.

b. Brokers organize transactions between buyer and seller.

c. Brokers represent the buyer in legal cases.

d. Brokers represent the seller in legal cases.

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Intermediation Revenue Model

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

17. The revenue model associated with giving permission to other parties to use protected intellectual property in exchange for fees is called the ______.

a. fee revenue model

b. licensing revenue model

c. intellectual property model

d. intermediation model

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Licensing Revenue Model

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

18. Pam developed an iPhone app and gave Apple permission to sell the app to its customers. Through what revenue model does Pam get revenue?

a. licensing

b. unit sales

c. copyright

d. advertising

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Application

Answer Location: Licensing Revenue Model

Difficulty Level: Medium

AACSB Standard: Application of knowledge

19. In which revenue model do third parties such as brokers generate money?

a. intermediation revenue model

b. licensing revenue model

c. franchising revenue model

d. freemium revenue model

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Intermediation Revenue Model

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

20. In which revenue model does an existing business allow another party to trade under the name of that business?

a. an intermediation revenue model

b. a franchising revenue model

c. a brokerage model

d. an advertising model

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Franchising Revenue Model

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

21. What is a likely reason why someone would pay money for a franchise?

a. They are not aware of basic business practices.

b. They will not have to spend the same amount of time marketing and building the brand.

c. They do not have knowledge in the industry or business model.

d. They will not have to work as hard in running the business.

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Comprehension

Answer Location. Franchising Revenue Model

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

22. Clinton owns a popular coffee shop in downtown Seattle. Rather than open up a second shop, he allows another business owner to use his company name and follow the same operations. The second business owner, in turn, pays him an initial monthly fee for operational support and the use of the company name. What revenue model does this represent?

a. intermediation revenue model

b. franchising revenue model

c. licensing revenue model

d. professional revenue model

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Application

Answer Location. Franchising Revenue Model

Difficulty Level: Medium

AACSB Standard: Application of knowledge

23. What revenue model involves charging customers to gain continuous access to a product or service?

a. licensing revenue model

b. franchising revenue model

c. revolving revenue model

d. subscription revenue model

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Subscription Revenue Model

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

24. What revenue model provides professional services on a time and materials contract?

a. data revenue model

b. utility and usage revenue model

c. professional revenue model

d. franchising revenue model

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Professional Revenue Model

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

25. Joe owns a construction company and prices his services based on labor hours and the cost of material. Which of the following revenue models is Joe using?

a. data revenue model

b. utility and usage revenue model

c. professional revenue model

d. franchising revenue model

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Application

Answer Location: Professional Revenue Model

Difficulty Level: Medium

AACSB Standard: Application of knowledge

26. What revenue model charges customers fees based on how often goods or services are used?

a. data revenue model

b. utility and usage revenue model

c. professional revenue model

d. franchising revenue model

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Utility and Usage Revenue Model

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

27. A mobile telephone company charges a base fee plus additional minutes for data usage. What revenue model is demonstrated in this example?

a. data revenue model

b. utility and usage revenue model

c. professional revenue model

d. franchising revenue model

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Application

Answer Location: Utility and Usage Revenue Model

Difficulty Level: Medium

AACSB Standard: Application of knowledge

28. What revenue model mixes free basic services with premium or upgraded services?

a. utility and usage revenue model

b. professional revenue model

c. freemium revenue model

d. premium revenue model

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Knowledge

Answer Location. Freemium Revenue Model

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

29. Myhours.com offers a free individual time reporting system. However, it charges for additional users and services. This is an example of what revenue model?

a. utility and usage revenue model

b. professional revenue model

c. freemium revenue model

d. premium revenue model

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Application

Answer Location: Freemium Revenue Model

Difficulty Level: Easy

AACSB Standard: Application of knowledge

30. What is the primary source of revenue for Skype, the company that offers online video and phone service?

a. the fees it charges for a connection

b. the fees it charges for Skypeout, the service that calls land lines and cell phones

c. the fees it charges for long-distance communications

d. its monthly subscription fee

Learning Objective: 9.3: Explain how companies generate revenue by profiting from “free.”

Cognitive Domain: Knowledge

Answer Location: Generating Revenue From “Free”

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

31. How do free newspapers like Metro gain revenue from free products under the freemium model?

a. They operate as nonprofits.

b. They are sponsored by wealthy patrons.

c. They are paid to feature advertisements.

d. They get donations from users.

Learning Objective: 9.3: Explain how companies generate revenue by profiting from “free.”

Cognitive Domain: Knowledge

Answer Location: Generating Revenue From “Free”

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

32. Which of the following refers to pricing a product or service above its market value to pay for the loss of giving a product away for free or below its market value?

a. direct cross-subsidies

b. price plus

c. freemium plus

d. BOGO pricing

Learning Objective: 9.3: Explain how companies generate revenue by profiting from “free.”

Cognitive Domain: Knowledge

Answer Location: Direct Cross-Subsidies

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

33. A cell phone company offers a promotion in which it gives away a free phone to people who purchase the highest-level data usage plan. This is an example of which of the following?

a. balance subsidies

b. promotional subsidies

c. direct cross-subsidies

d. risk reduction subsidies

Learning Objective: 9.3: Explain how companies generate revenue by profiting from “free.”

Cognitive Domain: Application

Answer Location: Direct Cross-Subsidies

Difficulty Level: Medium

AACSB Standard: Application of knowledge

34. What is the main reason customers are attracted to direct cross-subsidies?

a. They get two products for the price of one.

b. It eliminates or reduces the upfront cost of a product or service.

c. It is the most cost-effective model.

d. They rarely calculate the true costs.

Learning Objective: 9.3: Explain how companies generate revenue by profiting from “free.”

Cognitive Domain: Comprehension

Answer Location: Direct Cross-Subsidies

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

35. A popular restaurant offers a free meal. At the restaurant, it turns out that drinks are not included. The drinks sell for above market rates. This is an example of which of the following?

a. direct cross-subsidies

b. multiparty markets

c. price gouging

d. distributed pricing

Learning Objective: 9.3: Explain how companies generate revenue by profiting from “free.”

Cognitive Domain: Application

Answer Location: Direct Cross-Subsidies

Difficulty Level: Medium

AACSB Standard: Application of knowledge

36. Which of the following refers to the model that gives a product away to one party but charges another party?

a. dual system

b. multiparty business

c. single-party marketing

d. double-bind pricing

Learning Objective: 9.3: Explain how companies generate revenue by profiting from “free.”

Cognitive Domain: Knowledge

Answer Location: Multiparty Markets

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

37. What is the first key driver of revenue?

a. price

b. selling process

c. customers

d. frequency

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Knowledge

Answer Location: Revenue Drivers

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

38. The four key revenue drivers are ______.

a. customers, frequency, selling process, price

b. profit, sales, employees, selling process

c. selling process, price, employees, profit

d. customers, revenue streams, frequency, price

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Knowledge

Answer Location: Revenue Drivers

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

39. The revenue driver that is addressed when a company offers a frequent shopper award is ______.

a. frequency

b. price

c. selling process

d. customers

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Application

Answer Location: Revenue Drivers

Difficulty Level: Easy

AACSB Standard: Application of knowledge

40. When Sally placed cookies along the side counter of her coffee shop, which revenue driver was she addressing?

a. frequency

b. price

c. selling process

d. customers

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Application

Answer Location: Revenue Drivers

Difficulty Level: Medium

AACSB Standard: Application of knowledge

41. Kelly charges a premium price for her marketing services. In her sales pitch, she makes sure that she distinguishes key elements of quality not offered by her competitors. What key revenue driver is Kelly addressing by doing this?

a. frequency

b. price

c. selling process

d. customers

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Application

Answer Location: Revenue Drivers

Difficulty Level: Medium

AACSB Standard: Application of knowledge

42. Mehmet’s café sells coffee for only $.50, which is less than it costs, but Mehmet hopes customers will come for the coffee and end up buying sandwiches and pastries. What sort of pricing strategy is Mehmet pursuing?

a. psychological pricing

b. loss leader

c. introductory offer

d. customer-led pricing

Learning Objective: 9.5: Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Application

Answer Location: Loss Leader

Difficulty Level: Medium

AACSB Standard: Application of knowledge

43. What are the two types of costs that should be taken into consideration when understanding cost drivers?

a. cost of goods sold and operating expenses

b. cost of startup and cost of operations

c. cost of pre-startup and cost of operations

d. employee costs and infrastructure costs

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Knowledge

Answer Location: Cost Drivers

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

44. The costs that include design, material, manufacturing, packaging, and other costs before a sale can be made to the customer are referred to as ______.

a. customer directed costs

b. presales costs

c. cost of goods sold

d. operating costs

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Comprehension

Answer Location: Cost of Goods Sold (COGS)

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

45. The cost of running the business, including rent, utilities, administration, salaries, marketing, etc., is referred to as which of the following?

a. cost of goods sold

b. operating expenses

c. infrastructure costs

d. nonsales costs

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Knowledge

Answer Location: Operating Expenses

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

46. Another term for an income statement is ______.

a. profit and loss statement

b. income tax statement

c. balance sheet

d. credit report

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Knowledge

Answer Location: Income Statement

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

47. The financial report that measures the financial performance of your business on a monthly or an annual basis is the ______.

a. profit and loss statement

b. income tax statement

c. balance sheet

d. credit report

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Knowledge

Answer Location: Income Statement

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

48. The income statement ______.

a. subtracts the cost of goods sold from the total revenue to determine net income

b. subtracts the operating expenses from the total revenue to determine net income

c. subtracts the cost of goods sold and operating expenses from the total revenue to determine net income

d. reports all income with no adjustment for cost of goods sold or operating expenses

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Knowledge

Answer Location: Income Statement

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

49. Depreciation can be thought of as ______.

a. the cost of wear and tear on physical assets

b. a discount placed on certain aspects of your business

c. the result of business losses

d. the value of used goods

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Knowledge

Answer Location: Income Statement

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

50. In what pricing strategy prices are guided by the price other businesses set for similar products and services?

a. customer-led pricing

b. loss-leader pricing

c. competition-led pricing

d. psychological pricing

Learning Objective: 9.5: Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Knowledge

Answer Location: Competition-Led Pricing

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

51. In what pricing strategy customers are asked how much they would pay for the product?

a. skimming

b. loss-leader pricing

c. customer-led pricing

d. competition-led pricing

Learning Objective: 9.5: Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Knowledge

Answer Location: Customer-Led Pricing

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

52. In what pricing strategy a new product is offered for a heavily discounted price (or free) to attract more customers?

a. introductory offer

b. skimming

c. customer-led pricing

d. psychological pricing

Learning Objective: 9.5: Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Knowledge

Answer Location: Introductory Offer

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

53. A form of pricing high, what strategy is used for new products that have no competition?

a. customer-led pricing

b. competition-led pricing

c. skimming

d. loss-leader pricing

Learning Objective: 9.5: Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Knowledge

Answer Location: Skimming

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

54. In what type of pricing customers are encouraged to believe that the product is less expensive than it really is?

a. skimming

b. fair pricing

c. psychological pricing

d. customer-led pricing

Learning Objective: 9.5: Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Knowledge

Answer Location: Psychological Pricing

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

55. A grocery store offers cans of vegetables at 10 for $10. This is most likely which of the following pricing strategies?

a. skimming

b. fair pricing

c. psychological pricing

d. customer-led pricing

Learning Objective: 9.5: Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Application

Answer Location: Psychological Pricing

Difficulty Level: Medium

AACSB Standard: Application of knowledge

56. ______ is the degree to which both businesses and customers believe that the pricing is reasonable.

a. Lowest-cost pricing

b. Loss-leader pricing

c. Customer-led pricing

d. Fair pricing

Learning Objective: 9.5: Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Knowledge

Answer Location: Fair Pricing

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

57. What pricing strategy packages goods together at a lower price than if they were sold separately?

a. bundled pricing

b. discount pricing

c. fair pricing

d. introductory offer

Learning Objective: 9.5: Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Knowledge

Answer Location: Bundled Pricing

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

58. Cost-led pricing refers to which of the following pricing calculations?

a. calculating the cost of manufacturing and delivering the product and adding a profit margin

b. calculating the cost based on how much profit you have targeted in your business plan

c. calculating the price based on the maximum price a customer will pay

d. calculating the price based on competitive products

Learning Objective: 9.6. Explain different methods of calculating price.

Cognitive Domain: Knowledge

Answer Location: Cost-Led Pricing

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

59. In target-return pricing, the price is determined by which of the following?

a. the maximum amount that your customers will pay

b. the cost of creating the product and adding a profit margin

c. how much you have invested in your business

d. what you need to charge to meet your company goals

Learning Objective: 9.6. Explain different methods of calculating price.

Cognitive Domain: Knowledge

Answer Location: Target-Return Pricing

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

60. What method of pricing involves pricing the product based on how it benefits the customers?

a. target-return pricing

b. customer-led pricing

c. value-based pricing

d. psychological pricing

Learning Objective: 9.6. Explain different methods of calculating price.

Cognitive Domain: Knowledge

Answer Location: Value-Based Pricing

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

61. A company prices a product at market levels but packages the product to read “introductory pricing.” This would indicate which of the following pricing strategies?

a. customer-led pricing

b. psychological pricing

c. freemium pricing

d. bundled pricing

Learning Objective: 9.6. Explain different methods of calculating price.

Cognitive Domain: Application

Answer Location: Psychological Pricing

Difficulty Level: Medium

AACSB Standard: Application of knowledge

True/False

1. A revenue model explains how an entrepreneur will make money from delivering on the customer value proposition.

Learning Objective: 9.1: Define a revenue model and distinguish it from the business model.

Cognitive Domain: Comprehension

Answer Location: What Is a Revenue Model?

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

2. A business model and a revenue model are the same thing.

Learning Objective: 9.1: Define a revenue model and distinguish it from the business model.

Cognitive Domain: Knowledge

Answer Location: What Is a Revenue Model?

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

3. The razor-and-razor-blade model is an example of an intermediation revenue model.

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Unit Sales Revenue Model

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

4. An advertising revenue model gets revenue through advertising products and services.

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Advertising Revenue Model

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

5. Real estate brokers represent an intermediation revenue model because they help manage the transaction between the home seller and the home buyer.

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Comprehension

Answer Location: Intermediation Revenue Model

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

6. In general, reducing operating costs is the most effective way of yielding long-term gains.

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Comprehension

Answer Location: Operating Expenses

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

7. The income statement is a report that measures the financial performance of your business on an annual or monthly basis.

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Knowledge

Answer Location: Income Statement

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

8. An introductory offer is a form of high pricing, generally used for new products or services that face very little or even no competition.

Learning Objective: 9:5. Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Knowledge

Answer Location: Introductory Offer

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

9. In an income statement, taxes are the last expense item before net income.

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Knowledge

Answer Location: Income Statement

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

10. Regardless of the type of business, all businesses need to generate revenue.

Learning Objective: 9.1: Define a revenue model and distinguish it from the business model.

Cognitive Domain: Knowledge

Answer Location: What Is a Revenue Model?

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

11. The operating profit represents the amount left over from revenue once all costs and operating expenses are subtracted.

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Knowledge

Answer Location: Income Statement

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

12. A company will be more profitable if it focuses on one primary revenue model.

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Different Types of Revenue Models

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

13. An example of unit-priced sales is selling music in iTunes.

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Comprehension

Answer Location: Unit Sales Revenue Model

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

14. Due to an increase in online sales, the advertising revenue model has seen decreased revenues for startups.

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Knowledge

Answer Location: Advertising Revenue Model

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

15. Skype is an example of a company generating revenue from “free.”

Learning Objective: 9.3: Explain how companies generate revenue by profiting from “free.”

Cognitive Domain: Comprehension

Answer Location: Generating Revenue From “Free”

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

16. If a new company starts with a website offering free services for teachers and later sells classroom posters, the company is generating revenue from “free” business model.

Learning Objective: 9.3: Explain how companies generate revenue by profiting from “free.”

Cognitive Domain: Comprehension

Answer Location: Generating Revenue From “Free”

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

17. Companies may generate revenue by giving away part of their product or service.

Learning Objective: 9.3: Explain how companies generate revenue by profiting from “free.”

Cognitive Domain: Comprehension

Answer Location: Direct Cross-Subsidies

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

18. Cost of goods sold includes rent expense and firm-marketing fees.

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Knowledge

Answer Location: Cost of Goods Sold (COGS)

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

19. A new company can reduce the cost of goods sold by negotiating with manufacturing source.

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Application

Answer Location: Cost of Goods Sold (COGS)

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

20. The pro forma income statement shows income in the first year of business.

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Knowledge

Answer Location: Income Statement

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

21. When determining you pricing strategy, your goal should always be long-term fixed pricing.

Learning Objective: Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Knowledge

Answer Location: Pricing Products and Services

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

22. Priceline, which offers passengers a chance to name their own price for flights, is an example of a competition-led pricing technique.

Learning Objective: Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Knowledge

Answer Location: Customer-Led Pricing

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

23. The goal of loss-leader pricing is to attract more customers.

Learning Objective: Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Knowledge

Answer Location: Loss Leader

Difficulty Level: Medium

AACSB Standard: Financial theories, analysis, reporting, and markets

24. The iPad at its initial launch is an example of price skimming.

Learning Objective: Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Knowledge

Answer Location: Skimming

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

25. “Buy one get one free,” or “BOGO” sales are examples of psychological pricing.

Learning Objective: Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Knowledge

Answer Location: Psychological Pricing

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets

Essay

1. Identify a product that uses a razor-and-razor-blade revenue model. Describe why it demonstrates this model.

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Analysis

Answer Location: Unit Sales Revenue Model

Difficulty Level: Medium

AACSB Standard: Analytical thinking

2. Find an example of sponsored or suggested content. Describe how the revenue model works.

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Analysis

Answer Location: Advertising Revenue Model

Difficulty Level: Medium

AACSB Standard: Analytical thinking

3. Identify a company that sells database information. Describe how the data are protected for privacy and how the data result in sales. Discuss what revenue streams might be associated with the sale.

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Analysis

Answer Location: Data Revenue Model

Difficulty Level: Medium

AACSB Standard: Analytical thinking

4. Imagine that you help organize a car pool organization that helps connect riders with passengers. Describe the revenue stream from this business and identify the revenue model associated with it.

Learning Objective: 9.2: Illustrate the 10 most popular revenue models being used by entrepreneurs.

Cognitive Domain: Analysis

Answer Location: Different Types of Revenue Models

Difficulty Level: Medium

AACSB Standard: Analytical thinking

5. Assume that you want to study the cost of goods sold for your business, a company that produces custom T-shirts for school sports teams. Discuss what should be considered in this study.

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Analysis

Answer Location: Cost of goods sold (COGS)

Difficulty Level: Medium

AACSB Standard: Analytical thinking

6. Imagine that you are trying to determine the price for your new product, an ergonomic chair that reduces back strain. How would you go about pricing the chair?

Learning Objective: 9.5: Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Application

Answer Location: Pricing Strategies

Difficulty Level: Medium

AACSB Standard: Application of knowledge

7. Consider that you have designed an ergonomic chair that reduces back strain. You want the top price for your high-quality product. Discuss what can be done to ensure that customers will buy at the higher-end price.

Learning Objective: 9.5: Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Application

Answer Location: Pricing Strategies

Difficulty Level: Medium

AACSB Standard: Application of knowledge

8. Imagine that you are offering an Internet-based software service that helps people plan group projects and calendar events. Describe a freemium program to attract customers to your service.

Learning Objective: 9.3: Explain how companies generate revenue by profiting from “free.”

Cognitive Domain: Analysis

Answer Location: Freemium Revenue Model

Difficulty Level: Easy

AACSB Standard: Analytical thinking

9. Define costs of goods sold and operating expenses and explain the differences between them.

Learning Objective: 9.4: Identify the drivers that affect revenue as well as cost.

Cognitive Domain: Analysis

Answer Location: Cost Drivers

Difficulty Level: Medium

AACSB Standard: Application of knowledge

10. Explain the advantages of bundled pricing and give an example.

Learning Objective: 9.5: Identify different strategies entrepreneurs use when pricing their product or service.

Cognitive Domain: Analysis

Answer Location: Bundled Pricing

Difficulty Level: Easy

AACSB Standard: Financial theories, analysis, reporting, and markets