Pricing Approaches Overview
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Questions and Answers

What does the formula for Sales per Square Foot represent?

  • Total Sales divided by Store Employees
  • Total Sales divided by Selling Area in Square Feet (correct)
  • Total Sales divided by Number of Transactions
  • Total Sales multiplied by Selling Area in Square Feet

How is Same Store Sales Growth calculated?

  • A fixed percentage of Store Sales Year 1
  • Store Sales Year 1 divided by Store Sales Year 2
  • The difference between Store Sales Year 2 and Year 1, divided by Store Sales Year 2
  • The difference between Store Sales Year 2 and Year 1, divided by Store Sales Year 1 (correct)

Which of the following is NOT classified as nonstore retailing?

  • Online and Mobile Retailing
  • Television Home Shopping
  • In-Store Promotions (correct)
  • Direct Selling

Which method of nonstore retailing is based on automated sales without direct human interaction?

<p>Automatic Vending (A)</p> Signup and view all the answers

What is a characteristic of the Do-Not-Call Registry in relation to telemarketing?

<p>It restricts telemarketers from contacting registered numbers. (B)</p> Signup and view all the answers

Which pricing approach involves setting a high initial price for a product to maximize profits?

<p>Skimming Pricing (A)</p> Signup and view all the answers

What is the primary goal of penetration pricing?

<p>To attract a large customer base quickly (C)</p> Signup and view all the answers

Which pricing strategy is best suited for luxury products?

<p>Prestige Pricing (C)</p> Signup and view all the answers

Which approach determines prices based on competitor prices?

<p>Competition-oriented Pricing (C)</p> Signup and view all the answers

Odd-even pricing is primarily based on which psychological pricing strategy?

<p>Perceived value of odd prices (D)</p> Signup and view all the answers

Cost Plus Pricing utilizes what method for determining the selling price?

<p>Fixed percentage added to total cost (B)</p> Signup and view all the answers

Which of the following pricing strategies is NOT a demand-oriented approach?

<p>Cost Plus Pricing (A)</p> Signup and view all the answers

Yield management pricing is particularly effective in which type of industry?

<p>Hospitality and Airlines (B)</p> Signup and view all the answers

How is profit calculated according to the Target Profit Pricing method?

<p>Profit = Total Revenue - Total Cost (C)</p> Signup and view all the answers

What is the main focus of Target Return-on-Sales Pricing?

<p>Achieving a certain percentage of profit relative to total revenue (C)</p> Signup and view all the answers

Which pricing practice involves setting prices based on competitors' prices?

<p>Competitive Pricing (B)</p> Signup and view all the answers

Which of the following is a characteristic of Fixed-Price Policy?

<p>Prices are consistently the same across all sales (B)</p> Signup and view all the answers

What is the primary purpose of quantity discounts?

<p>To encourage large purchases by reducing the price (C)</p> Signup and view all the answers

Which of the following is NOT a legal aspect of pricing mentioned?

<p>Loss-Leader Pricing (A)</p> Signup and view all the answers

What is predatory pricing typically used for?

<p>To attract more consumers through lower prices (A)</p> Signup and view all the answers

Which pricing strategy adjusts based on real-time supply and demand?

<p>Dynamic Pricing (D)</p> Signup and view all the answers

Which of the following practices can be classified as deceptive pricing?

<p>Price Fixing (C)</p> Signup and view all the answers

What is a main characteristic of customary pricing?

<p>It is based on established pricing norms within the industry (B)</p> Signup and view all the answers

Which role does a wholesaler primarily serve in the distribution channel?

<p>Buy large quantities of goods and resell to retailers (D)</p> Signup and view all the answers

What type of distribution strategy involves selling products directly to consumers without intermediaries?

<p>Direct involvement (B)</p> Signup and view all the answers

Which utility is created by ensuring product availability in convenient locations?

<p>Place utility (C)</p> Signup and view all the answers

Which factor is NOT typically considered when determining the distribution channels?

<p>Marketing strategies (A)</p> Signup and view all the answers

What is the primary characteristic of a general merchandise store?

<p>Stocks a broad range of product categories (B)</p> Signup and view all the answers

Which service level provides the least personal assistance in retail?

<p>Self service (D)</p> Signup and view all the answers

How do limited-line stores differ from single-line stores?

<p>Single-line stores offer a narrower range within a single category (C)</p> Signup and view all the answers

Which pricing strategy refers to consistently low prices without discounts?

<p>Everyday Low Pricing (EDLP) (A)</p> Signup and view all the answers

What type of retail store emphasizes high-quality merchandise and a unique shopping experience?

<p>Full Service Retailer (B)</p> Signup and view all the answers

What does 'scrambled merchandising' refer to in retail?

<p>Selling a variety of unassociated product lines in one store (A)</p> Signup and view all the answers

Which type of retailer is characterized by a franchise model?

<p>Franchises (C)</p> Signup and view all the answers

What does time utility mean in distribution channels?

<p>Products available when consumers desire them (D)</p> Signup and view all the answers

Which type of retail outlet offers the most comprehensive customer service?

<p>Full Service (A)</p> Signup and view all the answers

Which channel strategy uses independent intermediaries to sell products?

<p>Agent involvement (B)</p> Signup and view all the answers

Flashcards

Sales per Square Foot ($)

A measurement of how much revenue a store generates per square foot of selling space. It helps assess a store's efficiency and profitability.

Same Store Sales Growth (%)

A measure of the percentage increase or decrease in sales for stores that have been open for at least a year. This helps understand the growth or decline of a business.

Nonstore Retailing

Retailing that takes place outside of a traditional brick-and-mortar store, such as through vending machines, television, websites, telemarketing, or direct selling. This offers more convenience and reach to customers.

Telemarketing

A direct marketing method where businesses use telephones to contact potential customers and offer products or services. It can be a cost-effective strategy for reaching a large audience but faces regulations like the Do-Not-Call Registry.

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Direct Selling

A type of nonstore retailing where independent salespeople sell products or services directly to consumers in their homes, workplaces, or social gatherings. Examples include home parties and online sales.

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Demand-oriented pricing

Pricing based on customer demand, focusing on what customers are willing to pay.

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Skimming pricing

Setting a high initial price to capitalize on early adopters and then gradually lowering it.

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Penetration pricing

Setting a low initial price to attract a large customer base and gain market share.

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Prestige pricing

Pricing based on the perceived value of a product, often associated with luxury brands or premium items.

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Cost-oriented pricing

Setting prices based on the cost of production, adding a markup percentage.

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Competition-oriented pricing

Pricing strategy that considers the price of similar products or services offered by competitors.

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Bundle pricing

Combining different products or services into a single package at a discounted price.

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Odd-even pricing

Setting prices at a psychology-based level using odd or even numbers (e.g., $9.99 vs. $10.00).

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Target Profit Pricing

A pricing strategy where a company sets a price based on the desired profit margin. It involves calculating the total cost of production and adding a markup to arrive at the selling price.

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Target Return-on-Sales Pricing

A pricing strategy that aims to achieve a specific return on sales (ROS). It involves setting a price that generates a desired percentage of profit relative to the revenue.

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Customary Pricing

A pricing approach that relies on established and widely accepted prices for goods and services in the market. It can be above-, at-, or below the prevailing market price.

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Fixed-Price Policy

A pricing policy that sets a fixed price for a product or service, regardless of fluctuations in demand, costs, or competition.

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Dynamic Pricing Policy

A pricing policy that allows for flexible pricing based on factors such as demand, competition, or costs. It can include strategies like dynamic pricing, where prices are adjusted in real-time.

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Quantity Discounts

Discounts offered to customers based on the quantity of goods purchased or the value of their order. The larger the purchase, the greater the discount.

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Trade-In Allowances

An allowance offered to customers when they trade in an older product for a new one. It can be a cash amount or a credit toward the new purchase.

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Price Fixing

A pricing strategy where competitors collude to agree on a fixed price for their products or services. This is illegal as it restricts competition and harms consumers.

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Price Discrimination

A pricing practice that involves charging different prices to different customers for the same good or service. It is legal only under certain conditions and can be illegal if it is considered unfair.

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Predatory Pricing

A pricing strategy that involves setting a price below the cost of production to eliminate competition and eventually raise prices once competitors are driven out of the market. It is generally illegal.

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Distribution Channel

A network of individuals or organizations involved in moving goods and services from producers to consumers.

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Wholesaler

A company or individual that buys goods in large quantities and then sells them to retailers.

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Retailer

A company or individual that sells goods directly to consumers.

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Agent

An intermediary that negotiates agreements between two or more parties.

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Direct Involvement

Direct involvement in the distribution channel, where the manufacturer or service provider sells directly to consumers.

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Indirect Involvement

Indirect involvement in the distribution channel, where the manufacturer or service provider utilizes intermediaries like wholesalers or retailers.

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Place Utility

The convenience of having products or services available in strategic locations.

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Time Utility

The availability of products or services when customers need them.

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Information Utility

Providing customers with access to information about product features and benefits.

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Form Utility

Offering products or services prepared in a convenient and ready-to-use form.

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Value Added in Distribution Channels

Distribution channels can account for a considerable percentage of the final product price.

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Customer Characteristics

The characteristics of the target customers, such as demographics, needs, and buying behavior.

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Product Characteristics

The features, complexity, and durability of the products or services being offered.

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Middleman Characteristics

The characteristics and capabilities of intermediaries, such as their expertise, resources, and relationships.

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Environmental Characteristics

Factors such as economic conditions, competition, and technology that can influence distribution channel choices.

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Study Notes

Pricing Approaches

  • Four approaches for selecting prices:
    • Demand-oriented approaches
    • Cost-oriented approaches
    • Profit-oriented approaches
    • Competition-oriented approaches

Demand-Oriented Pricing Approaches

  • Skimming pricing: Setting high initial prices to attract customers who are price-insensitive.
  • Penetration pricing: Setting low initial prices to attract a wide range of customers.
  • Prestige pricing: Setting high prices to convey exclusivity.
  • Odd-even pricing: Setting prices a few dollars below an even number (e.g., $9.99).
  • Bundle pricing: Offering several products for one package price.
  • Yield management pricing: Adjusting prices based on demand and capacity.

Cost-Oriented Pricing Approaches

  • Cost-plus pricing: Adding a percentage markup to the cost of a product.

Profit-Oriented Pricing Approaches

  • Target profit pricing: Setting prices to achieve a certain level of profit.
  • Target return-on-sales pricing: Setting prices to achieve a specified percentage return on sales.

Competition-Oriented Pricing Approaches

  • Customary pricing: Setting prices based on tradition.
  • Above-, at-, or below-market pricing: Setting prices above, at, or below market prices.
  • Loss-leader pricing: Setting prices below cost to attract customers.

Setting the List/Quoted Price

  • Fixed-price policy: Setting one price for all customers
  • Dynamic pricing policy: Adjusting prices based on individual customer or situation

Adjustments to the List/Quoted Price

  • Quantity discounts: Lower prices for larger quantities.
  • Trade-in allowances: Allowing customers to trade in old items for a discount.
  • Price fixing: Illegal agreement among competitors to maintain prices.
  • Price discrimination: Charging different prices to different customers.
  • Predatory pricing: Setting prices below cost to drive competitors out of business.
  • Deceptive pricing: Deliberately misleading consumers with pricing information (e.g. bait and switch, bargains conditional on other purchases, etc)

Distribution Channels

  • Distribution Channels: Organised network linking manufacturers/service providers to customers, involving wholesalers, retailers, and agents.
  • Wholesaler: Buy large quantities, warehouse, resell to retailers.
  • Retailer: Sell goods to consumers
  • Agent: Negotiate transactions between parties.

Channel Configurations

  • Illustrative diagrams showing various possible arrangements of manufacturers, wholesalers, retailers, agents, and consumers.
  • Illustrates different options for getting products to consumers.

Channel Objectives

  • Place utility: Product/service availability in convenient locations.
  • Time utility: Product/service availability when customers want it.
  • Information utility: Availability of information about product features and benefits.
  • Form utility: Product preparation for use
  • Example Retailing Mix
    • Retail Pricing
  • Original Markup
  • Maintained Markup
  • Markdowns
    • Everyday Low Pricing (EDLP)
    • Everyday Fair Pricing
    • Off-Price Retailing
  • Warehouse Clubs
  • Outlet Stores
  • Single/Extreme value stores
  • Factors influencing distribution channels: customer, product, middleman, and environmental characteristics.

Classifying Retailers

  • Form of Ownership: Independent retailers, corporate chains, franchises.
  • Level of Service: Self-service, limited service, full service.
  • Merchandise Line: Limited-line stores, single-line stores, general merchandise stores, scrambled merchandising.

Retail Positioning Matrix

  • Breadth of Product Line: Variety of products offered by a retailer
  • Value Added: Services (e.g., quality, experiences) and brand image. This will be a key feature in classifying retailers, particularly premium ones.

Retailing activities outside stores

  • Automatic Vending
  • Television Home Shopping
  • Online/Mobile Retailing
  • Telemarketing
  • Direct Selling

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Description

This quiz explores various pricing strategies businesses can utilize to set their prices effectively. It covers demand-oriented, cost-oriented, and profit-oriented approaches, along with key pricing techniques like skimming and bundle pricing. Test your understanding of these concepts and how they apply in real-world scenarios.

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