Retail Pricing Strategies
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Questions and Answers

Why is pricing decision important in retailing?

  • Because prices are high
  • Because prices are low
  • Because retailers want to increase profits
  • Because customers have alternatives and are better informed (correct)

    • What is the formula for value in retailing?

  • Value = Perceived benefits / Price (correct)
  • Value = Perceived benefits - Price
  • Value = Perceived benefits + Price
  • Value = Perceived benefits * Price

    • What is the main characteristic of high-low pricing strategy?

  • Prices are always low
  • Frequent discounts through sales promotions (correct)
  • Prices are always high
  • Prices are constantly changing

    • What is the advantage of everyday low pricing (EDLP) strategy?

    <p>Assures customers of low prices</p> Signup and view all the answers

    What is the provision of low price guarantee policy?

    <p>To match or better any lower price found in the local market</p> Signup and view all the answers

    What is the measure of price sensitivity?

    <p>Price elasticity</p> Signup and view all the answers

    What is the advantage of EDLP strategy in terms of inventory management?

    <p>Reduces stockouts</p> Signup and view all the answers

    What is the objective of high-low pricing strategy?

    <p>To increase profits through price discrimination</p> Signup and view all the answers

    What is the result of increasing the price of a product?

    <p>Fewer customers perceive the product as a good value</p> Signup and view all the answers

    What is price elasticity?

    <p>The percentage change in quantity sold divided by the percentage change in price</p> Signup and view all the answers

    What is the primary objective of retailers when setting prices?

    <p>To maximize profits</p> Signup and view all the answers

    What is the formula to calculate retail price?

    <p>Retail price = Cost of merchandise + Markup</p> Signup and view all the answers

    Why do retailers collect price data about their competitors?

    <p>To adjust their prices to remain competitive</p> Signup and view all the answers

    What is one way retailers attempt to reduce price competition?

    <p>By utilizing branding strategies to offer unique merchandise</p> Signup and view all the answers

    What is the purpose of break-even analysis?

    <p>To determine how much merchandise needs to be sold to achieve a break-even profit</p> Signup and view all the answers

    What is the difference between fixed and variable costs?

    <p>Fixed costs don't change with the quantity of product produced and sold</p> Signup and view all the answers

    What is the relationship between a product's price and its sales?

    <p>As the price increases, the sales decrease</p> Signup and view all the answers

    What is the purpose of initial markup?

    <p>To set the initial selling price of a product</p> Signup and view all the answers

    Why is it important for a retailer's pricing policy to be consistent with their overall strategy?

    <p>To be consistent with their relative market position</p> Signup and view all the answers

    What is the purpose of maintained markup?

    <p>To determine the actual sales realized for a product minus its costs</p> Signup and view all the answers

    What is the purpose of measuring price sensitivity?

    <p>To determine how many units will be sold at different price levels</p> Signup and view all the answers

    Why do retailers take markdowns?

    <p>To clear inventory and make room for new products</p> Signup and view all the answers

    What can retailers do to offer unique merchandise?

    <p>Develop a line of private-label merchandise</p> Signup and view all the answers

    What is variable pricing?

    <p>Charging different prices for different customer segments</p> Signup and view all the answers

    What is the primary purpose of clearance markdowns?

    <p>To get rid of slow-moving, obsolete merchandise</p> Signup and view all the answers

    What is an example of self-selected variable pricing?

    <p>Quantity discounts</p> Signup and view all the answers

    What is a potential drawback of individualized variable pricing?

    <p>It can cause ill-will on the part of customers</p> Signup and view all the answers

    Why might a retailer use promotional markdowns?

    <p>To increase sales and promote merchandise</p> Signup and view all the answers

    What is a way to liquidate markdown merchandise?

    <p>Sell the merchandise to another retailer</p> Signup and view all the answers

    What is the primary difference between clearance markdowns and promotional markdowns?

    <p>Clearance markdowns are used to clear out inventory, while promotional markdowns are used to promote merchandise</p> Signup and view all the answers

    What is the term for setting unique prices for each customer based on their willingness to pay?

    <p>Individualized variable pricing</p> Signup and view all the answers

    What is a characteristic of clearance markdowns for fashion merchandise?

    <p>Higher prices are charged at the beginning of the season</p> Signup and view all the answers

    What is the primary purpose of leader pricing?

    <p>To increase customer traffic flow and boost sales of complementary products</p> Signup and view all the answers

    What is the benefit of price lining in terms of merchandising?

    <p>It simplifies the merchandising task</p> Signup and view all the answers

    What is the characteristic of odd pricing?

    <p>A price ending in an odd number, typically a nine</p> Signup and view all the answers

    What is the primary difference between price bundling and multiple-unit pricing?

    <p>The products offered are different in price bundling and similar in multiple-unit pricing</p> Signup and view all the answers

    What is the purpose of rebates?

    <p>To provide a discount on the final selling price</p> Signup and view all the answers

    What is the benefit of price lining in terms of customer behavior?

    <p>It gives buyers flexibility and encourages them to trade up to more expensive offerings</p> Signup and view all the answers

    What is the primary advantage of coupons?

    <p>They provide a discount on the price of specific items when purchased at a store</p> Signup and view all the answers

    What is the risk of leader pricing?

    <p>It attracts cherry pickers</p> Signup and view all the answers

    Study Notes

    Retail Pricing

    • Pricing decision is important because customers have alternatives to choose from and are better informed
    • Value = Perceived benefits / Price
    • Retailers use two basic retail pricing strategies: high-low pricing and everyday low pricing (EDLP)

    High-Low Pricing

    • Retailers frequently discount initial prices for merchandise through sales promotions
    • Advantages:
      • Increases profits through price discrimination
      • Sales create excitement
      • Sells merchandise

    Everyday Low Pricing (EDLP)

    • Retailers stress continuity of retail prices at a level between regular nonsale price and deep discount sale price of competitors
    • Some retailers have adopted a low-price guarantee policy to assure customers of low prices
    • Advantages:
      • Assures customers of low prices
      • Reduces advertising and operating expenses
      • Reduces stockouts and improves inventory management

    Considerations in Setting Retail Prices

    • Price sensitivity (價格敏感度)
      • Measured by price elasticity (價格彈性)
    • Competition
      • Retailers can price above, below, or at parity with competition
    • Cost
    • Legal constraints
    • Customer price sensitivity
      • As price increases, sales will decrease because fewer customers feel the product is a good value
      • Measured by price elasticity

    Setting Retail Prices

    • Retailers set prices by marking up the item's cost to yield a profitable gross margin
    • Then, these cost-based prices are adjusted based on insights about customer price sensitivity and competitive pricing

    Retail Price and Markup

    • Retail price = Cost of merchandise + Markup
    • Retail price = Cost of merchandise + Retail price x Markup %
    • Retail price = Cost of merchandise / (1 – Markup %)
    • Markups:
      • Initial markup: retail selling price initially set for the merchandise minus the cost of the merchandise
      • Maintained markup: the actual sales realized for the merchandise minus its costs

    Profit Impact of Setting a Retail Price:

    • Break-even analysis determines how much merchandise needs to be sold to achieve a break-even (zero) profit
    • Fixed costs don't change with the quantity of product produced and sold
    • Variable costs vary directly with the quantity of product produced and sold

    Price Adjustments

    • Retailers adjust prices over time (markdowns) and for different customer segments (variable pricing)
    • Reasons for taking markdowns:
      • Clearance markdowns to get rid of slow-moving, obsolete merchandise
      • Promotional markdowns to increase sales and promote merchandise
      • To generate cash to buy additional merchandise

    Liquidating Markdown Merchandise

    • Sell the merchandise to another retailer
    • Consolidate the unsold merchandise
    • Place merchandise on an Internet auction site
    • Donate merchandise to charity
    • Carry the merchandise over to the next season

    Variable Pricing and Price Discrimination

    • Individualized variable pricing (first degree of price discrimination): set unique price for each customer equal to customer's willingness to pay
    • Self-selected variable pricing (second degree of price discrimination): offer the same price schedule to all customers
    • Clearance markdowns for fashion merchandise result in higher prices at the beginning of the season than at the end
    • Coupons offer a discount on the price of specific items when purchased at a store
    • Rebates provide a discount on the final selling price returned to the buyer in the form of cash
    • Price bundling: offering two or more different products or services for sale at one price
    • Multiple-unit pricing: similar to price bundling, but with similar products or services

    Pricing Techniques for Increasing Sales

    • Leader pricing: certain items are priced lower than normal to increase customer traffic flow and/or boost sales of complementary products
    • Price lining: a limited number of predetermined price points to simplify merchandising tasks and give buyers flexibility
    • Odd pricing: prices ending in an odd number, typically a nine

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    Description

    Learn how retailers set prices based on customer price sensitivity, merchandise cost, and competitor pricing to maximize profits.

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